*Table
        of Contents*







**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**




xQUARTERLY
      REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




**For
      the quarterly period ended March 31, 2008**




oTRANSITION
      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)




Indicate
      by check mark whether registrant (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
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a “smaller
      reporting
      company” in
      Rule 12b-2 of the Exchange Act. Yes o  No x




Large
      Accelerated Filer o             Accelerated
      Filer o       Non-Accelerated
      Filer o        Smaller
      Report Company x


(Do
      not
      check if a smaller reporting Company)




APPLICABLE
      ONLY TO CORPORATE ISSUERS




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


As
      of
      May  20,
      2008,
      the issuer had 91,326,463 shares
      of
      common stock issued and outstanding.












*Table
        of Contents*







**SITESTAR
      CORPORATION**




Index


Page
                  NumberPART
                  I.  FINANCIAL INFORMATIONItem
                  1.
              Financial
                  StatementsCondensed
                  Consolidated Balance Sheets as of March 31, 2008 (unaudited) and
                  December
                  31,2007
                  (audited)
              
              3-4Condensed
                  Consolidated Statements of Income for the three
                  months ended March 31, 2008 and 2007 (unaudited)
              
              5Condensed
                  Consolidated Statements of Cash Flows for the three
                  months ended March 31, 2008 and 2007 (unaudited)
              
              6-7Notes
                  to unaudited Condensed Consolidated Financial
                  Statements
              
              8-19Item
                  2.
              Management's
                  Discussion and Analysis
              
              20-25Item
                  3.
              Controls
                  and Procedures
              
              26-27Part
                  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




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**PART
      I. FINANCIAL INFORMATION**




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




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**MARCH
      31, 2008 AND DECEMBER 31, 2007**




**ASSETS**




2008
            
            2007(Unaudited)
            
            (Audited)CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            235,931
            
            $
            232,249Accounts
                receivable, net of allowance of $54,548and
                $22,641
            
            
            622,044
            
            
            299,863Prepaid
                expenses
            
            
            21,467
            
            
            16,529Total current assets
            
            
            879,442
            
            
            548,641PROPERTY
                AND EQUIPMENT, net
            
            
            227,489
            
            
            236,782CUSTOMER
                LIST, net of accumulatedamortization
                of $5,901,699 and $5,237,054
            
            
            4,868,323
            
            
            5,480,635GOODWILL,
                net of impairment
            
            
            1,288,559
            
            
            1,288,559OTHER
                ASSETS
            
            
            633,502
            
            
            677,267TOTAL
                ASSETS
            
            $
            7,897,315
            
            $
            8,231,884






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





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          3 -
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          of Contents*





**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS, continued**


**MARCH
      31, 2008 AND DECEMBER 31, 2007**




**LIABILITIES
      AND STOCKHOLDERS’ EQUITY**




2008
            
            2007(Unaudited)
            
            (Audited)CURRENT
                LIABILITIESAccounts
                payable
            
            $
            94,277
            
            $
            78,713Accrued
                expenses
            
            
            163,943
            
            
            138,021Deferred
                revenue
            
            
            1,375,947
            
            
            1,361,606Notes
                payable
            
            
            1,051,996
            
            
            1,268,866Total
                current liabilities
            
            
            2,686,163
            
            
            2,847,206NOTES
                PAYABLE, less current portion
            
            
            1,304,320
            
            
            1,694,836NOTES
                PAYABLE - STOCKHOLDERS
            
            
            599,677
            
            
            686,687TOTAL
                LIABILITIES
            
            
            4,590,160
            
            
            5,228,729STOCKHOLDERS'
                EQUITYPreferred
                Stock, $.001 par value, 10,000,000 sharesauthorized,
                0 shares issued and outstanding
            
            
            —
            
            
            —Common
                stock, $.001 par value, 300,000,000 shares
              authorized,
                91,326,463 and 91,326,463 shares issued and
              outstanding
                on March 31, 2008 December 31,
              2007
            
