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 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

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Results of Operations, continued

Results of operations

The following tables show financial data for the six months ended June 30, 2009
and 2008. Operating results for any period are not necessarily indicative of
results for any future period.

                                                         For the six months ended June 30, 2009 (unaudited)
                                                            Corporate                Internet              Total
Revenue                                              $              -       $       4,832,611       $  4,832,611
Cost of revenue                                                     -               1,672,721          1,672,721

Gross profit                                                        -               3,159,890          3,159,890

Operating expenses                                             79,615               2,795,876          2,875,491
Income (loss) from operations                                 (79,615 )               364,014            284,399
Other income (expense)                                              -                 (50,581 )          (50,581 )

Income (loss) before income taxes                             (79,615 )               313,433            233,818
Income taxes                                                 (589,402 )                     -           (589,402 )

Net income (loss)                                    $        509,787       $         313,433       $    823,220

                              SITESTAR CORPORATION

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

                                                            For the six months ended June 30, 2008 (unaudited)
                                                       Corporate               Internet                  Total
Revenue                                              $            -       $        5,159,244       $        5,159,244
Cost of revenue                                                   -                1,387,801                1,387,801

Gross profit                                                      -                3,771,443                3,771,443

Operating expenses                                           69,708                2,914,324                2,984,032
Income (loss) from operations                               (69,708 )                857,119                  787,411
Other income (expense)                                            -                  (86,532 )                (86,532 )

Income (loss) before income taxes                           (69,708 )                770,587                  700,879
Income taxes                                                      -                        -                        -

Net income (loss)                                    $      (69,708 )     $          770,587       $          700,879

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 six months ended June 30, 2009 and 2008.

                             For the six months ended June 30, 2009
                      Corporate           Internet            Total
EBITDA              $   (79,615 )     $  1,649,177     $  1,569,562
Interest expense              -            (48,451 )        (48,451 )
Taxes                   589,402                  -          589,402
Depreciation                  -            (17,228 )        (17,228 )
Amortization                  -         (1,270,065 )     (1,270,065 )
Net income (loss)   $   509,787       $    313,433     $    823,220

                              SITESTAR CORPORATION

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

                    For the six months ended June 30, 2008
                      Corporate           Internet            Total
EBITDA              $   (69,708 )     $  2,367,391     $  2,297,683
Interest expense              -           (110,518 )       (110,518 )
Taxes                         -                  -                -
Depreciation                  -            (19,118 )        (19,118 )
Amortization                  -         (1,467,168 )     (1,467,168 )
Net income (loss)   $   (69,708 )     $    770,587     $    700,879

SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO JUNE 30, 2008 (Unaudited)

REVENUE

Revenue for the six months ended June 30, 2009 decreased by $326,633 or 6.3% from $5,159,244 for the six months ended June 30, 2008 to $4,832,611 for the same period in 2009. Internet sales decreased primarily due to customer attrition to broadband services and offset in part by the addition of Internet customers from asset acquisitions. 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 six months ended June 30, 2009 increased by $284,920 or 20.5% from $1,387,801 for the six months ended June 30, 2008 to $1,672,721 for the same period in 2009. Cost of revenue increased as a result of increasing the product mix with more broadband services which carries a higher cost of providing bandwidth and connectivity. This is a reflection of the acquisitions of fiber and DSL customers late in the second quarter and fourth quarters of 2008.

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

OPERATING EXPENSES

Operating expenses for the six months ended June 30, 2009 decreased $108,541 or 3.6% from $2,984,032 for the six months ended June 30, 2008 to $2,875,491 for the same period in 2009. Amortization expense decreased $197,103 or 13.4% from $1,467,168 for the six months ended June 30, 2008 to $1,270,065 for the same period in 2009. Wages decreased $71,678 or 19.1% from $375,950 for the six months ended June 30, 2008 to $304,272 for the same period in 2009. These decreases were offset in part by an increase in bad debt expense of $132,062 or 16.6% from $796,035 for the six months ended June 30, 2008 to $928,097 for the same period in 2009. Corporate expenses for the six months ended June 30, 2009 and June 30, 2008 consisted primarily of professional fees of $74,303 and 65,466.

INCOME TAXES

For the six months ended June 30, 2009 and June 30, 2008 corporate income tax (expense) benefit of $589,402 and $0 were accrued.

INTEREST EXPENSE

Interest expense for the six months ended June 30, 2009 decreased by $62,067 or 56.2% from $110,518 for the six months ended June 30, 2008 to $48,451 for the same period in 2009. This decrease is a result of reducing debt to finance the acquisition of additional customers.

JUNE 30, 2009 (Unaudited) COMPARED TO DECEMBER 31, 2008 (Audited)

FINANCIAL CONDITION

Net accounts receivable increased $199,678 or 27.0% from $738,824 on December 31, 2008 to $938,502 on June 30, 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 increased by $607 or 0.9% from $70,239 on December 31, 2008 to $70,846 on June 30, 2009. Accounts payable increased by $68,855 or 85.1% from $80,892 on December 31, 2008 to $149,747 on June 30, 2009. Accrued expenses decreased by $7,382 or 1.3% from $94,882 on December 31, 2008 to $87,500 on June 30, 2009.

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

Deferred revenue increased by $15,479 or 1.3% from $1,157,597 on December 31, 2008 to $1,173,076 on June 30, 2009 representing increased volume of customer accounts that have been prepaid. The current portion of notes payable decreased $152,258 or 26.7% from $569,372 on December 31, 2008 to $417,114 on June 30, 2009. This is due to the curtailment of term notes financing the purchase of customer bases. Long-term notes payable decreased $165,000 or 18.0% from $915,615 on December 31, 2008 to $750,615 on June 30, 2009. This is due to the curtailment of term notes financing the purchase of customer bases. Long-term notes payable to shareholders decreased $54,985 or 10.2% from $539,281 on December 31, 2008 to $484,296 on June 30, 2009. This is due to the early payoff of one note.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $888,167 and $527,553 at June 30, 2009 and at
December 31, 2008. EBITDA was $1,569,562 for the six months ended June 30, 2009
as compared to $2,297,683 for the same period in 2008.

                                                        2009             2008
     EBITDA for the six months ended June 30,       $  1,569,562     $  2,297,683
     Interest expense                                    (48,451 )       (110,518 )
     Taxes                                               589,402                -
     Depreciation                                        (17,228 )        (19,118 )
     Amortization                                     (1,270,065 )     (1,467,168 )
     Net income for the six months ended June 30,   $    823,220     $    700,879

The aging of accounts receivable as of June 30, 2009 and December 31, 2008 is as shown:

                  2009                    2008
Current   $  624,033        67 %   $ 433,518        59 %
30 < 60      162,902        16 %     159,585        22 %
60 +         151,567        17 %     145,721        19 %
Total     $  938,502       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.