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, 2008 included in the Annual Report on Form 10-K. 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

Sitestar is an Internet Service Provider (ISP) that offers consumer and business-grade Internet access, wholesale managed modem services for downstream ISPs and Web hosting. Sitestar also delivers value-added services including spam, virus and spyware protection, pop-up ad blocking and web acceleration. The Company maintains multiple sites of operation and provides services to customers throughout the U.S. and Canada.

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 markets and sells narrow-band (dial-up and ISDN) and broadband services (DSL, fiber-optic, 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.

Additionally, the Company markets and sells web hosting and related services to consumers and businesses.

The Company also markets, 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.

                              SITESTAR CORPORATION

Item 2.   Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued

Results of operations

The following tables show financial data for the three months ended March 31,
2009 and 2008. Operating results for any period are not necessarily indicative
of results for any future period.

                                          For the three months ended March 31, 2009
                                                         (unaudited)
                                       Corporate            Internet            Total
  Revenue                             $          -       $     2,541,419     $ 2,541,419
  Cost of revenue                                -               826,037         826,037

  Gross profit                                   -             1,715,382       1,715,382

  Operating expenses                        27,115             1,484,991       1,512,106
  Income (loss) from operations            (27,115 )             230,391         203,276
  Other income (expense)                         -               (21,294 )       (21,294 )

  Income (loss) before income taxes        (27,115 )             209,097         181,983
  Income taxes                             (26,410 )                   -         (26,410 )

  Net income (loss)                   $       (705 )     $       209,097     $   208,393

                              SITESTAR CORPORATION

Item 2.   Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued

                                          For the three months ended March 31, 2008
                                                         (unaudited)
                                         Corporate              Internet           Total
 Revenue                             $           -       $     2,544,545     $ 2,544,545
 Cost of revenue                                 -               825,218         825,218

 Gross profit                                    -             1,719,327       1,719,327

 Operating expenses                         43,469             1,321,623       1,365,092
 Income (loss) from operations             (43,469 )             397,704         354,235
 Other income (expense)                          -               (50,235 )       (50,235 )

 Income (loss) before income taxes         (43,469 )             347,469         304,000
 Income taxes                              121,600                     -         121,600

 Net income (loss)                   $    (165,069 )     $       347,469     $   182,400

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, 2009 and 2008.

For the three months ended March 31, 2009

                        Corporate             Internet           Total
EBITDA              $     (27,115 )     $      893,864      $  866,749
Interest expense                -              (21,884 )       (21,884 )
Taxes                      26,410                    -          26,410
Depreciation                    -               (8,592 )        (8,592 )
Amortization                    -             (654,290 )      (654,290 )
Net income (loss)   $        (705 )     $      209,098      $  208,393

                              SITESTAR CORPORATION

Item 2.   Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued

                         For the three months ended March 31, 2008
                         Corporate             Internet           Total
EBITDA              $      (43,469 )     $     1,141564     $ 1,098,095
Interest expense                 -              (71,686 )       (71,686 )
Taxes                     (121,600 )                  -        (121,600 )
Depreciation                     -               (9,292 )        (9,292 )
Amortization                     -             (713,117 )      (713,117 )
Net income (loss)   $     (165,069 )     $      347,469     $   182,400

THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO MARCH 31, 2008 (Unaudited)

REVENUE

Revenue for the three months ended March 31, 2009 decreased by $3,126 or 0.1% from $2,544,545 for the three months ended March 31, 2008 to $2,541,419 for the same period in 2009. Internet sales remained relatively flat primarily due to the addition of Internet customers from the asset acquisitions and offset by additional attrition to broadband service. To insure continued strength in revenues, the Company has acquired and plans to continue to acquire the assets of additional ISPs and fold them into its operations to provide future revenues.

COST OF REVENUE

Costs of revenue for the three months ended March 31, 2009 increased by $819 or 0.1% from $825,218 for the three months ended March 31, 2008 to $826,037 for the same period in 2009. Cost of revenue remained steady with sales volume reflecting consistency in the costs of providing services to customers.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued

OPERATING EXPENSES

Operating expenses for the three months ended March 31, 2009 increased $147,014 or 10.8% from $1,365,092 for the three months ended March 31, 2008 to $1,512,106 for the same period in 2009. Bad debt expense increased $227,818 or 73.3% from $310,993 for the three months ended March 31, 2008 to $538,811 for the same period in 2009 resulting from recent acquisitions. Corporate expenses for the three months ended March 31, 2009 and March 31, 2008 consisted primarily of professional fees of $25,781and 41,700.

INCOME TAXES

For the three months ended March 31, 2009 and March 31, 2008 corporate income tax (expense) benefit of $26,410 and $(165,069) were accrued.

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 for the three months ended March 31, 2008. 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.

INTEREST EXPENSE

Interest expense for the three months ended March 31, 2009 decreased by $49,801 or 69.5% from $71,686 for the three months ended March 31, 2008 to $21,885 for the same period in 2009. This decrease is a result of reducing debt to finance the acquisition of additional customers.

MARCH 31, 2009 (Unaudited) COMPARED TO DECEMBER 31, 2008 (Audited)

FINANCIAL CONDITION

Net accounts receivable increased $124,709 or 17.6% from $738,824 on December 31, 2008 to $868,533 on March 31, 2009. 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 $31 or 0.04% from $70,443 on December 31, 2008 to $70,412 on March 31, 2009. Accounts payable decreased by $66,297 or 82.0% from $80,892 on December 31, 2008 to $14,595 on March 31, 2009. Accrued expenses increased by $4,944 or 5.2% from $94,882 on December 31, 2008 to $99,826 on March 31, 2009.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued

Deferred revenue increased by $113,851 or 9.8% from $1,157,597 on December 31, 2008 to $1,271,448 on March 31, 2009 representing increased volume of customer accounts that have been prepaid. The current portion of notes payable decreased $84,288 or 4.8% from $569,372 on December 31, 2008 to $485,084 on March 31, 2009. This is due to the curtailment of term notes financing the purchase of customer bases. Long-term notes payable decreased $90,000 or 9.8% from $915,615 on December 31, 2008 to $825,615 on March 31, 2009. This is due to the curtailment of term notes financing the purchase of customer bases.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $456,289 and $527,553 at March 31, 2009 and at
December 31, 2008. EBITDA was $866,749 for the three months ended March 31, 2009
as compared to $1,098,095 for the same period in 2008.

                                                          2009           2008
     EBITDA for the three months ended March 31,       $  866,749     $ 1,098,095
     Interest expense                                     (21,884 )       (71,686 )
     Taxes                                                 26,410        (121,600 )
     Depreciation                                          (8,592 )        (9,292 )
     Amortization                                        (654,290 )      (713,117 )
     Net income for the three months ended March 31,   $  208,393     $   182,400

The aging of accounts receivable as of March 31, 2009 and December 31, 2008 is as shown:

                  2009                    2008
Current   $  527,838        61 %   $ 433,518        59 %
30 < 60      179,128        21 %     159,585        22 %
60 +         161,567        18 %     145,721        19 %
Total     $  868,533       100 %   $ 738,824       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, the Company's ability to expand the Company's customer base, make strategic acquisitions, general market conditions and 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.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued

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.