            
            91,326
            
            
            91,326Additional
                paid-in capital
            
            
            13,880,947
            
            
            13,880,947Treasury
                stock, $.001 par value, 2,955,147 common shares
              on
                March 31,  2008 and December 31, 2007
            
            
            (63,030
            )
            
            (63,030
            )Accumulated
                deficit
            
            
            (10,602,088
            )
            
            (10,906,088
            )Total
                stockholders’ equity
            
            
            3,307,155
            
            
            3,003,155TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            7,897,315
            
            $
            8,231,884






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





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          4 -
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          of Contents*




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(UNAUDITED)**




2008
            
            2007REVENUE
            
            $
            2,544,545
            
            $
            1,439,981COST
                OF REVENUE
            
            
            825,218
            
            
            391,026GROSS
                PROFIT
            
            
            1,719,327
            
            
            1,048,955OPERATING
                EXPENSES:Selling
                general and administrative expenses
            
            
            1,365,092
            
            
            708,395INCOME
                FROM OPERATIONS
            
            
            354,235
            
            
            340,560OTHER
                (EXPENSE)
            
            
            (50,235
            )
            
            (31,992
            )INCOME
                BEFORE INCOME TAXES
            
            
            304,000
            
            
            308,568INCOME
                TAXES
            
            
            —
            
            
            —NET
                INCOME
            
            $
            304,000
            
            $
            308,568BASIC
                AND DILUTED EARNINGS PER SHARE
            
            $
            0.00
            
            $
            0.00WEIGHTED
                AVERAGE SHARESOUTSTANDING
                - BASIC AND DILUTED
            
            
            91,326,463
            
            
            88,013,305








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




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**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(UNAUDITED)**





2008
            
            2007CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            304,000
            
            $
            308,568Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization expense
            
            
            722,410
            
            
            305,855Bad
                debt expense
            
            
            31,907
            
            
            2,534(Increase)
                decrease in:Accounts
                receivable
            
            
            (354,088
            )
            
            (19,264
            )Prepaid
                expenses
            
            
            (4,938
            )
            
            4,949Increase
                (decrease) in:Accounts
                payable
            
            
            15,564
            
            
            (52,331
            )Accrued
                expenses
            
            
            25,922
            
            
            (152,444
            )Deferred
                revenue
            
            
            14,341
            
            
            90,340Net
                cash provided by operating activities
            
            
            755,118
            
            
            488,207CASH
                FLOWS FROM INVESTING ACTIVITIES:Other
                assets held for resale
            
            
            292
            
            
            11,609Purchase
                of property and equipment
            
            
            —
            
            
            (21,033
            )Purchase
                of non-compete
            
            
            (5,000
            )
            
            (35,000
            )Purchase
                of customer list
            
            
            (52,333
            )
            
            (966,143
            )Net
                cash (used in) investing activities
            
            
            (57,041
            )
            
            (1,010,567
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                proceeds from notes payable
            
            
            27,683
            
            
            976,196Repayment
                of notes payable - stockholders
            
            
            (87,010
            )
            
            (46,861
            )Repayment
                of notes payable
            
            
            (635,068
            )
            
            (304,440
            )Net
                cash provided by (used in) financing activities
            
            
            (694,395
            )
            
            624,895NET
                INCREASEIN
                CASH AND CASH EQUIVALENTS
            
            
            3,682
            
            
            102,535CASH
                AND CASH EQUIVALENTS -BEGINNING OF PERIOD
            
            
            232,249
            
            
            129,453CASH
                AND CASH EQUIVALENTS -END OF PERIOD
            
            $
            235,931
            
            $
            231,988








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




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          6 -
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          of Contents*





**** **SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (continued)**


**(UNAUDITED)**




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




During
      the three months ended March 31, 2008 and 2007, the Company paid no income
      taxes
      and paid interest expense of approximately  $ 72,000
      and $35,000.




