**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





ANNUAL
      REPORT UNDER SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934





**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2007**





**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, Suite 201, Lynchburg, VA 24502**


(Address
      of principal executive offices) (Zip Code)





**(434)
      239-4272**


(Issuer's
      telephone number)





SECURITIES
      REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE





SECURITIES
      REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:





TITLE
      OF
      EACH CLASS


COMMON
      STOCK, $.001 PAR VALUE




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 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 if there is no disclosure of delinquent filers in response to
      Item
      405 of Regulation S-B is not contained in this form, and no disclosure will
      be
      contained, to the best of registrant's knowledge, in definitive proxy or
      information statements incorporated by referenced in Part III of this Form
      10-KSB or any amendment to this Form 10-KSB. [X]




Revenue
      for the year ended December 31, 2007:  $6,567,264




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates (for purposes of this calculation, “affiliates” are considered to
      be the directors and executive officers of the issuer) is approximately
      $6,660,862 (based on the April  18,
      2008
      trade price of $0.10 per share).




1


**DOCUMENTS
      INCORPORATED BY REFERENCE**




The
      following documents are incorporated herein by reference:





None




Transitional
      Small Business Disclosure Format (check one):  Yes [ ]   No
      [X]





2


**PART
      I**




This
      Annual Report on Form 10-KSB contains statements that are forward-looking,
      including statements relating to anticipated operating results, growth,
      financial resources, the development of new markets, the development and
      acceptance of the Company’s business strategy and new applications for Sitestar
      Corporation's existing products. Readers are cautioned that, although the
      Company believes that its expectations are based on reasonable assumptions,
      forward-looking statements involve risks and uncertainties which may affect
      the
      Company's business and prospects, including changes in economic and market
      conditions, acceptance of the Company’s products, maintenance of strategic
      alliances and other factors discussed elsewhere in this Form
      10-KSB.




**ITEM
      1. DESCRIPTION OF BUSINESS**




**Overview**




The
      Company is a national Internet Service Provider and computer services company
      offering a broad range of services to business and residential customers.
 In November 2003, the Company announced the launch of the national dial-up
      Internet service that made service available to thousands of cities throughout
      the United States. This expanded service features web acceleration, e-mail
      acceleration and pop-up ad blocking. Spam and virus filtering are also included.
       The Company utilizes its own infrastructure as well as affiliations that
      allow it to expand its network and services to most of the United
      States.





The
      products and services that the Company provides include:


·
         Internet access services;


·
         Web acceleration services;


·
         Web hosting services;


·
         End-to-end e-commerce solutions;


·
         Internet phone service ;




The
      Company’s Internet division consists of multiple sites of operation and services
      customers throughout the United States and Canada. Sitestar products include
      narrow-band (dial-up) and broadband services (ISDN, DSL 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.





The
      Company’s web hosting and related services provide a way to help businesses
      market their products and services over the Internet.





The
      Company also sells and manufactures computer systems, computer hardware,
      computer software, networking services, repair services and toner and ink
      cartridge remanufacturing services from the Lynchburg, Virginia location.




3


**Corporate
      History**




The
      Company was incorporated under the name White Dove Systems, Inc. in December
      1992 under the laws of the State of Nevada.




Effective
      December 15, 1999, the Company consummated the acquisition of Neocom
      Microspecialists, Inc. (Neocom) by exchanging 6,782,353 shares of the Company’s
      common stock for 100% of the outstanding shares of Neocom. Effective upon the
      closing of the acquisition, the Company issued 4,782,353 shares of its common
      stock and reserved 2,000,000 shares of common stock to issue on the second
      anniversary of the acquisition based on certain contingencies related to
      potential unrecorded liabilities.  As of January 2002, the remaining
      2,000,000 shares were issued to the former shareholders of Neocom.




Neocom
      is
      an ISP and web development company based in Martinsville, Virginia.  Neocom
      provides Internet access and other Internet services to its customers in the
      Southern Virginia area.  Neocom has since changed its name to Sitestar.net,
      Inc.




Effective
      November 22, 2000, the Company consummated the acquisition of FRE Enterprises,
      Inc., a Virginia corporation (doing business as “Lynchburg.net” and “Computers
      by Design”) by exchanging 16,583,980 shares of its common stock for 100% of the
      outstanding shares of Lynchburg.net. Effective upon the closing of the
      acquisition, the Company issued 12,437,985 shares of its common stock and
      reserved 4,145,995 shares of its common stock that the Company had agreed
      to issue on the third anniversary of the acquisition based on certain
      contingencies related to potential unrecorded and unknown liabilities.  On
      the third anniversary, November 22, 2003, there were no contingencies that
      had
      not been satisfied and the shares were issued on that date. The Company used
      the
      market price of its common stock at the acquisition date to determine the
      acquisition price of $2,487,597.




Lynchburg.net
      is an ISP and web services company.  Computers by Design is a computer
      sales and service company. In addition, Computers by Design has a division
      that
      remanufactures ink and toner cartridges under the name of CBD Toner Recharge.
      This company is based in Lynchburg, Virginia and provides products and services
      to its customers in the central and southwestern part of Virginia, as well
      as,
      nationwide.




On
      July
      1, 2001, the Company acquired 100% of the equity and voting interest of Advanced
      Internet Services, Inc., a North Carolina corporation (ADVI).  ADVI is an
      Internet and computer Service Provider located in Mt. Airy, North Carolina.
       The purchase price was $965,980, which consisted of $150,000 in cash,
      transaction costs of $30,000, 6,021,818 of the Company’s common shares valued at
      $301,091 and a non-interest bearing promissory note for $1,199,990 (the present
      value was $484,889) payable in 24 quarterly installments of $51,078.  Due
      to the non-interest bearing nature of the note, the Company imputed a discount
      rate of 36% to calculate the present value of the note.  This discount rate
      was an estimate of the Company’s current cost of capital.  This acquisition
      included goodwill of $702,642 that was the premium the Company paid to have
      the
      opportunity to generate revenues and earnings in this market.




Effective
      October 16, 2002, Sitestar reorganized and the Board named Frank R. Erhartic,
      Jr. as the new Chairman and CFO to replace Clinton Sallee and Eric Manlunas,
      who
      resigned. Mr. Erhartic later entered into a contract with the former management
      of Sitestar to buy out their shares of the Company to reduce the number of
      shares outstanding by approximately 32.5%.  Mr. Sallee was retained as a
      paid consultant for one year.




4


Effective
      December 31, 2002, the Company acquired the Internet assets and Internet
      customer list of Digital Data Connections, Inc., a local competitor in
      Martinsville, Virginia. This deal consisted of a cash payment of $50,000 and
      a
      promise to pay a certain percentage of revenues generated by their customers
      for
      ten months. The Company also accepted a non-compete agreement restricting
      competition in the Company’s existing markets for a period of three
      years.





On
      June
      30, 2004 the Company acquired 100% of the Internet-related assets of Virginia
      Link Internet and Network Management, Inc., a Virginia corporation and ISP
      located in Galax, Virginia and Mt. Airy Networks, LLC, a North Carolina limited
      liability company, an ISP located in Mount Airy, North Carolina. The total
      purchase price was $226,314, representing the fair value of the assets acquired,
      less $50,000 for deferred revenues and less a 10% discount, for a purchase
      price
      of $176,314 which consisted of a non-interest bearing note payable over 30
      months.




Effective
      August 31, 2004 the Company entered into a Definitive Agreement to sell the
      assets of Sitestar Applied Technologies (SAT), the software development division
      of the Company. Thomas Albanese, the former manager of the SAT division,
      purchased the assets. The new company is subsequently doing business as Servatus
      Development, LLC (Servatus). The agreement consisted of Albanese surrendering
      1,460,796 shares of the Company’s common stock and the Company receiving a 20%
      share in the gross revenues of Servatus over a period of four years and
      maintaining the rights to the crisis management software system that was shortly
      thereafter completed. The Company provided office space, occupancy costs and
      Internet services for one year. The Company has recognized a gain from this
      transaction of $54,773 through the fourth quarter of 2007, representing the
      excess of the value of the common stock received and the shared revenue over
      the
      recorded basis of the assets sold.





Effective
      November 22, 2004, the Company entered into a Definitive Agreement acquiring
      the
      Internet related assets of Exchange Computers, Inc. and Exis.net, Inc. Both
      are
      Virginia corporations. The deal consisted of the acquisition of the dial-up
      customers, the related internet assets and non-compete agreements from the
      principal officers of the companies. The total purchase was $150,000,
      representing the fair value of the assets acquired, which consisted of $30,000
      in cash at closing and a non-interest bearing promissory note of $120,000 that
      was paid over twelve months.





Effective
      September 16, 2005, the Company entered into a Definitive Agreement pursuant
      to
      which it acquired the Internet related assets of IDACOMM, an Idaho corporation.
      The transaction consisted of the acquisition of the dial-up customers, the
      related Internet assets and non-compete agreements from company. The total
      purchase price was $1,698,430 representing the fair value of the assets
      acquired, less $112,735 for deferred revenues and less a 10% discount, for
      a net
      purchase price of $1,545,304 which consisted of a down payment of $250,000
      with
      the balance was paid by a non-interest bearing note payable over 7 months.
      The
      transaction was accounted for by the purchase method of accounting.
 Accordingly, the purchase price was allocated to the assets acquired based
      on the estimated fair values at the date of acquisition.  The excess of the
      purchase price over the estimated fair value of tangible assets acquired was
      attributed to the customer list and non-compete agreement, which are being
      amortized over the estimated three-year life and contractual three-year life,
      respectively.  The value of the customer list was determined by multiplying
      the current market value per customer times the number of customers purchased
      at
      the time of the acquisition.




5


Effective
      January 1, 2006, with a closing date of January 6, 2006, the Company entered
      into a Definitive Agreement acquiring the Common Stock of NetRover Inc. a
      Canadian ISP and web services corporation. The Definitive Agreement consisted
      of
      the acquisition of all of the issued and outstanding shares of NetRover Inc.’s
      stock and a non-compete agreement of the company. The total purchase price
      was
      $604,535 which represented the fair value of the stock acquired. The transaction
      also consisted of a non-interest bearing promissory note of $403,551 payable
      over twelve months, amortized over twenty four months with a balloon payment
      in
      the twelfth month and a down payment consisting of 2,000,000 shares of the
      Registrant’s common stock at Closing.





Effective
      March 16, 2006, the Company entered into a Definitive Agreement pursuant to
      which it acquired the Internet related assets of Prolynx, Inc., a Colorado
      ISP.
      The total purchase price was $90,000 representing the fair value of the net
      assets acquired paid in the form of the Company’s assumption of $90,000 in
      operating expenses accrued by Prolynx.





Effective
      July 1, 2006, the Company entered into a Definitive Agreement pursuant to which
      it acquired the Internet related assets of First USA, Inc., an Ohio ISP. The
      total purchase price was $725,000 representing the fair value of the assets
      acquired which consisted of a $250,000 cash payment at closing with the balance
      paid in six equal monthly payments beginning August 2006.





Effective
      February 1, 2007, the Company entered into a Definitive Agreement pursuant
      to
      which it acquired the Internet related assets of Magnolia Internet Services,
      an
      Arkansas ISP. The total purchase price was $113,812 representing the fair value
      of the assets acquired which consisted of a $12,000 cash payment at closing
      with
      the balance paid in twelve equal monthly payments beginning March 2007. The
      purchase price has subsequently been adjusted down to $108,470.





Effective
      February 28, 2007, the Company entered into a Definitive Agreement pursuant
      to
      which it acquired the Internet related assets of OW Holdings, Inc., an ISP
      having customers throughout the Rocky Mountain region. The total purchase price
      was $900,000 representing the fair value of the assets acquired which consisted
      of a $600,000 cash payment at closing and the balance was paid in ninety days.
      The purchase price has been adjusted down to $802,452





Effective
      June 21, 2007, the Company entered into a Definitive Agreement pursuant to
      which
      it acquired the Internet related assets of AlaNet Internet Services, Inc.,
      an
      Alabama Internet Service Provider. The adjusted purchase price was $45,629
      representing the fair value of the assets acquired which consisted of a $4,275
      cash payment at closing with the balance to be paid in eleven monthly
      installments beginning July 2007.





Effective
      November 1, 2007, the Company entered into an Asset Purchase Agreement pursuant
      to which it acquired the Internet related assets of United Systems Access,
      Inc.
      (d/b/a USA Telephone), a corporation with headquarters in Maine. The total
      purchase price was $3,750,000 representing the fair value of the assets acquired
      which consisted of a $1,000,000 cash payment at closing with a second $1,000,000
      due in 30 days with the remaining balance due in 36 monthly installments
      beginning January 2008. The remaining installment balance due on the purchase
      price to $1,574,341 as of December 31, 2007.





Effective
      March 1, 2008, the Company entered into an Asset Purchase Agreement pursuant
      to
      which it acquired the Internet related assets of Comcation, Inc. a Pennsylvania
      Internet Service Provider. The total purchase price was $38,500 representing
      the
      fair value of the assets acquired which consisted of a $9,135 cash payment
      at
      closing with the remaining balance due in 5 monthly installments beginning
      April
      2008. The purchase price has been subsequently adjusted down to $36,818.




6


Effective
      April 1, 2008, the Company entered into an Asset Purchase Agreement pursuant
      to
      which it acquired the Internet related assets of N2 the Net, LLC, a Tennessee
      Internet Service Provider. The total purchase price was $48,156 representing
      the
      fair value of the assets acquired which consisted of a $3,650 cash payment
      at
      closing with the remaining balance due in 11 monthly installments beginning
      May
      2008. The purchase price has been subsequently adjusted down to
      $45,821.





Effective
      May 1, 2008, the Company entered into an Asset Purchase Agreement pursuant
      to
      which it acquired the Internet related assets of Dial Assurance, Inc., a
      Georgia-based wholesale managed modem solution provider. The total purchase
      price was $229,900 representing the fair value of the assets acquired which
      consisted of a $100,000 cash payment at closing with the remaining balance
      due
      in 6 monthly installments beginning June 2008.





**Sitestar’s
      Business Strategy**




The
      Company’s growth strategy is to expand its business by increasing its customer
      base, services and coverage area. The Company uses marketing, acquisitions
      and
      partnerships to accomplish this. Sitestar’s mission is to increase stockholder
      value by increasing revenues, consolidating costs and increasing profits, while
      maintaining superior products and customer service.





