The following discussion should be read in conjunction with our audited consolidated financial statements and related notes that appear elsewhere in this filing.

Cautionary Note Regarding Forward-Looking Statements

Some of the statements made in this section of our report are forward-looking statements. These forward-looking statements generally relate to and are based upon our current plans, expectations, assumptions and projections about future events. Our management currently believes that the various plans, expectations, and assumptions reflected in or suggested by these forward-looking statements are reasonable. Nevertheless, all forward-looking statements involve risks and uncertainties and our actual future results may be materially different from the plans, objectives or expectations, or our assumptions and projections underlying our present plans, objectives and expectations, which are expressed in this section.

In light of the foregoing, prospective investors are cautioned that the forward-looking statements included in this filing may ultimately prove to be inaccurate-even materially inaccurate. Because of the significant uncertainties inherent in such forward-looking statements, the inclusion of such information should not be regarded as a representation or warranty by Webdigs, Inc. or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. The risks discussed in the Item 1A of this filing should be considered in evaluating our prospects and future performance.

General Overview

Real Estate

We are a web-based, full service real estate company that offers innovative services to home buyers and sellers. We share with each buyer up to one-half (50%) of the commission we receive from the seller or listing broker, with a minimum fee of $3,000 per transaction to the Company. Using a generally accepted industry average fee of 2.7% for buyer representation, any customer purchasing a home for a price exceeding $111,000 may benefit financially from using Webdigs as the broker. Using the same 2.7% buyer's broker fee, a customer purchasing a home for a price exceeding $222,000 will receive a commission rebate of approximately 1.35% of purchase price (or one-half of the 2.7% buyer's brokers fee). Again using the same 2.7% buyer's broker fee, a buyer purchasing a home with sales price between $111,000 and $222,000 will pay Webdigs a flat $3,000 broker fee with the remainder of the buyer's broker fee being returned to him as a non-taxable rebate. We believe this gives buyers a financial incentive to use our services. We primarily target those home buyers who are willing and able to independently begin their home search on the Internet. As part of our website interface and personal service, we also offer home buyers tools to manage their purchase transactions from initial search to the closing of their purchase.

In our main Twin Cities market, we provide our home sellers with Northstar MLS listings for a flat fee of $3,000 at closing. A traditional listing (selling) broker charges 3.3% of final sale price as their fee for representing a seller. Assuming a sale price of $300,000, a Webdigs listing customer may save approximately $6,900 on his or her home sale by using Webdigs as their broker. Instead of paying a broker 3.3% of the $300,000 sale price ($9,900), the seller would pay Webdigs $3,000. The savings of $6,900 belongs to the Webdigs customer. The Northstar MLS contains listings from Minnesota, portions of western Wisconsin, northern Iowa, and eastern North and South Dakota. Our listings also appear on Realtor.com and 14 other national home-listing websites. In addition to providing home sellers with a home listing, Webdigs arranges for virtual home tours of our sellers' homes so that the resulting virtual tour may become a part of the listing on our website. To assist with the pricing of a seller's home, we provide a comparative market analysis to the seller and individual consultation on pricing strategies. Finally, we also provide a range of individual strategies for readying a seller's home for sale, including appropriately staging the home. All of these sell-side services are furthered by our marketing and advertising campaign designed to drive traffic to our website.

We currently offer our services in three states-Minnesota, Wisconsin, and Florida. When we represent buyers, we share with them up to one-half of our buyer broker commission, which we receive from the seller or listing broker. For the fiscal year ended October 31, 2008, our closed buy-side transaction gross revenue exceeded $567,000, from which we have earned net commissions of $252,000, an average of about $3,300 per transaction. For the fiscal year ended October 31, 2008, we closed 79 transactions in representation of buyers and 20 transactions in representation of sellers. Our clients in these "buy" transactions received rebates totaling $315,000, an average of nearly $4,000. Our aggregate net revenue from our listing (sellers) totaled $58,000 during the same fiscal year ended October 31, 2008. We also recorded $34,000 in revenues from miscellaneous processing and administration fees.

