**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 September 30, 2007**




o
            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 xNo o





Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Exchange Act).


Yes oNo
x




APPLICABLE
      ONLY TO CORPORATE ISSUERS




As
      of
      November 14, 2007, the issuer had 88,063,305 shares of common stock issued
      and
      outstanding.




Transitional
      Small Business Disclosure Format (check one):  Yes oNo x









**SITESTAR
      CORPORATION**




Index




Page
              NumberPART
                I.
            
            FINANCIAL
                INFORMATIONItem
                1.
            
            Financial
                StatementsCondensed
                Consolidated Balance Sheets as of September 30, 2007 (unaudited)
                and
                December 31, 2006 (audited)
            
            3Condensed
                Consolidated Statements of Income for the three months ended September
                30,
                2007 and 2006 (unaudited)
            
            5Condensed
                Consolidated Statements of Income for the nine months ended September
                30,
                2007 and 2006 (unaudited)
            
            6Condensed
                Consolidated Statements of Cash Flows for the nine months ended September
                30, 2007 and 2006 (unaudited)
            
            7Notes
                to unaudited Condensed Consolidated Financial Statements
            
            9Item
                2.
            
            Management's
                Discussion and Analysis
            
            22Item
                3.
            
            Controls
                and Procedures
            
            29Part
                II.
            
            OTHER
                INFORMATION
            
            30Item
                1.
            
            Legal
                Proceedings
            
            30Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            30Item
                3.
            
            Defaults
                Upon Senior Securities
            
            30Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            30Item
                5.
            
            Other
                Information
            
            30Item
                6.
            
            Exhibits
            
            30SIGNATURES
            
            31




2




**PART
      I. FINANCIAL INFORMATION**




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




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**SEPTEMBER
      30, 2007 AND DECEMBER 31, 2006**




2007
            
            2006(Unaudited)
            
            (Audited)**ASSETS**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            310,442
            
            $
            129,453Accounts
                receivable, net of allowance of $23,682and
                $15,695 as of September 30, 2007 and December31,
                2006
                respectively
            
            
            250,238
            
            
            170,626Prepaid
                expenses
            
            
            31,512
            
            
            23,676Total
                current assets
            
            
            592,192
            
            
            323,755PROPERTY
                AND EQUIPMENT, net
            
            
            249,804
            
            
            274,269CUSTOMER
                LIST, net of accumulatedamortization
                of $4,619,589 and $3,716,215 as ofSeptember
                30, 2007 and December 31, 2006 respectively
            
            
            1,805,444
            
            
            1,721,233GOODWILL,
                net of impairment
            
            
            1,288,559
            
            
            1,288,559OTHER
                ASSETS
            
            
            378,520
            
            
            437,197TOTAL
                ASSETS
            
            $
            4,314,519
            
            $
            4,045,013




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




3




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS, continued**


**SEPTEMBER
      30, 2007 AND DECEMBER 31, 2006**




2007
            
            2006(Unaudited)
            
            (Audited)**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**CURRENT
                LIABILITIESAccounts
                payable
            
            $
            45,618
            
            $
            105,814Accrued
                expenses
            
            
            169,652
            
            
            426,216Deferred
                revenue
            
            
            548,465
            
            
            588,766Notes
                payable
            
            
            394,726
            
            
            286,114Notes
                payable - stockholders
            
            
            -
            
            
            46,861Total
                current liabilities
            
            
            1,158,461
            
            
            1,453,771NOTES
                PAYABLE, less current portion
            
            
            196,742
            
            
            63,113NOTES
                PAYABLE - STOCKHOLDERS, less current portion
            
            
            663,301
            
            
            814,946TOTAL
                LIABILITIES
            
            
            2,018,504
            
            
            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 andoutstanding
                on September 30, 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
                September 30,  2007 and December 31, 2006
            
            
            (329,977
            )
            
            (329,977
            )Accumulated
                deficit
            
            
            (11,113,228
            )
            
            (11,696,060
            )Total
                stockholders’ equity
            
            
            2,296,015
            
            
            1,713,183TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            4,314,519
            
            $
            4,045,013




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





4




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**


**(UNAUDITED)**




2007
            
            2006REVENUE
            
            $
            1,481,886
            
            $
            1,463,885COST
                OF REVENUE
            
            
            472,842
            
            
            427,214GROSS
                PROFIT
            
            
            1,009,044
            
            
            1,036,671OPERATING
                EXPENSES:Selling
                general and administrative expenses
            