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




During
      the three months ended March 31, 2008, the Company issued
      no
      shares of common stock.






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          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, 2007 included in the
      Company’s Annual Report on Form 10-KSB.  The results for the three months
      ended March 31, 2008 are not necessarily indicative of the results to be
      expected for the full year ending December 31, 2008.





**NOTE
      2 - EARNINGS PER SHARE**




The
      Financial Accounting Standards (FAS) 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.





March
                31, 2008
            
            March
                31, 2007Net
                income available to common shareholders
            
            $
            304,000
            
            $
            308,568Weighted
                average number of common shares
            
            
            91,326,463
            
            
            88,013,305Basic
                and diluted income per share
            
            $
            .00
            
            $
            .00




**NOTE
      3 - COMMON STOCK**




During
      the three months ended March 31, 2008, the Company issued no
      shares
      of common stock.




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          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      4 - SEGMENT INFORMATION**




The
      Company has two business units that have been aggregated into two reportable
      segments: Corporate and Internet.





The
      Corporate group is the holding company and oversees the operation of the other
      business units. The Corporate group also arranges financing for the entire
      organization. The
      Company’s Internet group consists of multiple sites of operation and services
      customers throughout the U.S. and Canada.





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




Summarized
      financial information concerning the Company's reportable segments is shown
      in
      the following table for the three months ended March 31, 2008 and
      2007:





March 31,
      2008


Corporate
              
              Internet
              
              ConsolidatedRevenue
              
              $
              —
              
              $
              2,544,545
              
              $
              2,544,545Operating
                  Income (loss)
              
              $
              (43,416
              )
              $
              397,651
              
              $
              354,235Depreciation
                  and amortization
              
              $
              —
              
              $
              722,410
              
              $
              722,410Interest
                  expense
              
              $
              —
              
              $
              71,686
              
              $
              71,686Intangible
                  assets
              
              $
              —
              
              $
              6,519,938
              
              $
              6,519,938Total
                  assets
              
              $
              —
              
              $
              7,897,316
              
              $
              7,897,316




March31,
      2007


Corporate
              
              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




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          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      5 - RECENTLY ISSUED ACCOUNTING PROUNCEMENTS**




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 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.




**NOTE
      6 - ACQUISITIONS**





**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 Internet Service Provider (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 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
      September 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 three months ended March 31, 2007 included in the accompanying
      March 31, 2008 and 2007 consolidated financial statements.




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**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - ACQUISITIONS, continued**





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 three months ended March 31, 2007 and reflects the results
      of
      operations of the Company as if the acquisition of Magnolia Internet Services
      had been effective January 1, 2007.  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.





2007Net
                sales
            
            $
            1,469,629Gross
                profit
            
            $
            1,069,014Selling,
                general and administrative expenses
            
            $
            724,298Net
                income
            
            $
            312,724Basic
                income per share
            
            $
            0.00





**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 which was paid in ninety
      days. The purchase price has been adjusted down to $802,452. 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.





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          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - ACQUISITIONS, continued**





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 three months ended
      March 31, 2007 included in the accompanying March 31, 2008 and 2007 consolidated
      financial statements.





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





2007Net
                sales
            
            $
            1,710,942Gross
                profit
            
            $
            1,235,309Selling,
                general and administrative expenses
            
            $
            824,830Net
                income
            
            $
            378,487Basic
                income per share
            
            $
            0.00





**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 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
      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.





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          12 -
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          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - ACQUISITIONS, continued**





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





Because
      the acquisition of AlaNet Internet Services was consummated on June 21, 2007,
      there are no results of operations of this company for the three months ended
      March 31, 2007 included in the accompanying March 31, 2008 and 2007 consolidated
      financial statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the three months ended March 31, 2007 and reflects the results
      of
      operations of the Company as if the acquisition of AlaNet had been effective
      January 1, 2007.  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.