**Key
      elements of Sitestar’s strategy include:**





**Increasing
      the Dial-up Customer Base.** The
      Company intends to retain its large regional customer base plus continue to
      expand its services to a broader geographic market. The Company attempts to
      maintain its existing customers by offering them a high quality service at
      a
      reasonable price and value-added services such as free anti-virus and spam
      filtering. To address the broader market potential, the Company has expanded
      its
      local coverage areas and has leased infrastructure from its partners which
      enables the Company to provide service to nearly 100% of the people in the
      United States and Canada.




**Increasing
      the Broadband Customer Base.** The
      Company offers broadband within its regional and national footprint. The Company
      anticipates that it will enter into additional partnerships to continue to
      expand its market footprint. The Company markets Broadband Internet Access
      through traditional sales channels.





**Increasing
      the Product Offerings.** The
      Company anticipates that is will continue to offer new products and services,
      as
      they become available, through its retail stores and to its existing Internet
      customer base. The Company views Voice over Internet Protocol (VoIP), services
      that allow accepting and originating phone calls through an Internet connection,
      to be value-added service for both business and residential customers, and
      is
      one of the primary new product offerings the Company is currently
      exploring.





**Strategic
      Relationships and Acquisitions.** The
      Company has many strategic relationships that allow it to expand its products
      and services to a wider range of customers. The Company has historically
      acquired companies, assets and customer bases and intends to continue to
      consider and execute similar opportunities to help grow its
      business.





**Increasing
      the Economies of Scale.** As
      the Company expands, it is committed to managing costs and maximizing
      efficiencies. To optimize its operations, the Company has leveraged the services
      offered by wholesale managed modem providers to reduce costs and consolidate
      its
      network infrastructure. Similarly, the Company has integrated its offices by
      deploying VoIP services to better utilize its human resources and provide more
      efficient customer service.




7


**Marketing
      Channels**




The
      Company deploys a variety of marketing strategies and tactics to promote its
      products and services, including Web advertisement, affiliate and referral
      programs. The Company’s portfolio of websites generates new business on a
      consistent and daily basis. In addition, the Company sells its products to
      customers who visit its retail store locations.  The Company’s indirect
      sales channel strategy consists of affiliates such as sales agents, as well
      as,
      companies that market and sell the Company’s services under their own brand. To
      date, the Company’s most effective sales lead generation has been through its
      customer referral program. To capture greater market share, the Company utilizes
      the position of Vice President of Marketing and Business Development. Key
      initiatives include increasing affiliate relationships and strategic
      acquisitions.





**Competition**




The
      Internet services market is extremely competitive and highly fragmented.
 The Company faces competition from numerous types of ISPs,
      including other national ISPs, telecommunications providers and cable
      companies, and anticipates that competition will only intensify in the future
      as
      the ISP industry consolidates and the market becomes further commoditized.
      The
      Company believes that the primary competitive factors in the Internet services
      market include:


o Pricing;


o Quality
      and breadth of products and
      services;


o Ease
      of use;


o Personal
      customer support and
      service; and


o Brand
      awareness.




The
      Company believes that it competes favorably based on these factors, particularly
      due to:


o National
      brand name;


o Highly
      responsive customer support
      and service;


o High
      reliability; and


o Competitive
      pricing.





The
      Company currently competes, or expects to compete, with the following types
      of
      companies:




o
            Local
                and regional ISPs and Computer Companies;o
            National
                Internet Service Providers, such as, AOL Time Warner, MSN (Microsoft
                Network) and EarthLink;


o
            Local,
                regional and national broadband cable providers, such as
                Comcastand
                Cox Communications;o
            Providers
                of Web hosting, co-location and other Internet-based business
                services;


o
            Computer
                hardware and other technology companies that provide Internet connectivity
                with their own or other products, including IBM and
                Microsoft;o
            National
                telecommunication providers, such as Verizon, AT&T and
                Qwest;


o
            Regional
                Bell Operating Companies and local telephone companies;o
            Providers
                of free or discount Internet service, including United Online;


o
            Terrestrial
                wireless and satellite providers, such as Hughes DIRECTWAY;
                ando
            Non-profit
                or educational ISPs.




The
      Company’s primary competitors include large companies that have substantially
      greater market presence, brand-name recognition and financial resources than
      the
      Company presently enjoys. Secondary competitors include local or regional ISPs
      that may benefit from relationships within a particular community.




8


The
      residential broadband Internet access market is dominated by cable companies,
      telecommunications companies and CLECs who respectively offer Internet
      connectivity through the use of cable modems or Digital Subscriber Line (DSL)
      programs that provide high speed Internet access using the existing copper
      wire
      telephone infrastructure. Other alternative service companies provide Internet
      connectivity via wirelesses terrestrial and satellite-based service
      technologies. These competitors enjoy the advantage of being able to leverage
      their existing relationships with customers to promote high-speed Internet
      services. In addition, they provide incentives for customers to purchase
      Internet access by offering discounts for bundled service offerings (i.e.,
      phone, video, Internet). While the Company is a reseller of DSL services, its
      profit margin is influenced by the aforementioned threats. Thus, should the
      Company be unable to provide technologically competitive service in the
      marketplace or compete with companies bundling Internet service with their
      products, its revenues and profit margins may decline.





Additionally,
      a new dial-up Internet access market segment has been created similar to the
      discount or “no frills” airlines. These ISPs deliver dial-up Internet access at
      substantially discounted rates with complimentary spam and virus protection,
      but
      charge their customers for technical support. Many ISPs have responded in turn
      by creating similar service and pricing plans and or reducing the cost of their
      traditional service plans to remain competitively viable. Similarly, a second
      dial-up market segment has emerged where value-added services including web
      acceleration, spyware and pop-up ad protection are delivered at a premium price.
      Thus, the Company believes that if it is unable to compete with lower-cost
      and
      premium service providers, its revenues and profit margins may
      decline.




To
      address these competitive challenges, the Company will continue to distinguish
      itself by offering competitively priced and packaged products, value-added
      services and proven customer support. The Company also believes that its ability
      to respond quickly and adroitly in providing solutions to its customers’
Internet needs will be a key advantage.





**Government
      Regulations**




There
      is
      currently only a small body of laws and regulations directly applicable to
      access or commerce on the Internet. However, due to the increasing popularity
      and use of the Internet, it is possible that a number of laws and regulations
      may be adopted at the international, federal, state and local levels with
      respect to the Internet, covering issues such as user privacy, freedom of
      expression, pricing, characteristics and quality of products and services,
      taxation, advertising, intellectual property rights, information security and
      the convergence of traditional telecommunications services with Internet
      communications. Moreover, a number of laws and regulations have been proposed
      and are currently being considered by federal, state and foreign legislatures
      with respect to these issues. The nature of any new laws and regulations and
      the
      manner in which existing and new laws and regulations may be interpreted and
      enforced cannot be fully determined.




In
      addition, there is substantial uncertainty as to the applicability to the
      Internet of existing laws governing issues such as property ownership,
      copyrights and other intellectual property issues, taxation, libel, obscenity
      and personal privacy.  The vast majorities of these laws were adopted prior
      to the advent of the Internet and, as a result, did not contemplate the unique
      issues and environment of the Internet.  Future developments in the law
      might decrease the growth of the Internet, impose taxes or other costly
      technical requirements, create uncertainty in the market or in some other manner
      have an adverse effect on the Internet.  These developments could, in turn,
      have a material adverse effect on the Company’s business, prospects, financial
      condition and results of operations.





9


The
      Company provides its services through data transmissions over public telephone
      lines and other facilities provided by telecommunications companies.  These
      transmissions are subject to regulation by the Federal Communications Commission
      (FCC), state public utility commissions and foreign governmental authorities.
      However, the Company is not subject to direct regulation by the FCC or any
      other
      governmental agency, other than regulations applicable to businesses generally.
      Nevertheless, as Internet services and telecommunications services converge
      or
      the services the Company offers expand, there may be increased regulation of
      its
      business, including regulation by agencies having jurisdiction over
      telecommunications services.  Additionally, existing telecommunications
      regulations affect the Company’s business through regulation of the prices it
      pays for transmission services and through regulation of competition in the
      telecommunications industry.





The
      FCC
      has ruled that calls to Internet Service Providers are jurisdictionally
      interstate and that ISPs should not pay access charges applicable to
      telecommunications carriers.  Several telecommunications carriers are
      advocating that the FCC regulate the Internet in the same manner as other
      telecommunications services by imposing access fees on ISPs.  The FCC is
      examining inter-carrier compensation for calls to ISPs, which could affect
      ISPs'
      costs and consequently substantially increase the costs of communicating via
      the
      Internet.  This increase in costs could slow the growth of Internet use and
      thereby decrease the demand for the Company’s services.




The
      Company purchases some components of its broadband services from local carriers
      and from other DSL providers that purchase components from local carriers.
      In
      November 1999, the FCC issued a ruling that allowed competitive local phone
      companies to “line-share” their broadband DSL services over a phone customer’s
      local phone line. The U.S. Court of Appeals changed this decision in May 2002
      and in February 2003, the FCC decided to eliminate “line-sharing” over a
      three-year phase out. Although the inability to buy these discounted lines
      could
      affect a very small part of the Company’s business, it could cause the growth of
      its broadband business to slow if some of its partners, like Covad
      Communications Group, Inc., have to pay full-price for their lines.  On the
      other-hand, however, this may cause less competition in the Company’s local
      markets where it offers broadband services.





**Employees**




As
      of
      April 18, 2008, the Company employed nineteen full-time individuals.  Of
      these, the Company has three in management, one in sales and marketing, three
      in
      administration, and eleven technicians.  The Company also employed six
      part-time individuals.  Of these, the Company has five technicians and
      one in management. The Company’s employees are not unionized and it considers
      its relations with its employees to be favorable.





**Available
      Information**




Sitestar
      Corporation files annual, quarterly, and current reports and other documents
      with the Securities and Exchange Commission (SEC) under the Securities Exchange
      Act.  The public may read and copy any materials that the Company files
      with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW,
      Washington, DC 20549. The public may obtain information on the operation of
      the
      Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC
      maintains an Internet web site that contains reports, proxy and information
      statements, and other information regarding issuers, including the Company,
      that
      file electronically with the SEC.  The public can obtain any documents that
      the Company files with the SEC at http://www.sec.gov.




10


The
      Company also has available though EDGAR its Annual Report on Form 10-KSB,
      Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K, and, if
      applicable, amendments to those reports filed or furnished pursuant to Section
      13(a) of the Securities Exchange Act as soon as reasonably practicable after
      the
      Company electronically files such material with, or furnishes it to, the
      SEC.





**ITEM
      2. DESCRIPTION OF PROPERTY**




The
      Company owns a 12,000 square feet office building in Martinsville, Virginia
      located at 29 West Main Street, Martinsville, VA 24112, which was acquired
      along
      with the acquisition of Neocom.  This facility houses a portion of the
      Company’s customer service and technical support functions.  Also located
      here is equipment needed to service many of its customers.  Neocom's
      principal note holders had a senior lien on the property, which has been lifted.
      This bank note was payable in monthly principal and interest installments of
      approximately $6,400 or $76,800 per annum with the balance due September 2003.
      This note has been refinanced into a term loan and has subsequently been paid
      in
      full and converted to a line of credit, which was paid in full and not renewed
      when it matured in 2007. The Company leases a 7,200 square feet office facility
      in Lynchburg, Virginia which serves as its corporate office.  Here the
      Company handles the executive, marketing, corporate accounting functions,
      customer service, technical support, and billing and houses Internet equipment.
      In addition, the Company markets local Internet service under the Lynchburg.net
      and SurfWithUs.net, sells computer hardware and services under the name
      Computers by Design and remanufactures toner and ink cartridges under the name
      CBD Toner Recharge at this location. This facility has an annual rent of
      $48,000. The facility is located at 7109 Timberlake Road, Lynchburg, VA 24502,
      is leased from Frank R. Erhartic, Jr. a Company Director and Officer and this
      lease expires on November 1, 2010.





The
      Company cancelled the lease of a 2,500 square foot office facility in Mt. Airy,
      North Carolina effective October 31, 2005 where it sold computer hardware and
      services under the name of Computers by Design and sold Internet services under
      the name of Sitestar Advanced Internet Services. The Company also housed
      Internet equipment there to serve its customers in the Mt. Airy, North Carolina
      area. This facility had an annual rent of $6,000. The facility is located at
      327
      West Lebanon Street, Mt. Airy, NC 27030. It was leased from Nick Epperson on
      a
      month-to-month lease. The Company now out-sources the services to provide
      service for the customers in this area and the Company’s other offices provide
      technical and billing support for those customers previously provided at this
      location. The Company leases a 950 square foot office facility in Virginia
      Beach, Virginia where it sells computer hardware and services and sells Internet
      services under the name of Sitestar Exis.net. The Company also houses Internet
      equipment there to serve its customers in the Virginia Beach, Virginia area.
      This facility has an annual rent of $7,600 and is located at 333 Office Square
      Lane, Suite 103, Virginia Beach, VA 23462 and is leased from Kempsville Commons
      on a month-to-month lease.





The
      Company leases a 2,000 square foot office facility in Chatham, Ontario where
      it
      sells Internet services under the name of NetRover. The Company also houses
      Internet equipment there to serve its customers in Canada. This facility has
      an
      annual rent of $18,000 Canadian or approximately $18,500 in US dollars. The
      facility is located at 48 Fifth Street, Chatham, Ontario N7M 4V8 and is leased
      from Duff Enterprises and this lease expires in November 2008.





The
      Company anticipates that it may require additional space for its ISP operations
      as it expands, and it believes that it will be able to obtain suitable space
      as
      needed on commercially reasonable terms.




11


**ITEM
      3. LEGAL PROCEEDINGS**





On
      or
      about January 16, 2008, the Company filed a Complaint in the Circuit Court
      in
      the Orange County Superior Court of the State of California against Frederick
      T.
      Manlunas, a former executive and director of the Company, for breach of
      contract, specific performance and declaratory relief. This matter has been
      assigned case no. 30-2008
      00101457. The Company asserts that Mr. Manlunas failed to return 748,008 shares
      of the Company’s common stock as required by a Stock Redemption Agreement the
      Company signed with him. The Company is seeking monetary damages, the return
      of
      the shares, and attorneys’ fees and costs. Mr. Manlunas has been served with the
      Complaint and his response is due on approximately May  26,
      2008.





