UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





x     QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934


For the
quarterly period ended April 30, 2009





OR





 ̈    TRANSITION
REPORT UNDER SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934


For the
transition period from _______ to _______





Commission
File Number 0-53359





WEBDIGS,
INC.





(Exact
name of registrant as specified in its charter)





Delaware
                  11-3820796(State
      or other jurisdiction of incorporation or organization)
                  (I.R.S.
      Employer Identification
No.)





3433 West
Broadway St, NE, Suite 501, Minneapolis, MN


(Address
of Principal Executive Offices)





(612)
767-3854


(Registrant’s
telephone number, including area code)





(Former
name, former address and former fiscal year, if changed from last
report)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 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.  YesxNo ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈No ̈


Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
      (Do not check if a smaller reporting company)
            Smaller
      reporting company x





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


Yes  ̈No  x





As of
June 15, 2009 there were 31,097,056 shares of the issuer’s common stock, $0.001
par value, outstanding.





Table of
Contents





PagePART
      I – FINANCIAL INFORMATIONItem
      1.
                Consolidated
      Financial Statements
                1Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                30Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                44Item
      4.
                Controls
      and Procedures
                44PART
      II – OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                45Item
      1A.
                Risk
      Factors
                45Item
      2.
                Unregistered
      Sales of Equity Securities
                45Item
      3.
                Defaults
      Upon Senior Securities
                46Item
      4.
                Submission
      of matters to a Vote of Security Holders
                46Item
      5.
                Other
      Information
                46Item
      6.
                Exhibits
                46SIGNATURESEXHIBIT
      INDEX





PART
I – FINANCIAL INFORMATION





Item
1.  Consolidated Financial Statements.








WEBDIGS,
INC.





CONSOLIDATED
FINANCIAL STATEMENTS


(UNAUDITED)





FOR
THE THREE AND SIX MONTH


PERIODS
ENDED APRIL 30, 2009 AND 2008





1





WEBDIGS,
INC.





TABLE
OF CONTENTS





PAGEConsolidated
      Financial Statements:Consolidated
      Balance Sheets
                    3Consolidated
      Statements of Operations
                    5Consolidated
      Statements of Cash Flows
                    6Notes
      to Consolidated Financial Statements
                    8




2
  WEBDIGS, INC.
 
 
 CONSOLIDATED
BALANCE SHEETS
 (Unaudited)
 
 April 30, 2009
                          (Unaudited)
                        
                        
                        October 31,2008
                          (Audited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        6,553
                        
                        
                        $
                        37,802Commissons
      and fees receivable
                        
                        
                        17,994
                        
                        
                        
                        12,467Prepaid
      expenses and deposits
                        
                        
                        63,856
                        
                        
                        
                        14,011Debt
      issuance costs, net
                        
                        
                        2,000
                        
                        
                        
                        -Other
      current assets
                        
                        
                        6,080
                        
                        
                        
                        6,125Total
      current assets
                        
                        
                        96,483
                        
                        
                        
                        70,405Investment
      in Marketplace Home Mortgage Webdigs, LLC
                        
                        
                        20,967
                        
                        
                        
                        2,182Office
      equipment and furniture, net
                        
                        
                        23,513
                        
                        
                        
                        30,202Intangible
      assets, net
                        
                        
                        260,700
                        
                        
                        
                        351,430Total
      assets
                        
                        $
                        401,663
                        
                        
                        $
                        454,219
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  3
 
 WEBDIGS,
INC.
  
 CONSOLIDATED
BALANCE SHEETS (continued)
 (Unaudited)
 
 April 30, 2009
                            (Unaudited)
                          
                          
                          October 31, 2008
                            (Audited)LIABILITIES AND STOCKHOLDERS'
      DEFICITCurrent
      liabilities:Current
      portion of capital lease obligations
                          
                          $
                          4,008
                          
                          
                          $
                          3,828Accounts
      payable
                          
                          
                          306,986
                          
                          
                          
                          377,538Accounts
      payable - minority stockholder
                          
                          
                          631,885
                          
                          
                          
                          550,206Due
      to officers
                          
                          
                          53,007
                          
                          
                          
                          27,277Accrued
      expenses:Professional
      fees
                          
                          
                          18,000
                          
                          
                          
                          50,000Payroll
      and commissions
                          
                          
                          47,300
                          
                          
                          
                          32,269Lease
      expenses for vacated office space
                          
                          
                          55,913
                          
                          
                          
                          55,913Other
                          
                          
                          14,287
                          
                          
                          
                          15,170Convertible
      note payable, net of discount
                          
                          
                          176,207
                          
                          
                          
                          -Liabilities
      for warrant to purchase common stock
                          
                          
                          13,596
                          
                          
                          
                          -Embedded
      derivatives of convertible debt instruments
                          
                          
                          177,695
                          
                          
                          
                          -Total
      current liabilities
                          
                          
                          1,498,884
                          
                          
                          
                          1,112,201Long
      term liabilities:Capital
      lease obligation, less current portion
                          
                          
                          8,380
                          
                          
                          
                          10,431Total
      liabilities
                          
                          
                          1,507,264
                          
                          
                          
                          1,122,632Stockholders'
      deficit:Common
      stock  - $.001 par value; 125,000,000 shares authorized as
      common  stock and an additional 125,000,000 shares designated as
      common or preferred stock;  22,739,511 and 22,308,711 common
      shares issued and outstanding at April 30, 2009 and October 31, 2008,
      respectively
                          
                          
                          22,740
                          
                          
                          
                          22,309Additional
      paid-in-capital
                          
                          
                          2,280,265
                          
                          
                          
                          2,002,226Accumulated
      deficit
                          
                          
                          (3,408,606
                          )
                          
                          
                          (2,692,948
                          )Total
      stockholders' deficit
                          
                          
                          (1,105,601
                          )
                          
                          
                          (668,413
                          )Total
      liabilities and stockholders' deficit
                          
                          $
                          401,663
                          
                          
                          $
                          454,219
  The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  4
 
 WEBDIGS,
INC.
  CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 
 Three
      Months Ended
                              
                              
                              Six
      Months EndedApril
      30,
                              
                              
                              April
      302009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008(unaudited)
                              
                              
                              (unaudited)
                              
                              
                              (unaudited)
                              
                              
                              (unaudited)Revenue:Gross
      revenues
                              
                              $
                              91,166
                              
                              
                              $
                              371,308
                              
                              
                              $
                              179,192
                              
                              
                              $
                              565,964Less:
      commissions, rebates and thirdparty
      agent commissions
                              
                              
                              (31,925
                              )
                              
                              
                              (41,329
                              )
                              
                              
                              (81,324
                              )
                              
                              
                              (66,603
                              )Net
      revenues
                              
                              
                              59,241
                              
                              
                              
                              329,979
                              
                              
                              
                              97,868
                              
                              
                              
                              499,361Operating
      expenses:Selling
                              
                              
                              163,070
                              
                              
                              
                              775,536
                              
                              
                              
                              327,485
                              
                              
                              
                              1,345,720General
      and administrative
                              
                              
                              191,582
                              
                              
                              
                              180,852
                              
                              
                              
                              348,264
                              
                              
                              
                              341,158Total
      operating expenses
                              
                              
                              354,652
                              
                              
                              
                              956,388
                              
                              
                              
                              675,749
                              
                              
                              
                              1,686,878Operating
      loss
                              
                              
                              (295,411
                              )
                              
                              
                              (626,409
                              )
                              
                              
                              (577,881
                              )
                              
                              
                              (1,187,517
                              )Other
      income (expense):Equity
      in income (loss) from Marketplace HomeMortgage
      - Webdigs, LLC
                              
                              
                              (68
                              )
                              
                              
                              -
                              
                              
                              
                              18,785
                              
                              
                              
                              -Interest
      expense
                              
                              
                              (55,812
                              )
                              
                              
                              (2,344
                              )
                              
                              
                              (92,854
                              )
                              
                              
                              (4,554
                              )Loss
      on change in fair value of derivatives and warrants
                              
                              
                              (38,154
                              )
                              
                              
                              -
                              
                              
                              
                              (63,708
                              )
                              
                              
                              -Total
      other income (expense)
                              
                              
                              (94,034
                              )
                              
                              
                              (2,344
                              )
                              
                              
                              (137,777
                              )
                              
                              
                              (4,554
                              )Net
      loss before income taxes
                              
                              
                              (389,445
                              )
                              
                              
                              (628,753
                              )
                              
                              
                              (715,658
                              )
                              
                              
                              (1,192,071
                              )Income
      tax provision
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Net
      loss
                              
                              $
                              (389,445
                              )
                              
                              $
                              (628,753
                              )
                              
                              $
                              (715,658
                              )
                              
                              $
                              (1,192,071
                              )Net
      loss per common share - basic and diluted
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.06
                              )Weighted
      average common shares outstanding -basic
      and diluted
                              
                              
                              22,739,511
                              
                              
                              
                              20,984,507
                              
                              
                              
                              22,622,239
                              
                              
                              
                              20,131,891
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  5
 
 WEBDIGS,
INC.
  
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 Six
Months Ended April 30, 2009 and 2008
 (Unaudited)
 
 Six
      Months EndedApril
      30,2009
                        
                        
                        2008(unaudited)
                        
                        
                        (unaudited)Cash
      flows from operating activities:Net
      loss
                        
                        $
                        (715,658
                        )
                        
                        $
                        (1,192,071
                        )Adjustments
      to reconcile net loss to net cash flows  used in operating
      activities:Depreciation
                        
                        
                        6,689
                        
                        
                        
                        15,586Amortization
      of intangible assets
                        
                        
                        90,730
                        
                        
                        
                        97,581Amortization
      of convertible note payable discounts
                        
                        
                        73,790
                        
                        
                        
                        -Amortization
      or debt issuance costs
                        
                        
                        2,000
                        
                        
                        
                        -Loss
      on change in fair value of derivatives and warrants
                        
                        
                        63,708
                        
                        
                        
                        -Loss
      on disposal of fixed assets
                        
                        
                        -
                        
                        
                        
                        267Equity
      in the (income) loss of Marketplace Home Mortgage - Webdigs,
      LLC
                        
                        
                        (18,785
                        )
                        
                        
                        -Share-based
      compensation
                        
                        
                        130,970
                        
                        
                        
                        83,453Common
      stock issued for services
                        
                        
                        7,000
                        
                        
                        
                        -Changes
      in operating assets and liabilities:Commissions
      and fees receivable
                        
                        
                        (5,527
                        )
                        
                        
                        (23,258
                        )Prepaid
      expenses and deposits
                        
                        
                        70,155
                        
                        
                        
                        6,606Other
      current assets
                        
                        
                        45
                        
                        
                        
                        -Accounts
      payable
                        
                        
                        (70,552
                        )
                        
                        
                        178,916Accounts
      payable - minority stockholder
                        
                        
                        81,679
                        
                        
                        
                        66,013Accrued
      expenses and other liabilities
                        
                        
                        2,148
                        
                        
                        
                        (18,356
                        )Net
      cash flows used in operating activities
                        
                        
                        (281,608
                        )
                        
                        
                        (785,263
                        )Cash
      flows from investing activities:Purchase
      of equipment and fixtures
                        
                        
                        -
                        
                        
                        
                        (18,216
                        )Net
      cash flows used in investing activities
                        
                        
                        -
                        
                        
                        
                        (18,216
                        )Cash
      flows from financing activities:Issuance
      of common stock
                        
                        
                        500
                        
                        
                        
                        826,500Proceeds
      from issuance of convertible debentures, net of debt issuance costs
      of $4,000 and payment of unrelated accrued legal  fees of
      $20,000
                        
                        
                        226,000
                        
                        
                        
                        -Increase
      (decrease) in due to officers
                        
                        
                        25,730
                        
                        
                        
                        (17,601
                        )Principal
      payments on capital lease obligations
                        
                        
                        (1,871
                        )
                        
                        
                        (4,362
                        )Net
      cash flows provided by financing activities
                        
                        
                        250,359
                        
                        
                        
                        804,537Net
      change in cash and cash equivalents
                        
                        
                        (31,249
                        )
                        
                        
                        1,058Cash
      and cash equivalents, beginning of period
                        
                        
                        37,802
                        
                        
                        
                        113,280Cash
      and cash equivalents, end of period
                        
                        $
                        6,553
                        
                        
                        $
                        114,338
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  6
  WEBDIGS,
INC.
  