            
            782,606
            
            
            701,400INCOME
                FROM OPERATIONS
            
            
            226,438
            
            
            335,271OTHER
                INCOME (EXPENSES)
            
            
            (41,694
            )
            
            (52,803
            )INCOME
                BEFORE INCOME TAXES
            
            
            184,744
            
            
            282,468INCOME
                TAXES
            
            
            -
            
            
            -NET
                INCOME
            
            $
            184,744
            
            $
            282,468BASIC
                AND DILUTED EARNINGS PER SHARE
            
            $
            0.00
            
            $
            0.00WEIGHTED
                AVERAGE SHARESOUTSTANDING
                - BASIC AND DILUTED
            
            
            88,063,305
            
            
            88,063,305




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




5




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**


**(UNAUDITED)**




2007
            
            2006REVENUE
            
            $
            4,450,600
            
            $
            4,286,437COST
                OF REVENUE
            
            
            1,403,848
            
            
            1,212,324GROSS
                PROFIT
            
            
            3,046,752
            
            
            3,074,113OPERATING
                EXPENSES:Selling
                general and administrative expenses
            
            
            2,336,151
            
            
            2,119,064INCOME
                FROM OPERATIONS
            
            
            710,601
            
            
            955,049OTHER
                INCOME (EXPENSES)
            
            
            (127,769
            )
            
            (157,238
            )INCOME
                BEFORE INCOME TAXES
            
            
            582,832
            
            
            797,811INCOME
                TAXES
            
            
            -
            
            
            -NET
                INCOME
            
            $
            582,832
            
            $
            797,811BASIC
                AND DILUTED EARNINGS PER SHARE
            
            $
            0.01
            
            $
            0.01WEIGHTED
                AVERAGE SHARESOUTSTANDING
                - BASIC AND DILUTED
            
            
            88,063,305
            
            
            88,046,821




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




6




**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**


**(UNAUDITED)**





2007
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            582,832
            
            $
            797,811Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization expense
            
            
            1,011,012
            
            
            760,768Bad
                debt expense
            
            
            7,987
            
            
            3,697(Increase)
                decrease in:Accounts
                receivable
            
            
            (87,599
            )
            
            (31,158
            )Prepaid
                expenses
            
            
            (7,836
            )
            
            (9,104
            )Increase
                (decrease) in:Accounts
                payable
            
            
            (60,196
            )
            
            79,088Accrued
                expenses
            
            
            (256,564
            )
            
            100,523Deferred
                revenue
            
            
            (40,301
            )
            
            344,924Net
                cash provided by operating activities
            
            
            1,149,335
            
            
            2,046,549CASH
                FLOWS FROM INVESTING ACTIVITIES:Other
                assets held for resale
            
            
            36,538
            
            
            (5,271
            )Purchase
                of property and equipment
            
            
            (21,033
            )
            
            (197,003
            )Purchase
                of domain name for resale
            
            
            -
            
            
            (200,000
            )Purchase
                of non-compete
            
            
            (40,000
            )
            
            -Purchase
                of customer list
            
            
            (987,585
            )
            
            (1,251,173
            )Net
                cash (used in) investing activities
            
            
            (1,012,080
            )
            
            (1,653,447
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                proceeds from notes payable - stockholders
            
            
            -
            
            
            66,310Net
                proceeds from notes payable
            
            
            818,337
            
            
            756,804Repayment
                of notes payable - stockholders
            
            
            (198,506
            )
            
            (121,781
            )Repayment
                of notes payable
            
            
            (576,097
            )
            
            (1,196,330
            )Issuance
                of common stock
            
            
            -
            
            
            203,000Net
                cash provided by (used in) financing activities
            
            
            43,734
            
            
            (291,997
            )NET
                INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            180,989
            
            
            101,105CASH
                AND CASH EQUIVALENTS -BEGINNING OF PERIOD
            
            
            129,453
            
            
            36,047CASH
                AND CASH EQUIVALENTS -END OF PERIOD
            
            $
            310,442
            
            $
            137,152




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




7


**SITESTAR
      CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
      (continued)**


**(UNAUDITED)**




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




During
      the nine months ended September 30, 2007 and 2006, the Company paid no income
      taxes and paid interest of approximately $119,000 and $163,000, respectively.




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




During
      the nine months ended September 30, 2007, the Company issued no shares of common
      stock.