Although there are accepted norms, the amount of the commission that we receive on a transaction depends on the price of the home and percentage commission offered to the buyer's broker by the seller or listing broker. Generally speaking, when choosing a percentage commission to offer to buyer brokers, a seller or listing broker may consider factors such as the general state of the local housing market, how long the home has been on the market and how much the seller or listing broker values the services of buyer's brokers. For the fiscal year ended October 31, 2008, we received on average a net buyer's broker commission equal to 1.1% of the average $297,000 purchase price our customers have paid for their new homes. For our listing (selling) clients, our listing commissions (which includes a $295 administrative fee) averaged about 0.95% of the price of the 20 homes we had sold in the fiscal year ended October 31, 2008.

Currently, our revenues consist primarily of web-assisted real estate brokerage commissions received, as agents in residential real estate transactions, at the time a real estate transaction closes. We record revenues as gross revenue. Consumer rebates and third-party agent commissions paid to buyer's brokers (in those instances where we represent the seller of a home) are treated as offsetting reductions to gross revenue. Our net revenues are principally driven by the number of transactions we close and the average net revenue per transaction. Average net revenue per transaction is a function of (1) the home purchase price and percentage commission we receive on each transaction and (2) the fee income we receive from mortgage loan origination.

In addition to traditional financial measures, we use several tools to monitor the overall health of our real estate business. Some of the key performance indicators we use are the following: website traffic, daily number of contacts initiated by potential customers, number of new customers (i.e., both buyers and sellers) added weekly, weekly number of transactions closed, and overall pipeline of active customers. We also monitor daily cash flow, the average time it takes to close a transaction (i.e., time elapsed between the creation of a customer relationship and the closing date for a transaction related to that customer).

Since we commenced our real estate broker operations after the U.S. housing industry had already entered its well publicized slump, it is difficult to assess the affect the real estate industry's difficulties have had on our ability to grow our business. We do believe our brokerage model, with the lower prices we offer, will be seen favorably by customers looking to save money when buying or selling a home in a difficult market.

As one positive piece of news in our largest market (Twin Cities), the Minneapolis Star Tribune on January 15, 2009 published an article stating that pending sales over the second half of 2008 increased by 15.7% in 2008 versus 2007. The same Star Tribune article cited a second piece of positive news for buyers in the Twin Cities, namely a 4.1% drop in the median home price of traditional sales (excluding foreclosures or lender mediated sales) in 2008 versus 2007. We believe that these two factors, coupled with currently low interest rates, should help the Twin Cities market stabilize in 2009.

Mortgage and Insurance

For the first nine months of our fiscal year ended October 31, 2008, our two wholly owned mortgage subsidiaries, Home Equity Advisors, LLC and Marquest Financial, Inc. provided us with mortgage brokerage revenue. Starting in August, 2008 we began generating mortgage income through our investment in our mortgage joint venture, Marketplace Home Mortgage - Webdigs, LLC (MHMW). MHMW has its own staff of mortgage loan officers that obtain mortgages for customers who are refinancing existing mortgages or obtaining new mortgages. MHMW bears no risk of loan default nor determines loan eligibility. All mortgage fee income is paid by the loan underwriter (typically a large bank) to MHMW for finding the customer and processing the paperwork for the loan.

There are two types of fees paid by banks to MHMW for its work as a mortgage broker. The first is loan origination fees, which may be considered as commissions. Typically, loan origination fees are a percentage of the total value of the loan. A second fee source is referred to as "yield spread premium." In certain cases, a mortgage broker might find it possible to increase the interest rate charged on a mortgage above the rate considered acceptable by the bank. In those cases, the bank will pay a second fee "yield spread premium" to the mortgage broker for obtaining a more favorable interest rate for the bank. The ability to earn a "yield spread premium" has become more difficult in the last few months due to market pressures. A 1% loan origination fee is considered average by the U.S. mortgage industry. Yield spread premiums are also occasionally paid by mortgage underwriters. When they are earned, a typical yield spread would range from 0% to 1%.

Our mortgage joint venture operates separately from real estate and is experiencing revenue growth compared to the same period of our fiscal year ended October 31, 2008. We believe that this is particularly due to the fact that interest rates on 30-year fixed rate mortgages are very favorable to borrowers who can qualify. As Webdigs real estate brokerage revenues grow, we expect that the mortgage originations generated by MHMW for home purchases will grow correspondingly. Our Webdigs real estate team and the MHMW mortgage team work closely together, which provides benefits to us and to our customers (primarily real estate customers) who are able to efficiently communicate with the integrated Webdigs real estate and mortgage teams.