2007Net
                sales
            
            $
            1,463,483Gross
                profit
            
            $
            1,065,112Selling,
                general and administrative expenses
            
            $
            719,129Net
                income
            
            $
            313,535Basic
                income per share
            
            $
            0.00





**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.





-
          13 -
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          of Contents*





**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - ACQUISITIONS, continued**





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 no results of operations of this company for period ended March 31,
      2007 and included in the accompanying March 31, 2008 and 2007 consolidated
      financial statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the three months ended March 31, 2007 and reflects the results
      of
      operations of the Company as if the acquisition of USA Telephone had been
      effective January 1, 2007. 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.





2007Net
                sales
            
            $
            2,746,814Gross
                profit
            
            $
            1,937,351Selling,
                general and administrative expenses
            
            $
            1,180,851Net
                income
            
            $
            670,499Basic
                income per share
            
            $
            0.01




**Comcation,
      Inc.**


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
      ISP. 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.





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          14 -
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          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - ACQUISITIONS, continued**





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
            
            $
            52,333Non-compete
                agreement
            
            
            5,000Accounts
                receivable
            
            
            2,343Deferred
                revenue
            
            
            (22,858
            )Purchase
                price
            
            $
            36,818





Because
      the acquisition of Comcation was consummated effective March 1, 2008, there
      are
      no results of operations of Comcation for periods ended March 31, 2007 and
      included in the accompanying March 31, 2008 and 2007 consolidated financial
      statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the three months ended March 31, 2007 and reflects the results
      of
      operations of the Company as if the acquisition of Comcation had been effective
      January 1, 2007.  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.





2007Net
                sales
            
            $
            1,451,570Gross
                profit
            
            $
            1,056,932Selling,
                general and administrative expenses
            
            $
            745,287Net
                income
            
            $
            279,653Basic
                income per share
            
            $
            0.00





**N2
      the Net, LLC**


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
      ISP. 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.





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          15 -
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          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - ACQUISITIONS, continued**





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
            
            $
            40,512Non-compete
                agreement
            
            
            5,000Accounts
                receivable
            
            
            2,328Equipment
            
            
            10,000Deferred
                revenue
            
            
            (12,019
            )Purchase
                price
            
            $
            45,821





Because
      the acquisition of N2 the Net was consummated effective April 1, 2008, there
      are
      no results of operations of this company for periods ended March 31, 2007 and
      March 31, 2008.





**Dial
      Assurance, Inc.**


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.





**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,
      2008 and December 31, 2007. 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 income to date.





-
          16 -
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          of Contents*




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




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





At
      March
      31, 2008 and December 31, 2007, the Company had accumulated deficits of
      $10,602,088 and $10,906,088, available to offset future taxable
      income . 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.





There
      was
      no provision for income taxes for the three months ended March 31, 2008 and
      2007.





**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
      years. Amortization expense was $713,118 and $291,105 for the three months
      ended March 31, 2008 and 2007.





**NOTE
      9 - DEFERRED REVENUE**





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




**Revenue
      Recognition**


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.




-
          17 -
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          of Contents*




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.





**NOTE
      10 - NOTES PAYABLE**




Notes
      payable at March 31, 2008 and December 31, 2007 consist of the
      following:


March
                  31, 2008
              
              December
                  31, 2007Bank
                  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 March
                  31, 2008
                  and December 31, 2007 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.
              
              $
              54,342
              
              $
              58,242Bank
                  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%
                  (5.50%
                  as of March 31, 2008 and 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.
              
              
              100,000
              
              
              300,000Non-interest
                  bearing amount due on acquisition of AlaNet Internet Services payable
                  in
                  eleven monthly installments of $4,276 through April 2008.
              
              
              8,436
              
              
              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.
              
              
              236,894
              
              
              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.
              
              
              383,691
              
              
              438,264




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          18 -
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Bank
                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.
            
