*Table
            of Contents*





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




[X]
          QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934




**For
      the quarterly period ended March 31, 2007**




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




For
      the
      transition period from ________________ to _______________




**000-27763**


(Commission
      file number)




**SITESTAR
      CORPORATION**


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




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




**7109
      Timberlake Road, Lynchburg, VA  24502**


(Address
      of principal executive offices)




**(434)
      239-4272**


(Issuer's
      telephone number)




N/A


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




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes [X]  No [  ]





Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Exchange Act). Yes [  ]  No [X]




APPLICABLE
      ONLY TO CORPORATE ISSUERS




As
      of
      May  15,
      2007,
      the issuer had 88,063,305 shares
      of common stock issued and outstanding.




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


*Table
          of Contents*




**SITESTAR
      CORPORATION**




Index


Page
                NumberPART
                I.  FINANCIAL INFORMATIONItem
                1.  Financial StatementsCondensed
                Consolidated Balance Sheets as of March 31, 2007 (unaudited) and
                December
                31,2006
                (audited)
            3Condensed
                Consolidated Statements of Income for the three months ended March
                31,
                2007 and2006
                (unaudited)
            5Condensed
                Consolidated Statements of Cash Flows for the three
                months ended March 31, 2007 and 2006 (unaudited)
            6Notes
                to unaudited Condensed Consolidated Financial
                Statements
            8Item
                2.   Management's Discussion and Analysis
            20Item
                3.   Controls and Procedures
            27Part
                II.  OTHER INFORMATION
            28Item
                1.  Legal Proceedings
            28Item
                2.  Unregistered sales of equity securities and use
                of proceeds
            28Item
                3.  Defaults Upon Senior Securities
            28Item
                4.  Submission of Matters to a Vote of Security
                Holders
            28Item
                5.  Other Information
            28Item
                6.  Exhibits
            28SIGNATURES
            29




-2-
 *Table
          of Contents*




**PART
      I. FINANCIAL INFORMATION**




**Item
      1.****Financial
      Statements**




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**MARCH
      31, 2007 AND DECEMBER 31, 2006**




**ASSETS**


2007
            
            2006(Unaudited)
            
            (Audited)CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            231,988
            
            $
            129,453Accounts
                receivable, net of allowance of $18,228and
                $15,695 as of March 31, 2007 andDecember
                31, 2006 respectively
            
            
            187,356
            
            
            170,626Prepaid
                expenses
            
            
            18,727
            
            
            23,676Total current assets
            
            
            438,071
            
            
            323,755PROPERTY
                AND EQUIPMENT, net
            
            
            280,552
            
            
            274,269CUSTOMER
                LIST, net of accumulatedamortization
                of $3,987,236 and $3,716,215 as ofMarch
                31, 2007 and December 31, 2006 respectively
            
            
            2,416,355
            
            
            1,721,233GOODWILL,
                net of impairment
            
            
            1,288,559
            
            
            1,288,559OTHER
                ASSETS
            
            
            440,505
            
            
            437,197TOTAL
                ASSETS
            
            $
            4,864,042
            
            $
            4,045,013






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


-3-
 *Table
          of Contents*




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS, continued**


**MARCH
      31, 2007 AND DECEMBER 31, 2006**




**LIABILITIES
      AND STOCKHOLDERS’ EQUITY**




2007
            
            2006(Unaudited)
            
            (Audited)CURRENT
                LIABILITIESAccounts
                payable
            
            $
            53,483
            
            $
            105,814Accrued
                expenses
            
            
            273,772
            
            
            426,216Deferred
                revenue
            
            
            679,105
            
            
            588,766Notes
                payable
            
            
            613,080
            
            
            286,114Notes
                payable - stockholders
            
            
            -
            
            
            46,861Total
                current liabilities
            
            
            1,619,440
            
            
            1,453,771NOTES
                PAYABLE, less current portion
            
            
            407,904
            
            
            63,113NOTES
                PAYABLE - STOCKHOLDERS, less current portion
            
            
            814,946
            
            
            814,946TOTAL
                LIABILITIES
            
            
            2,842,290
            
            
            2,331,830STOCKHOLDERS'
                EQUITYPreferred
                Stock, $.001 par value, 10,000,000 sharesauthorized,
                0 shares issued and outstanding
            
            
            -
            
            
            -Common
                stock, $.001 par value, 300,000,000 sharesauthorized,
                88,063,305 and 88,063,305 shares issued and
              outstanding
                on March 31, 2007 December 31,2006 respectively
            
            
            88,063
            
            
            88,063Additional
                paid-in capital
            
            
            13,651,157
            
            
            13,651,157Treasury
                stock, $.001 par value, 8,218,305 common shareson
                March 31,  2007 and December 31, 2006
            
            
            (329,977
            )
            
            (329,977
            )Accumulated
                deficit
            
            
            (11,387,491
            )
            
            (11,696,060
            )Total
                stockholders’ equity
            
            
            2,021,752
            
            
            1,713,183TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            4,864,042
            