8




**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 for the nine months
      ended September 30, 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 $566,269 as of September 30, 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:


a)
              Increase
                  revenue by acquiring customers in target markets at competitive
                  prices;
   9


**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      1 - BASIS OF PRESENTATION, continued**




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 nine months ended September 30, 2007, the Company issued no shares of common
      stock.




**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 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.




10




**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 September 30, 2007 and
      2006:





September 30,
      2007




Corporate
            
            Internet
            
            ConsolidatedRevenue
            
            $
            -
            
            $
            1,481,886
            
            $
            1,481,886Operating
                Income (loss)
            
            $
            (9,593
            )
            $
            236,031
            
            $
            226,438Depreciation
                and amortization
            
            $
            -
            
            $
            351,742
            
            $
            351,742Interest
                expense
            
            $
            -
            
            $
            33,768
            
            $
            33,768Intangible
                assets
            
            $
            -
            
            $
            3,389,475
            
            $
            3,389,475Total
                assets
            
            $
            -
            
            $
            4,314,519
            
            $
            4,314,519





September 30,
      2006




Corporate
            
            Internet
            
            ConsolidatedRevenue
            
            $
            -
            
            $
            1,463,885
            
            $
            1,463,885Operating
                Income (loss)
            
            $
            (17,240
            )
            $
            352,511
            
            $
            335,271Depreciation
                and amortization
            
            $
            -
            
            $
            283,653
            
            $
            283,653Interest
                expense
            
            $
            -
            
            $
            54,416
            
            $
            54,416Intangible
                assets
            
            $
            -
            
            $
            3,445,718
            
            $
            3,445,718Total
                assets
            
            $
            -
            
            $
            4,384,039
            
            $
            4,384,039





Summarized
      financial information concerning the Company's reportable segments is shown
      in
      the following table for the nine months ended September 30, 2007 and
      2006:





September 30,
      2007




Corporate
            
            Internet
            
            ConsolidatedRevenue
            
            $
            -
            
            $
            4,450,600
            
            $
            4,450,600Operating
                Income (loss)
            
            $
            (53,320
            )
            $
            763,921
            
            $
            710,601Depreciation
                and amortization
            
            $
            -
            
            $
            1,011,025
            
            $
            1,011,025Interest
                expense
            
            $
            -
            
            $
            118,950
            
            $
            118,950Intangible
                assets
            
            $
            -
            
            $
            3,389,475
            
            $
            3,389,475Total
                assets
            
            $
            -
            
            $
            4,314,519
            
            $
            4,314,519




11




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      4 - SEGMENT INFORMATION, continued**




September 30,
      2006




Corporate
            
            Internet
            
            ConsolidatedRevenue
            
            $
            -
            
            $
            4,286,437
            
            $
            4,286,437Operating
                Income (loss)
            
            $
            (71,507
            )
            $
            1,026,556
            
            $
            955,049Depreciation
                and amortization
            
            $
            -
            
            $
            760,768
            
            $
            760,768Interest
                expense
            
            $
            -
            
            $
            163,004
            
            $
            163,004Intangible
                assets
            
            $
            -
            
            $
            3,445,718
            
            $
            3,445,718Total
                assets
            
            $
            -
            
            $
            4,384,039
            
            $
            4,384,039





**NOTE
      5 - RECENTLY ISSUED ACCOUNTING PROUNCEMENTS**





In
      May 2005, the Financial Accounting Standards Board (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.




12




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




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




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





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 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.





13




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





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





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.




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 of 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.




14




**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 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. which was 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 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 nine months ended September 30,
      2006 included in the accompanying September 30, 2007 and 2006 consolidated
      financial statements.





15




**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 nine months ended September 30, 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
            
            $
            4,366,614Gross
                profit
            
            $
            3,154,290Selling,
                general and administrative expenses
            
            $
            2,160,157Net
                income
            
            $
            836,895Basic
                income per share
            
            $
            0.01





**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 establishes the Company's Internet
      presence 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 which was 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 limited results of operations of these companies for the nine months
      ended September 30, 2006 included in the accompanying September 30, 2007 and
      2006 consolidated financial statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the nine months ended September 30, 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.





16




**SITESTAR
      CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      6 - ACQUISITIONS, continued**





2006Net
                sales
            
            $
            4,781,507Gross
                profit
            
            $
            3,466,183Selling,
                general and administrative expenses
            
            $
            2,384,070Net
                income
            
            $
            924,875Basic
                income per share
            
            $
            0.01





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





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 September 30, 2007. Because the acquisition of Magnolia Internet
      Services was consummated on February 1, 2007, there are no results of operations
      of this company for the nine months ended September 30, 2006 included in the
      accompanying September 30, 2007 and 2006 consolidated financial
      statements.