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 Six
Months Ended April 30, 2009 and 2008
 (Unaudited)
 
 Six
      Months EndedApril
      30,2009
                              
                              
                              2008(unaudited)
                              
                              
                              (unaudited)Supplemental cash flow
      informationCash
      paid for interest
                              
                              $
                              11,497
                              
                              
                              $
                              2,210Supplemental disclosure of non-cash investing and
      financing activitiesIssuance
      of common stock to convertible debt holder as a discount onthe
      debt
                              
                              $
                              20,000
                              
                              
                              $
                              -Discount
      on convertible debt due to detachable warrant and
      embedded  conversion options
                              
                              $
                              127,583
                              
                              
                              $
                              -Accrued
      legal fees paid by withholding from debt proceeds
                              
                              $
                              20,000
                              
                              
                              $
                              -Related
      party contribution to consultant for prepaid consulting
    fees
                              
                              $
                              40,000
                              
                              
                              $
                              -Common
      stock issued for prepaid consulting fees
                              
                              $
                              80,000
                              
                              
                              $
                              -
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  7







WEBDIGS,
INC.








NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





1            
BASIS OF PRESENTATION





The
accompanying unaudited consolidated financial information has been prepared by
Webdigs, Inc. (the “Company”) in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities
and Exchange Commission (SEC).  Accordingly, it does not include all
of the information and notes required by accounting principles generally
accepted in the United States of America for complete financial
statements.  In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair statement of
this financial information have been included.  Financial results for
the interim period presented are not necessarily indicative of the results that
may be expected for the fiscal year as a whole or any other interim
period.  This financial information should be read in conjunction with
the audited consolidated financial statements and notes included in the
Company’s Annual Report on Form 10-K for the year ended October 31,
2008.





2          
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature of
Business





Webdigs,
Inc. (“the Company”) was incorporated on May 25, 1994 under the name of Select
Video, Inc. The Company changed to its current name on October 23,
2007.  Select Video, Inc. was an inactive shell from February 29, 2000
to October 24, 2007 when they entered into a Share Exchange and Acquisition
Agreement whereby it agreed to issue 15,818,251 shares of its common stock to
its subsidiary Select Video Acquisition, LLC which in-turn used those shares to
acquire all of the outstanding units of Webdigs, LLC, a private company
organized in the state of Minnesota resulting in Webdigs, LLC as the surviving
entity. Webdigs, LLC, based in Minneapolis, MN, was organized on May 1, 2007 and
consists of two strategic operating segments;  (1) web-assisted real
estate broker, offering the same customer experience as a full service broker
utilizing a flat fee structure for listing services to their selling customers
and a graduated fee structure for their buying customers by rebating up to
one-half of its broker commissions and (2) mortgage broker, assisting homeowners
in refinancing their home mortgages and assisting new home buyers in qualifying
for home mortgages and brokering the financing. The mortgage broker segment
operates as an unconsolidated joint venture under the name of Marketplace Home
Mortgage - Webdigs, LLC.  The web-assisted real estate broker segment
operates as Webdigs, LLC.





Upon
completion of the transaction on October 24, 2007, Webdigs, LLC became a wholly
owned subsidiary of Webdigs, Inc.  Since the transaction resulted in
the existing members of Webdigs, LLC acquiring control of Webdigs, Inc., for
financial statement purposes, the merger has been accounted for as a
recapitalization of Webdigs, Inc. (a reverse merger with Webdigs, LLC as the
accounting acquirer).  The operations of Webdigs, LLC are the only
continuing operations of the Company.





8





WEBDIGS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Consolidation
Policies





The
consolidated financial statements for the six month periods ended April 30, 2009
and 2008, include the accounts of Webdigs, Inc. and its wholly-owned subsidiary,
Webdigs, LLC, which includes wholly owned subsidiaries of Marquest Financial,
Inc., Home Equity Advisors, LLC, and Credit Garage, LLC.  The
investment in Marketplace Home Mortgage - Webdigs, LLC (49% ownership) is
recorded on the equity method.  All significant intercompany accounts
and transactions have been eliminated in the consolidation.





On June
3, 2009, the Company unwound its acquisition of Marquest Financial, Inc. (see
Note 14).





Segment
Information





SFAS No.
131 Disclosure About Segments
of an Enterprise and Related Information defines operating segments as
components of a company about which separate financial information is evaluated
regularly by the chief decision maker in deciding how to allocate resources and
assess performance.  The Company has identified two operating
segments: web-assisted real estate brokerage and mortgage
brokerage.





Estimates





The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and reported amounts of
revenues and expenses during the reporting period.  Actual results
could differ from those estimates.





Debt Issuance
Costs





The
Company accounts for debt issuance costs and other debt discounts by amortizing
the amounts using the effective interest method over the term of the related
debt instrument.





9





WEBDIGS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Investment in Marketplace
Home Mortgage – Webdigs, LLC




On August
1, 2008, the Company contributed non-cash assets into a joint venture created
with Marketplace Home Mortgage, LLC for a 49% ownership interest (see Note 6).
The Company accounts for its investment in the joint venture using the equity
method. Accordingly, the Company records an increase in its investment for
contributions to the joint venture and for its 49% share of the income of the
joint venture, and a reduction in its investment for its 49% share of any losses
of the joint venture or disbursements of profits from the joint
venture.





Accounting for Convertible
Debentures, Warrants and Derivative Instruments





The
Company does not enter into derivative contracts for purposes of risk management
or speculation. However, from time to time, the Company enters into contracts
that are not considered derivative financial instruments in their entirety but
that include embedded derivative features.





The
Company accounts for its embedded conversion features and freestanding warrants
pursuant to SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133) and EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Company’s Own Stock
(EITF 00-19) which requires freestanding contracts that are settled in a
company’s own stock to be designated as an equity instrument, asset, or a
liability. Under the provisions of EITF 00-19, a contract designated as an asset
or a liability must be carried at fair value on a company’s balance sheet, with
any changes in fair value recorded in the results of operations.





In
accordance with EITF 00-19, certain warrants to purchase common stock and
embedded conversion options are accounted for as liabilities at fair value and
the unrealized changes in the values of these derivatives are recorded in the
statement of operations as “gain or loss on warrants and
derivatives.”  Contingent conversion features that reduce the
conversion price of warrants and conversion features are included in the
valuation of the warrants and the conversion features. The recognition of the
fair value of derivative liabilities (i.e. warrants and embedded conversion
options) at the date of issuance is applied first to the proceeds. The excess
fair value, if any, over the proceeds from a debt instrument, is recognized
immediately in the statement of operations as interest expense. The value of
warrants or derivatives associated with a debt instrument is recognized at
inception as a discount to the debt instrument. This discount is amortized over
the life of the debt instrument using the effective interest method. A
determination is made upon settlement, exchange, or modification of the debt
instruments to determine if a gain or loss on the extinguishment has been
incurred based on the terms of the settlement, exchange, or modification and on
the value allocated to the debt instrument at such date.





10





WEBDIGS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





The
Company uses the Black-Scholes pricing model to determine fair values of its
derivatives. Valuations derived from this model are subject to ongoing internal
verification and review. The model uses market-sourced inputs such as interest
rates, exchange rates, and option volatilities. Selection of these inputs
involves management’s judgment and may impact net income (loss). The fair value
of the derivative liabilities are subject to the changes in the trading value of
the Company’s common stock. As a result, the Company’s financial statements may
fluctuate from quarter-to-quarter based on factors, such as the bid price of the
Company’s stock at the balance sheet date, the amount of shares converted by
note holders and/or exercised by warrant holders, and changes in the
determination of market-sourced inputs.  Consequently, the Company’s
financial position and results of operations may vary materially from
quarter-to-quarter based on conditions other than its operating revenues and
expenses.




Income
Taxes





The
Company accounts for income taxes in accordance with SFAS No. 109, as
clarified by FIN No. 48, which requires an asset and liability approach to
financial accounting and reporting for income taxes.  Accordingly,
deferred tax assets and liabilities arise from the difference between the tax
basis of an asset or liability and its reported amount in the consolidated
financial statements.  Deferred tax amounts are determined using the
tax rates expected to be in effect when the taxes will actually be paid or
refunds received, as provided under currently enacted tax
law.  Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.  Income tax
expense or benefit is the tax payable or refundable, respectively, for the
period plus or minus the change in deferred tax assets and liabilities during
the period.  The Company has recorded a full valuation allowance for
its net deferred tax assets as of April 30, 2009 and 2008 because realization of
those assets is not reasonably assured.





FIN No.
48 requires the recognition of a financial statement benefit of a tax position
only after determining that the relevant tax authority would more likely than
not sustain the position following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement with the relevant tax
authority.





Recently
Issued  Accounting  Pronouncements





In
February 2008, the FASB issued FASB Staff Position FAS 157-2 (“FSP FAS
157-2”) Effective Date of FASB
Statement No. 157 which delays the effective date of SFAS
No. 157 for non-financial assets and non-financial liabilities that are
recognized or disclosed in the financial statements on a nonrecurring basis to
fiscal years beginning after November 15, 2008. These non-financial items
include assets and liabilities such as reporting units measured at fair value in
a goodwill impairment test and non-financial assets acquired and non-financial
liabilities assumed in a business combination.  The Company has not
applied the provisions of SFAS No. 157 to its non-financial assets and
non-financial liabilities in accordance with FSP FAS 157- 2.