**ITEM
      4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS**




None





**PART
      II**




**ITEM
      5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**


****


**MARKET
      FOR COMMON EQUITY**





Set
      forth
      below are the high and low closing bid prices for the Company’s common stock on
      the Over-the-Counter Bulletin Board for each quarterly period commencing March
      31, 2006:




High
            
            Low2006For
                the quarter ended March 31, 2006
            
            $
            0.11
            
            $
            0.10For
                the quarter ended June 30, 2006
            
            $
            0.07
            
            $
            0.06For
                the quarter ended September 30, 2006
            
            $
            0.07
            
            $
            0.07For
                the quarter ended December 31, 2006
            
            $
            0.07
            
            $
            0.072007For
                the quarter ended March 31, 2007
            
            $
            0.13
            
            $
            0.06For
                the quarter ended June 30, 2007
            
            $
            0.13
            
            $
            0.11For
                the quarter ended September 30, 2007
            
            $
            0.16
            
            $
            0.10For
                the quarter ended December 31, 2007
            
            $
            0.12
            
            $
            0.09




Such
      quotations reflect inter-dealer prices, without retail mark-up, markdown or
      commissions and may not necessarily represent actual transactions.





**RECORD
      HOLDERS**




The
      closing bid price for the Company’s common stock was $0.10 on April 18, 2008.
 As of April 18, 2008 he Company had 120 shareholders of record.
 Additional holders of the Company’s Common Stock hold such stock in street
      name with various brokerage firms.




12


**EQUITY
      COOMPENSATION PLANS**





We
      do not
      have any plans under which options, warrants or other rights to subscribe for
      or
      acquire shares of our common stock may be granted and there are outstanding
      no
      options, warrants or other rights to subscribe for or acquire shares of our
      common stock. From time to time, the Board of Directors may grant shares of
      our
      common stock to our officers, employees and contractors in lieu of salary,
      fees
      or as a bonus. The Board of Directors made no grants during fiscal
      2007.





**DIVIDENDS**




The
      Company has never declared or paid any cash dividends on its common stock.
       The Company currently intends to retain all available funds for use in its
      business and therefore does not anticipate paying any cash dividends in the
      foreseeable future. Any future determination relating to dividend policy will
      be
      made at the discretion of the Board of Directors and will depend on a number
      of
      factors, including the future earnings, capital requirements, financial
      condition and future prospects and such other factors, as the Board of Directors
      may deem relevant.




**RECENT
      SALES OF UNREGISTERED SECURITIES**





The
      Company issued 2,050,000 shares of its common stock in connection with the
      purchase of NetRover Inc. effective January 1, 2006 as reflected in the Form
      8-K
      filed with the SEC dated January 6, 2006. The Company has reacquired 2,000,000
      of these shares and they were placed in treasury. On December 24, 2007 the
      Company issued 5,263,158 shares of its common stock in connection with a Stock
      Purchase Agreement as reflected in the Form 8-K filed with the SEC dated
      December 24, 2007.





**PURCHASES
      OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED
      PURCHASERS**





The
      following chart provides information regarding purchases of Company equities
      by
      the Company and affiliated purchasers over the last year:




PURCHASES
                OF EQUITY SECURITIESPeriod
            (a)
                Total Number of Shares (or Units) Purchased
            (b)
                Average Price Paid per Share (or Unit)
            (c)
                Total Number of Shares (or Units) Purchased as Part of Publicly Announced
                Plans or Programs
            (d)
                Maximum Number (or Approximate Dollar Value) of Shares (or Units)
                that May
                Yet Be Purchased Under the Plans or ProgramsDecember
                31, 2006
            2,000,000
            $0.100





**ITEM
      6.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS OR PLAN OF
      OPERATIONS**




**GENERAL**




The
      following discussion and analysis should be read in conjunction with the
      Company’s consolidated financial statements and related footnotes for the year
      ended December 31, 2007 and December 31, 2006 included in this Annual Report
      on
      Form 10-KSB. 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.




13


**Overview**




The
      Company is a national Internet Service Provider and computer services company
      offering a broad range of services to business and residential customers.
 In November 2003, the Company announced the launch of the national dial-up
      Internet service that made service available to thousands of cities throughout
      the United States. This expanded service features web acceleration, e-mail
      acceleration and pop-up ad blocking. Spam and virus filtering are also included.
      The Company utilizes its own infrastructure as well as affiliations that allow
      it to expand its network and services to most of the United States.





The
      products and services that the Company provides include:


·
         Internet access services;


·
         Web acceleration services;


·
         Web hosting services;


·
         End-to-end e-commerce solutions; and


·
         Toner and ink cartridge remanufacturing services.




The
      Company’s ISP division consists of multiple sites of operation and services
      customers throughout the U.S. and Canada. Sitestar products include narrow-band
      and broadband services supporting these products utilizing its own
      infrastructure and affiliations. Value-added services include web acceleration,
      spam and virus filtering, as well as, spyware protection.





The
      Company’s web design, web hosting and related services provide a way to help
      businesses market their products and services over the Internet.





**RESULTS
      OF OPERATIONS**




The
      following tables show financial data for the years ended December 31, 2007
      and
      2006.  Operating results for any period are not necessarily indicative of
      results for any future period.





For
                the year ended December 31, 2007Corporate
            
            Internet
            
            TotalRevenue
            
            $
            -
            
            $
            6,567,264
            
            $
            6,567,264Cost
                of revenue
            
            
            -
            
            
            2,244,184
            
            
            2,244,184Gross
                profit
            
            
            -
            
            
            4,323,080
            
            
            4,323,080Operating
                expenses
            
            
            61,812
            
            
            3,305,098
            
            
            3,366,910Income
                (loss) from operations
            
            
            (61,812
            )
            
            1,017,982
            
            
            956,170Other
                income (expense)
            
            
            -
            
            
            (166,198
            )
            
            (166,198
            )Net
                income (loss)
            
            $
            (61,812
            )
            $
            851,784
            
            $
            789,972




14
 
 For
                    the year ended December 31, 2006Corporate
                
                Internet
                
                TotalRevenue
                
                $
                -
                
                $
                5,597,330
                
                $
                5,597,330Cost
                    of revenue
                
                
                -
                
                
                1,602,180
                
                
                1,602,180Gross
                    profit
                
                
                -
                
                
                3,339,150
                
                
                3,995,150Operating
                    expenses
                
                
                77,616
                
                
                2,737,857
                
                
                2,815,473Income
                    (loss) from operations
                
                
                (77,616
                )
                
                1,257,293
                
                
                1,179,677Other
                    income (expense)
                
                
                -
                
                
                (187,292
                )
                
                (187,292
                )Net
                    income (loss)
                
                $
                (77,616
                )
                $
                1,070,001
                
                $
                992,385


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 Generally
      Accepted Accounting Principals (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 years ended December 31, 2007 and 2006.





For
                the year ended December 31, 2007Corporate
            
            Internet
            
            TotalEBITDA
            
            $
            (61,812
            )
            $
            2,690,974
            
            $
            2,629,162Interest
                expense
            
            
            -
            
            
            (158,734
            )
            
            (158,734
            )Taxes
            
            
            -
            
            
            -
            
            
            -Depreciation
            
            
            -
            
            
            (58,534
            )
            
            (58,534
            )Amortization
            
            
            -
            
            
            (1,621,922
            )
            
            (1,621,922
            )Net
                income (loss)
            
            $
            (61,812
            )
            $
            851,784
            
            $
            789,972





For
                the year ended December 31, 2006Corporate
            
            Internet
            
            TotalEBITDA
            
            $
            (77,616
            )
            $
            2,321,537
            
            $
            2,243,921Interest
                expense
            
            
            -
            
            
            (206,854
            )
            
            (206,854
            )Taxes
            
            
            -
            
            
            -
            
            
            -Depreciation
            
            
            -
            
            
            (71,687
            )
            
            (71,687
            )Amortization
            
            
            -
            
            
            (972,995
            )
            
            (972,995
            )Net
                income (loss)
            
            $
            (77,616
            )
            $
            1,070,001
            
            $
            992,385




15


**YEAR
      ENDED DECEMBER 31, 2007 COMPARED TO DECEMBER 31, 2006**




**REVENUE.** Revenue
      for the year ended December 31, 2007 increased by $969,934 or 17.3% from
      $5,597,330 for the year ended December 31, 2006 to $6,567,264 for the same
      period in 2007.  The increase in Internet sales is attributed to the
      acquisition of Internet access and web hosting customers of ISPs. Although
      the
      Company continues to sign up new customers, competition from ubiquitous
      nationwide telecommunications and cable providers threatens significant and
      sustainable organic growth.  To insure continued strength in revenues, the
      Company has acquired and plans to continue to acquire the assets of Internet
      Service Providers, folding them into operations to provide future revenues.
      These new acquisitions, for the year ended December 31, 2007, yielded
      approximately $2,196,000 in additional net revenues. The Company also plans
      to
      market more aggressively on a national level utilizing scalable tactics and
      targeting a much larger Internet customer base.




**COST
      OF REVENUE.** Costs
      of revenue for the year ended December 31, 2007  increased
      by $642,004 or 40.1% from $1,602,180 for the year ended December 31, 2006 to
      $2,244,184 for the same period in 2007. The increase is due primarily to
      providing services to recently acquired customers. Telecommunication expenses
      increased by $724,238 or 55.4% from $1,306,287 for the year ended December 31,
      2006 to $2,030,525 for the same period in 2007. This increase can be attributed
      substantially to the two largest acquisitions consummated in the year ended
      December 31, 2007 which had not realized anticipated economies. The Company
      is
      continuing to attempt to negotiate more favorable contracts with
      telecommunication vendors and making the network capacity more efficient. The
      Company expects to continue creating these efficiencies by acquiring wholesale
      providers.




**OPERATING
      EXPENSES.** Selling,
      general and administrative expenses increased $551,437 or 19.6% from $2,815,473
      for the year ended December 31, 2006 to $3,366,910 for the same period in 2007.
       This is due primarily to an increase in amortization expense. Amortization
      expense, including impairment increased $597,423 or 58.3% from $1,024,499 for
      the year ended December 31, 2006 to $1,621,922 for the same period in 2007.
      This
      increase is directly related to recently acquired customers.





**INTEREST
      EXPENSE.** Interest
      expense for the year ended December 31, 2007 decreased by $48,120 or 23.3%
      from
      $206,854 for the year ended December 31, 2006 to $158,734 for the same period
      in
      2007.  This decrease was a result of an average lower level of borrowing
      and more favorable interest rates.




**BALANCE
      SHEET** .
        Net accounts receivable increased $129,237 or 75.7% from $170,626 on
      December 31, 2006 to $299,863 on the same date in 2007.  This increase is
      substantially due to the addition of the customer base from recent acquisitions.
      Customer list increased $3,759,402 or 218.4% from $1,721,233 on December 31,
      2006 to $5,480,635 on December 31, 2007. This increase is substantially due
      to
      acquisitions made during the year ended December 31, 2007 less associated
      amortization. Other assets increased $240,070 or 54.9% from $437,197 on December
      31, 2006 to $677,267 on December 31, 2007. This increase is substantially due
      to
      the recognition of non competition agreements associated with acquisitions
      made
      during the year ended December 31, 2007. Inventory decreased $48,847 or 40.9%
      from $119,586 on December 31, 2006 to $70,739 on December 31 2007.  This
      decrease is primarily a result of writing down inventory used in repairs
      services and the liquidation of slower moving items . Due
      to
      the slow moving nature of inventory, management has reclassified it on the
      balance sheets from current assets to other assets held for resale. Accounts
      payable decreased by $27,101 or 25.6% from $105,814 on December 31, 2006 to
      $78,713 for the same period in 2007.




16


Accrued
      expenses decreased by $288,195 or 67.6% from $426,216 on December 31, 2006
      to
      $138,021 on December 31, 2007.  The net decrease is primarily the result of
      recognizing the liability to repurchase treasury shares of $125,000 issued
      in
      2006 and the termination of an affiliate relationship.  Deferred revenue
      increased by $772,840 or 131.3% from $588,766 on December 31, 2006 to $1,361,606
      on December 31, 2007 representing primarily new customers that have prepaid
      for
      services on December 31, 2007. Total notes payable, including notes payable
      to shareholders, increased $2,439,355 or 201.4% from $1,211,034 on December
      31,
      2006 to $3,650,389 on December 31, 2007.  This is primarily result of the
      purchase of USA Telephone assets. As of April 2008, the Company has paid down
      entirely the principal balance of a $300,000 line of credit used to finance
      the
      acquisition of the USA Telephone assets.





**LIQUIDITY
      AND CAPITAL RESOURCES**




Cash
      and
      cash equivalents totaled $232,249 and $129,453 at December 31, 2007 and at
      December 31, 2006, respectively. EBITDA was $2,629,162 for the year ended
      December 31, 2007 as compared to $2,243,921 for the year ended December 31,
      2006.





2007
            
            2006EBITDA
                for the year ended December 31,
            
            $
            2,629,162
            
            $
            2,243,921Interest
                expense
            
            
            (158,734
            )
            
            (206,854
            )Taxes
            
            
            -
            
            
            -Depreciation
            
            
            (58,534
            )
            
            (71,687
            )Amortization
            
            
            (1,621,922
            )
            
            (972,995
            )Net
                income for the year ended December 31,
            
            $
            789,972
            
            $
            992,385




Sales
      of
      Internet services which are not automatically processed via credit card or
      bank
      account drafts have been the company’s highest exposure to collection risk. To
      help offset this exposure, the Company has added a late payment fee to encourage
      timely payment by customers. Another effort to improve customer collections
      was
      the implementation of a uniform manual invoice processing fee, which has also
      helped to speed up the collections procedures. These steps and more aggressive
      collection efforts have shifted accounts receivable to a more current status
      which is easier to collect. The balance in the Current category  increased
      from 51.2% to 57.2% of total accounts receivable from December 31, 2006 to
      December 31, 2007.  The balance in the 30+ day category decreased from
      26.1% to 24.1% of total accounts receivable from December 31, 2006 to December
      31, 2007.  The balance in the 60+ day category decreased from 22.7% to
      18.7% of total accounts receivable from December 31, 2006 to December 31,
      2007.