            $
            4,045,013


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


-4-
 *Table
          of Contents*




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006**


**(UNAUDITED)**




2007
            
            2006REVENUE
            
            $
            1,439,981
            
            $
            1,457,523COST
                OF REVENUE
            
            
            391,026
            
            
            449,789GROSS
                PROFIT
            
            
            1,048,955
            
            
            1,007,734OPERATING
                EXPENSES:Selling
                general and administrative expenses
            
            
            708,395
            
            
            762,730INCOME
                FROM OPERATIONS
            
            
            340,560
            
            
            245,004OTHER
                INCOME (EXPENSES)
            
            
            (31,992
            )
            
            (57,322
            )INCOME
                BEFORE INCOME TAXES
            
            
            308,568
            
            
            187,682INCOME
                TAXES
            
            
            -
            
            
            -NET
                INCOME
            
            $
            308,568
            
            $
            187,682BASIC
                AND DILUTED EARNINGS PER SHARE
            
            $
            0.00
            
            $
            0.00WEIGHTED
                AVERAGE SHARESOUTSTANDING
                - BASIC AND DILUTED
            
            
            88,013,305
            
            
            88,013,305


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


-5-
 *Table
          of Contents*




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006**


**(UNAUDITED)**





2007
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            308,568
            
            $
            187,682Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization expense
            
            
            305,855
            
            
            238,260Bad
                debt expense
            
            
            2,534
            
            
            4,322(Increase)
                decrease in:Accounts
                receivable
            
            
            (19,264
            )
            
            (19,435
            )Prepaid
                expenses
            
            
            4,949
            
            
            (8,840
            )Increase
                (decrease) in:Accounts
                payable
            
            
            (52,331
            )
            
            285,509Accrued
                expenses
            
            
            (152,444
            )
            
            145,044Deferred
                revenue
            
            
            90,340
            
            
            249,326Net
                cash provided by operating activities
            
            
            488,207
            
            
            1,081,868CASH
                FLOWS FROM INVESTING ACTIVITIES:Other
                assets held for resale
            
            
            11,609
            
            
            (5,271
            )Purchase
                of property and equipment
            
            
            (21,033
            )
            
            (200,963
            )Purchase
                of non-compete
            
            
            (35,000
            )
            
            -Purchase
                of customer list
            
            
            (966,143
            )
            
            (686,748
            )Net
                cash (used in) investing activities
            
            
            (1,010,567
            )
            
            (892,982
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                proceeds from notes payable - stockholders
            
            
            -
            
            
            52,483Net
                proceeds from notes payable
            
            
            976,196
            
            
            452,069Repayment
                of notes payable - stockholders
            
            
            (46,861
            )
            
            (37,457
            )Repayment
                of notes payable
            
            
            (304,440
            )
            
            (792,868
            )Issuance
                of common stock
            
            
            -
            
            
            200,000Net
                cash (used in) financing activities
            
            
            624,895
            
            
            (125,773
            )NET
                INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS
            
            
            102,535
            
            
            63,113CASH
                AND CASH EQUIVALENTS -BEGINNING OF PERIOD
            
            
            129,453
            
            
            36,047CASH
                AND CASH EQUIVALENTS -END OF PERIOD
            
            $
            231,988
            
            $
            99,160


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


-6-
 *Table
          of Contents*




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (continued)**


**(UNAUDITED)**




**SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION** **:**




During
      the three months ended March 31, 2007 and 2006, the Company paid no income
      taxes
      and paid interest of approximately  $ 35,000
      and $61,000, respectively.




**NON-CASH
      INVESTING AND FINANCING TRANSACTIONS:**




During
      the three months ended March 31, 2007, the Company issued
      no
      shares of common stock.


-7-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**





**NOTE
      1 - BASIS OF PRESENTATION**




The
      unaudited condensed consolidated financial statements have been prepared by
      Sitestar Corporation (the “Company” or “Sitestar”), pursuant to the rules and
      regulations of the Securities and Exchange Commission. The information furnished
      herein reflects all adjustments (consisting of normal recurring accruals and
      adjustments), which are, in the opinion of management, necessary to fairly
      present the operating results for the respective periods. Certain information
      and footnote disclosures normally present in annual consolidated financial
      statements prepared in accordance with generally accepted accounting principles
      have been omitted pursuant to such rules and regulations. These financial
      statements should be read in conjunction with the audited consolidated financial
      statements and footnotes for the year ended December 31, 2006 included in the
      Company’s Annual Report on Form 10-KSB.  The results of the three months
      ended March 31, 2007 are not necessarily indicative of the results to be
      expected for the full year ending December 31, 2007.