11





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No.
51.  SFAS No. 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  The adoption of this statement is not expected to
have a material effect on our future reported financial position or results of
operations.




In June
2008, the FASB ratified the consensus reached by the EITF on Issue
No. 07-5, Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own
Stock (“EITF No. 07-5”).EITF No. 07-5 addresses the
determination of whether an instrument (or embedded feature) is indexed to an
entity’s own stock. EITF No. 07-5 would require the entity to account for
embedded conversion options as derivatives and record them on the balance sheet
as a liability with subsequent fair value changes recorded in the income
statement.  EITF-07-5 is effective for the financial statements issued
for fiscal years beginning after December 15, 2008, and early adoption is
prohibited.  The Company has not yet determined the effect that the
adoption of EITF 07-5 will have on its consolidated financial statements,
particularly with respect to its Convertible Note Payable (See Note
7).





In April
2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) No. FAS 157-4, “Determining Fair Values When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly.” This FSP provides guidance on
(1) estimating the fair value of an asset or liability when the volume and level
of the activity for the asset or liability have significantly declined and (2)
identifying transactions that are not orderly. This FSP also amends certain
disclosure provisions of SFAS No. 157 to require, among other things,
disclosures in interim periods of the inputs and valuation techniques used to
measure fair value. For the Company, this FSP is effective prospectively
beginning April 1, 2009. The Company is currently evaluating the impact of this
standard, but would not expect it to have a material impact on our financial
position, results of operations, or cash flows.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments.”  This FSP essentially expands
the disclosure about fair value of financial instruments that were previously
required only annually to be also required for interim period
reporting.  In addition, this FSP requires certain additional
disclosures regarding the methods and significant assumptions used to estimate
the fair value of financial instruments.  For the Company, these
additional disclosures will be required beginning with the quarter ending July
31, 2009. We are currently evaluating the requirement of these additional
disclosures.





12





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





3           
GOING CONCERN





The
Company has incurred significant operating losses for the six month periods
ended April 30, 2009 and 2008.  At April 30, 2009, the Company reports
a negative working capital position of $1,402,401, accumulated deficit of
$3,408,606 and a stockholders’ deficit of $1,105,601.  It is
management’s opinion that these facts raise substantial doubts about the
Company’s ability to continue as a going concern without additional debt or
equity financing.





In order
to meet its working capital needs through the next twelve months, the Company
plans to raise additional funds through the issuance of additional shares of
common stock and debt through private placements.  The Company has
already begun reducing operating expenditures and expects to increase revenues
through its existing customer base and website traffic.





4           
 RELATED PARTY TRANSACTIONS





Accounts Payable – Minority
Stockholder





The
Company’s principal advertising agency/website developer was owed $631,885 at
April 30, 2009 and $550,206 at October 31, 2008.  The two principals
of the website developer are also minority stockholders in the Company – holding
less than 2% of the Company’s outstanding shares at April 30,
2009.  For the six months ended April 30, 2009 and 2008 respectively,
the Company incurred $81,679 and $396,894 in services from this minority
stockholder.  Included in these amounts is office rent expense of
$21,000 and $15,000 for the six months ended April 30, 2009 and 2008,
respectively.





There is
no ongoing commitment from the Company or the related party regarding rental
office space for which the Company currently pays a market rate rent of $3,500
per month.





Due to
Officers





As of
April 30, 2009 and October 31, 2008, the Company was indebted to its officers
for amounts totaling $53,007 and $27,277, respectively, for business expenses
and consulting services. The indebtedness includes $47,977 of non-interest
bearing payables due on demand and $5,030 of interest bearing debt.





The
interest bearing short term loan includes a principal of $5,000 and accrued
interest at 1% simple interest per month of $30.  The Company repaid
the short term officer loan in full in May 2009.





13





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





5          
  PREPAID EXPENSES




Prepaid
expenses consist of two components: prepaid consulting fees and other prepaid
expenses. The prepaid consulting fees are calculated amounts from the issuance
of common stock to consultants for various services. In January 2009, the
Company issued 200,000 shares of the Company’s common stock and agreed to pay
$15,000 to consultants as repayments for services to be performed over the next
six to nine months.  In addition, in January 2009, one of the
Company’s minority stockholders transferred 100,000 shares of the Company’s
common stock owned by the stockholder to one of these consultants on behalf of
the Company.  This transfer of the Company’s common stock held by the
minority shareholder was treated as a capital contribution.  All of
the shares issued to the consultants were valued at $0.40 per share, which
represented the trading fair value of the stock on the date the agreements were
finalized.  The amortization periods coincide with the terms of the
agreements which are expected to be completed in August 2009.





The other
prepaid expenses contain miscellaneous amounts the Company has prepaid for an
annual software subscription and general insurance premiums.  These
prepaid items are being expensed as they are being utilized.





Components
of prepaid expenses are as follows:





April 30, 2009
                      
                      
                      October 31, 2008(unaudited)
                      
                      
                      (audited)Prepaid
      consulting fees
                      
                      $
                      60,000
                      
                      
                      $
                      -Other
      prepaid expenses
                      
                      
                      3,856
                      
                      
                      
                      14,011Total
                      
                      $
                      63,856
                      
                      
                      $
                      14,011





6          
  INVESTMENT IN MARKETPLACE HOME MORTGAGE - WEBDIGS, LLC





On August
1, 2008, the Company entered into a joint venture arrangement with Marketplace
Home Mortgage, LLC whereby they created a new joint venture entity called
Marketplace Home Mortgage – Webdigs, LLC.  The Company contributed
assets with a net book value totaling $34,804 less transferred liabilities of
$23,558 for a 49% ownership stake in the joint venture, and Marketplace Home
Mortgage, LLC contributed cash totaling $23,039 for 51%
ownership.  The assets and liabilities contributed came entirely from
the Company’s mortgage brokerage subsidiaries; Marquest Financial, Inc. and Home
Equity Advisors, LLC.  All mortgage brokerage activity previously
performed within these entities will now take place under the new joint venture
created August 1, 2008.  Because the Company has the ability to
exercise significant influence as a result of rights granted in the purchase
agreement and its 49% ownership stake, the Company has accounted for this
transaction as an equity investment.





14





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Summarized financial information for
this joint venture is as follows:





Summary Balance
Sheet





April 30, 2009Current
      assets
                      
                      $
                      42,230Other
      assets
                      
                      
                      19,509Liabilities
                      
                      
                      (1,377
                      )Net
      equity
                      
                      $
                      60,362The
      Company's share in the equity in Marketplace Home Mortgage - Webdigs, LLC
      (49%)
                      
                      $
                      29,577Less:
      Deferred gain on excess of fair value received over net book value of
      assets contributed to Marketplace Home Mortgage -  Webdigs, LLC
      (1)
                      
                      
                      (8,610
                      )Investment
      in Marketplace Home Mortgage - Webdigs, LLC at April 30,
    2009
                      
                      $
                      20,967





(1)
            At
      April 30, 2009, the Company’s share of the underlying assets of
      Marketplace Home Mortgage – Webdigs, LLC exceeded its investment by
      $8,610.  The excess, which relates to office equipment, is being
      amortized into income over the estimated remaining life of the respective
      assets (34 months).





15





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Summary Statement of
Operations





Three Months
                        Ended April 30,
                        2009
                      
                      
                      Six Months
                        Ended April
                        30, 2009Revenue
                      
                      $
                      77,293
                      
                      
                      $
                      246,413Operating
      expenses
                      
                      
                      (78,982
                      )
                      
                      
                      (211,177
                      )Operating
      income
                      
                      
                      (1,689
                      )
                      
                      
                      35,236Other
      expense
                      
                      
                      -
                      
                      
                      
                      -Net
      income
                      
                      $
                      (1,689
                      )
                      
                      $
                      35,236The
      Company's share in the income of Marketplace Home Mortgage Webdigs, LLC
      (49%)
                      
                      $
                      (828
                      )
                      
                      $
                      17,265Amortization
      of deferred gain on transfer of non-cash assets
                      
                      
                      760
                      
                      
                      
                      1,520Net
      equity in the income of Marketplace Home Mortgage - Webdigs,
      LLC
                      
                      $
                      (68
                      )
                      
                      $
                      18,785





7         
   CONVERTIBLE NOTE PAYABLE





On
December 12, 2008, the Company entered into a $250,000 convertible debt
promissory note (the Note) with Lantern Advisers, LLC (“Lantern”). The Note
contains a simple interest rate of 12% per annum with $2,500 (1%) payable to the
lender on a monthly basis. The Note proceeds were reduced by issuance and legal
costs of $24,000 to arrive at net proceeds of $226,000.  The Note
terms require repayment on or before September 30,
2009.   Company executive officers and managers have pledged as
collateral 4,510,910 shares of the Company’s common stock which would be awarded
to Lantern in the event of non-fulfillment of the terms of the
Note.  The Company’s Chairman/CEO has also provided a personal
guaranty for the entire amount of the Note.





In
connection with the Note, the Company issued Lantern 200,000 shares of common
stock valued at $0.10 per share.  The share price of $.10 per share was
based on the most recent share price at which the Company had sold shares for
cash to accredited investors (prior to the listing of the Company’s stock on the
OTC bulletin board on December 19, 2008).  The issuance of these
shares was recorded as a discount to the Note and will be recognized over the
term of the Note using the effective interest method.





16





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





As
additional consideration for the Note, the Company issued Lantern a three-year
detachable warrant expiring December 11, 2011 to purchase up to 200,000 shares
of its common stock at an exercise price of $0.30 per share (the “Warrant”)
which was deemed to have a fair market value of $1,651 at the time of issuance.
The Company used the Black-Scholes pricing model as a method for determining the
estimated fair value of the warrants issued. The following assumptions were used
to estimate the fair market value of the warrant: risk free interest rate of
1.1%; expected life of 1.5 years; no expected dividends; and volatility of
74%.  The expected life of the Warrant was determined using
management’s estimate. The risk-free interest rate is based on the Federal
Reserve Board’s constant maturities of U.S. Treasury bond obligations with terms
comparable to the expected life of the warrants valued. The Company’s volatility
is based on the historical volatility of publicly traded companies with similar
business and risk characteristics of the Company.  The expense for the
Warrant was recorded as a discount to the Note and will be recognized over the
term of the Note using the effective interest method.





In
addition to the above conditions, the Note is convertible at the option of
Lantern at any time into shares of the Company's common stock at a price equal
to 75% of the lowest bid price during the five trading days immediately
preceding conversion of the Note.  On December 12, 2008, this
conversion feature would have converted into 3,333,333 common shares of the
Company’s stock at a conversion price of $.075 per share.  At April
30, 2009, the Note would have converted into 1,666,667 shares at a conversion
price of $0.15 per share.