17





**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 nine months ended September 30, 2006 and reflects the results
      of operations of the Company as if the acquisition of Magnolia Internet Services
      had been effective January 1,
      2006.
      The pro forma amounts are not necessarily indicative of the combined results
      of
      operations had the acquisitions been effective as of that date, or of the
      anticipated results of operations, due to cost reductions and operating
      efficiencies that are expected as a result of the acquisitions.





2006Net
                sales
            
            $
            4,401,970Gross
                profit
            
            $
            3,193,836Selling,
                general and administrative expenses
            
            $
            2,172,742Net
                income
            
            $
            860,188Basic
                income per share
            
            $
            0.01





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





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 and the balance was paid in
      ninety days. The purchase price has been adjusted down to $802,452 as of
      September 30, 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.





18





**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 no results of operations of this company for the nine months ended September
      30, 2006 included in the accompanying September 30, 2007 and 2006 consolidated
      financial statements.





The
      following table presents the unaudited pro forma condensed statement of
      operations for the nine months ended September 30, 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
            
            $
            5,158,827Gross
                profit
            
            $
            3,653,669Selling,
                general and administrative expenses
            
            $
            2,445,268Net
                income
            
            $
            1,004,262Basic
                income per share
            
            $
            0.01





**AlaNet
      Internet Services**




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





Because
      the acquisition of AlaNet Internet Services was consummated on June 21, 2007,
      there are no results of operations of this company for the nine months ended
      September 30, 2006 included in the accompanying September 30, 2007 and 2006
      consolidated financial statements.




19




**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 nine months ended September 30, 2006 and reflects the results
      of operations of the Company as if the acquisition of AlaNet had been effective
      January 1, 2006.  The pro forma amounts are not necessarily indicative of
      the combined results of operations had the acquisitions been effective as of
      that date, or of the anticipated results of operations, due to cost reductions
      and operating efficiencies that are expected as a result of the
      acquisitions.





2006Net
                sales
            
            $
            4,322,513Gross
                profit
            
            $
            3,108,024Selling,
                general and administrative expenses
            
            $
            2,138,986Net
                income
            
            $
            810,691Basic
                income per share
            
            $
            0.01





**UNITED
      SYSTEMS ACCESS, Inc.**




Effective
      October 31, 2007, the Company entered into an Asset Purchase Agreement pursuant
      to which it acquired the Internet related assets of United Systems Access,
      Inc.(USA), a Main-based Internet Service Provider. 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.





Because
      the acquisition of USA was consummated effective October 31, 2007, there are
      no
      results of operations of this company for periods ended September 30, 2007
      and
      September 30, 2006 included in the accompanying September 30, 2007 and 2006
      consolidated financial statements. Because the consummation of the Internet
      assets of USA was on October 31, 2007, the valuation allocations of the purchase
      price are pending continuing due diligence to establish the respective
      values.




**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.




20




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





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 September
      30, 2007 and December 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 income to date.





At
      September 30, 2007 and December 31, 2006, the Company had accumulated deficits
      of $11,113,228 and $11,696,060, respectively, 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 nine months ended September 30, 2007
      and
      September 30, 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
      years. Amortization expense was $965,513 and $706,183 for the nine months
      ended September 30, 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. 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 $566,269 as of September 30, 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.




21




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





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 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.
  22


The
      Company’s Internet division 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. 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 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.




**Results
      of operations**




The
      following tables show financial data for the nine months ended September 30,
      2007 and 2006. Operating results for any period are not necessarily indicative
      of results for any future period.





For
                the nine months ended September 30, 2007 (unaudited)Corporate
            
            Internet
            
            TotalRevenue
            
            $
            -
            
            $
            4,450,600
            
            $
            4,450,600Cost
                of revenue
            
            
            -
            
            
            1,403,848
            
            
            1,403,848Gross
                profit
            
            
            -
            
            
            3,046,752
            
            
            3,046,752Operating
                expenses
            
            
            53,320
            
            
            2,282,831
            
            
            2,336,151Income
                (loss) from operations
            
            
            (53,320
            )
            
            763,921
            
            
            710,601Other
                income (expense)
            
            
            -
            
            
            (127,769
            )
            
            (127,769
            )Net
                income (loss)
            