To further enhance cash flow and provide convenience to our real estate customers, we have recently obtained approval from the Commissioner of Insurance in Minnesota to refer Webdigs real estate customers to an unaffiliated insurance broker for quotes on their home and other personal insurance policies. Should a referred customer end up purchasing insurance through our referral, the Company will receive a commission for the referral.

Significant Trends and Uncertainties

We are experiencing sales growth but do face significant liquidity constraints due to the costs associated with developing our real estate business. Since inception (May 1, 2007) to October 31, 2008 we have incurred a net loss totaling $2,692,948. As mentioned in more detail below and elsewhere in this filing, we will require additional financing to maintain operations and to achieve our expansion goals. If our efforts to raise additional capital take longer than we expect or we are unsuccessful in securing capital, we expect to decrease our advertising, identify other areas to reduce current costs, and concentrate on continuing to build market share and real estate revenue in the Minneapolis-St. Paul metropolitan area and Wisconsin. As part of this plan, we would intend to have our Florida real estate operations continue for as long as possible, even in a diminished capacity, if necessary. We do expect, however, that we would cease operating in Florida prior to any significant reduction in operation in Minneapolis-St. Paul or Wisconsin. Due to the difficult markets for obtaining equity and debt financing, we are exploring a wide variety of potential financing sources and arrangements.

In addition to the uncertainties surrounding our cash and liquidity situation, current real estate and credit market conditions present a significant uncertainty for our business. We believe that our business in the latter parts of fiscal 2008 was adversely affected by the well publicized problems in these markets, resulting in lower real estate activity and fewer real estate brokerage transactions. Dramatic declines in the housing market during 2008, with falling home prices, decreasing home sales volume, and increasing foreclosures and unemployment, have resulted in many lenders and institutional investors reducing, and in some cases, ceasing to provide funding to borrowers (including other financial institutions). This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. Our business and our viability may be threatened if these adverse conditions persist into the summer of 2009.

Results of Operation

The following information should be read in conjunction with the audited
financial statements and notes thereto appearing elsewhere in this Annual
Report.

Selected financial information about our operations by segment for the fiscal
year ended October 31, 2008 and for the period from inception (May 1, 2007) to
October 31, 2007 is as follows:

                                           Real Estate       Mortgage      Corporate
                                            Brokerage       Brokerage       & Other          Total
Year Ended October 31, 2008
Revenues                                   $    344,209     $  538,579     $        -     $    882,788
Operating loss                               (1,129,413 )     (208,893 )     (735,296 )     (2,073,602 )
Equity in loss from MHMW                              -         (9,064 )            -           (9,064 )
Interest expense                                    285          7,281              -            7,566
Depreciation & amortization                     147,803         65,964              -          213,767
Identifiable net assets                         322,499         91,736         39,984          454,219
Capital expenditures                             15,938          2,278              -           18,216

For the period from Inception (May 1,
2007) to October 31, 2007
Revenues                                   $      6,400     $   93,454     $        -     $     99,854
Operating loss                                 (305,220 )      (70,267 )     (227,229 )       (602,716 )
Equity in loss from MHMW                              -              -              -                -
Interest expense                                      -              -              -                -
Depreciation & amortization                      11,486          3,425          1,492           16,403
Identifiable net assets                         412,030        187,372        157,892          757,294
Capital expenditures                            413,516              -         17,386          430,902

Consolidated net revenues for the year ended October 31, 2008 totaled $882,788, representing a 784% increase over the $99,854 in net revenues for the period from inception (May 1, 2007) to October 31, 2007. After deducting customer rebates and third-party agent commissions, we finished our first full year of operation with almost $345,000 in real estate brokerage revenue compared to $6,400 for the period from inception (May 1, 2007) to October 31, 2007. We believe that this marks for us a solid start to our overall goal of becoming a value-driven national full-service web-assisted real estate broker. During fiscal 2008, we closed 79 transactions in representation of buyers and 20 transactions representing sellers, in comparison to having closed only two transactions during the period from inception (May 1, 2007) to October 31, 2007. On a percentage basis, our real estate brokerage revenues grew by 5,278% on a period-to-period basis for the fiscal year ended October 31, 2008. Mortgage brokerage revenue growth of 476% over the same period would have been even greater had we not shifted our mortgage brokerage operations to our Marketplace Home Mortgage - Webdigs joint venture on August 1, 2008, three months prior to the end of our fiscal year.