The
      aging
      of accounts receivable as of December 31, 2007 and 2006 is as
      shown:




2007
            
            2006Current
            
            $
            171,446
            
            
            57.2
            %
            $
            87,399
            
            
            51.2
            %30
                +
            
            
            72,337
            
            
            24.1
            %
            
            44,574
            
            
            26.1
            %60
                +
            
            
            56,080
            
            
            18.7
            %
            
            38,653
            
            
            22.7
            %90
                +
            
            
            -
            
            
            -
            %
            
            -
            
            
            -
            %Total
            
            $
            299,863
            
            
            100.0
            %
            $
            170,626
            
            
            100.0
            %




17


**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 its customer base, make strategic
      acquisitions, general market conditions, 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.




18


ITEM
      7.
 FINANCIAL STATEMENTS





INDEX


PageREPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            20FINANCIAL
                STATEMENTSConsolidated
                Balance Sheets as of December 31, 2007 and 2006
            21-22Consolidated
                Statements of Income for the Years Ended December 31, 2007 and
                2006
            23Consolidated
                Statements of Stockholders' Equity for the Years Ended December 31,
                2007
                and 2006
            24Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007 and
                2006
            25Notes
                to Consolidated Financial Statements
            26-43




19


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




Board
      of
      Directors and Stockholders


Sitestar
      Corporation


7109
      Timberlake Road, Suite 201


Lynchburg,
      VA 24502





We
      have
      audited the accompanying consolidated balance sheets of Sitestar Corporation,
      (the “Company”) as of December 31, 2007 and 2006, and the related consolidated
      statements of income, stockholders’ equity and cash flows for each of the years
      in the two-year period ended December 31, 2007. The Company’s management is
      responsible for the financial statements. Our responsibility is to express
      an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Sitestar Corporation, as
      of
      December 31, 2007 and 2006, and the results of its operations and its cash
      flows
      for each of the years in the two-year period ended December 31, 2007 in
      conformity with accounting principles generally accepted in the United States
      of
      America.





.





/s/
      BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.


Bagell,
      Josephs, Levine & Company, L.L.C.


Marlton,
      NJ 08053





May
      15,
      2008




20


SITESTAR
      CORPORATION AND SUBSIDIARIES


CONSOLIDATED
      BALANCE SHEETS


DECEMBER
      31, 2007 and 2006








ASSETS




CURRENT
                ASSETS
            
            2007
            
            2006Cash
                and cash equivalents
            
            $
            232,249
            
            $
            129,453Accounts
                receivable, net of allowances of $22,641 and $15,695
            
            
            299,863
            
            
            170,626Prepaid
                expenses
            
            
            16,529
            
            
            23,676Total
                current assets
            
            
            548,641
            
            
            323,755PROPERTY
                AND EQUIPMENT, net
            
            
            236,782
            
            
            274,269CUSTOMER
                LIST, net of accumulated amortization of $5,237,054and
                $3,716,215
            
            
            5,480,635
            
            
            1,721,233GOODWILL,
                net
            
            
            1,288,559
            
            
            1,288,559OTHER
                ASSETS
            
            
            677,267
            
            
            437,197TOTAL
                ASSETS
            
            $
            8,231,884
            
            $
            4,045,013





The
      accompanying notes are an integral part of these consolidated financial
      statements.




21


SITESTAR
      CORPORATION AND SUBSIDIARIES


CONSOLIDATED
      BALANCE SHEETS


DECEMBER
      31, 2007 and 2006







LIABILITIES
      AND STOCKHOLDERS' EQUITY





CURRENT
                LIABILITIES
            
            2007
            
            2006Accounts
                payable
            
            $
            78,713
            
            $
            105,814Accrued
                expenses
            
            
            138,021
            
            
            426,216Deferred
                revenue
            
            
            1,361,606
            
            
            588,766Notes
                payable, current portion
            
            
            1,268,866
            
            
            286,114Note
                payable - stockholders, current portion
            
            
            -
            
            
            46,861Total
                current liabilities
            
            
            2,847,206
            
            
            1,453,771NOTES
                PAYABLE, less current portion
            
            
            1,694,836
            
            
            63,113NOTES
                PAYABLE - STOCKHOLDERS, less current portion
            
            
            686,687
            
            
            814,946TOTAL
                LIABILITIES
            
            
            5,228,729
            
            
            2,331,830STOCKHOLDERS'
                EQUITYPreferred
                Stock, $0.001 par value, 10,000,000 shares authorized, 0 sharesissued
                and outstanding
            
            
            —
            
            
            —Common
                Stock, $0.001 par value, 300,000,000 shares authorized,91,326,463
                and 88,063,305 shares issued and outstanding
            
            
            91,326
            
            
            88,063Additional
                paid-in capital
            
            
            13,880,947
            
            
            13,651,157Treasury
                Stock, $0.001 par value, 2,955,147 and 8,218,305 common
                shares
            
            
            (63,030
            )
            
            (329,977
            )Accumulated
                deficit
            
            
            (10,906,088
            )
            
            (11,696,060
            )Total
                stockholders' equity
            
            
            3,003,155
            
            
            1,713,183TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            8,231,884
            
            $
            4,045,013







The
      accompanying notes are an integral part of these consolidated financial
      statements.




22


SITESTAR
      CORPORATION AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF INCOME


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007 AND 2006








2007
            
            2006REVENUE
            
            $
            6,567,264
            
            $
            5,597,330COST
                OF REVENUE
            
            
            2,244,184
            
            
            1,602,180GROSS
                PROFIT
            
            
            4,323,080
            
            
            3,995,150OPERATING
                EXPENSESSelling,
                general and administrative expenses
            
            
            3,236,860
            
            
            2,763,969Customer
                list impairment
            
            
            130,050
            
            
            51,504TOTAL
                OPERATING EXPENSES
            
            
            3,366,910
            
            
            2,815,473INCOME
                FROM OPERATIONS
            
            
            956,170
            
            
            1,179,677OTHER
                INCOME (EXPENSES)Gain
                on disposal of assets
            
            
            (7,464
            )
            
            19,562Interest
                expense
            
            
            (158,734
            )
            
            (206,854
            )TOTAL
                OTHER INCOME (EXPENSES)
            
            
            (166,198
            )
            
            (187,292
            )INCOME
                BEFORE INCOME TAXES
            
            
            789,972
            
            
            992,385INCOME
                TAXES
            
            
            -
            
            
            -NET
                INCOME
            
            $
            789,972
            
            $
            992,385BASIC
                AND DILUTED INCOME PER SHARE
            
            $
            0.01
            
            $
            0.01WEIGHTED
                AVERAGE SHARES
              OUTSTANDING
                - BASIC AND DILUTED
            
            
            87,819,037
            
            
            88,050,778




The
      accompanying notes are an integral part of these consolidated financial
      statements.




23


SITESTAR
      CORPORATION AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007 AND 2006








Common
                Stock
            
            AdditionalPaid-in
            
            Treasury
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            Stock
            
            Deficit
            
            TotalBalance
                at December 31, 2005
            
            
            86,013,305
            
            $
            86,013
            
            $
            13,450,207
            
            $
            (129,977
            )
            $
            (12,536,311
            )
            $
            (869,932
            )Issuance
                of shares for subsidiary
            
            
            2,050,000
            
            
            2,050
            
            
            200,950
            
            
            -
            
            
            -
            
            
            203,000Issuance
                of shares for subsidiary
            
            
            -
            
            
            -
            
            
            -
            
            
            (200,000
            )
            
            -
            
            
            (200,000
            )Purchase
                of subsidiary
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (152,134
            )
            
            (152,134
            )Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            992,385
            
            
            992,385Balance
                at December 31, 2006
            
            
            88,063,305
            
            
            88,063
            
            
            13,651,157
            
            
            (329,977
            )
            
            (11,696,060
            )
            
            1,713,183Repurchase
                of acquisition shares
            
            
            (2,000,000
            )
            
            (2,000
            )
            
            (198,000
            )
            
            200,000
            
            
            
            
            
            -Issuance
                of shares
            
            
            5,263,158
            
            
            5,263
            
            
            427,790
            
            
            66,947
            
            
            
            
            
            500,000Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            789,972
            
            
            789,972Balance
                at December 31, 2007
            
            
            91,326,463
            
            $
            91,326
            
            $
            13,880,947
            
            $
            (63,030
            )
            $
            (10,906,088
            )
            $
            3,003,155








The
      accompanying notes are an integral part of these consolidated financial
      statements.




24


SITESTAR
      CORPORATION AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007 AND 2006








2007
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            789,972
            
            $
            992,385Adjustments
                to reconcile net income tonet
                cash provided by operating activities:Depreciation
                and amortization expense
            
            
            1,680,456
            
            
            1,096,186Bad
                debt expense
            
            
            6,947
            
            
            1,860(Increase)
                decrease in accounts receivable
            
            
            (136,184
            )
            
            (28,569
            )(Increase)
                decrease in prepaid expenses
            
            
            7,147
            
            
            (23,676
            )Increase
                (decrease) in accounts payable
            
            
            (27,101
            )
            
            25,630Increase
                (decrease) in accrued expenses
            
            
            (288,194
            )
            
            134,262Increase
                (decrease) in deferred revenue
            
            
            772,840
            
            
            267,211Net
                cash provided by operating activities
            
            
            2,805,883
            
            
            2,465,289CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            
            (21,033
            )
            
            (31,175
            )Purchase
                of customer list
            
            
            (5,280,242
            )
            
            (1,251,173
            )(Purchase)
                sale of assets held for resale
            
            
            48,833
            
            
            4,000Purchase
                of subsidiary
            
            
            -
            
            
            (152,134
            )Purchase
                of domain name for resale
            
            
            -
            
            
            (200,000
            )Purchase
                of non-competition agreements
            
            
            (390,000
            )
            
            (25,000
            )Net
                cash used in investing activities
            
            
            (5,642,442
            )
            
            (1,655,482
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                proceeds from notes payable - stockholders
            
            
            23,386
            
            
            136,287Net
                proceeds from notes payable
            
            
            3,411,002
            
            
            887,488Issuance
                of common stock
            
            
            500,000Repayment
                of notes payable
            
            
            (796,527
            )
            
            (1,572,452
            )Repayment
                of notes payable - stockholders
            
            
            (198,506
            )
            
            (167,724
            )Net
                cash used in financing activities
            
            
            2,939,355
            
            
            (716,401
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            102,796
            
            
            93,406CASH
                AND CASH EQUIVALENTS - BEGINNING OF YEAR
            
            
            129,453
            
            
            36,047CASH
                AND CASH EQUIVALENTS - END OF YEAR
            
            $
            232,249
            
            $
            129,453





The
      accompanying notes are an integral part of these consolidated financial
      statements.




25


SITESTAR
      CORPORATION AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007 AND 2006





**SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:**




During
      the years ended December 31, 2007 and 2006, the Company paid no income taxes
      and
      paid interest expense of $159,000 and $207,000.




**SUPPLEMENTAL
      SCHEDULE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:**




During
      the year ended December 31, 2006 the Company issued 2,050,000 shares of common
      stock in connection with the acquisition of NetRover Inc. and subsequently
      repurchased the 2,000,000 shares and placed them in treasury. During the year
      ended December 31, 2007 the Company issued 5,263,158 shares of common stock
      per
      a Stock Purchase Agreement dated December 24, 2007.





During
      the years ended December 31, 2007 and December 31, 2006 the Company recognized
      $130,050 and $51,504 as impairment to customer list in addition to scheduled
      amortization.









The
      accompanying notes are an integral part of these consolidated financial
      statements.




26


SITESTAR
      CORPORATION AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007 AND 2006




**NOTE
      1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES**




**Organization
      and Line of Business**


Sitestar
      Corporation (formerly White Dove Systems, Inc., Interfoods Consolidated, Inc.,
      was known as Holland American International Specialties (HAIS)), (the Company),
      began operations on June 1, 1997, under a partnership agreement, and was
      incorporated in Nevada on November 4, 1997.  On July 26, 1999, the Company
      restated its Articles of Incorporation to change the name of the Company to
      “Sitestar Corporation.” The Company 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. Sitestar is headquartered
      in
      Lynchburg, Virginia.





**Principles
      of Consolidation**


The
      accompanying consolidated financial statements include the accounts of the
      Company and its wholly-owned subsidiaries including:  Sitestar.net, Inc.
      (formerly know as Neocom Microspecialists, Inc.), FRE Enterprises, Inc.,
      Advanced Internet Services, Inc. and NetRover Inc.  All intercompany
      accounts and transactions have been eliminated.





**Use
      of Estimates**


The
      Company’s Management’s Discussion and Analysis of Financial Condition and
      Results of Operations


section
      discusses its consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America as promulgated by the Public Company Accounting Oversight Board. The
      preparation of these financial statements requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      at
      the date of the financial statements and the reported amount of revenues and
      expenses during the reporting period. On an ongoing basis, management evaluates
      its estimates and judgments, including those related to revenue recognition,
      accrued expenses, financing operations, and contingencies and litigation.
      Management bases its estimates and judgments on historical experience and on
      various other factors that are believed to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying value of assets and liabilities that are not readily apparent
      from
      other sources. Actual results may differ from these estimates under different
      assumptions and conditions. The most significant accounting estimates inherent
      in the preparation of the Company’s financial statements include estimates as to
      the appropriate carrying value of certain assets and liabilities which are
      not
      readily apparent from other sources. These accounting policies are described
      at
      relevant sections in this discussion and analysis and in the condensed
      consolidated financial statements included in this report.





**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.  The
      amounts shown for notes payable also approximate fair value because current
      interest rates and terms offered to the Company for similar debt are
      substantially the same.




27


**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
      $100,000 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 management’s 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.




For
      the
      years ended December 31, 2007 and 2006, bad debt expense was $462,874 and
      $435,506. As of December 31, 2007 and 2006, accounts receivable consists of
      the
      following:




2007
            
            2006Gross
                accounts receivable
            
            $
            322,504
            
            $
            186,321Less
                allowance for doubtful accounts
            
            
            (22,641
            )
            
            (15,695
            )$
            299,863
            
            $
            170,626





Sales
      of
      Internet services, which are not automatically processed via credit card or
      bank
      account drafts, have been the company’s highest exposure to collection risk.
 To help offset this exposure, the company has added a late payment fee to
      encourage timely payments by customers. Another effort to improve customer
      collections was the implementation of a uniform manual invoice processing fee,
      which has also helped to speed up the collections process. Accounts over 90
      days
      past due are no longer included in accounts receivable and are turned over
      to a
      collection agency.