            $
            (53,320
            )
            $
            636,152
            
            $
            582,832




23




For
                the nine months ended September 30, 2006 (unaudited)Corporate
            
            Internet
            
            TotalRevenue
            
            $
            -
            
            $
            4,286,437
            
            $
            4,286,437Cost
                of revenue
            
            
            -
            
            
            1,212,324
            
            
            1,212,324Gross
                profit
            
            
            -
            
            
            3,074,113
            
            
            3,074,113Operating
                expenses
            
            
            71,507
            
            
            2,047,557
            
            
            2,119,064Income
                (loss) from operations
            
            
            (71,507
            )
            
            1,026,556
            
            
            955,049Other
                income (expense)
            
            
            -
            
            
            (157,238
            )
            
            (157,238
            )Net
                income (loss)
            
            $
            (71,507
            )
            $
            869,318
            
            $
            797,811




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





The
      following tables show a reconciliation of EBITDA to the GAAP presentation of
      net
      income for the nine months ended September 30, 2007 and 2006.




For
                the nine months ended September 30, 2007Corporate
            
            Internet
            
            TotalEBITDA
            
            $
            (53,320
            )
            $
            1,766,127
            
            $
            1,712,807Interest
                expense
            
            
            -
            
            
            (118,950
            )
            
            (118,950
            )Taxes
            
            
            -
            
            
            -
            
            
            -Depreciation
            
            
            -
            
            
            (45,512
            )
            
            (45,512
            )Amortization
            
            
            -
            
            
            (965,513
            )
            
            (965,513
            )Net
                income (loss)
            
            $
            (53,320
            )
            $
            636,152
            
            $
            582,832





For
                the nine months ended September 30,
                2006Corporate
            
            Internet
            
            TotalEBITDA
            
            $
            (71,507
            )
            $
            1,793,090
            
            $
            1,721,583Interest
                expense
            
            
            -
            
            
            (163,004
            )
            
            (163,004
            )Taxes
            
            
            -
            
            
            -
            
            
            -Depreciation
            
            
            -
            
            
            (54,585
            )
            
            (54,585
            )Amortization
            
            
            -
            
            
            (706,183
            )
            
            (706,183
            )Net
                income (loss)
            
            $
            (71,507
            )
            $
            869,318
            
            $
            797,811




24




**NINE
      MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO SEPTEMBER 30, 2006
      (Unaudited)**




**REVENUE** .
       Revenue for the nine months ended September 30, 2007 increased by $164,163
      or 3.8% from $4,286,437 for the nine months ended September 30, 2006 to
      $4,450,600 for the same period in 2007. Internet sales increased primarily
      due
      to the addition of Internet customers from the asset acquisitions of Magnolia
      Internet Services, OW Holding (One West) and AlaNet. These acquisitions, for
      the
      nine months ended September 30, 2007, yielded approximately $1,024,000 in
      additional net revenues. These increases from acquisitions were offset by
      additional attrition to broadband service and the termination of an affiliate
      relationship. 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 its dial-up
      base, the Company plans to continue to acquire ISPs in these target
      markets





**COST
      OF REVENUE** .
      Costs
      of revenue for the nine months ended September 30, 2007 increased by $191,524
      or
      15.8% from $1,212,324 for the nine months ended September 30, 2006 to $1,403,848
      for the same period in 2007.  This increase is due telecommunications
      expenses associated with the acquisitions of customers which accounted for
      approximately $291,000 in additional direct expenses.





**OPERATING
      EXPENSES** .
      Operating expenses for the nine months ended September 30, 2007 increased
      $217,105 or 10.2% from $2,119,046 for the nine months ended September 30, 2006
      to $2,336,151 for the same period in 2007.  Amortization expense increased
      $259,330 or 36.7% from $706,183 for the nine months ended September 30, 2006
      to
      $965,513 for the same period in 2007.  This increase is due to the
      acquisition of customer bases. Bad debts increased $20,992 or 5.9% from $354,970
      for the nine months ended September 30, 2006 to $375,962 for the same period
      in
      2007. These increases were offset in part by decreases in rent of $20,227 or
      25.7% from $78,791 for the nine months ended September 30, 2006 to $58,534
      for
      the same time period in 2007. Professional fees decreased by $23,514 or 34.1%
      from 69,001 for the nine months ended September 30, 2006 to $45,487 for the
      same
      time period in 2007. Corporate expenses of $53,320 for the nine months ended
      September 30, 2007 consisted primarily of professional fees. Corporate expenses
      of $70,602 for the nine months ended September 30, 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 $10,761 and $11,287 for the nine months
      ended September 30, 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 nine months ended September 30, 2007 and
      2006
      respectively.