            
            229,656
            
            
            250,000Non-Interest
              bearing amount due on acquisition of Comcation payable in five monthly
              installments starting April 2008
            
            
            27,682
            
            
            —Non-interest
                bearing amount due on acquisition of USA Telephone payable in thirty
                six
                monthly installments starting January 2008.
            
            
            1,315,615
            
            
            1,574.341Less
                current portion
            
            
            (1,051,996
            )
            
            (1,268,866
            )Long-term
                portion
            
            $
            1,304,320
            
            $
            1,694,836





The
      future principal maturities of these notes are as follows:




Twelve
                months ending March 31, 2009
            
            $
            1,051,996Twelve
                months ending March 31, 2010
            
            
            172,955Twelve
                months ending March 31, 2011
            
            
            15,751Twelve
                months ending March 31, 2012
            
            
            73,907Twelve
                months ending March 31, 2013
            
            
            1,041,708Thereafter
            
            
            -Total
            
            $
            2,356,317






**NOTE
      11 -**  **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.
  -
            19 -
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            of Contents*


**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, 2007 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 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 Internet division consists of multiple sites of operation and services
      customers throughout the U.S. and Canada. Sitestar products include narrow-band
      (dial-up) services, broadband services (ISDN, DSL, satellite, cable and
      wireless) and the Company 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 Internet 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.





-
          20 -
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          of Contents*




**Results
      of operations**




The
      following tables show financial data for the three months ended March 31, 2008
      and 2007. Operating results for any period are not necessarily indicative of
      results for any future period.





For
                the three months ended March 31, 2008 (unaudited)Corporate
            
            Internet
            
            TotalRevenue
            
            $
            —
            
            $
            2,544,545
            
            $
            2,544,545Cost
                of revenue
            
            
            —
            
            
            825,218
            
            
            825,218Gross
                profit
            
            
            —
            
            
            1,719,327
            
            
            1,719,327Operating
                expenses
            
            
            43,416
            
            
            1,321,676
            
            
            1,365,092Income
                (loss) from operations
            
            
            (43,416
            )
            
            397,651
            
            
            354,235Other
                income (expense)
            
            
            —
            
            
            (50,235
            )
            
            (50,235
            )Net
                income (loss)
            
            $
            (43,416
            )
            $
            347,416
            
            $
            304,000





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 -
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          of Contents*




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, 2008 and 2007. Cash and cash
      equivalents totaled $235,931 and $232,249 at March 31, 2008 and December 31,
      2007. EBITDA was $1,098,096 for the three months ended March 31, 2008 and
      2007.




For
                the three months ended March 31,
                2008Corporate
            
            Internet
            
            TotalEBITDA
            
            $
            (43,416
            )
            $
            1,141,512
            
            $
            1,098,096Interest
                expense
            
            
            —
            
            
            (71,686
            )
            
            (71,686
            )Taxes
            
            
            —
            
            
            —
            
            
            —Depreciation
            
            
            —
            
            
            (9,292
            )
            
            (9,292
            )Amortization
            
            
            —
            
            
            (713,118
            )
            
            (713,118
            )Net
                income (loss)
            
            $
            (43,416
            )
            $
            347,416
            
            $
            304,000




For
                the three months ended March 31,
                2007Corporate
            
            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




**LIQUIDITY
      AND CAPITAL RESOURCES**


Cash
        and
        cash equivalents totaled $235,931 and $232,249 at March 31, 2008 and at December
        31, 2007. EBITDA was $1,098,096 for the three months ended March 31, 2008
        as
        compared to $649,882 for the three months ended March 31, 2007.
  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 decreased
        from
        66.3% to 48.0% of total accounts receivable from December 31, 2007 to March
        31,
        2008.  The balance in the 30+ day category increased from 18.3% to 31.1% of
        total accounts receivable from December 31, 2007 to March 31, 2008.  The
        balance in the 60+ day category increased from 15.4% to 20.9% of total accounts
        receivable from December 31, 2007 to March 31, 2008.
 The
        aging
        of accounts receivable as of March 31, 2008 and December 31, 2007 is as
        shown:
  March
                  31, 2008
              