The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with U.S. generally accepted accounting principles
      (GAAP), which contemplate continuation of the Company as a going concern.
 As shown in the consolidated financial statements, the Company had a
      working capital deficiency of $1,181,369 as of March 31, 2007.  That
      condition raises substantial doubt about the Company's ability to continue
      as a
      going concern. The financial statements do not include any adjustments that
      might result from the outcome of this uncertainty. However, the Company believes
      that existing cash, cash equivalents and cash flow from operations and the
      Company’s ability to obtain favorable financing will be sufficient to meet the
      Company’s working capital and capital expenditure requirements for the next
      twelve months. If the foregoing assumptions are true, Sitestar should not have
      the need to raise any additional material funds for operating expenses during
      that 12 month period. Growth in revenues is expected to be derived from
      acquisitions of customers and financing is one of the tools to accomplish this
      growth. Acquisitions of additional customers in the past few years have been
      accomplished primarily with seller financing and it is management’s belief that
      this is a repeatable method of financing for similar acquisitions in the near
      future.





In
      October 2002, new management was installed.  New management has taken the
      following steps that it believes will be sufficient to provide the Company
      with
      the ability to continue in existence and mitigate the concerns:


-8-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




a)
            Increase
                revenue by acquiring customers in target markets at competitive
                prices;


b)
            Up
                sell value-added products and services to existing customer base
                to
                maximize average revenue per user
                (ARPU);


c)
            Leverage
                economies of scale to reduce overall operating
                expenses;


d)
            Maximize
                operational efficiency through the deployment of
                technology;


e)
            Reduce
                supplier costs by securing more favorable rates and terms through
                wholesale partnerships and other methods.





The
      Company believes that its existing cash, cash equivalents, cash flow from
      operations and its ability to obtain favorable financing will be sufficient
      to
      meet its working capital and capital expenditure requirements for at least
      the
      next 12 months.  If such sources of financing are insufficient or
      unavailable, or if the Company experiences shortfalls in anticipated revenue
      or
      increases in anticipated expenses, it may need to slow down or reduce its
      marketing and development efforts. Any of these events could harm the business,
      financial condition or results of operations.





**NOTE
      2 - EARNINGS PER SHARE**




The
      Financial Accounting Standards No. 128, "Accounting for Earnings Per Share"
      requires dual presentation of basic and diluted earnings per share on the face
      of the statements of income and requires a reconciliation of the numerators
      and
      denominators of the basic and diluted earnings per share calculation. Basic
      earnings per share are calculated based on the weighted average number of shares
      of common stock outstanding during each period. Diluted income per share is
      computed using weighted average shares outstanding adjusted to reflect the
      dilutive effect of all potential common shares that were outstanding during
      the
      period.




**NOTE
      3 - COMMON STOCK**




During
      the three months ended March 31, 2007, the Company issued no
      shares
      of common stock.




**NOTE
      4 - SEGMENT INFORMATION**




The
      Company has two business units that have separate management and reporting
      infrastructures offering different products and services.  The business
      units have been aggregated into two reportable segments: Corporate and Internet.





The
      Corporate group is the holding company and oversees the operating of the other
      business units. The Corporate group also arranges financing for the entire
      organization. The
      Company’s Internet group consists of multiple sites of operation and services
      customers throughout the U.S. and Canada, with concentrations in customers
      in
      the Mid-Atlantic, Ohio Valley and Rocky Mountain regions in the U.S. and in
      Ontario, Canada.


-9-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      4 - SEGMENT INFORMATION, continued**







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




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





March
                  31, 2007Corporate
            
            Internet
            
            ConsolidatedRevenue
            
            $
            -
            
            $
            1,439,981
            
            $
            1,439,981Operating
                Income (loss)
            
            $
            (3,479
            )
            $
            344,039
            
            $
            340,560Depreciation
                and amortization
            
            $
            -
            
            $
            305,855
            
            $
            305,855Interest
                expense
            
            $
            -
            
            $
            35,469
            
            $
            35,469Intangible
                assets
            
            $
            -
            
            $
            3,837,442
            
            $
            3,837,442Total
                assets
            
            $
            -
            
            $
            4,864,042
            
            $
            4,864,042





March
      31,
      2006


Corporate
            
            Internet
            
            ConsolidatedRevenue
            
            $
            -
            
            $
            1,457,523
            
            $
            1,457,523Operating
                Income (loss)
            
            $
            (35,243
            )
            $
            280,247
            
            $
            245,004Depreciation
                and amortization
            
            $
            
            
            $
            238,260
            
            $
            238,260Interest
                expense
            
            $
            -
            
            $
            60,969
            
            $
            60,969Intangible
                assets
            
            $
            -
            
            $
            3,357,048
            
            $
            3,357,048Total
                assets
            
            $
            -
            
            $
            4,080,714
            
            $
            4,080,714




-10-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      5 - RECENTLY ISSUED ACCOUNTING PROUNCEMENTS**





In
      May
      2005, the FASB issued SFAS 154, “Accounting for Changes and Error Corrections—a
      replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154
      changes the requirements with regard to the accounting for and reporting a
      change in an accounting principle. The provisions of SFAS 154 require, unless
      impracticable, retrospective application to prior periods presented in financial
      statements for all voluntary changes in an accounting principle and changes
      required by the adoption of a new accounting pronouncement in the unusual
      instance that the new pronouncement does not indicate a specific transition
      method. SFAS 154 also requires that a change in depreciation, amortization
      or
      depletion method for long-lived, non-financial assets be accounted for as a
      change in an accounting estimate, which requires prospective application of
      the
      new method. SFAS 154 is effective for all changes in an accounting principle
      made in fiscal years beginning after December 15, 2005. The Company has
      adopted SFAS 154 as of January 1, 2006. Because SAS 154 is directly dependent
      upon future events, the Company cannot determine what effect, if any, the
      expected adoption of SFAS 154 will have on its financial condition, results
      of
      operations or cash flows.