Pursuant
to SFAS 133 and EITF 00-19 Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in a Company’s Own Stock,the conversion features and warrant of the Note are considered embedded
derivatives requiring bifurcation from the debt host and they are included in
the balance sheet as liabilities at fair value.  The embedded
derivatives are revalued at each balance sheet date and marked to fair value
with the corresponding adjustment recognized as “gain or loss on warrants and
derivatives” in the consolidated statement of operations.





The
embedded derivatives and the warrants were initially measured at fair value
using the Black-Scholes option valuation technique. In selecting the appropriate
fair value technique, the Company considers the nature of the instrument, the
market risks that it embodies, and the expected means of
settlement.





The
embedded derivative liability is re-valued at each balance sheet date and marked
to fair value with the corresponding adjustment recognized as “gain or loss on
warrants and derivatives” in the statement of operations. As of April 30, 2009
and December 12, 2008, the fair values of the derivatives embedded in the Note
were $177,695 and $125,932, respectively.





17





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





The
warrant liability is revalued at each balance sheet date and marked to fair
value with the corresponding adjustment recognized as “gain or loss on warrants
and derivatives” in the statement of operations.  As of April 30, 2009
and December 12, 2008, the fair values of the warrant were $13,596 and $1,651,
respectively.





For the
three and six months ended April 30, 2009 the Company adjusted its embedded
derivative liability (conversion feature) and warrant liability by $38,154 and
$63,708, respectively.  This adjustment was recorded as a loss on the
change in fair market value of derivatives and warrants in the consolidated
statement of operations.





The
following table summarizes the convertible note balance as of April 30,
2009:





Original
      gross proceeds received December 12, 2008
                    
                    $
                    250,000Less:
      Debt discount arising from issuance of common stock
                    
                    
                    (20,000
                    )Net
      proceeds prior to paying transaction costs
                    
                    
                    230,000Less:
      Fair value assigned to conversion feature and detachable
      warrants
                    
                    
                    (127,583
                    )Net
      balance at December 12, 2008
                    
                    
                    102,417Plus:
      Amortization of debt discount, conversion feature and warrant for the
      period from December 12, 2008 to April 30, 2009
                    
                    
                    73,790Balance
      at April 30, 2009
                    
                    $
                    176,207





8          
  SHARE- BASED
COMPENSATION





Stock
Options





In May
2008, the Board of Directors approved the issuance of incentive stock
options totaling 600,000 shares to its non-employee directors. 
The exercise price of the options to purchase common stock was at
the fair market value of such shares on the date of the grant. Options
generally become exercisable ratably on the anniversary of the date of the grant
over a period of up to 2 years. There are no vesting provisions tied to
performance conditions for any outstanding options. Vesting for all outstanding
options is based solely on continued service as a director of the Company
and vest one-half on the grant date and one-quarter on each of the next two
yearly anniversaries of the grant. Options to purchase shares expire not later
than five years after the grant of the option.





18





WEBDIGS,
INC.







NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





The
Company recognizes compensation expense for the stock options over the requisite
service period for vesting of the award.  Total stock-based compensation
expense included in the Company's consolidated statements of operations for the
six months ended April 30, 2009 and 2008 is $9,249 and $0, respectively.
 This expense is included in general and administrative
expense.  The compensation expense had less than a $0.01 per
share impact on the basic loss per common share for the six months
ended April 30, 2009.  There were no stock option grants during
the six months ended April 30, 2009. There were no stock option grants
prior to April 30, 2008, and thus no option expense for the six months
ended April 30, 2008. As of April 30, 2009, the Company had $18,493 of
unrecognized compensation expense related to the outstanding stock options,
which will be recognized over a weighted-average period of 1.25
years.





The fair
value of each option grant was estimated as of the date of the grant using the
Black-Scholes pricing model.





The
following is summary of stock option activity for the six months ended April 30,
2009:





Number of
                      options
                    
                    
                    Weighted
                      average
                      exercise
                      price
                    
                    
                    Aggregate
                      intrinsic
                      value
                    
                    
                    Weighted
                      average
                      remaining
                      contractual
                      term(years)Outstanding
      at October 31, 2008
                    
                    
                    600,000
                    
                    
                    $
                    0.25
                    
                    
                    $
                    132,000
                    
                    
                    
                    4.50Granted
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Cancelled
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at April 30, 2009
                    
                    
                    600,000
                    
                    
                    $
                    0.25
                    
                    
                    $
                    132,000
                    
                    
                    
                    4.00Exercisable
      at April 30, 2009
                    
                    
                    300,000
                    
                    
                    $
                    0.25
                    
                    
                    $
                    66,000
                    
                    
                    
                    4.00





The
aggregate intrinsic value in the table above represents the difference between
the closing stock price on April 30, 2009 of $0.47 per share and the exercise
price of $0.25 per share, multiplied by the number of in-the-money options that
would have been received by the option holders had all option holders exercised
their options on April 30, 2009.   There were no options
exercised during the six months ended April 30, 2009.





19





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Restricted Stock
Compensation





As of
April 30, 2009, the Company had 6,629,280 of time-based restricted common stock
(non-vested shares) outstanding to certain officers and employees of the
Company.  This is the remaining balance after forfeitures of an
original grant of 8,610,347 restricted shares. The original grants took place
during the period ended October 31, 2007. As a condition of the award, the
officers and employees must be employed with the Company in order to continue to
vest in their shares over a two year period.  The fair value of the
non-vested shares is equal to the fair market value on the date of grant and is
amortized ratably over the vesting period.  No additional awards were
made during the six months ended April 30, 2009 or during the year ended October
31, 2008.





The
Company recorded $121,721 and $83,454 of compensation expense in the
consolidated statement of operations related to vested shares (restricted stock)
for the six months ended April 30, 2009 and
2008,  respectively.





A summary
of the status of non-vested shares and changes as of April 30, 2009 is set forth
below:





20




WEBDIGS,
INC.
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Restricted
                          Shares
                        
                        
                        Unearned
                          CompensationOutstanding,
      October 31, 2007
                        
                        
                        4,686,904
                        
                        
                        $
                        365,398Granted
                        
                        
                        -
                        
                        
                        
                        -Vested
                        
                        
                        (577,806
                        )
                        
                        
                        (41,727
                        )Forfeited/canceled
                        
                        
                        -
                        
                        
                        
                        -Outstanding,
      January 31, 2008
                        
                        
                        4,109,098
                        
                        
                        
                        323,671Granted
                        
                        
                        -
                        
                        
                        
                        -Vested
                        
                        
                        (577,806
                        )
                        
                        
                        (41,727
                        )Forfeited/canceled
                        
                        
                        -
                        
                        
                        
                        -Outstanding,
      April 30, 2008
                        
                        
                        3,531,292
                        
                        
                        
                        281,944Granted
                        
                        
                        -
                        
                        
                        
                        -Vested
                        
                        
                        (577,806
                        )
                        
                        
                        (41,727
                        )Forfeited/canceled
                        
                        
                        -
                        
                        
                        
                        -Outstanding,
      July 31, 2008
                        
                        
                        2,953,486
                        
                        
                        
                        240,217Granted
                        
                        
                        -
                        
                        
                        
                        -Vested
                        
                        
                        (659,344
                        )
                        
                        
                        (41,727
                        )Forfeited/canceled
                        
                        
                        (353,329
                        )
                        
                        
                        -Outstanding,
      October 31, 2008
                        
                        
                        1,940,813
                        
                        
                        
                        198,490Granted
                        
                        
                        -
                        
                        
                        
                        -Vested
                        
                        
                        (652,311
                        )
                        
                        
                        (60,860
                        )Forfeited/canceled
                        
                        
                        
                        
                        
                        
                        -Outstanding,
      January 31, 2009
                        
                        
                        1,288,502
                        
                        
                        
                        137,630Granted
                        
                        
                        -
                        
                        
                        
                        -Vested
                        
                        
                        (652,309
                        )
                        
                        
                        (60,861
                        )Forfeited/canceled
                        
                        
                        -
                        
                        
                        
                        -Outstanding,
      April 30, 2009
                        
                        
                        636,193
                        
                        
                        $
                        76,769





The
remaining 636,193 shares and associated unearned compensation of $76,769 will
all vest and be recognized as compensation expense in the Company’s consolidated
statement of operations during the fiscal year ending October 31,
2009.





9           
 STOCKHOLDERS' EQUITY





On
January 12, 2009, the Company sold 2,000 shares to a third-party accredited
investor for $500 ($0.25 per share) in cash proceeds.





21





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





On
January 2, 2009, the Company issued 200,000 shares to third parties at a value
of $80,000 or $0.40 per share, the trading value of the Company’s common stock
at that time, for prepaid consulting services.  (Note 5)





On
December 12, 2008, the Company issued 200,000 shares to an investment company as
issuance costs in connection with the $250,000 convertible note payable at a
value of $20,000 or $0.10 per share.  The $0.10 represents the most
recent price received for cash sales of shares, which occurred prior to December
12, 2008.  (Note 8)





On
November 15, 2008, the Company issued 28,800 shares for $7,000 or $0.243 per
share for consulting services performed for the Company.  The $0.243
represents the most recent price received for cash sales of shares which
occurred prior to November 15, 2008..





10           FAIR
VALUE MEASUREMENT




Effective
November 1, 2008, the Company adopted the methods of measuring fair value
described in SFAS No. 157, Fair Value Measurements. As
defined in SFAS No. 157, fair value is based on the prices that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. In order to
increase consistency and comparability in fair value measurements, SFAS
No. 157 establishes a three-tier fair value hierarchy that prioritizes the
inputs used to measure fair value.  These tiers include: Level 1,
defined as observable inputs such as quoted prices in active markets; Level 2,
defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as unobservable inputs
for which little or no market data exists, therefore requiring an entity to
develop its own assumptions.




For the
six months ended April 30, 2009, using level 2 inputs, the Company adjusted its
derivative liabilities by $63,708 and recorded a loss on the change in fair
value of derivatives and warrants in the consolidated statement of
operations.





22





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Fair
values recorded as of April 30, 2009 are set forth below:





Fair Value Measurements atReporting DateDescription
                          
                          Total
                          
                          
                          Quoted Prices
                            for Active
                            Markets for
                            identical Assets
                            (Level 1)
                          
                          
                          Significant
                            Other
                            Observable
                            Inputs
                            (Level2)
                          
                          
                          Significant
                            Other
                            Unobservable
                            Inputs
                            (Level 3)Embedded
      derivatives
                          
                          $
                          177,695
                          
                          
                          $
                          -
                          
                          
                          $
                          177,695
                          
                          
                          $
                          -Warrants
                          
                          
                          13,596
                          
                          
                          
                          
                          
                          
                          
                          13,596Total
                          
                          $
                          191,291
                          
                          
                          $
                          -
                          
                          
                          $
                          191,291
                          
                          
                          $
                          -





11           COMMITMENTS
AND CONTINGENCIES





The
Company’s mortgage operation vacated its Bloomington, Minnesota, leased office
space in October, 2008.  The mortgage operation had leased this space
under a non-cancelable operating lease expiring August, 2009.  As a
cost of exiting this leased office space, the Company accrued the costs of the
remaining 10 months of unpaid rent (including its share of insurance, taxes,
operating expenses, and common area expenses) as of October 31,
2008.  There have been no payments against the accrued amounts since
October 31, 2008.