As we look ahead for fiscal year 2009, we expect continued growth in real estate revenues and steady growth in mortgage brokerage transactions. From a financial reporting standpoint, only the real estate brokerage revenue growth will be directly visible on our financial statements. No mortgage revenue will be directly reflected in our financial statements due to our participation in the Marketplace Home Mortgage - Webdigs LLC (MHMW) joint venture. MHMW's financial results will not be consolidated with Webdigs, Inc. financial statements and will be accounted for under the equity method of accounting for investments.

Our total operating expenses for fiscal 2008 aggregated to $2,956,390 compared to $702,570 for the period from inception (May 1, 2007) to October 31, 2007, amounting to a 321% period-to-period increase. General and administrative expenses and selling expenses together comprise our operating expenses.

Selling expenses consisted of advertising and promotion, website maintenance, selling-related compensation expense, non-cash depreciation and amortization expense, and other general selling expenses, all of which aggregated to $2,095,932 for fiscal 2008 compared to $385,955 for the period from inception (May 1, 2007) to October 31, 2007. In the year ended October 31, 2008, we placed significant emphasis on building our Webdigs brand through advertising. We invested considerable time and money in a multi-faceted advertising campaign that used a mix of media, including the Internet, television, print, radio, direct-mail, outdoor signage and various moveable signage at various times throughout the year. More specifically, we spent $523,572 on advertising and promotion and $374,678 on website maintenance for the year ended October 31, 2008. In the period from inception (May 1, 2007) to October 31, 2007, these expenses were significantly less. In particular, we incurred advertising and promotion expenses of $150,599 and website maintenance expenses of $39,333 (excluding $413,516 invested in website development which was capitalized). We believe that our advertising, promotion and website maintenance expenses will enhance our business performance in the current fiscal year and beyond.

In addition to advertising, promotion and website maintenance expenses, we incurred selling-related compensation expenses of $743,562 for the year ended October 31, 2008 compared to $149,703 for the period from inception (May 1, 2007) to October 31, 2007. These compensation costs include wages, commissions, bonuses, and payroll fringe benefits. The increase can be mainly attributed to our increased staffing during fiscal 2008, and the fact that we operated over a full 12 months in the year ended October 31, 2008 versus only six months in the period from inception (May 1, 2007) to October 31, 2007. Our non-cash depreciation expense was $22,031 and amortization expense was $191,736 for fiscal 2008, compared to depreciation expense of $1,492 and amortization expense of $14,911 incurred from inception (May 1, 2007) through October 31, 2007. Amortization expense increased due primarily to the fact that for the fiscal year ended October 31, 2008, we had a full 12 months of amortization for our intangible assets: our Webdigs real estate website and customer lists (acquired via Marquest Financial, Inc, and Home Equity Advisors acquisitions).

We incurred $860,458 in general and administrative (G&A) expenses for the year ended October 31, 2008 compared to $316,615 incurred for the shorter period from inception (May 1, 2007) to October 31, 2007, representing a $543,843 period-to-period increase. The largest component of our fiscal 2008 and 2007 G&A expense was share-based compensation expense related to the vesting of restricted shares to founding members in July and October 2007 and our May 2008 award of stock options to our non-employee directors. Together, these non-cash expenses totaled $213,145 for fiscal 2008 compared to $178,970 for the period from inception (May 1, 2007) to October 31, 2007.

Other significant items of expense during fiscal 2008 included rent ($157,228), which includes an accrued expense of $55,913 for rent owed on the balance of the operating lease Marquest Financial held on its Bloomington, MN office premises. The Bloomington office lease did not form part of the joint venture agreement to create Marketplace Home Mortgage - Webdigs, LLC. In the period from inception (May 1, 2007) to October 31, 2007, rent was only $9,073. Audit fees of $104,893, legal fees of $72,541 and cash compensation expenses of $210,503 were the other major items of G&A expense during fiscal 2008. For the most part, the audit and legal fees incurred (total of $177,434) relate to our decision to become a public reporting company. For the period from inception (May 1, 2007) to October 31, 2007, these expenses were significantly less. Our fiscal 2007 combined legal and audit expenses were $61,733 and our cash compensation expenses were $23,396. The remaining $102,148 of G&A expense during fiscal 2008 was composed of contracted temporary staffing ($32,828), directors and officers insurance ($26,936), accounting fees ($13,766) and miscellaneous office expenses including items such as supplies, licenses and other miscellaneous costs ($28,618).