              December
                  31, 2007Current
              
              $
              298,276
              
              
              48.0
              %
              $
              198,757
              
              
              66.3
              %30
                  +
              
              
              193,406
              
              
              31.1
              %
              
              54,768
              
              
              18.3
              %60
                  +
              
              
              130,362
              
              
              20.9
              %
              
              46,338
              
              
              15.4
              %90
                  +
              
              
              —
              
              
              —
              %
              
              —
              
              
              —
              %Total
              
              $
              622,044
              
              
              100.0
              %
              $
              299,863
              
              
              100.0
              %
 
 **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.
  **THREE
        MONTHS ENDED MARCH 31, 2008 COMPARED TO MARCH 31, 2007
        (Unaudited)**




**REVENUE** .





Revenue
      for the three months ended March 31, 2008 increased by $1,104,564 or 76.7%
      from
      $1,439,981 for the three months ended March 31, 2007 to $2,544,545 for the
      same
period in 2008. Internet sales increased primarily due to the addition of
      Internet customers from the asset acquisition of USA Telephone These
      acquisitions, for the three months ended March 31, 2008, yielded approximately
      $1,307,000 in additional net revenues. This increase from acquisitions was
      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.




-
          22 -
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          of Contents*





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 its dial-up base, the
      Company plans to continue to acquire ISPs in these target markets.





**COST
      OF REVENUE** .





Costs
      of
      revenue for the three months ended March 31, 2008 increased by $434,192 or
      111.0% from $391,026 for the three months ended March 31, 2007 to
      $825,218  for
      the
      same period in 2008.  This increase is due to telecommunications expenses
      associated with the acquisitions of customers which had not realized anticipated
      economies and accounted for approximately $433,624 in additional direct
      expenses.





**OPERATING
      EXPENSES** .





Operating
      expenses for the three months ended March 31, 2008 increased $656,697 or 92.7%
      from $708,395 for the three months ended March 31, 2007 to $1,365,092 for the
      same period in 2008.  Amortization expense increased $422,013 or 145.0%
      from $291,105 for the three months ended March 31, 2007 to $713,118 for the
      same
      period in 2008.  This increase is due to the acquisition of customer bases.
      Corporate expenses of $43,416 for the three months ended March 31, 2008
      consisted primarily of professional fees. Corporate expenses of $3,479 for
      the
      three months ended March 31, 2007 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 $19,551 and $4,189 for the three months ended
      March 31, 2008 and 2007.  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, 2008 and 2007.





**INTEREST
      EXPENSE** .





Interest
      expense for the three months ended March 31, 2008 increased by $36,217
      or  102.1%
      from $35,469 for the three months ended March 31, 2007 to $71,686 for the same
      period in 2008.  This decrease is a result of retiring debt that carried a
      high rate of imputed interest.





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**MARCH
      31, 2008 (Unaudited) COMPARED TO DECEMBER 31, 2007
      (Audited)**





**FINANCIAL
      CONDITION.**





Net
      accounts receivable increased $322,181 or 107.4% from $299,863 on December
      31,
      2007 to $622,044 on March 31, 2008.  This increase is substantially due to
      the addition of customers 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 $292 or .4% from
      $70,739 on December 31, 2007 to $70,447 on March 31, 2008. Accounts payable
      increased by $15,564 or 19.8% from $78,713 on December 31, 2007 to $94,277
      on
      March 31, 2008. Accrued expenses increased by $25,922  or
      18.8%
      from $138,021 on December 31, 2007 to $163,943 on March 31, 2008. This increase
      is a reflection of accruing professional fees.  Deferred
      revenue increased by $14,341 or 1.1% from $1,361,606 on December 31, 2007 to
      $1,375,947 on March 31, 2008 representing increased volume of customer accounts
      that have been prepaid. The current portion of notes payable decreased $216,870
      or 17.1% from $1,268,866 on December 31, 2007 to $1,051,996 on March 31, 2008.
      This is substantially due to the curtailment of a line of credit of $200,000
      in
      addition to servicing term notes. Long-term notes payable decreased $390,516
      or
      23.0% from $1,694,836 on December 31, 2007 to $1,304,320 on March 31, 2008.
      This
      decrease is the result of offsetting principal balance of the purchase note
      of
      USA Telephone against collections of accounts receivable by USA Telephone.
      Long-term notes payable to stockholders decreased $87,010 or 12.7% from $686,687
      on December 31, 2007 to $599,677 on March 31, 2008.