Six Months EndedApril 30, 2009Accrued
      exit costs at October 31, 2009
                    
                    $
                    55,913Additional
      expenses accrued during the period
                    
                    
                    -Payments
      made during the period
                    
                    
                    -Accrued
      exit costs at April 30, 2009
                    
                    $
                    55,913





With the
unwinding of the acquisition of Marquest Financial, Inc, in June 2009, (see Note
14), the Company will eliminate this contingency in future reporting
periods.





23





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





12           BASIC
AND DILUTED EARNINGS PER SHARE





The
Company computes earnings per share in accordance with FASB Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS 128 requires companies to compute earnings per share under two
different methods, basic and diluted, and present per share data for all periods
in which statements of operations are presented. Basic earnings per share are
computed by dividing net income by the weighted average number of shares of
common stock outstanding. Diluted earnings per share are computed by dividing
net income by the weighted average number of common stock and common
stock





The
following table provides a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share for the three and six
months ended April 30, 2009 and 2008.





Three Months Ended
                                      
                                      
                                      Six Months EndedApril 30,
                                      
                                      
                                      April 30,2009
                                      
                                      
                                      2008
                                      
                                      
                                      2009
                                      
                                      
                                      2008Basic
      earnings per share calculation:Net
      loss to common shareholders
                                      
                                      $
                                      (389,445
                                      )
                                      
                                      $
                                      (628,753
                                      )
                                      
                                      $
                                      (715,658
                                      )
                                      
                                      $
                                      (1,192,071
                                      )Weighted
      average of common shares outstanding
                                      
                                      
                                      22,739,511
                                      
                                      
                                      
                                      20,984,507
                                      
                                      
                                      
                                      22,622,239
                                      
                                      
                                      
                                      20,131,891Basic
      net loss per share
                                      
                                      $
                                      (0.02
                                      )
                                      
                                      $
                                      (0.03
                                      )
                                      
                                      $
                                      (0.03
                                      )
                                      
                                      $
                                      (0.06
                                      )Diluted
      earnings per share calculation:Net
      loss to common shareholders
                                      
                                      $
                                      (389,445
                                      )
                                      
                                      $
                                      (628,753
                                      )
                                      
                                      $
                                      (715,658
                                      )
                                      
                                      $
                                      (1,192,071
                                      )Weighted
      average of common  shares outstanding
                                      
                                      
                                      22,739,511
                                      
                                      
                                      
                                      20,984,507
                                      
                                      
                                      
                                      22,622,239
                                      
                                      
                                      
                                      20,131,891Stock
      options, warrants, and  convertible debt (1)
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Diluted
      weighted average common  shares outstanding
                                      
                                      
                                      22,739,511
                                      
                                      
                                      
                                      20,984,507
                                      
                                      
                                      
                                      22,622,239
                                      
                                      
                                      
                                      20,131,891Diluted
      net loss per share
                                      
                                      $
                                      (0.02
                                      )
                                      
                                      $
                                      (0.03
                                      )
                                      
                                      $
                                      (0.03
                                      )
                                      
                                      $
                                      (0.06
                                      )





24





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





(1)
            The
      computation of diluted net loss per share as of April 30, 2009 does not
      differ from the basic computation because potentially dilutive issuable
      securities of warrants and options of 500,000 shares and 1,666,667
      conversion shares related to the convertible debt promissory note would be
      anti-dilutive.  There were no potentially anti-dilutive shares
      as of April 30, 2008.





13           SEGMENT FINANCIAL
INFORMATION





The
Company has two reporting segments that fall within two primary business groups:
web-assisted real estate broker and mortgage broker.





The main
distinction offered by the Company’s web-assisted real estate brokerage services
is that of a flat fee structure for listing services and a graduated fee
structure offering customers a rebate up to 50% of the Company’s broker
commission for real estate buyers. This business segment operates as Webdigs,
LLC. Its principal market is the United States.





The
mortgage broker segment assists homeowners in refinancing their home mortgages
and assists prospective home buyers in qualifying for a home mortgage and
brokering the financing. This business segment operated as Marquest Financial
(from October 22, 2007) and Home Equity Advisors (from July 15, 2007) to July
31, 2008.  Starting in August 2008, the Company created a new joint
venture and began operating this segment in Minnesota as a limited liability
company under the name Marketplace Home Mortgage - Webdigs, LLC.





The
corporate segment consists primarily of investments in fixed assets, personnel
and other operating expenses associated with the Company’s corporate offices in
Minneapolis, and certain technology initiatives.





Selected
financial information about the Company’s operations by segment for the three
and six month periods ended April 30, 2009 and 2008 is as follows:





25





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Web-
                      Assisted
                      Real Estate
                      Brokerage
                    
                    
                    Retail
                      Mortgage
                      Brokerage
                    
                    
                    Corporate
                      and Other
                    
                    
                    TotalSix Months Ended April 30,
    2009Net
      revenues
                    
                    $
                    97,868
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    97,868Operating
      loss
                    
                    
                    (199,072
                    )
                    
                    
                    (8,277
                    )
                    
                    
                    (370,532
                    )
                    
                    
                    (577,881
                    )Equity
      in income from Marketplace Home Mortgage - Webdigs, LLC
                    
                    
                    -
                    
                    
                    
                    18,785
                    
                    
                    
                    -
                    
                    
                    
                    18,785Interest
      expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    92,854
                    
                    
                    
                    92,854Depreciation
      & amortization
                    
                    
                    75,609
                    
                    
                    
                    21,810
                    
                    
                    
                    -
                    
                    
                    
                    97,419Assets
                    
                    
                    246,714
                    
                    
                    
                    65,429
                    
                    
                    
                    89,520
                    
                    
                    
                    401,663Capital
      expenditures and website  development costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Six Months Ended April 30,
    2008Net
      revenues
                    
                    $
                    65,333
                    
                    
                    $
                    434,028
                    
                    
                    $
                    -
                    
                    
                    $
                    499,361Operating
      loss
                    
                    
                    (845,088
                    )
                    
                    
                    (79,902
                    )
                    
                    
                    (262,527
                    )
                    
                    
                    (1,187,517
                    )Equity
      in loss from Marketplace Home Mortgage - Webdigs, LLC
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Interest
      expense
                    
                    
                    -
                    
                    
                    
                    4,512
                    
                    
                    
                    42
                    
                    
                    
                    4,554Depreciation
      & amortization
                    
                    
                    73,392
                    
                    
                    
                    39,775
                    
                    
                    
                    -
                    
                    
                    
                    113,167Assets
                    
                    
                    371,130
                    
                    
                    
                    194,318
                    
                    
                    
                    114,338
                    
                    
                    
                    679,786Capital
      expenditures and website  development costs
                    
                    
                    15,938
                    
                    
                    
                    2,278
                    
                    
                    
                    -
                    
                    
                    
                    18,216





26





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Web-
                    Assisted
                    Real Estate
                    Brokerage
                  
                  
                  Retail
                    Mortgage
                    Brokerage
                  
                  
                  Corporate
                    and Other
                  
                  
                  TotalThree
      Months Ended April 30, 2009Net
      revenues
                  
                  $
                  59,241
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  59,241Operating
      loss
                  
                  
                  (103,306
                  )
                  
                  
                  5,009
                  
                  
                  
                  (197,114
                  )
                  
                  
                  (295,411
                  )Equity
      in loss from Marketplace Home Mortgage - Webdigs, LLC
                  
                  
                  -
                  
                  
                  
                  (68
                  )
                  
                  
                  -
                  
                  
                  
                  (68
                  )Interest
      expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  55,812
                  
                  
                  
                  55,812Depreciation
      & amortization
                  
                  
                  37,750
                  
                  
                  
                  10,905
                  
                  
                  
                  -
                  
                  
                  
                  48,655Three
      Months Ended April 30, 2008Net
      revenues
                  
                  $
                  46,237
                  
                  
                  $
                  283,742
                  
                  
                  $
                  -
                  
                  
                  $
                  329,979Operating
      loss
                  
                  
                  (458,926
                  )
                  
                  
                  (13,930
                  )
                  
                  
                  (153,553
                  )
                  
                  
                  (626,409
                  )Equity
      in loss from Marketplace Home Mortgage - Webdigs, LLC
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Interest
      expense
                  
                  
                  -
                  
                  
                  
                  2,302
                  
                  
                  
                  42
                  
                  
                  
                  2,344Depreciation
      & amortization
                  
                  
                  37,099
                  
                  
                  
                  19,924
                  
                  
                  
                  -
                  
                  
                  
                  57,023





14           SUBSEQUENT
EVENTS





Convertible Debt Promissory
Note








On May
14, 2009, the Company agreed to revised terms for a convertible debt promissory
note originally issued on December 12, 2008 in favor of Lantern Advisers,
LLC.  The revisions to the promissory note eliminated an optional
conversion feature which had purported to give Lantern Advisers the right to
convert amounts due and owing under the promissory note into shares of the
Company common stock at a price equal to 75% of the lowest bid price during the
five trading days immediately preceding conversion.  As consideration
for the elimination of the conversion feature, the Company issued Lantern
Advisers a warrant to purchase up to 300,000 shares of the Company common stock
at $0.01 per share on or before December 12, 2009.  Other than as
described above, there were no other changes to the terms of the promissory
note.





27





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





In
connection with the above-described revision to the promissory note, the Company
paid Lantern Advisers $100,000 in principal under the promissory note, thereby
reducing the outstanding principal amount to $150,000.  This amount,
plus all then accrued but unpaid interest remains due on September 30,
2009.





Loan from Related
Party





On May
14, 2009, the Company’s Chairman and Chief Executive Officer loaned the Company
$55,000.  The proceeds of this loan were used to cover short-term
working capital needs.  The principal amount of the loan was accrued
at a simple interest at the rate of 1% per month.  The Company’s
Chairman and CEO received no additional consideration for this loan which has
been repaid in full as of the filing date of this document.





Private Placement
Transaction





On May
14, 2009, the Company agreed to issue an aggregate of 1,750,000 shares of common
stock in a private placement transaction that was exempt for the registration
requirements of Section 5 under the Securities Act of 1933.  All
shares in this transaction were offered and sold at the per-share price of
$0.10.  Of these shares, our Chairman and Chief Executive Officer,
Robert A. Buntz, Jr., purchased 500,000 common shares.  Two other
accredited investors also participated in the transaction and together received
the remaining 1,250,000 common shares sold in the transaction.