Although we anticipate positive results from our newly created Marketplace Home Mortgage - Webdigs, LLC joint venture, during the period from its inception (August 1, 2008) to October 31, 2008, the entity recorded a net loss of $20,048. Our 49% share of the joint venture's net loss was $9,824. Offsetting the loss slightly was a $760 deferred gain resulting from the difference between the book value of assets transferred to the new joint venture compared to the fair value that was credited the Company (see note 4 of the financial statements for more information). The net result of our first ever quarter of operations of Marketplace Home Mortgage - Webdigs, LLC was therefore a net loss of $9,064.

For the year ended October 31, 2008, we recorded interest expense of $7,566. Nearly the entire amount of this charge relates to interest charges recorded on a capital lease we held in the past year for office equipment. A portion of this capital lease obligation has been transferred to Marketplace Home Mortgage - Webdigs, LLC as part of the creation of the joint venture so capital lease interest expense will be lower in fiscal year 2009. The Company had no interest-bearing debts for the comparable period.

Assets and Employees; Research and Development

Our primary assets are cash and intellectual-property rights, which are the foundation for our services. At this time, we do not anticipate purchasing or selling any significant equipment or other assets in the near term. Neither do we anticipate any imminent or significant changes in the number of our employees. We may, however, increase the number of independent contractor real estate agents upon whom we rely to provide personal services in the event that we expand into other markets or our business in our current markets significantly increases.

We expect that we will invest time, effort and expense in the continued refinement of our website and user interface. We spent approximately $375,000 in the year ended October 31, 2008 towards this end and all of these costs have been expensed. We intend to reduce our cash outlay for web improvements in the upcoming fiscal year, however, we still expect to enhance our website to meet our goal of offering our customers an outstanding real estate search and education resource.

Liquidity and Capital Resources; Anticipated Financing Needs

For the year ended October 31, 2008, we incurred a net operating loss of $2,090,232. These losses funded technology development, marketing and advertising, business development and other activities as discussed above. In the period from inception (May 1, 2007) to October 31, 2007, our operating losses were $602,716. In the most recent year ended October 31, 2008 we funded operating losses primarily through cash of $960,159 received from sales of our Webdigs common stock through private placements and through our vendors via increased accounts payable ($554,750). For the period from inception (May 1, 2007) to October 31, 2007, an increase in accounts payable contributed $318,355 to fund operations.

On an aggregate level, cash used in operations was $1,019,515 for the year ended October 31, 2008 and $56,881 in the period from inception (May 1, 2007) to October 31, 2007. Offsetting the operating losses in each period were the previously mentioned increases in accounts payable, non-cash expenses for depreciation and amortization ($213,767 versus $16,403), share-based compensation ($213,145 versus $178,970) and accrued expenses ($80,267 versus $34,656) for the year ended October 31, 2008 and the period from inception (May 1, 2007) to October 31, 2007 respectively.

Cash outflows from investing activities were $18,216 in the year ended October 31, 2008 compared to $395,520 for the period from inception (May 1, 2007) to October 31, 2007. Investments in the year ended October 31, 2008 were limited to $18,216 in purchases of computer and office equipment. For the period from inception (May 1, 2007) to October 31, 2007, we invested $413,516 in the creation of our webdigs.com website and $17,386 in equipment and fixtures, offset by cash received of $35,474 from the Marquest acquisition and the Select Video merger.

In the year ended October 31, 2008, we raised $960,159 from private placement sales of our common stock compared to $553,937 for the period from inception (May 1, 2007) to October 31, 2007. In each year, an increase in due to officer (related to business expenses and consulting fees) contributed additional financing: $9,676 in the year ended October 31, 2008 and $17,601 from the period from inception (May 1, 2007) to October 31, 2007.

We issued 4,218,000 common shares in exchange for the $960,159 we raised from private placement sales in the year ended October 31, 2008 compared to 6,639,530 common shares for the $553,937 we raised from private placement sales during the period from inception (May 1, 2007) to October 31, 2007. We finished the year ended October 31, 2008 with $37,802 in cash and cash equivalent compared to $113,280 for the period ended October 31, 2007.

Given our low cash position, our near term focus in fiscal 2009 will be creating some positive operating cash flow from our web-assisted real estate brokerage and mortgage brokerage operations. We believe that our projected revenue growth . . .