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 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


-11-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      5 - RECENTLY ISSUED ACCOUNTING PROUNCEMENTS, Continued**





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.





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 believes it will not
      have a material impact on its financial position or on the results of
      operations.





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) ratified the consensus
      reached in Emerging Issues Task Force (“EITF”) Issue No. 06-2, “Accounting for
      Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No.
      43.”
EITF Issue No. 06-2 provides recognition guidance on the accrual of employees’
rights to compensated absences under a sabbatical or other similar benefit
      arrangement. EITF Issue No. 06-2 is effective for the Company for all financial
      statements after December 31, 2006. The Company believes it will not have a
      material impact on its financial position or on the results of
      operations.





In
      July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48,
“Accounting for Uncertainty in Income Taxes,” which prescribes a comprehensive
      model for how a company should recognize, measure, present and disclose in
      its
      financial statements uncertain tax positions that the company has taken or
      expects to take on a tax return (including a decision whether to file or not
      to
      file a return in a particular jurisdiction). The accounting provisions of FIN
      No. 48 are effective for fiscal years beginning after December 15, 2006. The
      Company is in the process of determining the effect, if any, the adoption of
      FIN
      No. 48 will have on its financial statements.


-12-
 *Table
          of Contents*


**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      5 - RECENTLY ISSUED ACCOUNTING PROUNCEMENTS, Continued**





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
      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.


-13-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - 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 corporation. The transaction consists of the acquisition of
      over 7,000 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 paid 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-based
      Internet Service Provider. The acquisition further increases the company's
      dial-up and DSL Internet customer base by 700 in the Rocky Mountain region.
      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 three months ended March 31,
      2006
      included in the accompanying March 31, 2007 and 2006 consolidated financial
      statements.


-14-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      6 - ACQUISITIONS, continued**





The
      following table presents the unaudited pro forma condensed statement of
      operations for the three months ended March 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
            
            $
            1,465,370Gross
                profit
            
            $
            1,015,581Selling,
                general and administrative expenses
            
            $
            762,730Net
                income
            
            $
            195,529Basic
                income per share
            
            $
            0.00





**First
      Net**


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-based
      Internet Service Provider. The acquisition further increases the company's
      dial-up Internet customer base by 6,200 in the Ohio Valley region. 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. Because the acquisition of First Net was consummated on July 1, 2006,
      there are no results of operations of these companies for the three months
      ended
      March 31, 2006 included in the accompanying March 31, 2007 and 2006 consolidated
      financial statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the three months ended March 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.


-15-
 *Table
          of Contents*


**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
      6 - ACQUISITIONS, continued**





2006Net
                sales
            
            $
            1,652,347Gross
                profit
            
            $
            1,157,558Selling,
                general and administrative expenses
            
            $
            847,151Net
                income
            
            $
            253,085Basic
                income per share
            
            $
            0.00





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





**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-based Internet Service Provider. The acquisition establishes
      the Company's Internet presence in Arkansas. The total purchase price was
      $119,333 representing the fair value of the assets acquired which consisted
      of a
      $12,000 cash payment at closing with the balance to be 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
      $95,744  as
      of
      March 31, 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 three months ended March 31, 2006 included in the accompanying
      March 31, 2007 and 2006 consolidated financial statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the three months ended March 31, 2006 and reflects the results
      of
      operations of the Company as if the acquisition of Magnolia Internet Services
      had been effective January


-16-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - ACQUISITIONS, continued**




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
            
            $
            1,491,852Gross
                profit
            
            $
            1,042,063Selling,
                general and administrative expenses
            
            $
            776,072Net
                income
            
            $
            207,908Basic
                income per share
            
            $
            0.00





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
            
            
            95,463Non-compete
                agreement
            
            
            10,000Equipment
            
            
            10,000Deferred
                revenue
            
            
            (19,719
            )Purchase
                price
            
            $
            95,744





**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., a
      Wyoming-based Internet Service Provider. The acquisition further increases
      the
      Company's Internet presence in 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 with the balance to be paid
      in
      ninety days.