Conversion of Accrued
Compensation





On May
18, 2009, and with the approval of the board of directors of the Company, its
Chairman and Chief Executive Officer (CEO), together with its Chief Financial
Officer (CFO) converted a portion of their accrued but unpaid compensation owed
to them by the Company.  The Chairman and CEO and CFO respectively
converted $50,000 and $5,000 of their accrued but unpaid compensation into
shares of the Company’s common stock at a per-share price of
$0.35.  As a result, the Company’s Chairman received 142,857 common
shares and its CFO received 14,286 common shares.  Each of the
officers also received a warrant to purchase up to the same number of shares
issued to them at the per-share price of $0.47, on or before May 31,
2012.





28





WEBDIGS,
INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For
the Three and Six Month Periods Ended April 30, 2009 and 2008





Unwinding of
the  Acquisition of Marquest Financial, Inc.





On May 3,
2009, the Company and Mr. Edward Graca (previous owner of Marquest Financial,
Inc.) formally agreed to unwind the Company’s October 22, 2007 acquisition of
Marquest Financial, Inc. (Marquest).  Under the terms of the
agreement, Mr. Graca returned the shares of Webdigs, Inc. common stock he
received in October 2007 as consideration for the sale of Marquest Financial,
Inc. and shares previously issued in his continuing employment agreement to the
Company.  In exchange, the Company returned 100% of the outstanding
shares of Marquest Financial, Inc. to Mr. Graca.





29


Item 2.
              Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations.





Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operation set forth below should be read in conjunction with our audited
consolidated financial statement contained in our Form 10K  filed with
the SEC on February 13, 2009  relating to our fiscal year ended
October 31, 2008.





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 10K filed with the SEC on February
13, 2009 should be considered in evaluating our prospects and future
performance.





General
Overview





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 a 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.


30





In our
main Twin Cities market, we provide our home sellers with Northstar MLS listings
for a fee of 3.9% of final sale price at closing.  This represents
more than a 33% savings compared to the standard real estate fee of 6% of sales
price in the Twin Cities market.  Assuming a sales price of $300,000,
a Webdigs listing customer may save 2.1% of the sales price ($6,300) by using
Webdigs as their listing broker.  The savings result from the Webdigs
customer paying Webdigs only 1.2% to Webdigs for the services we charge for a
home listing.  To ensure that our customers receive the same attention
from agents representing potential buyers of a home listed by Webdigs, we
typically offer the standard 2.7% of sales price commission to brokers who
represent buyers who end up purchasing a home listed by Webdigs. 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.
We support these services with marketing and advertising campaigns 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
three month period ended April 30, 2009, our net real estate brokerage revenue
increased by 28% to $59,241 versus the $46,237 closed in the three months ended
April 30, 2008.  For the six month period ended April 30, 2009, our
net real estate brokerage revenue increased by 50% to $97,868 versus the $65,333
closed in the six month period ended April 30, 2008.  After paying out
customer rebates, we averaged net commissions of $3,613 on each of the 11 buyer
transactions we closed in the quarter ended April 30, 2009, and averaged net
commissions of $3,675 on each of the 16 buyer transactions we closed in the six
month period ended April 30, 2009. On a quarterly transaction basis, we closed a
total of 15 real estate transactions (11 buyer and 4 listings) in the quarter
ended April 30, 2009 compared to 17 in the same period last fiscal
year.  As noted above, despite the slight decline in number of closed
transactions for the quarter ended April 30, 2009 compared to the same period
last fiscal year, we increased our core real estate operating revenue from
$46,237 to $59,241.  We accomplished this 28% revenue growth in spite
of a 92% decrease in advertising & promotion expenses of $245,782 from
$268,230 to $22,448 for the periods ended April 30, 2008 and 2009,
respectively.  For the six month period ended April 30, 2009, we
closed a total of 25 real estate transactions (16 buyer and 9 listings) compared
to 21 in the same periods last year. On average, each of the 16 customers who
purchased a home through Webdigs for the six months ended April 30, 2009
received a rebate check of over $3,000.  Our net revenues for the
quarter ended April 30, 2009 can be broken down as follows: buyers - $39,738,
sellers – $9,700, and miscellaneous administrative fees - $9,803.  Our
net revenues for the six months ended April 30, 2009 can be broken down as
follows: buyers - $58,802, sellers - $25,112, and miscellaneous fees -
$13,954.  The miscellaneous fees consist primarily of
$295  per closed transaction in administrative fees charged and some
non-refundable up front payments from clients who are listing their homes with
us for virtual photo tours, yard signs and our administrative time to get all of
their homes’ data onto the on-line multiple listing service.


31





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 the home
purchase price and percentage commission we receive on each
transaction.  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 and 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.





We are
encouraged that the new Presidential administration has placed an emphasis on
stabilizing the housing and mortgage markets and is injecting hundreds of
billions of dollars to do so.  We believe the federal government’s
economic stimulus package coupled with low interest rates is already helping the
Twin Cities real estate market stabilize.





Mortgage
and Insurance





Since
August 1, 2008 and for the entire six month period ended April 30, 2009, all
mortgage operations have been generated through our investment in our mortgage
joint venture, Marketplace Home Mortgage - Webdigs, LLC (MHMW). Prior to the
establishment of the joint venture, we consolidated revenues from our two wholly
owned mortgage subsidiaries, Marquest Financial, Inc., and Home Equity Advisors,
LLC. The operations from these two subsidiaries were transferred into the joint
venture on August 1, 2008. Once the joint venture was established, we no longer
consolidate revenues from this operation. Instead, we report only our share of
the net profits and losses from the joint venture as other
income.  Revenues are reported in a separate footnote (See Note 6 of
the consolidated financial statements). Therefore, in the six month period ended
April 30, 2009, we recorded no mortgage revenue compared to $283,742 and
$434,028 for the three and six month periods ended April 30,
2008.


32





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%.





Significant
Trends and Uncertainties





We are
experiencing sales growth in our web-assisted real estate brokerage segment but
do face significant liquidity constraints due to the costs associated with
developing our real estate business.  Since inception (May 1, 2007) to
April 30, 2009, we have incurred net losses totaling $3,408,606.





Fortunately,
our quarterly operating losses continue to lessen; $295,411 for the most recent
quarter ended April 30, 2009 and $577,881 for the six months ended April 30,
2009 as compared to $626,409 and $1,187,517 for the three and six month periods
ended April 30, 2008, respectively.  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 operations 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.


33





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).





The
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.





Fortunately,
as reported by the National Association of Realtors (NAR) on June 4, 2009, the
Pending Home Sales Index, a forward-looking indicator based on contracts signed
in April, rose 6.7 percent to 90.3 from a reading of 84.6 in March, and is 3.2
percent above April 2008, when it was 87.5. In the Midwest, Webdigs’ main
territory, the index rose 9.8 percent to 90.4 and is 11.1 percent above April
2008.





Supporting
the rebound in home sales, NAR also reported on June 2, 2009 that their Housing
Affordability Index2 is in record territory. The affordability index rose to
174.8 in April from an upwardly revised 171.9 in March, and was the second
highest monthly reading on record after peaking at 176.9 in January of this
year. The HAI is a broad measure of housing affordability using consistent
values and assumptions over time, which examines the relationship between home
prices, mortgage interest rates and family income; tracking began in
1970.





We are
hopeful that these two NAR leading indicators, along with the intense national
focus on restoring American capital markets and stabilizing our banking system
portend a revival in the housing and real estate markets.


34





Results
of Operation





For
the three month periods ended April 30, 2009 and 2008





The
Company incurred operating losses of $295,411 for the three months ended April
30, 2009 and $626,409 for the three month period ended April 30,,
2008.  On a consolidated level, net revenues decreased from $329,979
for the quarter ended April 30, 2008 to $59,241 for the quarter ended April 30,
2009.  Because our mortgage subsidiaries were transferred into the
joint venture, Marketplace Home Mortgage – Webdigs, LLC, we no longer include
their revenue in our total revenue amount.  We only report our
percentage share of net profit from the joint venture in our financial
statements.  The shifting of our mortgage brokerage to MHMW has
affected our reported revenues significantly. This change in reporting revenues
accounted for a $283,742 decrease in net revenues for the three month period
ended April 30, 2009 from one year ago.  We are pleased, however, that
our core real estate operations continue to grow; net sales were up 28% from
$46,237 in the quarter ended April 30, 2008 to $59,241 for the same period ended
April 30, 2009, despite a $245,782 decrease in advertising & promotion
expenses.  We believe that the growth in real estate revenues is
derived largely from positive references made by previously satisfied
customers.  While we re-initiated a focused direct response marketing
campaign in the three months ended April 30, 2009, we lack any other explanation
for continued sales growth despite a year over year 92% reduction in marketing
support for the three months ended April 30, 2009.





The
mortgage market continued to offer favorable lending conditions during the three
month period ended April 30, 2009.  Unfortunately, due to some
unexpected resignations of key personnel at our joint venture MHMW, we did not
attain the mortgage profit we had expected for the quarter ended April 30,
2009.  For the three months ended April 30, 2009, the joint venture
recorded essentially break-even results with a net loss of
$1,689.  Our 49% share of the net loss, which we adjusted for
amortization of a deferred gain on the initial transfer of assets we made to the
joint venture amounted to $68.  (See Note 6 of the consolidated
financial statements for more details).





The
quarter ended April 30, 2009 marked a continuation of our shift in strategy
towards  low cost highly targeted real estate marketing and a focus on
becoming cash flow positive  on a quarterly basis before the end of
this fiscal year.  To achieve these goals, we reduced selling expenses
from $775,536 in three months ended April 30, 2008 to $163,070 for the three
months ended April 30, 2009.  Most significant among the selling cost
decreases were three items: website development, compensation, and advertising
and promotion.   We cut our www.webdigs.com website upkeep and
development and other information technology expenses from $112,690 for the
three months ended April 30, 2008 to $32,541 for the three months ended April
30, 2009.  For the same periods, we reduced sales compensation costs
from $288,264 to $61,419 and advertising and promotion from $268,230 to
$22,448.  Of the $226,845 decrease in sales compensation expenses,
approximately  $193,000 relate to the switch of Marquest’s personnel
to our Marketplace Home Mortgage – Webdigs, LLC joint
venture.  Fortunately, our www.webdigs.com website is fully
operational and currently requires very limited maintenance.