**Property
      and Equipment**


Property
      and equipment are stated at cost.  Depreciation is computed using the
      declining balance method based on estimated useful lives from 3 to 7 years
      for
      equipment and 39 years for buildings.  Expenditures for maintenance and
      repairs are charged to operations as incurred while renewals and betterments
      are
      capitalized. Gains and losses on disposals are included in the results of
      operations.




**Impairment
      of Long-Lived Assets**


In
      accordance with Statement of Financial Accounting Standard (SFAS) No. 144,
      “Accounting for the Impairment or Disposal of Long-Lived Assets,” 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.




28


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.





The
      sale
      of the assets associated with Sitestar Applied Technologies does not fall under
      the reporting requirements of SFAS No. 144. The Company is maintaining a
      financial interest in the operations of Servatus Development, LLC, the
      purchasing entity, and in addition, still maintains programming services for
      its
      customers. Per the Definitive Agreement to sell the assets, the Company is
      entitled to 20% of the gross revenue of Servatus for the first four years of
      operations. Also per the Definitive Agreement, the Company maintains the rights
      to the crisis management software developed by Sitestar Applied
      Technologies.




**Intangible
      Assets**


The
      Company continually monitors its intangible assets to determine whether any
      impairment has occurred.  In making such determination with respect to
      these assets, the Company evaluates the performance, on an undiscounted cash
      flow basis, of the intangible assets or group of assets.  Should impairment
      be identified, a loss would be reported to the extent that the carrying value
      of
      the related intangible asset exceeds its fair value using the discounted cash
      flow method.





The
      Company's customer lists are being amortized over three years.
 Amortization expense for the customer lists was $1,520,839 and
      $951,111 for the years ended December 31, 2007 and 2006. Amortization of
      customer lists for the years ended December 31, 2008, 2009 and 2010 is expected
      to be $2,476,121, $1,751,797 and $1,192,405, respectively.  In
      accordance with SFAS No. 142, amortization of goodwill ceased effective January
      1, 2002.  For the year ended December 31, 2007 there was no impairment of
      goodwill.





**Inventory**


Inventory
      consists principally of products purchased for resale and are maintained at
      the
      lower of cost (first in - first out basis) or market. Due to the slow moving
      nature of inventory management has reclassified it on the balance sheets from
      current assets to other assets held for resale. The retail operations of
      Sitestar Corporation, Computers by Design has changed the focus of generating
      revenue from building new equipment to providing professional services,
      repairing and maintaining customer systems. This shift in direction,
      precipitated by eroding profit margins resulting from intense competition,
      has
      slowed inventory turns of hardware used in building equipment for resale. While
      inventory maintains a marketable value, it is integrated into sales at a reduced
      rate as repairs to equipment as opposed to becoming a component in a constructed
      system. Consumers will reasonably continue to use the technology level of
      equipment represented by Sitestar inventory, and therefore, will continue for
      the near future to be required components in the repair and maintenance of
      their
      systems. It is for these reasons that inventory was reclassified from current
      assets to other assets held for resale to more properly reflect its use.
      Inventory was valued on December 31, 2007 and 2006 at $70,739 and
      $119,586.




29


**Deferred
      Revenue**


Deferred
      revenue represents collections from customers in advance for services not yet
      performed and are recognized as revenue in the period service is
      provided.




**Revenue
      Recognition**


The
      Company recognizes revenue related to software licenses and software maintenance
      in compliance with the American Institute of Certified Public Accountants
      (AICPA) Statement of Position No. 97-2, “Software Revenue Recognition.” Product
      revenue is recognized when the Company delivers the product to the customer
      and
      the Company believes that collecting the revenue is probable.  The Company
      usually has agreements with its customers to deliver the requested product
      for a
      fixed price.  Any insignificant post-contract support (PCS) obligations are
      accrued for at the time of the sale. PCS that is bundled with an initial
      licensing fee and is for one year or less is recognized at the time of the
      initial licensing, if collecting the resulting receivable is probable. The
      estimated cost to the Company to provide such services is minimal and
      historically, the enhancements offered during the PCS period have been minimal.
      The Company sells PCS under a separate agreement.  The agreements are for
      one to two years with a fixed number of hours of service for each month of
      the
      contract.  The contract stipulates a fixed monthly payment, non-refundable,
      due each month and any service hours incurred above the contractual amount
      are
      billed as incurred.  Revenue is recognized under these agreements ratably
      over the term of the agreement.  Revenue for services rendered in excess of
      the fixed monthly hours contained in the contracts are recognized as revenue
      as
      incurred.




The
      Company sells Internet services under annual and monthly contracts.  Under
      the annual contracts, the subscriber pays a one-time annual fee, which is
      recognized as revenue ratably over the life of the contract. Under the monthly
      contracts, the subscriber is billed monthly and revenue is recognized for the
      period the service relates. Sales of computer hardware are recognized as revenue
      upon delivery and acceptance of the product by the customer. Sales are adjusted
      for any returns or allowances.




**Advertising
      and Marketing Costs**


The
      Company expenses costs of advertising and marketing as they are incurred.
 These expenses for the years ended December 31, 2007 and 2006 were
      approximately $57,000 and $76,000, respectively.


**Income
      Taxes**


The
      Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
      for 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 be realized.
 Deferred tax assets and liabilities are adjusted for the effects of
      changes in tax laws and rates on the date of enactment.




**Income
      Per Share**


In
      accordance with SFAS No. 128, “Earnings 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. The following table represents the calculations
      of basic and diluted income per share:




30


2007
            
            2006Net
                income available to common shareholders
            
            $
            789,972
            
            $
            992,385Weighted
                average number of common shares
            
            
            87,819,037
            
            
            88,050,778Basic
                and diluted income per share
            
            $
            .01
            
            $
            .01





**Comprehensive
      Income**


SFAS
      No.
      130, “Reporting Comprehensive Income,” establishes standards for the reporting
      and display of comprehensive income and its components in the financial
      statements.  As of and for the years ended December 31, 2007 and 2006, the
      Company had no items that represent other comprehensive income and therefore,
      has not included a schedule of comprehensive income in the consolidated
      financial statements.





**Recently
      Issued Accounting Pronouncements**




In
      September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” which
      provides a definition of fair value establishes a framework for measuring fair
      value and requires expanded disclosures about fair value measurements. SFAS
      No.
      157 is effective for the financial statements issued for the fiscal years
      beginning after November
      15, 2007 and the interim periods within those fiscal years. The provisions
      of
      SFAS No. 157 should be applied prospectively. Management is assessing the
      potential impact on the Company’s financial condition and results of
      operations.





In
      February 2006, the FASB issued FAS No. 155, “Accounting for Certain
      Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and
      140.” FAS No. 155 resolves issues addressed in FAS No. 133
      Implementation Issue No. D1, “Application of Statement 133 to Beneficial
      Interests in Securitized Financial Assets,” and permits fair value remeasurement
      for any hybrid financial instrument that contains an embedded derivative that
      otherwise would require bifurcation, clarifies which
      interest-only strips and principal-only strips are not subject to the
      requirements of FAS No. 133, establishes a requirement to evaluate
      interests in securitized financial assets to identify interests that are
      freestanding derivatives or that are hybrid financial instruments that contain
      an embedded derivative requiring bifurcation, clarifies that concentrations
      of
      credit risk in the form of subordination
      are not embedded derivatives and amends FAS No. 140 to eliminate the
      prohibition on a qualifying special-purpose entity from holding a derivative
      financial instrument that pertains to a beneficial interest other than another
      derivative financial instrument. FAS No. 155 is effective for all financial
      instruments acquired or issued after the beginning of the first fiscal year
      that
      begins after September 15, 2006. The Company is currently evaluating the
      effect of the adoption of FAS No. 155 but believes it will not have a
      material impact on its financial position or results of operations.





In
      March 2006, the FASB issued FAS No. 156, “Accounting for Servicing of
      Financial Assets, an amendment of FASB Statement No. 140.” FAS No. 156
      requires an entity to recognize a servicing asset or liability each time it
      undertakes an obligation to service a financial asset by entering into a
      servicing contract under a transfer of the servicer’s financial assets that
      meets the requirements for sale accounting, a transfer of the servicer’s
      financial assets to a qualified special-purpose entity in a guaranteed mortgage
      securitization in which the transferor retains all of the resulting securities
      and classifies them as either available-for-sale or trading securities in
      accordance with FAS No. 115, “Accounting for Certain Investments in Debt
      and Equity Securities” and an acquisition or assumption of an obligation to
      service a financial asset that does not relate to financial assets of the
      servicer or its consolidated affiliates.




31


Additionally,
      FAS No. 156 requires all separately recognized servicing assets and
      servicing liabilities to be initially measured at fair value, permits an entity
      to choose either the use of an amortization or fair value method for subsequent
      measurements, permits at initial adoption a one-time reclassification of
      available-for-sale securities to trading securities by entities with recognized
      servicing rights and requires separate presentation of servicing assets and
      liabilities subsequently measured at fair value and additional disclosures
      for
      all separately recognized servicing assets and liabilities. FAS No. 156 is
      effective for transactions entered into after the beginning of the first fiscal
      year that begins after September 15, 2006. The Company is currently
      evaluating the effect of the adoption of FAS No. 156, but believes it will
      not have a material impact on its financial position or on the results of
      operations.





In
      September 2006, the FASB issued SFAS No. 158 “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans”, which amends SFAS No. 87
“Employer’s Accounting for Pensions” (SFAS No. 87), SFAS No. 88 “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
      and
      for Termination Benefits” (SFAS No. 88), SFAS No. 106 “Employers’ Accounting for
      Postretirement Benefits Other Than Pensions” (SFAS No. 106), and SFAS No. 132R
“Employers’ Disclosures about Pensions and Other Postretirement Benefits
      (revised 2003)” (SFAS No. 132R). This Statement requires companies to recognize
      an asset or liability for the over funded or under funded status of their
      benefit plans in their financial statements. SFAS No. 158 also requires the
      measurement date for plan assets and liabilities to coincide with the sponsor’s
      year end. The standard provides two transition alternatives related to the
      change in measurement date provisions. The recognition of an asset and liability
      related to the funded status provision is effective for fiscal year ending
      after
      December 15, 2006 and the change in measurement date provisions is effective
      for
      the fiscal years ending after December 15, 2008. The Company is currently
      evaluating the effect the adoption of FAS No. 158, but believes it will not
      have a material impact on its financial position or on the results of
      operations.





In
      February 2007, the FASB issued FASB Statement No. 159, The Fair Value
      Option for Financial Assets and Financial Liabilities (FAS 159).
      FAS 159 permits companies to choose to measure, on an
      instrument-by-instrument basis, financial instruments and certain other items
      at
      fair value that are not currently required to be measured at fair value. The
      Company currently is evaluating whether to elect the option provided for in
      this
      standard.


In
      December 2007, the FASB issued FASB Statement No. 141, Business Combinations
      (FAS 141). This Statement establishes principles and requirements for how the
      acquirer recognizes and measures in its financial statements the identifiable
      assets acquired, the liabilities assumed, and any non-controlling interest
      in
      the acquiree, r ecognizes
      and measures the goodwill acquired in the business combination or a gain from
      a
      bargain purchase, determines what information to disclose. This
      Statement applies prospectively to business combinations for which the
      acquisition date is on or after the beginning of the first annual reporting
      period beginning on or after December 15, 2008. The Company may not apply it
      before that date. The Company is currently evaluating the effect of the adoption
      of FAS No. 141, but believes it will not have a material impact on its
      financial position or on the results of operations.




In
      December 2007, the FASB issued FASB Statement No. 160, Non-controlling Interests
      in Consolidated Financial Statements (FAS 160). T his
      Statement establishes accounting and reporting standards that require the
      ownership interests in subsidiaries held by parties other than the parent be
      clearly identified, labeled, and presented in the consolidated statement of
      financial position. This
      Statement is effective for fiscal years, and interim periods within those fiscal
      years, beginning on or after December 15, 2008. The Company is currently
      evaluating the effect the adoption of FAS No. 141, but believes it will not
      have a material impact on its financial position or on the results of
      operations.




32


**NOTE
      2 - ACQUISITIONS**




**NetRover
      Inc.**


Effective
      January 1, 2006, the Company entered into a Definitive Agreement pursuant to
      which it acquired 100% of the issued and outstanding shares of stock of NetRover
      Inc., a Canadian ISP and web services corporation. The transaction consists
      of
      the acquisition of customers including dial-up and DSL Internet subscribers,
      web
      hosting and other business accounts. The total purchase price was $604,544
      representing the fair value of the company, paid by a down payment of 2,000,000
      shares of the Company’s common stock, with the balance represented by a
      non-interest bearing note payable by the Company to Isomedia, Inc. with the
      note
      paid in full by a balloon payment on January 6, 2007.





The
      fair
      value of assets acquired is summarized as follows:





Customer
                list
            
            $
            594,535Non-compete
                agreement
            
            
            10,000Purchase
                price
            
            $
            604,535





**Prolynx**


Effective
      March 16, 2006, the Company entered into a Definitive Agreement pursuant to
      which it acquired the Internet related assets of Prolynx, Inc., a Colorado
      ISP.
      The total purchase price was $90,000 representing the fair value of the net
      assets acquired paid in the form of the Company’s assumption of $90,000 in
      operating expenses accrued by Prolynx.





The
      fair
      value of assets acquired is summarized as follows:





Accounts
                receivable
            
            $
            4,310Fixed
                assets
            
            
            5,500Customer
                list
            
            
            92,029Non-compete
                agreement
            
            
            5,000Deferred
                revenue
            
            
            (16,839
            )Purchase
                price
            
            $
            90,000





Because
      the acquisition of Prolynx was consummated on March 16, 2006, there are limited
      results of operations of this company for the year ended December 31, 2006
      included in the accompanying December 31, 2007 and 2006 consolidated financial
      statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the year ended December 31, 2006 and reflects the results of
      operations of the Company as if the acquisition of Prolynx had been effective
      January 1, 2006.  The pro forma amounts are not necessarily indicative of
      the combined results of operations had the acquisitions been effective as of
      that date, or of the anticipated results of operations, due to cost reductions
      and operating efficiencies that are expected as a result of the
      acquisitions.