25




**INTEREST
      EXPENSE** .
      Interest expense for the nine months ended September 30, 2007 decreased by
      $44,054 or 27.0% from $163,004 for the nine months ended September 30, 2006
      to
      $118,950 for the same period in 2007.  This decrease is a result of
      retiring debt that carried a high rate of imputed interest.





**SEPTEMBER
      30, 2007 (Unaudited) COMPARED TO DECEMBER 31, 2006
      (Audited)**





**FINANCIAL
      CONDITION.** Net
      accounts receivable increased $79,612 or 46.7% from $170,626 on
      December 31, 2006 to $250,238 on September 30, 2007.  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
      $46,416 or 35.8% from $129,464 on December 31, 2006 to $83,048 on September
      30,
      2007. Accounts payable
      decreased by $60,196 or 56.9% from $105,814 on December 31, 2006 to $45,618
      on
      September 30, 2007.  Accrued expenses decreased by $256,564 or 60.0% from
      $426,216 on December 31, 2006 to $169,652 on September 30, 2007.  These
      decreases are a reflection of increased cash flows from recent acquisitions.
      Deferred revenue decreased by $40,301 or 6.8% from $588,766 on December 31,
      2006
      to $548,465 on September 30, 2007 representing decreased volume of customer
      accounts that have been prepaid. The current portion of notes payable increased
      $108,612 or 38.0% from $286,114 on December 31, 2006 to $394,726 on September
      30, 2007. Long-term notes payable increased $113,629 or 211.7% from $63,113
      on
      December 31, 2006 to $196,742 on September 30, 2007. These increases are the
      result of financing recent acquisitions of customers. Long-term notes payable
      to
      stockholders decreased $151,645 or 18.6% from $814,946 on December 31, 2006
      to
      $663,301 on September 30, 2007. Subsequent to the quarter ending September
      30,
      2007, the Company paid off the outstanding principal balance of a term note
      payable of $96,254. This application represents six months of payments and
      was
      paid from cash generated from operations.




**LIQUIDITY
      AND CAPITAL RESOURCES**




Cash
      and
      cash equivalents totaled $310,442 and $129,453 at September 30, 2007 and at
      December 31, 2006, respectively. EBITDA was $1,712,807 for the nine months
      ended
      September 30, 2007 as compared to $1,721,583 for the same period in 2006.





2007
            
            2006EBITDA
                for the nine months ended September 30,
            
            $
            1,712,807
            
            $
            1,721,583Interest
                expense
            
            
            (118,950
            )
            
            (163,004
            )Taxes
            
            
            -
            
            
            -Depreciation
            
            
            (45,512
            )
            
            (54,585
            )Amortization
            
            
            (965,513
            )
            
            (706,183
            )Net
                income for the nine months ended September 30,
            
            $
            582,832
            
            $
            797,811





The
      accompanying condensed consolidated financial statements have been prepared
      in
      accordance with U.S. GAAP, which contemplate continuation of the Company as
      a
      going concern.




26




As
      shown
      in the consolidated financial statements, the Company had a working capital
      deficiency of $566,269 as of September 30, 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:




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.




27




The
      aging
      of accounts receivable as of September 30, 2007 and December 31, 2006 is as
      shown:




2007
            
            2006Current
            
            $
            94,900
            
            
            38
            %
            $
            68,170
            
            
            40
            %30
                < 60
            
            
            81,222
            
            
            32
            %
            
            54,499
            
            
            32
            %60
                +
            
            
            74,116
            
            
            30
            %
            
            48,709
            
            
            28
            %Total
            
            $
            250,238
            
            
            100
            %
            $
            171,378
            
            
            100
            %





**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.




28




**Item
      3.    Controls and Procedures**




We
      have
      evaluated the effectiveness of our disclosure controls and procedures and
      internal controls over financial reporting as of September 30, 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
      September 30, 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.





29




**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




30




**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:
              November 14, 2007
            By:
            /s/
              Frank Erhartic, Jr.Frank
              Erhartic, Jr.President,
                Chief
                Executive Officer
              (Principal Executive Officer and
              Principal Accounting
                Officer)




Date:
              November 14, 2007
            By:
            /s/
              Daniel A. Judd.Daniel
              A. JuddChief
                Financial Officer
              (Principal Financial
                Officer)




31