35





Our
general and administrative spending allows less flexibility than selling
costs.  For the three months ended April 30, 2009, we incurred
$191,582 in general and administrative expense spending compared to $180,852 for
three months ended April 30, 2008.  The most significant general and
administrative items were non-cash compensation and professional fees. Non-cash
compensation is addressed in the financial statements
footnotes.  Non-cash stock compensation costs increased from $41,727
for the three months ended April 30, 2008 to $65,485 for the three months ended
April 30, 2009.  Additionally, professional fees increased by 100%
from $42,526 to $84,846.  The entire increase in professional fees can
be attributed to a significant increase in non-cash investor relations
consulting fees (satisfied by the issuance of Webdigs common
stock).  These costs totaled $40,000 in the current quarter ended
April 30, 2009.  For the same period ended April 30, 2008, we had zero
non-cash investor relations consulting fees.  In total, we incurred
investor relations expenses of $47,502 for the three months ended April 30,
2009.  No investor relations expenses were incurred in the quarter
ended April 30, 2008.  Excluding the $40,000 incurred for the non-cash
consulting fees, we reduced general and administrative costs by
$29,270.  The biggest factor in the reduction of other general and
administrative costs is the savings in rent for the three months ended April 30,
2009.  We incurred rent expenses of $9,803 and $32,259 for the three
months ended April 30, 2009 and 2008, respectively.  This rent
reduction was achieved by eliminating the two office leases held by Marquest
Financial’s mortgage operation, which is now part of the Marketplace home
Mortgage – Webdigs, LLC joint venture.  We are very focused on
lowering our monthly break-even point.  Equally important to
increasing sales to reach break-even is control of fixed expenses.  The
rent reduction is a significant step in positioning us for quarterly
profitability this fiscal year.





For
the six month periods ended April 30, 2009 and 2008





The
Company incurred operating losses of $577,881 for the six month periods ended
April 30, 2009 compared to a loss of $1,187,517 for the same period last
year.  On a consolidated level, net revenues decreased from $499,361
for the six months ended April 30, 2008 to $97,868 for the six months ended
April 30, 2009.  For the same period, our core real estate sales were
up 50% from $65,333 to $97,868.  As mentioned above, the number of
real estate transactions closed increased from 21 to 25 for the six month
periods ended April 30, 2008 and 2009, respectively.   The
shifting of our mortgage brokerage to MHMW also affected our reported revenues
significantly for the six months ended April 30, 2009.  This change in
reporting revenues accounted for a $434,028 decrease in net revenues for the six
month period ended April 30, 2009 from one year ago.





In
addition to the sales growth mentioned above, our joint venture recorded net
income of $35,236 for the six month period ended April 30, 2009.  Our
49% share of the net income, which we adjusted for amortization of a deferred
gain on the initial transfer of assets we made to the joint venture amounted to
$18,785.  (See Note 6 of the consolidated financial statements for
more details).


36


In order to reflect a shift in our
strategy towards lower cost targeted real estate marketing, we significantly
reduced selling expenses from $1,345,720 for the six month period ended April
30, 2008 to $327,485 for the six month period ended April 30, 2009. Most
significant among the selling cost decreases were three items: website
development, compensation, and advertising and promotion. We cut ourwww.webdigs.comwebsite development and upkeep expenses
from $269,556 for the six month periods ended 2008 to $34,837 for the six month
period ended April 30, 2009. For the same period, we reduced sales compensation
costs from $490,211 to $129,875 and advertising and promotion from $350,602 to
$43,728. Much of the decrease (approximately $276,000) in sales compensation
cost results from moving Marquest Financial’s mortgage operation into the
Marketplace Home Mortgage – Webdigs, LLC joint venture.




For the six month period ended April 30,
2009, we incurred $348,264 in general and administrative expense spending
compared to $341,158 for the same period last year. The most significant general
and administrative items were non-cash compensation and professional fees.
Non-cash stock compensation costs increased from $83,454 for the six month
period ended April 30, 2008 to $130,970 for the six month period ended April 30,
2009. Partially, offsetting the increase in non-cash compensation was a decrease
inrent expenses of $40,898due tothe office consolidation noted above.We also cut outside contracted
administrative consulting costs from $27,169 for the six months ended April 30,
2008 to zero in the current
fiscal year. We spent the $27,169 in the prior year for temporary accounting and
computer software consulting support. We now have improved accounting and IT
systems such that temporary consulting support is not
needed.





Assets and Employees; Research and
Development





Our primary assets are cash and
intellectual-property rights, which are the foundation for our services.We recently unwound the
Marquest Financial, Inc. acquisition we originally closed on October 22, 2007.
We also are actively looking for strategic real-estate and mortgage brokerage
assets/partners to strengthen our overall position in these two areas of focus.
Notwithstanding, we do notanticipate any imminent or significant
changes in the number of employees. Wehave increased and will continue toincreasethe number of independent contractor
real estate agents upon whom we rely to provide personal services in the event
that we expand into other marketsand to accommodate transaction growth in
ourcurrent
markets.





We expect that we will invest time,
effort and expense in the continued refinement of ourwebsite and user interface. Currently,
we expect to spend approximately $100,000 in such improvement activities over
the course of fiscal 2009. As mentioned above, as of April 30, 2009 we have
spent approximately$35,000of our anticipated $100,000 current fiscal year website
spending.




37




Liquidity and Capital Resources;
Anticipated Financing Needs





As ofApril 30, 2009, we had $6,553cash and cash equivalents, and current
liabilities of $1,498,884
On December 12, 2008, we obtained a convertible promissory note in the amount of
$250,000 from an investment group affiliated with current shareholders of the
Company (See Note 8 of the consolidated financial statements for note conditions
and details) for working capital needs.




We used $281,608of cash in operating activities
during the six months ended
April 30, 2009 compared to $785,263 for the six months endedApril 30, 2008.Cash used in operationsfor the six months ended April 30, 2009included a net loss of
$715,658,whichwas partially offset by $356,102
ofvariousnon-cash expenses for depreciation,amortization, share-based
compensation, debt discount
and issuance cost amortization, unrealized losses on derivatives, change in our
equity position with our joint venture and shares issued for vendor payment. For
the six months ended April 30, 2008, these non-cash expenses totaled $196,887.
For the six months ended April 30, 2009, we were able to make progress on
reducingbalancesowed to key vendors,
therebyusing $70,552 of cash for areduction inaccounts payable. The decrease in
accounts payable was offset by an increase in amounts owed to related parties of
$81,679.




In total, financing activities provided
$250,359 and $804,537 for the six month periods ended April 30, 2009 and 2008,
respectively. As mentioned above, the promissory note we issued in December
provided cash of $226,000 (after paying $4,000 in issuance costs and $20,000 in
accrued legal fees). During the six months ended April 30, 2008, we generated
$826,500 from the issuance of common stock. In the current six month period
ended April 30, 2009, we have received $500 from common stock issuances. In
addition, in the current six month period ended April 30, 2009, we received
$25,730 cash from increased officer payables.





As it pertains to investing activities,
we did not make any investments in the six month period ended April 30, 2009.
For the same period last year, we invested $18,216 in computer
equipment.




Forour one issuance of common stock in the private placement
offering, we relied on the exemption from federal registration under Section
4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. We
relied on this exemption and the safe harbor thereunder based on the fact that
therewas one single
investor who qualified as an“accredited investors” under Rule 501
of the Securities Act of 1933 andwhohadknowledge and experience in financial
and business matters such thatit wascapable of evaluating the risks of the
investment. The securities offered and sold in the transaction werenot registered under the Securities Act
of 1933 and therefore may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements. The
disclosure about the private placement offering contained in this information
statement is not an offer to sell or a solicitation of an offer to buy any
securities of the Company.




38




Given ourrelatively lowcash position, our near term focus in
fiscal 2009continues
tobe creatingsome positive operating cash flow from
our web-assisted real estate brokerage and mortgage brokerage
operations.We believe that our projected revenue
growth during thethird and
fourth quarters will not fund us beyond the end the currentfiscal yearending October 31, 2009. Therefore, we
have agreedon extended
payment terms with ourkeyvendorsto maintain sufficient working capital
to fund ongoing operations. We are also actively engaged in seeking additional
financing to fund working capital needs and expansion into additional
markets.




The proceeds from the $250,000
convertible promissory note financing obtained inDecember 2008have provided critical liquidity to our
business operations.We expect thisnotealong with the sale of unregistered
securitieswill provide us
working capital sufficient to fund current operationsthrough the note’s maturity date on
September 30, 2009.In
addition, we have obtained express or tacit extended payment agreements with our
vendors relating to an aggregate of $700,000 in payables that are presently
due.In those cases where we do not have an
express agreement with vendors, it is possible that a vendor may demand payment
or refuse to provide services that are critical to the ability of the Company to
either continue to operate or to timely filerequired reports with the
SEC.If any such risk materializes, it would
likely decrease our likelihood of obtaining financing on terms acceptable to us,
if at all.In addition, if we fail to reach sales
revenue objectives (for any reason, including due to continued poor real estate
and credit market conditions beyond our control), additional financing may not
be available on terms favorable to us, if at all.





If additional funds are raised by the
issuance of our equity securities, such as through the issuanceof common stockand exercise ofstockoptions and warrants, then existing stockholders will
experience dilution of their ownership interest. If additional funds are raised
by the issuance of debt or other types of (typically preferred) equity
instruments, then we may be subject to certain limitations in our operations,
and issuance of such securities may have rights senior to those of the then
existing holders of our common stock. If adequate funds are not available or not
available on acceptable terms, we may be unable to fund expansion, develop or
enhance products or respond to competitive pressures.




Critical Accounting
Policies





The discussion and analysis of our
financial condition and results of operations are based upon our financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosures. We evaluate these estimates on an on-going basis. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.




39




We consider the following accounting
policies to be those most important to the portrayal of our results of
operations and financial condition:





Revenue
Recognition





Our online real estate brokerage
business recognizes revenue at the closing of a real estate transaction.
Commissions and rebates due to third party real estate agents or consumers are
accrued at the time of closing and treated as an offset to gross revenues. Our
mortgage brokerage business recognizes commissions received and loan fees earned
at the time a mortgage loan closes.





Share-Based
Compensation




The Company accounts for stock incentive
plans under the recognition and measurement provisions of FASB Statement No.
123(R), Share-Based Payments, which requires the measurement and recognition of
compensation expense for all stock-based awards based on estimated fair values,
net of estimated forfeitures. Share-based compensation expense includes
compensation cost for restrictedstockawards.




Intangible
Assets





We have two types of intangible
assets.





Website
Development


The
primary interface with the customer in our web-assisted real estate broker
operation is the Webdigs.com website. Certain costs incurred in development of
this website have been capitalized according to provision in Emerging Issues
Task Force Issue No. 00-2, Accounting for Website Development
Costs (EITF 00-2), and AICPA Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. These capitalized costs
total $413,516. Amortization is on a straight-line method over the estimated
useful life of the website of 3 years. No additional costs were capitalized for
the year ended October 31, 2008 or the six months ended April 30, 2009. All
costs incurred in 2008 and 2009 relating to the website were determined to be
operational type costs and were properly expensed.





Customer
Lists


The
Company accounts for customer lists under Statement of Financial Accounting
Statements (“SFAS”) No. 142, Goodwill and Other Intangible Assets (“SFAS 142”).
Amortization expense is calculated using the straight-line method (which
approximates the anticipated revenue stream back to the Company) over the lists
estimated 2-3 year life.




40




With the
June, 2009 unwinding of the October 22, 2007 acquisition of Marquest Financial,
Inc., the Company will no longer have rights to the customer list acquired as
part of the Marquest Financial acquisition. The Company has not yet performed
the accounting for this transaction but it does not expect to retain any value
for the Marquest customer list after accounting for the unwinding has been
completed.