2006Net
                sales
            
            $
            5,699,866Gross
                profit
            
            $
            4,065,262Selling,
                general and administrative expenses
            
            $
            2,867,460Net
                income
            
            $
            990,948Basic
                income per share
            
            $
            0.01




33


**First
      Net**


Effective
      July 1, 2006, the Company entered into a Definitive Agreement pursuant to which
      it acquired the Internet related assets of First Net, an Ohio ISP. The total
      purchase price was $725,000 representing the fair value of the assets acquired
      which consisted of a $250,000 cash payment at closing with the balance paid
      in
      six equal monthly payments beginning August 2006.





The
      definitive agreement states that in the event that actual annualized revenue
      differs more than three percent from estimates used at closing, the purchase
      price will be adjusted accordingly. The purchase price has been adjusted down
      to
      $590,810 as of September 30, 2006. Because the acquisition of First Net was
      consummated on July 1, 2006, there are limited results of operations of this
      company for the year ended December 31, 2006 included in the accompanying
      December 31, 2007 and 2006 consolidated financial statements.





The
      following table summarizes the estimated fair values of assets acquired and
      liabilities assumed at the date of acquisition. Sitestar has assessed the
      valuations of certain intangible assets as represented below.





Domain
                name
            
            $
            200,000Accounts
                receivable
            
            
            31,732Customer
                list
            
            
            564,425Non-compete
                agreement
            
            
            10,000Deferred
                revenue
            
            
            (231,815
            )Purchase
                price
            
            $
            574,342





The
      following table presents the unaudited pro forma condensed statement of
      operations for the year ended December 31, 2006 and reflects the results of
      operations of the Company as if the acquisition of First Net had been effective
      January 1, 2006.  The pro forma amounts are not necessarily indicative of
      the combined results of operations had the acquisitions been effective as of
      that date, or of the anticipated results of operations, due to cost reductions
      and operating efficiencies that are expected as a result of the
      acquisitions.





2006Net
                sales
            
            $
            6,221,332Gross
                profit
            
            $
            4,421,833Selling,
                general and administrative expenses
            
            $
            3,166,993Net
                income
            
            $
            1,048,046Basic
                income per share
            
            $
            0.01





**Magnolia
      Internet Services**


Effective
      February 1, 2007, the Company entered into a Definitive Agreement pursuant
      to
      which it acquired the Internet related assets of Magnolia Internet Services,
      Inc., an Arkansas ISP. The total purchase price was $113,812 representing the
      fair value of the assets acquired which consisted of a $12,000 cash payment
      at
      closing and the balance was paid in eleven equal monthly payments beginning
      March 2007.





The
      definitive agreement states that in the event that actual annualized revenue
      differs more than three percent from estimates used at closing, the purchase
      price will be adjusted accordingly. The purchase price has been adjusted down
      to
      $108,470  as
      of
      March 30, 2007. Because the acquisition of Magnolia Internet Services was
      consummated on February 1, 2007, there are limited results of operations of
      this
      company for the years ended December 31, 2006 included in the accompanying
      December 31, 2007 and 2006 consolidated financial statements.




34


The
      following table summarizes the estimated fair values of assets acquired and
      liabilities assumed at the date of acquisition. Sitestar has assessed the
      valuations of certain intangible assets as represented below.





Customer
                list
            
            $
            93,992Non-compete
                agreement
            
            
            10,000Equipment
            
            
            10,000Deferred
                revenue
            
            
            (5,522
            )Purchase
                price
            
            $
            108,470





The
      following table presents the unaudited pro forma condensed statement of
      operations for the year ended December 31, 2006 and reflects the results of
      operations of the Company as if the acquisition of Magnolia Internet Services
      had been effective January 1, 2006.  The pro forma amounts are not
      necessarily indicative of the combined results of operations had the
      acquisitions been effective as of that date, or of the anticipated results
      of
      operations, due to cost reductions and operating efficiencies that are expected
      as a result of the acquisitions.





2006Net
                sales
            
            $
            5,744,550Gross
                profit
            
            $
            4,095,817Selling,
                general and administrative expenses
            
            $
            2,903,079Net
                income
            
            $
            981,849Basic
                income per share
            
            $
            0.01





**OW
      Holdings, Inc.**


Effective
      February 28, 2007, the Company entered into a Definitive Agreement pursuant
      to
      which it acquired the Internet related assets of OW Holdings, Inc., an ISP
      having customers throughout the Rocky Mountain region. The total purchase price
      was $900,000 representing the fair value of the assets acquired which consisted
      of a $600,000 cash payment at closing and the balance was paid in ninety days.
      The purchase price has been adjusted down to $802,452  as
      of May
      31, 2007. The following table summarizes the estimated fair values of assets
      acquired and liabilities assumed at the date of acquisition. Sitestar has
      assessed the valuations of certain intangible assets as represented
      below.





Accounts
                receivable
            
            $
            (2,098
            )Customer
                list
            
            
            870,680Non-compete
                agreement
            
            
            25,000Equipment
            
            
            10,000Deferred
                revenue
            
            
            (101,130
            )Purchase
                price
            
            $
            802,452





Because
      the acquisition of OW Holdings, Inc. was consummated on February 28, 2007,
      there
      are limited results of operations of this company for the year ended December
      31, 2007 and December 31, 2006 included in the accompanying December 31, 2007
      and 2006 consolidated financial statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the year ended December 31, 2007 and December 31, 2006 and
      reflects the results of operations of the Company as if the acquisition of
      OW
      Holdings had been effective January 1, 2006.




35


The
      pro
      forma amounts are not necessarily indicative of the combined results of
      operations had the acquisitions been effective as of that date, or of the
      anticipated results of operations, due to cost reductions and operating
      efficiencies that are expected as a result of the acquisitions.





2006Net
                sales
            
            $
            6,772,019Gross
                profit
            
            $
            4,798,384Selling,
                general and administrative expenses
            
            $
            3,369,594Net
                income
            
            $
            1,166,898Basic
                income per share
            
            $
            0.01





**AlaNet
      Internet Services**


Effective
      June 21, 2007, the Company entered into a Definitive Agreement pursuant to
      which
      it acquired the Internet related assets of AlaNet Internet Services, Inc.,
      an
      Alabama ISP. The acquisition augments the Company's Internet presence in the
      deep-south region. The total purchase price was $51,306 representing the fair
      value of the assets acquired which consisted of a $4,275 cash payment at closing
      with the balance to be paid in eleven monthly installments beginning July 2007.
      The purchase price has been adjusted down to $47,800.





Because
      the acquisition of AlaNet Internet Services was consummated on June 21, 2007,
      there are limited results of operations of this company for the
      years  ended
      December 31, 2007 included in the accompanying December 31, 2007 and 2006
      consolidated financial statements. The
      following table presents the unaudited pro forma condensed statement of
      operations for the years ended December 31, 2007 and December 31, 2006 and
      reflects the results of operations of the Company as if the acquisition of
      AlaNet had been effective January 1, 2006.  The pro forma amounts are not
      necessarily indicative of the combined results of operations had the
      acquisitions been effective as of that date, or of the anticipated results
      of
      operations, due to cost reductions and operating efficiencies that are expected
      as a result of the acquisitions.





2006Net
                sales
            
            $
            5,659,883Gross
                profit
            
            $
            4,037,923Selling,
                general and administrative expenses
            
            $
            2,851,643Net
                income
            
            $
            977,530Basic
                income per share
            
            $
            0.01





The
      following table summarizes the estimated fair values of assets acquired and
      liabilities assumed at the date of acquisition. Sitestar has assessed the
      valuations of certain intangible assets as represented below.





Accounts
                receivable
            
            $
            3,880Customer
                list
            
            
            58,549Non-compete
                agreement
            
            
            5,000Deferred
                revenue
            
            
            (21,800
            )Purchase
                price
            
            $
            45,629




36


**United
      Systems Access, Inc.**


Effective
      November 1, 2007, the Company entered into an Asset Purchase Agreement pursuant
      to which it acquired the Internet related assets of United Systems Access,
      Inc.
      (d/b/a USA Telephone), a corporation with headquarters in Maine. The total
      purchase price was $3,750,000 representing the fair value of the assets acquired
      which consisted of a $1,000,000 cash payment at closing with a second $1,000,000
      in 30 days with the remaining balance due in 36 monthly installments beginning
      January 2008. Net post closing collections on account and vendor payments of
      $425,659 by USA Telephone reduced the remaining balance of the purchase price
      to
      $1,574,341.





The
      following table summarizes the estimated fair values of assets acquired and
      liabilities assumed at the date of acquisition. Sitestar has assessed the
      valuations of certain intangible assets as represented below.





Customer
                list
            
            $
            4,292,656Non-compete
                agreement
            
            
            350,000Deferred
                revenue
            
            
            (892,656
            )Purchase
                price
            
            $
            3,750,000





Because
      the acquisition of USA Telephone was consummated effective November 1, 2007,
      there are limited results of operations of this company for years ended December
      31, 2007 included in the accompanying December 31, 2007 and December 31, 2006
      consolidated financial statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the years ended December 31, 2007 and December 31, 2006 and
      reflects the results of operations of the Company as if the acquisition of
      USA
      Telephone had been effective January 1, 2006.  The pro forma amounts are
      not necessarily indicative of the combined results of operations had the
      acquisitions been effective as of that date, or of the anticipated results
      of
      operations, due to cost reductions and operating efficiencies that are expected
      as a result of the acquisitions.





2006Net
                sales
            
            $
            6,408,497Gross
                profit
            
            $
            4,549,814Selling,
                general and administrative expenses
            
            $
            3,108,632Net
                income
            
            $
            1,222,576Basic
                income per share
            
            $
            0.01





**NOTE
      3 - SALE OF ASSETS**





**Sitestar
      Applied Technologies, Inc.**


Effective
      August 31, 2004, the Company entered into a Definitive Agreement selling the
      assets of Sitestar Applied Technologies (SAT), the software development division
      of Sitestar.  Thomas Albanese, the former manager of the SAT division,
      purchased the assets.  The new company is now doing business as Servatus
      Development, LLC (Servatus).  The agreement consists of Albanese
      surrendering 1,460,796 shares of Sitestar stock and Sitestar receiving
      a 20% share in the gross revenues of Servatus over a period of four
      years and maintaining the rights to the crisis management system.  Sitestar
      provided office space, occupancy costs, and Internet services for one year.
       The Company recognized a gain from this transaction of $14,714 in the
      current reporting period, representing the excess of the shared revenue received
      over the recorded basis of the assets sold.




37


**NOTE
      4 - PROPERTY AND EQUIPMENT**




The
      cost
      of property and equipment at December 31, 2007 and December 31, 2006 consisted
      of the following:





2007
            
            2006Land
            
            $
            10,000
            
            $
            10,000Building
            
            
            213,366
            
            
            213,366Automobile
            
            
            9,500
            
            
            9,500Computer
                equipment
            
            
            1,129,061
            
            
            1,108,028Furniture
                and fixtures
            
            
            59,862
            
            
            59,8621,421,789
            
            
            1,400,756Less
                accumulated depreciation
            
            
            (1,185,007
            )
            
            (1,126,487
            )$
            236,782
            
            $
            274,269




Depreciation
      expense was $58,534 and $71,687 for the years ended December 31, 2007 and 2006,
      respectively.





**NOTE
      5 - NOTES PAYABLE**




Notes
      payable at December 31, 2007 and 2006 consist of the following:


2007
            
            2006Bank
                note payable in monthly interest and principal payments of $1,784.
                Interest is payable prime plus 4.5%, (9.75% and 9.75% as of December
                31,
                2007 and 2006 respectively).  The note is guaranteed by a stockholder
                of the Company and secured by a deed of trust against personal residences
                of three stockholders.  Also, the bank has a blanket lien against all
                other current and future assets of Sitestar.net.
            
            $
            58,242
            
            $
            74,573Bank
                note paid in monthly interest and principal payments of $2,400 and
                due
                November 2008.  Interest was payable at an annual rate of prime plus
                1.5% (6.75% as of December 31, 2004).  The note was secured by a
                deed of trust against personal residences of three stockholders and
                the
                Company’s building. Also, the bank had a blanket lien against all other
                current and future assets of Sitestar.net. This note was refinanced
                on
                February 9, 2004 into a line of credit due on February 1, 2005 with
                a
                principal limit of $165,000 and daily deposit account sweeps. On
                February
                1, 2005, February 1, 2006 the note was renewed for another year.
                However,
                on February 1, 2007 the note was paid in full and not renewed. Interest
                was payable at an annual rate of prime plus .75% (8.0%
                as of December 31, 2006). The note was secured by a deed of trust
                on the
                Company’s building and was personally guaranteed by officers and directors
                of the Company.
            
            
            -
            
            
            57,362Non-interest
                bearing amount due on acquisition of NetRover Inc. was paid in eleven
                monthly installments of $16,856; a balloon payment was paid in January
                2007 of $217,292.
            
            
            -
            
            
            217,292




38


Bank
                line of credit issued on April 12, 2007 with a principal limit of
                $300,000. Interest is payable at an annual rate of prime plus .25%
                (7.50%
                as of December 31, 2007). The note is secured by a deed of trust
                on the
                Company’s building and is personally guaranteed by officers and directors
                of the Company. In April 2008 the principal balance was
                zero.
            
            
            300,000Non-interest
                bearing amount due on acquisition of AlaNet Internet Services payable
                in
                eleven monthly installments of $4,276 through April 2008.
            
            
            20,807Bank
                note payable in twelve monthly interest and principal payments of
                $30,650.
                Interest is payable at an annual rate of 9.25%.  The note is
                guaranteed by stockholders of the Company and secured by shares of
                Company
                stock owned by the stockholders.
            
            
            322,048Bank
                note payable in twenty four monthly interest and principal payments
                of
                $21,167. Interest is payable at an annual rate of 8.5%.  The note is
                guaranteed by stockholders of the Company and secured by shares of
                Company
                stock owned by the stockholders.
            
            
            438,264Bank
                bridge note payable on February 1, 2008. Interest is payable at an
                annual
                rate of 8.5%. The note was refinanced on February 21, 2008 at an
                annual
                interest rate of 8.5% and is payable in twelve payments of $21,760
                and is
                personally guaranteed by stockholders of the Company and secured
                by real
                estate owned by stockholders of the Company.
            