Because
      the acquisition of OW Holdings, Inc. was consummated on February 28, 2007,
      there
      are no results of operations of this company for the three months ended March
      31, 2006 included in the accompanying March 31, 2007 and 2006 consolidated
      financial statements. Because the consummation of the Internet assets of OW
      Holdings was on February 28, 2007 and the period of due diligence had not
      expired on March 31, 2007, the valuation allocations of the purchase price
      were
      pending continuing due diligence to establish the final respective values on
      March 31, 2007.


-17-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - ACQUISITIONS, continued**





The
      following table presents the unaudited pro forma condensed statement of
      operations for the three months ended March 31, 2006 and reflects the results
      of
      operations of the Company as if the acquisition of OW Holdings 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
            
            $
            1,580,739Gross
                profit
            
            $
            1,129,950Selling,
                general and administrative expenses
            
            $
            807,141Net
                income
            
            $
            257,249Basic
                income per share
            
            $
            0.00




**NOTE
      7 -- PROVISION FOR INCOME TAXES**





Income
      taxes are provided for the tax effects of transactions reported in the financial
      statements and consist of taxes currently due. Deferred taxes related to
      differences between the basis of assets and liabilities for financial and income
      tax reporting will either be taxable or deductible when the assets or
      liabilities are recovered or settled. The difference between the basis of assets
      and liabilities for financial and income tax reporting are not material
      therefore, the provision for income taxes from operations consist of income
      taxes currently payable.





The
      nature of the timing difference generating the deferred tax asset, are the
      accumulated net operating loss carry forwards that can be applied towards
      mitigating future tax liabilities of the Company. The Company has established
      a
      valuation account at the full value of the tax deferred asset as of March 31,
      2007 and March 31, 2006. The Company’s operations have generated federal, state
      income taxes payable which have been offset by the operating loss carry
      forwards. The Company does not have an effective tax rate due to the Company’s
      lack of taxable profits to date.





At
      March
      31, 2007 and March 31, 2006, the Company had accumulated deficits of $11,387,491
      and $11,696,060, respectively, available to offset future taxable income through
      2006 . The
      Company established valuation allowances equal to the full amount of the
      deferred tax assets due to the uncertainty of the operating losses in future
      periods.





Following
      is the Company’s approximated schedule of net operating loss carry
      forwards:


-18-
 *Table
          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      7 - PROVISION FOR INCOME TAXES, continued**




December
                  31, 2003
              
              $
              134,000December
                  31, 2004
              
              $
              1,871,433June
                  30, 2005
              
              $
              4,071,163June
                  30, 2006
              
              $
              24,988,912September
                  30, 2006
              
              $
              10,611,258


There
      was
      no provision for income taxes for the three months ended March 31, 2007 and
      March 31, 2006.





**NOTE
      8 - INTANGIBLE ASSETS**





The
      Company continually monitors its intangible assets to determine whether any
      impairment has occurred.  In making such determination with respect to
      these assets, the Company evaluates the performance, on an undiscounted cash
      flow basis, of the intangible assets or group of assets.  Should impairment
      be identified, a loss would be reported to the extent that the carrying value
      of
      the related intangible asset exceeds its fair value using the discounted cash
      flow method.  The Company's customer lists are being amortized over three
      and five years. Amortization expense was $291,105 and $220,429 for the
      three months ended March 31, 2007 and 2006, respectively.





**NOTE
      9 - CONTINUATION OF THE COMPANY AS A GOING CONCERN**





The
      accompanying consolidated financial statements have been prepared in accordance
      with U.S. generally accepted accounting principles, which contemplate
      continuation of the Company as a going concern.  As shown in the
      consolidated financial statements, the Company had a working capital deficiency
      of $1,181,369 as of March 31, 2007. That condition raises substantial doubt
      about the Company's ability to continue as a going concern. The financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty. However, the Company believes that existing cash, cash
      equivalents and cash flow from operations and the Company’s ability to obtain
      favorable financing will be sufficient to meet the Company’s working capital and
      capital expenditure requirements for the next twelve months. If the foregoing
      assumptions are true, Sitestar should not have the need to raise any additional
      material funds for operating expenses during that 12 month period.





Growth
      in
      revenues is expected to be derived from acquisitions of customers and financing
      is one of the tools to accomplish this growth. Acquisitions of additional
      customers in the past few years have been accomplished primarily with seller
      financing and it is management’s belief that this is a repeatable method of
      financing for similar acquisitions in the near future.


-19-
 *Table
          of Contents*




In
      October 2002, new management was installed.  New management has taken the
      following steps that it believes will be sufficient to provide the Company
      with
      the ability to continue in existence and mitigate the concerns:





a)
            Increase
                revenue by acquiring customers in target markets at competitive
                prices;


b)
            Up
                sell value-added products and services to existing customer base
                to
                maximize average revenue per user
                (ARPU);


c)
            Leverage
                economies of scale to reduce overall operating
                expenses;


d)
            Maximize
                operational efficiency through the deployment of
                technology;


e)
            Reduce
                supplier costs by securing more favorable rates and terms through
                wholesale partnerships and other methods.