Investment in Marketplace
Home Mortgage





On August
1, 2008, the Company contributed non-cash assets into a joint venture created
with Marketplace Home Mortgage, LLC for a 49% ownership interest (see Note 5 to
the consolidated financial statements). The Company accounts for its investment
in the joint venture using the equity method. Accordingly, the Company records
an increase in its investment for contributions to the joint venture and for its
49% share of the income of the joint venture, and a reduction in its investment
for its 49% share of any losses of the joint venture or disbursements of profits
from the joint venture.




Accounting for Convertible
Debentures, Warrants and Derivative Instruments





The
Company does not enter into derivative contracts for purposes of risk management
or speculation. However, from time to time, the Company enters into contracts
that are not considered derivative financial instruments in their entirety but
that include embedded derivative features.




The
Company accounts for its embedded conversion features and freestanding warrants
pursuant to SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133) and EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Company’s Own Stock
(EITF 00-19) which requires freestanding contracts that are settled in a
company’s own stock to be designated as an equity instrument, asset, or a
liability. Under the provisions of EITF 00-19, a contract designated as an asset
or a liability must be carried at fair value on a company’s balance sheet, with any changes in
fair value recorded in the results of operations.




In
accordance with EITF 00-19, certain warrants to purchase common stock and
embedded conversion options are accounted for as liabilities at fair value and
the unrealized changes in the values of these derivatives are recorded in the
statement of operations as “gain or loss on warrants and derivatives.”
Contingent conversion features that reduce the conversion price of warrants and
conversion features are included in the valuation of the warrants and the
conversion features. The recognition of the fair value of derivative liabilities
(i.e. warrants and embedded conversion options) at the date of issuance is
applied first to the proceeds. The excess fair value, if any, over the proceeds
from a debt instrument, is recognized immediately in the statement of
operations as interest expense. The value of warrants or derivatives associated
with a debt instrument is recognized at inception as a discount to the debt
instrument. This discount is amortized over the life of the debt instrument
using the effective interest method. A determination is made upon settlement,
exchange, or modification of the debt instruments to determine if a gain or loss
on the extinguishment has been incurred based on the terms of the settlement,
exchange, or modification and on the value allocated to the debt instrument at
such date.




41




The
Company uses the Black-Scholes pricing model to determine fair values of its
derivatives. Valuations derived from this model are subject to ongoing internal
verification and review. The model uses market-sourced inputs such as interest
rates, exchange rates, and option volatilities. Selection of these inputs
involves management’s judgment and may impact net income (loss). The fair value
of the derivative liabilities are subject to the changes in the trading value of
the Company’s common stock. As a result, the Company’s financial statements may
fluctuate from quarter-to-quarter based on factors, such as the bid price of the
Company’s stock at the balance sheet date, the amount of shares converted by
note holders and/or exercised by warrant holders, and changes in the
determination of market-sourced inputs. Consequently, the Company’s financial
position and results of operations may vary materially from quarter-to-quarter
based on conditions other than its operating revenues and expenses.




Recently Issued Accounting
Pronouncements




In
February 2008, the FASB issued FASB Staff Position FAS 157-2 (“FSP FAS
157-2”) Effective Date of FASB
Statement No. 157 which delays the effective date of SFAS
No. 157 for non-financial assets and non-financial liabilities that are
recognized or disclosed in the financial statements on a nonrecurring basis to
fiscal years beginning after November 15, 2008. These non-financial items
include assets and liabilities such as reporting units measured at fair value in
a goodwill impairment test and non-financial assets acquired and non-financial
liabilities assumed in a business combination. The Company has not applied the
provisions of SFAS No. 157 to its non-financial assets and non-financial
liabilities in accordance with FSP FAS 157- 2.




In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements-an amendment of ARB No.
51.  SFAS No. 160 establishes accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary.  SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  The adoption of this statement is not expected to
have a material effect on our future reported financial position or results of
operations.





In June
2008, the FASB ratified the consensus reached by the EITF on Issue
No. 07-5, Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own
Stock (“EITF No. 07-5”).EITF No. 07-5 addresses the
determination of whether an instrument (or embedded feature) is indexed to an
entity’s own stock. EITF No. 07-5 would require the entity to account for
embedded conversion options as derivatives and record them on the balance sheet
as a liability with subsequent fair value changes recorded in the income
statement. EITF-07-5 is effective for the financial statements issued for fiscal
years beginning after December 15, 2008, and early adoption is prohibited. The
Company has not yet determined the effect that the adoption of EITF 07-5 will
have on its consolidated financial statements, particularly with respect to its
Convertible Note Payable (See Note 7).




42




In April
2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) No. FAS 157-4, “Determining Fair Values When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly.” This FSP provides guidance on
(1) estimating the fair value of an asset or liability when the volume and level
of the activity for the asset or liability have significantly declined and (2)
identifying transactions that are not orderly. This FSP also amends certain
disclosure provisions of SFAS No. 157 to require, among other things,
disclosures in interim periods of the inputs and valuation techniques used to
measure fair value. For the Company, this FSP is effective prospectively
beginning April 1, 2009. The Company is currently evaluating the impact of this
standard, but would not expect it to have a material impact on our financial
position, results of operations, or cash flows.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments.” This FSP essentially expands the
disclosure about fair value of financial instruments that were previously
required only annually to be also required for interim period reporting. In
addition, this FSP requires certain additional disclosures regarding the methods
and significant assumptions used to estimate the fair value of financial
instruments. For the Company, these additional disclosures will be required
beginning with the quarter ending July 31, 2009. We are currently evaluating the
requirement of these additional disclosures.




Seasonality of
Business





The residential real estate market has
traditionally experienced seasonality, with a peak in the spring and summer
seasons and a decrease in activity during the fall and winter seasons. We expect
revenues in each quarter to be significantly affected by activity during the
prior quarter, given the time lag between contract execution and
closing.





Going Concern





We haveincurred significant operating losses
forthe six monthperiod endedApril 30, 2009and 2008.AtApril30, 2009, we reporteda negative working capital position of
$1,402,401, accumulated deficit of $3,408,606and a stockholders’ deficit of
$1,105,601.It isouropinion that these factsraise substantial doubts about
ourability to continue as
a going concern without additional debt or equity financing.




43




As noted above, in order to meet its working capital
needs through thesixmonths,weplan toseekfrom $500,000 to $1,000,000 inadditionalfinancing over the next three- four
months. Wehavealready begun reducing operating
expenditures. May, 2009
produced our highest monthly revenue since we began operations two years
agoandweexpect to increase revenuesfurther in the next two fiscal quarters
through referrals and repeat transactions from ourexisting customer base andtargeted direct marketing
campaigns.





Our consolidated financial statements
included do not include any adjustments related to recoverability and
classification of asset carrying amounts, or the amount and classification of
liabilities that might result, should we be unable to continue as a going
concern.Our ability to continue as a going
concern ultimately depends on achieving profitability, producing revenues or
raising additional capital to sustain operations.Although we intend to obtain additional
financing to meet our cash needs, we may be unable to secure any additional
financing on terms that are favorable or acceptable to us, if at
all.




Item 3.
            Quantitative and Qualitative
      Disclosures About Market
Risk





Not
applicable.





Item 4.
            Controls and
      Procedures.




Management’s Report On Internal Control
Over Financial Reporting





Under the supervision of, and the
participation of, our management, including our Chief Executive Officer and
Chief Financial Officer, we have conducted an evaluation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) as of the
end of the period covered by this Quarterly Report on Form 10-Q 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 Securities and Exchange Commission’s rules and
forms, and is accumulated and communicated to our management as appropriate to
allow timely decisions regarding required disclosure.





Based on this evaluation and taking into
account that certain material weaknesses existed as ofOctober 31, 2008, our Chief Executive Officer and
Chief Financial Officer have each concluded that our disclosure controls and
procedures were not effective.  As a result of this conclusion, the
financial statements for the period covered by this Quarterly Report on Form
10-Q were prepared with particular attention to the material weaknesses
previously disclosed. Notwithstanding the material weaknesses in internal
controls that continue to exist as ofApril 30, 2009, we have concluded that the
financial statements included in this Quarterly Report on Form 10-Q present
fairly, the financial position, results of operations and cash flows of the
Company as required for interim financial statements.




44




Changes in Internal
Controls





During the fiscal quarter endedApril 30, 2009, there was no change in our
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. Management has
concluded that the material weaknesses in internal control as described in Item
9A of the Company’s Form
10-K for the year ended October 31, 2008have not been remediated. 
Due to the small number of employees dealing with general administrative and
financial matters and the expenses associated with increases to remediate the
disclosure controls and procedures that have been identified, the Company
continued to operate without changes to its internal controls over financial
reporting for the period covered by this Quarterly Report on Form 10-Q while
continuing to seek the expertise it needs to remediate the material
weaknesses.





PART II – OTHER
INFORMATION





Item 1. Legal Proceedings





None.





Item 1A.Risk Factors.





None.




Item2.  Unregistered Sales of Equity
Securities


`


During thesix month periodendedApril 30, 2009, the Companyoffered and sold 2,000 shares of common
stock in a private placementat a per sharepriceof $0.25.  The Companyreceived gross proceeds from this sale
of$500and paid no commissions or fees in
connection with the private placement.





Forour one issuance of common stock in the private placement
offering, we relied on the exemption from federal registration under Section
4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. We
relied on this exemption and the safe harbor thereunder based on the fact that
therewas one single
investor who qualified as an“accredited investors” under Rule 501
of the Securities Act of 1933 andwhohadknowledge and experience in financial
and business matters such thatit wascapable of evaluating the risks of the
investment.The securities offered and sold in the
transaction werenot registered under the Securities Act
of 1933 and therefore may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements. The
disclosure about the private placement offering contained in this information
statement is not an offer to sell or a solicitation of an offer to buy any
securities of the Company.




45




Item3. Defaults Upon Senior
Securities





None.




Item4 Submission of Matters to a Vote of
Shareholders





None.




Item5. Other Information





None.




Item 6.Exhibits.





Exhibit No.
              
              Description31.1
              
              Certification
      of Chief Executive Officer31.2
              
              Certification
      of Chief Financial Officer32
              
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002





SIGNATURES




In accordance with the requirements of
the Securities Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.





WEBDIGS,
    INC./s/ Robert A. Buntz,
      Jr.Robert A. Buntz,
      Jr.Chief Executive
      OfficerDated: June
      15,
2009




46




/s/ Edward
      WickerEdward
    WickerChief Financial
      OfficerDated: June 15,
      2009




47


INDEX TO EXHIBITS FILED WITH THIS
REPORT





Exhibit No.
              
              Description31.1
              
              Certification
      of Chief Executive Officer31.2
              
              Certification
      of Chief Financial Officer32
              
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002




48