            
            250,000Non-interest
                bearing amount due on acquisition of USA Telephone payable in thirty
                six
                monthly installments starting January 2008.
            
            
            1,574,341Less
                current portion
            
            
            (1,268,866
            )
            
            (286,114
            )Long-term
                portion
            
            $
            1,694,836
            
            $
            63,113





The
      future principal maturities of these notes are as follows:




Year
                ending December 31, 2008
            
            $
            1,268,866Year
                ending December 31, 2009
            
            
            365,382Year
                ending December 31, 2010
            
            
            160,903Year
                ending December 31, 2011
            
            
            73,907Year
                ending December 31, 2012
            
            
            1,094,644Thereafter
            
            
            -Total
            
            $
            2,963,702




39


**NOTE
      6 - NOTES PAYABLE - STOCKHOLDERS**




Notes
      payable - stockholders at December 31, 2007 and 2006 consist of the
      following:




2007
            
            2006Note
                payable to officer and stockholder on a line of credit of $750,000
                at an
                annual interest rate of 10% interest.  The accrued interest and
                principal are due on January 1, 2010.
            
            $
            527,117
            
            $
            663,242Note
                payable to stockholders issued as part of the Purchase price of Advanced
                Internet Services, Inc.  The note was repaid in 24 quarterly
                installments of $51,078 beginning in September 2001 and is non-interest
                bearing.  The imputed annual interest rate for this note was
                36%.
            
            
            -
            
            
            46,861Note
                payable to stockholder. The note is payable on January 1, 2010 and
                bears
                interest at an annual rate of 8.0%.
            
            
            104,585
            
            
            96,720Note
                payable to stockholder. The note is payable on January 1, 2010 and
                bears
                interest at an annual rate of 8.0%.
            
            
            54,985
            
            
            54,984686,687
            
            
            861,807Less
                current portion
            
            
            -
            
            
            (46,861
            )Long-term
                portion
            
            $
            686,687
            
            $
            814,946





The
      future principal maturities of these notes are as follows:




Year
                ending December 31, 2008
            
            $
            -Year
                ending December 31, 2009
            
            
            -Year
                ending December 31, 2010
            
            
            686,687Year
                ending December 31, 2011
            
            
            -Year
                ending December 31, 2012
            
            
            -Total
            
            $
            686,687





**NOTE
      7 - COMMITMENTS AND CONTINGENCIES**





**Leases**




The
      Company leases certain facilities for its corporate offices and retail stores
      under non-cancelable operating leases. Total rent expense for the years ended
      December 31, 2007 and 2006 was $77,175 and $97,775, respectively.  Future
      minimum lease payments under operating leases with initial or remaining terms
      of
      one year or more are as follows:




40


Year
                ended December 31,2008
            
            $
            71,0492009
            
            
            15,444Total
            
            $
            86,493




**Litigation**





On
      or
      about January 16, 2008, the Company filed a Complaint in the Circuit Court
      in
      the Orange County Superior Court of the State of California against Frederick
      T.
      Manlunas, a former executive and director of the Company, for breach of
      contract, specific performance and declaratory relief. This matter has been
      assigned case no. 30-2008
      00101457. The Company asserts that Mr. Manlunas failed to return 748,008 shares
      of the Company’s common stock as required by a Stock Redemption Agreement the
      Company signed with him. The Company is seeking monetary damages, the return
      of
      the shares, and attorneys’ fees and costs. Mr. Manlunas has been served with the
      Complaint and his response is due on approximately May 26, 2008.





**NOTE
      8 - STOCKHOLDERS' EQUITY**




**Classes
      of Shares**


The
      Company's Articles of Incorporation authorize 310,000,000 shares, consisting
      of
      10,000,000 shares of preferred stock, which have a par value of $0.001 per
      share
      and 300,000,000 shares of common stock, which have a par value of $0.001.





**Preferred
      Stock**


Preferred
      stock, any series, shall have the powers, preferences, rights, qualifications,
      limitations and restrictions as fixed by the Company's Board of Directors in
      its
      sole discretion.  As of December 31, 2007, the Company's Board of Directors
      has not issued any Preferred Stock.





**Common
      Stock**


During
      the year ended December 31, 2006 the Company issued 2,050,000 shares of common
      stock in connection with the acquisition of NetRover Inc. and subsequently
      repurchased 2,000,000 shares and placed them in treasury. During the year ended
      December 31, 2007 the Company issued 5,263,158 shares of common stock in
      connection with an Asset Purchase Agreement.





**NOTE
      9 - INCOME TAXES**




The
      reconciliation of the effective income tax rate to the federal statutory rate
      as
      of December 31, 2007 and 2006 is as follows:





2007
            
            2006Federal
                income tax rate
            
            
            34.0
            %
            
            34.0
            %Effect
                of net operating loss
            
            
            (34.0
            )%
            
            (34.0
            )%Effective
                income tax rate
            
            
            0.0
            %
            
            0.0
            %





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 December 31, 2007 and
      2006 are as follows:




41


2007
            
            2006Accounts
                receivable
            
            $
            4,000
            
            $
            4,000Intangible
                assets
            
            
            1,747,000
            
            
            1,747,000Loss
                carry forwards
            
            
            1,298,000
            
            
            1,298,000Less
                valuation allowance
            
            
            (3,049,000
            )
            
            (3,049,000
            )$
            -
            
            $
            -





At
      December 31, 2007, the Company has provided a valuation allowance for the
      deferred tax asset since management has not been able to determine that the
      realization of that asset is more likely than not.  Net operating loss
      carry forwards of approximately $1,300,000 expire starting in 2012.





**NOTE
      10 - RELATED PARTY TRANSACTIONS**




The
      Company leases its office building in Lynchburg, Virginia from a stockholder
      of
      the Company on a three year term basis.  The date for renewal of the lease
      is November 1, 2008.  For the years ended December 31, 2007 and 2006, the
      Company paid this stockholder $48,300 and $46,200, respectively, for rent on
      this office building.





**NOTE
      11 - SEGMENT INFORMATION**




The
      Company has two business units with separate management and reporting
      infrastructures that offer different products and services.  The business
      units have been aggregated into two reportable segments: Corporate and Internet.
       The Corporate group is the holding company which oversees the operating of
      the Internet group and arranges financing.  The Internet group provides
      Internet access to customers throughout the U.S. and Canada.





The
      Company evaluates the performance of its operating segments based on income
      from
      operations, before income taxes, accounting changes, non-recurring items, and
      interest income and expense.





Summarized
      financial information concerning the Company's reportable segments is shown
      in
      the following table for the years ended December 31, 2007 and
      2006:




December
                31, 2007Corporate
            
            Internet
            
            ConsolidatedRevenue
            
            $
            -
            
            $
            6,567,264
            
            $
            6,567,264Operating
                income (loss)
            
            $
            (61,812
            )
            $
            1,017,982
            
            $
            956,170Depreciation
                and amortization
            
            $
            -
            
            $
            1,680,456
            
            $
            1,680,456Interest
                expense
            
            $
            -
            
            $
            (158,734
            )
            $
            (158,734
            )Goodwill
            
            $
            -
            
            $
            1,288,559
            
            $
            1,288,559Identifiable
                assets
            
            $
            -
            
            $
            7,146,259
            
            $
            7,146,259




December
                  31, 2006Corporate
              
              Internet
              
              ConsolidatedRevenue
              
              $
              -
              
              $
              5,597,330
              
              $
              5,597,330Operating
                  income (loss)
              
              $
              (77,616
              )
              $
              1,257,293
              
              $
              1,179,677Depreciation
                  and amortization
              
              $
              -
              
              $
              1,044,682
              
              $
              1,044,682Interest
                  expense
              
              $
              -
              
              $
              (206,854
              )
              $
              (206,854
              )Goodwill
              
              $
              -
              
              $
              1,288,559
              
              $
              1,288,559Identifiable
                  assets
              
              $
              -
              
              $
              4,384,039
              
              $
              4,384,039
  42


**NOTE
      12 - SUBSEQUENT EVENTS**





Effective
      March 1, 2008, the Company entered into a Definitive Agreement acquiring the
      Internet based assets of  Comcation
      Inc., a Delaware corporation. The Definitive Agreement consisted of the
      acquisition of the Internet related assets and a non-compete agreement of the
      company. Effective April 1, 2008, the Company entered into a Definitive
      Agreement acquiring the Internet based assets of N2 the Net Inc., a Tennessee
      corporation. The Definitive Agreement consisted of the acquisition of the
      Internet related assets and a non-compete agreement of the company. Effective
      May 1, 2008, the Company entered into a Definitive Agreement acquiring the
      Internet based assets of Dial Assurance, a Georgia corporation. The Definitive
      Agreement consisted of the acquisition of the Internet related assets and a
      non-compete agreement of the company.





**NOTE
      13 -**  **ALLEVIATION
      OF GOING CONCERN**





At
      September 30, 2007, the Company reported that it had a working capital
      deficiency of $566,269. This condition raised substantial doubt about the
      Company's ability to continue as a going concern at that time.




The
      Company had income from operations for each of the two years ended December
      31,
      2007 of $956,170 and $1,179,677. The Company also had positive cash flows from
      operations of $2,812,829 and 2,465,289 for the two years ended December 31,
      2007. In addition, the Company projects positive cash flows for the next twelve
      months. With this positive trend of operating income, cash flows, and projected
      cash flow over the next twelve months, the Company’s management considers the
      facts and circumstances, which raised substantial doubt about the Company’s
      ability to continue as a going concern, to be alleviated.




The
      Company also plans to continue to increase revenue by acquiring customers in
      target markets at competitive prices and selling value-added products and
      services to the existing customer base to maximize average revenue per user
      (ARPU). The Company will continue to reduce overall operating expenses by
      leveraging economies of scale, deployment of new technologies, and reducing
      supplier costs by securing more favorable rates and terms through wholesale
      partnerships and other methods





**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES**





None





**ITEM
      8A.  CONTROLS AND PROCEDURES**




We
      have
      evaluated the effectiveness of our disclosure controls and procedures and
      internal controls over financial reporting as of December 31, 2007. This
      evaluation was carried out under the supervision and with the participation
      of
      our management, including our principal executive officer and principal
      financial officer. Based on this evaluation, these officers have concluded
      that
      our disclosure controls and procedures are effective. There were no significant
      changes to our internal controls over financial reporting that could
      significantly affect internal controls during the last fiscal quarter ended
      December 31, 2007.




43


Disclosure
      controls and procedures and internal controls over financial reporting are
      designed to ensure that information required to be disclosed by us in the
      reports that we file or submit under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the SEC’s rules
      and forms. Disclosure controls and procedures include, without limitation,
      controls and procedures designed to ensure that information required to be
      disclosed by us in the reports that we file under the Exchange Act is
      accumulated and communicated to our management, including principal executive
      officer and principal financial officer, as appropriate, to allow timely
      decisions regarding required disclosure.





**ITEM
      8A(T).  CONTROLS AND PROCEDURES**




Management’s
      Report on Internal Control over Financial Reporting




Our
      Management is responsible for establishing and maintaining adequate internal
      controls over our financial reporting. The Company’s internal control over
      financial reporting is a process designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with U.S. generally
      accepted principles. As required by Rule 13a-15 under the Exchange Act, as
      of
      the end of the period covered by this report, we carried out an evaluation
      under
      the supervision and with the participation of our management, of the
      effectiveness of the design and operation of our disclosure controls and
      procedures. In designing and evaluating our disclosure controls and procedures,
      we and our management recognize that any controls and procedures, no matter
      how
      well designed and operated, can provide only reasonable assurance of achieving
      the desired control objectives, and our management necessarily was required
      to
      apply its judgment in evaluating and implementing possible controls and
      procedures. The effectiveness of our disclosure controls and procedures and
      our
      internal control over financial reporting is subject to various inherent
      limitations, including cost limitations, judgments used in decision making,
      assumptions about the likelihood of future events, the soundness of our systems,
      the possibility of human error, and the risk of fraud. Moreover, projections
      of
      any evaluation of effectiveness to future periods are subject to the risk that
      controls may become inadequate because of changes in conditions and the risk
      that the degree of compliance with policies or procedures may deteriorate over
      time. Because of these limitations, there can be no assurance that any system
      of
      disclosure controls and procedures or internal control over financial reporting
      will be successful in preventing all errors or fraud or in making all material
      information known in a timely manner to the appropriate levels of management.




Inherent
      Limitations of the Effectiveness of Internal Control.




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




44


**ITEM
      8B.  CONTROLS AND PROCEDURES OTHER INFORMATION**





None





**PART
      III**


**ITEM
        9.  **DIRECTORS,
        EXECUTIVE OFFICERS, PROMOTER AND CONTROL
        PERSONS;****


**COMPLIANCE
      WITH SECTION 16(A) OF THE EXCHANGE ACT**




The
      following table sets forth the name, age and position with the Company of each
      officer and director as of the date of this Report.




Our
      current directors, executive officers and key employees are as
      follows:




Name
            
            Age
            
            Position
            
            Director
                sinceFrank
                R. Erhartic, Jr.
            
            39
            
            President,
                CEO, Director
            
            October
                2001Julia
                E. Erhartic
            
            40
            
            Secretary,
                Director
            
            October
                2001Daniel
                Judd
            
            51
            
            CFO,
                Director
            
            June
                2004





Frank
      Erhartic, Jr., 39, Mr.
      Erhartic guides Sitestar’s long-term market strategies and investments, oversees
      all product research and development and leads the company’s day-to-day
      operations.  An entrepreneur, Mr. Erhartic founded Computers by Design, a
      Sitestar subsidiary, in 1985 as a software development and computer services
      company while pursuing his high school diploma and later created a toner
      remanufacturing division called CBD Toner Recharge.  In 1996, Mr. Erhartic
      started Lynchburg.net an Internet Service Provider which was acquired by
      Sitestar in 2000.  He was named President and CEO in 2002, and has led the
      growth of the Company’s customer base through as series of acquisitions. 
Mr. Erhartic has MCSE, Novell Netware and A+ certifications and is a graduate
      of
      Virginia Tech with degrees in both Management and Finance.