**Item
      2.****Management's
      Discussion and Analysis of Financial Condition and Results 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, 2006 included in the 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.




**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’s national Internet service is marketed under the brand name
      SurfWithUs.net to differentiate the Company’s national Internet service from its
      local Internet service.  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 design and programming services;


·
         Web hosting services;


·
         End-to-end e-commerce solutions;


·
         Online marketing consulting;


·
         Toner and ink cartridge remanufacturing services;
      and


·
         Computer programming and consulting services.




-20-
 *Table
          of Contents*




The
      Company’s ISP division consists of multiple sites of operation and services
      customers throughout the U.S. and Canada, with concentrations in customers
      in
      the Mid-Atlantic and Rocky Mountain regions in the U.S. and in Ontario, Canada.
      Sitestar products include narrow-band (dial-up) services and broadband services
      (ISDN, DSL, satellite, cable 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 design, web hosting and related services provide a way to help
      businesses market their products and services over the Internet.





Through
      its ISP division, the Company 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.
       The Company is a factory authorized service center for many national-brand
      computer equipment companies. The Company’s toner and ink cartridge
      remanufacturing service utilizes empty toner cartridges and remanufactures
      them
      to provide savings to customers over buying brand new cartridges. This service
      is available locally and nationwide.





The
      Company’s computer programming and consulting services help companies automate
      their businesses.  The Company sold the assets of the programming division
      on August 31, 2004 while retaining the rights to the new product that automates
      certain functions of crisis centers throughout the nation.




**Results
      of operations**




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





For
                the three months ended March 31, 2007 (unaudited)Corporate
            
            Internet
            
            TotalRevenue
            
            $
            -
            
            $
            1,439,981
            
            $
            1,439,981Cost
                of revenue
            
            
            -
            
            
            391,026
            
            
            391,026Gross
                profit
            
            
            -
            
            
            1,048,955
            
            
            1,048,955Operating
                expenses
            
            
            3,479
            
            
            704,916
            
            
            708,395Income
                (loss) from operations
            
            
            (3,479
            )
            
            344,039
            
            
            340,560Other
                income (expense)
            
            
            -
            
            
            (31,992
            )
            
            (31,992
            )Net
                income (loss)
            
            $
            (3,479
            )
            $
            312,047
            
            $
            308,568




-21-
 *Table
          of Contents*




For
                the three months ended March 31, 2006 (unaudited)Corporate
            
            Internet
            
            TotalRevenue
            
            $
            -
            
            $
            1,457,523
            
            $
            1,457,523Cost
                of revenue
            
            
            -
            
            
            449,789
            
            
            449,789Gross
                profit
            
            
            -
            
            
            1,007,734
            
            
            1,007,734Operating
                expenses
            
            
            35,243
            
            
            727,487
            
            
            762,730Income
                (loss) from operations
            
            
            (35,243
            )
            
            280,247
            
            
            245,004Other
                income (expense)
            
            
            -
            
            
            (57,322
            )
            
            (57,322
            )Net
                income (loss)
            
            $
            (35,243
            )
            $
            222,925
            
            $
            187,682


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





The
      following tables show a reconciliation of EBITDA to the GAAP presentation of
      net
      income for the three months ended March 31, 2007 and 2006.





For
      the
      three months ended March 31, 2007


Corporate
            
            Internet
            
            TotalEBITDA
            
            $
            (3,479
            )
            $
            653,361
            
            $
            649,882Interest
                expense
            
            
            -
            
            
            (35,469
            )
            
            (35,469
            )Taxes
            
            
            -
            
            
            -
            
            
            -Depreciation
            
            
            -
            
            
            (14,740
            )
            
            (14,740
            )Amortization
            
            
            -
            
            
            (291,105
            )
            
            (291,105
            )Net
                income (loss)
            
            $
            (3,479
            )
            $
            312,047
            
            $
            308,568





For
      the three months ended March 31, 2006


Corporate
            
            Internet
            
            TotalEBITDA
            
            $
            (35,243
            )
            $
            522,154
            
            $
            486,911Interest
                expense
            
            
            -
            
            
            (60,969
            )
            
            (60,969
            )Taxes
            
            
            -
            
            
            -
            
            
            -Depreciation
            
            
            -
            
            
            (17,831
            )
            
            (17,831
            )Amortization
            
            
            -
            
            
            (220,429
            )
            
            (220,429
            )Net
                income (loss)
            