**LIQUIDITY
      AND CAPITAL RESOURCES**




Cash
      and
      cash equivalents totaled $235,931 and $232,249 at March 31, 2008 and at December
      31, 2007. EBITDA was $1,098,096 for the three months ended March 31, 2008 as
      compared to $649,882  for
      the
      same period in 2007.


2008
              
              2007EBITDA
                  for the three months ended March 31,
              
              $
              1,098,096
              
              $
              649,882Interest
                  expense
              
              
              (71,686
              )
              
              (35,469
              )Taxes
              
              
              —
              
              
              —Depreciation
              
              
              (9,292
              )
              
              (14,740
              )Amortization
              
              
              (713,118
              )
              
              (291,105
              )Net
                  income for the three months ended March 31,
              
              $
              304,000
              
              $
              308,568





The
      aging
      of accounts receivable as of March 31, 2008 and December 31, 2007 is as
      shown:





2008
            
            2007Current
            
            $
            244,272
            
            
            39
            %
            $
            171,446
            
            
            57
            %30
                < 60
            
            
            214,895
            
            
            35
            %
            
            72,337
            
            
            24
            %60
                +
            
            
            162,877
            
            
            26
            %
            
            56,080
            
            
            19
            %Total
            
            $
            622,044
            
            
            100
            %
            $
            299,863
            
            
            100
            %




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**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 j udgments,
      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.





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**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, 2008. 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, 2008 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.





**Disclosure
      Controls and Internal Control over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over our financial reporting. Management did not use a framework to
      conduct the required evaluation of the effectiveness of our internal control
      over financial reporting since, in the view of management, comparison with
      a
      framework was unwarranted because the size of the Company's current operations
      are such that management is aware of all current transactions. An evaluation
      was
      conducted under the supervision and with the participation of the Company's
      management, including the President (Principal Executive Officer) and CFO
      (Principal Accounting and Financial Officer), of the effectiveness of the design
      and operation of the Company's disclosure controls and procedures (as defined
      in
      Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the quarter ended
      March 31, 2008 covered by this Annual Report on Form 10-QSB.





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**Inherent
      Limitations of the Effectiveness of Internal Control**





A
      control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the internal control system
      are
      met. Because of the inherent limitations of any internal control system, no
      evaluation of controls can provide absolute assurance that all control issues,
      if any, within a company have been detected.




**Changes
      in Internal Control over Financial Reporting**





The
      Company's management, including the President (Principal Executive Officer)
      and
      Treasurer (Principal Accounting and Financial Officer), confirm that there
      was
      no change in the Company's internal control over financial reporting during
      the
      quarter ended March 31, 2008 that has materially affected, or is reasonably
      likely to materially affect, the Company's internal control over financial
      reporting.





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**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:




21
              Subsidiaries
                  of Sitestar.


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




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**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
                  CORPORATIONDate:
                  May 20, 2008By:
              /s/ Frank Erhartic, Jr.Frank
                  Erhartic, Jr.President,
                  Chief Executive Officer(Principal
                  Executive Officer andPrincipal
                  Accounting Officer)Date:
                  May 20, 2008By:
              /s/ Daniel A. Judd.Daniel
                  A. JuddChief
                  Financial Officer(Principal
                  Financial Officer)




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