Julia
      Erhartic ,
      40, Ms.
      Erhartic graduated from Virginia Tech in 1990 with a major in Psychology and
      a
      minor in Communications Studies with an emphasis in Public Relations. Ms.
      Erhartic was the store manager of Computers by Design from 1991 through 1996.
      While also the Vice President of Computers by Design, she helped co-found the
      Internet division of Lynchburg.net in 1996 and then shifted her focus to public
      relations, accounting and customer service issues.




Mr.
      and
      Mrs. Erhartic are related by marriage.  None of the other executive
      officers or key employees is related to any other of our directors, executive
      officers or key employees.





Dan
      Judd ,
      51, Mr. Judd has over thirty years of experience in accounting and
      management, he oversees financial reporting, planning, mergers and acquisitions,
      and finance support for all business operations.  Before joining Sitestar,
      Mr. Judd ran his own accounting firm, Judd Enterprises, Inc., specializing
      in
      both taxes and accounting.  He also held management positions at several
      manufacturing and wholesale companies.  Mr. Judd is a Certified Public
      Accountant and holds a Bachelor of Science degree in Commerce from the
      University of Virginia.




45


**TERM
      OF DIRECTORS:**





**Director**
            **Expiration
                of term**Frank
                R. Erhartic, Jr.
            December
                31, 2008Julia
                Erhartic
            December
                31, 2008Dan
                Judd
            December
                31, 2008








Section
      16(a) Beneficial Ownership Reporting Compliance Pursuant to Section 16 (a)
      of
      the Securities Exchange Act of 1934, and the rules issued there under, our
      directors and executive officers are required to file with the Securities and
      Exchange Commission and the National Association of Securities Dealers, Inc.
      ownership and changes in ownership of common stock and other equity securities
      of the Company.  Copies of such reports are required to be furnished to us.
 Based solely on a review of the copies of such reports furnished to us, or
      written representations that no other reports were required, we believe that,
      during our fiscal year ended December 31, 2007 all of our executive officers
      and
      directors complied with the requirements of
      Section 16 (a).





The
      Company has adopted a code of ethics and is available on the Company’s website www.sitestar.com under
      Investor Relations.




**ITEM
      10.  EXECUTIVE COMPENSATION**




The
      following table sets forth the annual compensation paid to our executive
      officers for the two fiscal years ended December 31st.




**SUMMARY
      COMPENSATION TABLE**





Name
                and Principal Position
            Year
            Salary
                ($)
            Bonus
                ($)
            Stock
                Awards ($)
            Option
                Awards ($)
            Non-Equity
                Incentive Plan Compen-sation ($)
            Change
                in Pension Value and Non-qualified Deferred Compen-sation Earnings
                ($)
            All
                Other Compen-sation ($)
            Total
                ($)Frank
                R, Erhartic, Jr., Principal Executive Officer (PEO)
            2007
            72,500
            
            
            
            
            
            
            72,5002006
            72,500
            
            
            
            
            
            
            72,500Daniel
                Judd,Principal
                Financial Officer (PFO)
            2007
            45,200
            
            
            
            
            
            
            45,2002006
            40,000
            
            
            
            
            
            
            40,000Julie
                E. Erhartic, (Officer)
            2007
            13,000
            
            
            
            
            
            
            13,0002006
            13,000
            
            
            
            
            
            
            13,000







46


Frank
      R.
      Erhartic, Jr., President, CEO and Director, earned a salary of $72,500 and
      $72,500 for the years ended December 31, 2007 and 2006, respectively. He
      received no other compensation. Daniel Judd, CFO and Director earned a salary
      of
      $45,200 and $40,000 for the years ended December 31, 2007 and 2006,
      respectively. He received no other compensation. Julie E. Erhartic, Secretary
      and Director, earned a salary of $13,000 and $13,000 for the years ended
      December 31, 2007 and 2006, respectively. She received no other
      compensation.





**GRANTS
      OF PLAN-BASED AWARDS**





Name
            GrantDate
            Estimated
                Future PayoutsUnder
                Non-Equity Incentive Plan Awards
            Estimated
                Future PayoutsUnder
                Equity Incentive Plan Awards
            All
                Other Stock Awards:Number
                of SharesOf
                Stock or Units (#)
            All
                otherOption
                Awards: Number of Securities Under-Lying Options (#)
            Exercise
                of BasePrice
                of Option Awards ($/Sh)Threshold
                ($)
            Target
                ($)
            Maximum($)
            Threshold($)
            Target($)
            Maximum(#)PEO
            N/APFO
            N/AOfficer
            N/A





There
      were no Equity Incentive Plans, Non-Equity Incentive Plans or Stock Awards
      for
      the years ended December 31, 2007 and 2006.





**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**





Option
                Awards
            Stock
                AwardsName
            Number
                of securities Underlying Unexercised Options(#)Exercisable
            Number
                of securitiesUnderlyingUnexercised
                Options (#)Unexercisable
            Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options (#)
            Option
                Exercise Price ($)
            Option
                Expiration Date
            Number
                of Shares of Units of Stock that have not vested(#)
            Market
                Value of Shares or Units of Stock that have not vested ($)
            Equity
                Incentive Plan Awards: Number of Unearned Shares, Units or other
                rights
                that have not vested (#)
            Equity
                Incentive Plan Awards Market or Payout Value of Unearned Shares,
                Units of
                other rights that have not vested($)PEO
            N/APFO
            N/AOfficer
            N/A




47


There
      were no Equity Incentive Plans, Non-Equity Incentive Plans or Stock Awards
      for
      the years ended December 31, 2007 and 2006.





**DIRECTOR
      COMPENSATION**





Name
            Fees
                Earned or Paid in Cash ($)
            StockAwards
                ($)
            Option
                Awards ($)
            Non-Equity
                Incentive Plan Compensation($)
            Change
                in Pension Value and Nonqualified Deferred Compensation Earnings
                ($)
            All
                Other Compensation ($)
            Total($)Frank
                R, Erhartic, Jr., Director
            
            
            
            
            
            
            $0.00Daniel
                Judd,Director
            
            
            
            
            
            
            $0.00Julie
                E. Erhartic, Director
            
            
            
            
            
            
            $0.00





There
      were no Director compensation other than salary for the years ended December
      31,
      2007 and 2006.





**ITEM
      11.  SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDERS MATTERS**




The
      following table sets forth certain information as of April  18,
      2008
      regarding the record and beneficial ownership of our common stock by: (i) any
      individual or group (as that term is defined in the federal securities laws)
      of
      affiliated individuals or entities who is known by us to be the beneficial
      owner
      of more than five percent of the outstanding shares of our common stock; (ii)
      each of our executive officers and directors; and (iii) our executive officers
      and directors as a group.





Name
                and Address ofBeneficial
                Owner
            
            Number
                of SharesBeneficially
                Owned (1)
            
            PercentOf
              Class
                (2)Frank
                and Julie Erhartic
              7109
                Timberlake Road
              Lynchburg,
                VA 24502
            
            
            24,583,980
            
            
            26.92
            %Daniel
                A. Judd
              7109
                Timberlake Road
              Lynchburg,
                VA 24502
            
            
            133,865
            
            
            00.15
            %All
                directors and officers
              As
                a group (3 persons)
            
            
            24,717,845
            
            
            27.07
            %





(1)
      Except as otherwise indicated, we believe that the beneficial owners of our
      common stock listed above, based on information furnished by such owners, have
      sole investment and voting power with respect to such shares, subject to
      community property laws where applicable.





(2)
      Percent of class is based on 91,326,463 shares of common stock outstanding
      as of
      April  18,
      2008.




48


**ITEM
      12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




The
      Company leases its corporate headquarters located at 7109 Timberlake Road,
      Suite
      201, Lynchburg, VA 24502 from Frank R. Erhartic, Jr., a stockholder of the
      Company pursuant to a lease agreement entered into on November 23, 2003.
      Pursuant to the lease agreement, the Company pays Mr. Erhartic rent in the
      amount of $48,000 per year. The lease agreement expires on November 1, 2008.




49


**ITEM
      13.  EXHIBITS AND REPORTS ON FORM 8-K**




(1)
      The
      following exhibits are filed as part of this Annual Report on Form 10-KSB or
      are
      incorporated herein by reference:




Exhibit
            Description
            Filed3.1(i)
            Articles
                of Incorporation of the Registrant (December 17, 1992)
            a3.1(ii)
            Amended
                Articles of Incorporation (July 29, 1998)
            a3.1(iii)
            Amended
                Articles of Incorporation (October 26, 1998)
            a3.1(iv)
            Amended
                Articles of Incorporation (July 14, 1999)
            a3.1(v)
            Amended
                Articles of Incorporation (July 28, 1999)
            a3.2(i)
            By-laws
                of the Registrant (December 17, 1992)
            a4.2
            Convertible
                Debenture Purchase Agreement dated as of May 11, 2000 between the
                investors named therein and the Registrant
            c4.3
            12%
                Convertible Debenture due May 11, 2001 made by the Registrant in
                favor of
                New Millenium Capital Partners II, L.L.C.
            c4.4
            12%
                Convertible Debenture due May 11, 2001 made by the Registrant in
                favor of
                AJW Partners, L.L.C.
            c4.5
            Stock
                Purchase Warrant dated as of May 11, 2000 issued by Registrant to
                New
                Millenium Capital Partners, L.L.C.
            c4.6
            Stock
                Purchase Warrant dated as of May 11, 2000 issued by Registrant to
                AJW
                Partners, L.L.C
            c4.7
            Registration
                Rights Agreement dated as of May 11, 2000 by and between the Registrant
                and the investors named therein.
            c10.1
            Lease
                for Corporate Office
            b10.13
            Statement
                of changes in beneficial ownership of securities.
            k10.14
            Definitive
                Purchase Agreement to acquire certain assets of Idacomm, Inc, effective
                September 16, 2005.
            l10.15
            Definitive
                Purchase Agreement to acquire Inc, effective January 1,
                2006
            m10.16
            Amendment
                to report audited financial statements for Definitive Purchase Agreement
                to acquire Inc.
            n10.17
            Definitive
                Purchase Agreement to acquire certain assets of First USA, Inc, effective
                July 1, 2006.
            o10.18
            Definitive
                Purchase Agreement to acquire certain assets of OW Holdings, Inc,
                effective February 28, 2007.
            p31.1
            Certification
                of Chief Executive Officer Pursuant to the Securities Exchange Act
                of
                1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of2002.31.2
            Certification
                of Chief Financial Officer Pursuant to the Securities Exchange Act
                of
                1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of2002.
            q32.1
            Certification
                Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002
            q




50


a
              Filed
                  as an exhibit to the Registrant's Form-10SB, as amended, initially
                  filed
                  with the Securities and Exchange Commission on October 22, 1999
                  and
                  incorporated herein by reference.


b
            Filed
                as an exhibit to the Registrant's Form-10SB filed with the Securities
                and
                Exchange Commission on October 28, 2006 and incorporated herein by
                reference.




c
            Filed
                as an exhibit to the Registrant's SB-2 Registration Statement, File
                No.
                333-39660, filed on June 20, 2000 and incorporated herein by
                reference.




k
            Filed
                as an exhibit to Registrant’s Form SC 13G/A filed with the Securities and
                Exchange Commission on February 9,
                2005





l
            Filed
                as an exhibit to Registrant’s Form 8-K filed with the Securities and
                Exchange Commission on September 16,
                2005





m
            Filed
                as an exhibit to Registrant’s Form 8-K filed with the Securities and
                Exchange Commission on January 1,
                2006





n
            Filed
                as an exhibit to Registrant’s Form 8-K/A filed with the Securities and
                Exchange Commission on March 22,
                2006





o
            Filed
                as an exhibit to Registrant’s Form 8-K filed with the Securities and
                Exchange Commission on July 6, 2006





p
            Filed
                as an exhibit to Registrant’s Form 8-K filed with the Securities and
                Exchange Commission on March 2,
                2007




q
            Filed
                herewith




51


**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





**BAGELL,
      JOSEPHS, LEVINE & COMPANY, L.L.C.**





On
      April  23,
      2008,
      the Company retained Bagell, Josephs, Levine & Company, L.L.C. as the
      Company's independent auditor and to examine the financial statements of the
      Company for the fiscal year ending December 31, 2007. Bagell, Josephs, Levine
      & Company, L.L.C. performed the services listed below and was paid the fees
      listed below for the fiscal year ended December 31, 2006.





**Audit
      Fees**





Bagell,
      Josephs, Levine & Company, L.L.C. will be paid aggregate fees of
      approximately $53,000 for the fiscal year ended December 31, 2007 for
      professional services rendered for the audit of the Company's annual financial
      statements and for the reviews of the financial statements included in the
      Company's quarterly reports on Form 10-QSB during the fiscal year ended December
      31, 2008.




**Audit
      Related Fees**





Bagell,
      Josephs, Levine & Company, L.L.C. is engaged for aggregate fees of
      approximately $53,000 for the fiscal year ended December 31, 2007 and for the
      first three quarters of 2008 for assurance and related services reasonably
      related to the performance of the audit or review of the Company's financial
      statements.





**All
      Other Fees**





Bagell,
      Josephs, Levine & Company, L.L.C. was not paid any other fees for
      professional services during the fiscal years ended December 31, 2007 and
      December 31, 2006.




**AUDIT
      COMMITTEE**





The
      Company does not have an audit committee.





**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Action
      of
      1934, as amended, the registrant has duly caused this amended Report to be
      signed on its behalf by the undersigned, thereunto duly authorized.




May
      16,
      2008




SITESTAR
                CORPORATIONBy:
                /s/ Frank Erhartic, Jr.Frank
                Erhartic, Jr.
              President,
                Chief Executive OfficerBy:
                /s/ Daniel A. JuddDaniel
                A. Judd
              Chief
                Financial Officer




52


Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, this
      Report has been signed below by the following persons on behalf of the
      registrant and in the capacities and on the dates indicated.




Signature
            Title
            Date/s/
                Frank Erhartic, Jr.
            President,
                Chief Executive Officer,
            May
                16, 2008Frank
                Erhartic, Jr.
            Director
              (Principal
                Executive Officer)


/s/
                Daniel A. Judd
            Chief
                Financial Officer
            May
                16, 2008Daniel
                A. Judd
            (Principal
                Financial Officer,
              Principal
                Accounting Officer)


/s/
                Julie Erhartic
            Secretary,
                Director
            May
                16, 2008Julie
                Erhartic




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