            $
            (35,243
            )
            $
            222,925
            
            $
            187,682





-22-
 *Table
            of Contents*




**THREE
      MONTHS ENDED MARCH 31, 2007 COMPARED TO MARCH 31, 2006
      (Unaudited)**




**REVENUE** .
       Revenue for the three months ended March 31, 2007 decreased by $17,542 or
      1.2% from $1,457,523 for the three months ended March 31, 2006 to $1,439,981
      for
      the same period in 2007. Internet sales increased due to the addition of
      Internet customers from the asset acquisitions of Magnolia Internet Services
      and
      One West Holding. These acquisitions, for the three months ended March 31,
      2007,
      yielded approximately $157,545 in additional net revenues. These increases
      from
      acquisitions were offset by additional attrition to broadband service. Sitestar
      focuses on marketing and selling Internet access to second-tier markets where
      broadband is not prevalent. The Company’s strategy is to leverage operational
      economies of scale to provide dial-up service in these markets where it will
      continue to be the core method for connecting to the Internet. While Sitestar
      is
      currently adding customers through promotional marketing campaigns, this method
      for strong and sustainable growth is threatened by competition from
      nationally-known ISPs and discount dial-up providers as well as from the future
      introduction of broadband services. To increase the expansion of its dial-up
      base the Company is and plans to continue to acquire ISPs in these target
      markets





**COST
      OF REVENUE** .
      Costs
      of revenue for the three months ended March 31, 2007 decreased by $58,763 or
      13.1% from $449,789 for the three months ended March 31, 2006 to
      $391,026  for
      the
      same period in 2007.  This decrease is primarily due to the realization of
      economies of scale in telecommunication expenses for the three months ended
      March 31, 2007.





**OPERATING
      EXPENSES** .
      Operating expenses for the three months ended March 31, 2007 decreased $54,335
      or 7.1% from $762,730 for the three months ended March 31, 2006 to $708,395
      for
      the same period in 2007.  Wages decreased $48,259 or 23.2% from $207,677
      for the three months ended March 31, 2006 to $159,418 for the same period in
      2007.  This decrease is due to streamlining duties and efficient use of
      personnel. Rent decreased $10,813 or 36.5% from $29,585 for the three months
      ended March 31, 2006 to $18,772 for the same period in 2006. This is primarily
      the result of negotiating lower occupancy rates. Corporate expenses of $3,479
      for the three months ended March 31, 2007 consisted primarily of professional
      fees. Corporate expenses of $35,243 for the three months ended March 31, 2006
      consisted primarily of professional fees.




**GAIN
      ON SALE OF ASSETS** .
 A
      gain was recognized on the sale of the assets of Sitestar Applied Technologies,
      Inc. to Servatus Development, LLC of $4,189 and $3,393 for the three months
      ended March 31, 2007 and 2006 respectively.  This represents, per the
      Definitive Purchase Agreement between the parties, 20% of the gross revenue
      of
      Servatus Development, LLC for the three months ended March 31, 2007 and 2006
      respectively.





**INTEREST
      EXPENSE** .
      Interest expense for the three months ended March 31, 2007 decreased by $25,500
      or 41.8% from $60,969 for the three months ended March 31, 2006 to $35,469
      for
      the same period in 2007.  This decrease is a result of retiring debt that
      carried a high rate of imputed interest.


-23-
 *Table
            of Contents*




**MARCH
      31, 2007 (Unaudited) COMPARED TO DECEMBER 31, 2006
      (Audited)**





**BALANCE
      SHEETS** .
        Net accounts receivable increased $16,730 or 9.8% from $170,626 on
      December 31, 2006 to $187,356 on March 31, 2007.  This increase is
      substantially due to the addition of the customer base from acquisitions. 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 which
      decreased by $21,487 or 16.6% from $129,464 on December 31, 2006 to $107,977
      on
      March 31, 2007. Accounts payable
      decreased by $52,331 or 49.5% from $105,814 on December 31, 2006 to $53,483
      on
      March 31, 2007.  Accrued expenses decreased by $152,444  or
      35.8%
      from $426,216 on December 31, 2006 to $273,772 on March 31, 2007.  These
      decreases are a reflection of increased cash flows from recent
      acquisitions.  Deferred
      revenue increased by $90,339 or 15.3% from $588,766 on December 31, 2006 to
      $679,105 on March 31, 2007 representing increased volume of customer accounts
      that have been prepaid. The current portion of notes payable increased $326,966
      or 144.3% from $286,114 on December 31, 2006 to $13,080 on March 31, 2007.
      Long-term notes payable increased $344,791 or 546.3% from $63,113 on December
      31, 2006 to $407,904 on March 31, 2007.  These increases are primarily a
      result of financing recent acquisitions of customers.




**LIQUIDITY
      AND CAPITAL RESOURCES**




Cash
      and
      cash equivalents totaled $231,988 and $129,453 at March 31, 2007 and at December
      31, 2006, respectively. EBITDA was $649,882 for the three months ended March
      31,
      2007 as compared to $486,911 for the same period in 2006.




2007
              
              2006EBITDA
                  for the three months ended March 31,
              
              $
              649,882
              
              $
              486,911Interest
                  expense
              
              
              (35,469
              )
              
              (60,969
              )Taxes
              
              
              -
              
              
              -Depreciation
              
              
              (14,740
              )
              
              (17,831
              )Amortization
              
              
              (291,105
              )
              
              (220,429
              )Net
                  income for the three months ended March 31,
              
              $
              308,568
              
              $
              187,682
  The
        accompanying condensed consolidated financial statements have been prepared
        in
        accordance with U.S. generally accepted accounting principles, which contemplate
        continuation of the Company as a going concern.  As shown in the
        consolidated financial statements, the Company had a working capital deficiency
        of $1,181,369 as of March 31, 2007.  That condition raises substantial
        doubt about the Company's ability to continue as a going concern. The financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty. However, the Company believes that existing cash, cash
        equivalents and cash flow from operations and the Company’s ability to obtain
        favorable financing will be sufficient to meet the Company’s working capital and
        capital expenditure requirements for the next twelve months. If the foregoing
        assumptions are true, Sitestar should not have the need to raise any additional
        material funds for operating expenses during that 12 month period. Growth
        in
        revenues is expected to be derived from acquisitions of customers and financing
        is one of the tools to accomplish this growth.
 -24-
 *Table
              of Contents*
  Acquisitions
        of additional customers in the past few years have been accomplished primarily
        with seller financing and it is management’s belief that this is a repeatable
        method of financing for similar acquisitions in the near future. In October
        2002, new management was installed. New management has taken the following
        steps
        that it believes will be sufficient to provide the Company with the ability
        to
        continue in existence and mitigate the concerns:




a)
            Increase
                revenue by acquiring customers in target markets at competitive
                prices;


b)
            Up
                sell value-added products and services to existing customer base
                to
                maximize average revenue per user
                (ARPU);


c)
            Leverage
                economies of scale to reduce overall operating
                expenses;


d)
            Maximize
                operational efficiency through the deployment of
                technology;


e)
            Reduce
                supplier costs by securing more favorable rates and terms through
                wholesale partnerships and other methods.





The
      Company believes that its existing cash, cash equivalents, cash flow from
      operations and its ability to obtain favorable financing will be sufficient
      to
      meet its working capital and capital expenditure requirements for at least
      the
      next 12 months.  If such sources of financing are insufficient or
      unavailable, or if the Company experiences shortfalls in anticipated revenue
      or
      increases in anticipated expenses, it may need to slow down or reduce its
      marketing and development efforts. Any of these events could harm the business,
      financial condition or results of operations.





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
      billing and collections was the implementation of a uniform manual
      invoice-processing fee, which also helps speed up the billing and collections
      process.





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





2007
            
            2006Current
            
            $
            86,250
            
            
            46
            %
            $
            87,399
            
            
            51
            %30
                < 60
            
            
            54,768
            
            
            29
            %
            
            44,574
            
            
            26
            %60
                +
            
            
            46,338
            
            
            25
            %
            
            38,653
            
            
            23
            %Total
            
            $
            187,356
            
            
            100
            %
            $
            170,626
            
            
            100
            %




-25-
 *Table
          of Contents*




**OFF
      BALANCE SHEET TRANSACTIONS**




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




**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, our ability to expand our customer base, make strategic
      acquisitions, general market conditions, and competition and pricing. Although
      we believe 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.





**CRITICAL
      ACCOUNTING POLICY AND ESTIMATES**





The
      Company’s Management’s Discussion and Analysis of Financial Condition and
      Results of Operations section discusses its condensed consolidated financial
      statements, which have been prepared 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
      quarterly report.


-26-
 *Table
          of Contents*




**Item
      3.    Controls and
      Procedures**




We
      have
      evaluated the effectiveness of our disclosure controls and procedures and
      internal controls over financial reporting as of March 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 changes in
      internal control over financial reporting during the last fiscal quarter ended
      March 31, 2007 that materially affected, or is reasonably likely to materially
      affect internal control over financial reporting.




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.


-27-
 *Table
          of Contents*




**PART
      II.  OTHER INFORMATION**




**Item
      1.     Legal
      Proceedings**




None.




**Item
      2.     Unregistered Sales of Equity Securities
      and use of Proceeds**




None.




**Item
      3.     Defaults Upon Senior
      Securities**




None.




**Item
      4.     Submission of Matters to a Vote of
      Security Holders**




None.





**Item
      5.     Other
      Information**




None




**Item
      6.     Exhibits**




(a)
            The
                following are filed as exhibits to this form
                10-QSB:




31.1
            Certification
                of President Pursuant to the Securities Exchange Act of 1934, Rules
                13a-14
                and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley
                Act
                of 2002.




31.2
            Certification
                of Chief Financial Officer Pursuant to the Securities Exchange Act
                of
                1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.




32
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002




-28-
 *Table
          of Contents*




**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




SITESTAR
      CORPORATION


Date :
      May 15,
      2007




By : /s/
      Frank
      Erhartic, Jr.


Frank
      Erhartic, Jr.


President,
      Chief Executive Officer


(Principal
      Executive Officer and Principal
      Accounting Officer)




Date:
      May
      15, 2007




By: /s/
      Daniel A. Judd


Daniel
      A.
      Judd


Chief
      Financial Officer


(Principal
      Financial Officer)


-29-