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  July 31, 2010
 
 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 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
September 14, 2010 there were 33,396,719 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 Conditionand
      Results of Operations
                  2Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  11Item
      4.
                  Controls
      and Procedures
                  11PART
      II – OTHER INFORMATIONItem
      1.
                  Legal
      Proceedings
                  12Item
      1A.
                  Risk
      Factors
                  12Item
      2.
                  Unregistered
      Sales of Equity Securities
                  12Item
      3.
                  Defaults
      Upon Senior Securities
                  12Item
      4.
                  Submission
      of matters to a Vote of Security Holders
                  12Item
      5.
                  Other
      Information
                  12Item
      6.
                  Exhibits
                  12SIGNATURES
                  13EXHIBIT
      INDEX
                  14
  
  PART
I – FINANCIAL INFORMATION
 
 Item
1.  Consolidated Financial Statements.
  WEBDIGS,
INC.
  CONSOLIDATED
FINANCIAL STATEMENTS
 (UNAUDITED)
 
 FOR
THE THREE AND NINE MONTH
 PERIODS
ENDED JULY 31, 2010 AND 2009
 
 1
  WEBDIGS,
INC.
 
 
 TABLE
OF CONTENTS
 
 PAGEConsolidated
      Financial Statements:Consolidated
      Balance Sheets
                      F-2Consolidated
      Statements of Operations
                      F-4Consolidated
      Statements of Cash Flows
                      F-5Notes
      to Consolidated Financial Statements
                      F-7
  F
– 1
  WEBDIGS, INC.
  
 CONSOLIDATED
BALANCE SHEETS
 (Unaudited)
 
 July 31, 2010
                            (Unaudited)
                          
                          
                          October 31,2009
                            (Audited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                          
                          $
                          4,685
                          
                          
                          $
                          36,023Commissons
      and fees receivable
                          
                          
                          14,871
                          
                          
                          
                          9,449Prepaid
      expenses and deposits
                          
                          
                          5,533
                          
                          
                          
                          10,847Other
      current assets
                          
                          
                          9,084
                          
                          
                          
                          10,284Total
      current assets
                          
                          
                          34,173
                          
                          
                          
                          66,603Office
      equipment and fixtures, net
                          
                          
                          13,932
                          
                          
                          
                          30,678Intangible
      assets, net
                          
                          
                          133,385
                          
                          
                          
                          2,103,243Total
      assets
                          
                          $
                          181,490
                          
                          
                          $
                          2,200,524
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  F –
2
  WEBDIGS,
INC.
 
 
 CONSOLIDATED
BALANCE SHEETS (continued)
 (Unaudited)
 July 31, 2010
                                      (Unaudited)
                                    
                                    
                                    October 31,2009
                                      (Audited)LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)Current
      liabilities:Current
      portion of capital lease obligations
                                    
                                    $
                                    4,498
                                    
                                    
                                    $
                                    4,197Accounts
      payable
                                    
                                    
                                    143,454
                                    
                                    
                                    
                                    259,064Accounts
      payable - minority stockholder
                                    
                                    
                                    569,949
                                    
                                    
                                    
                                    562,858Due
      to officers
                                    
                                    
                                    8,330
                                    
                                    
                                    
                                    58,606Convertible
      notes payable - officer/stockholder
                                    
                                    
                                    492,800
                                    
                                    
                                    
                                    173,000Accrued
      expenses:Professional
      fees
                                    
                                    
                                    29,250
                                    
                                    
                                    
                                    39,000Payroll
      and commissions
                                    
                                    
                                    213,708
                                    
                                    
                                    
                                    53,207Other
      liabilities
                                    
                                    
                                    58,362
                                    
                                    
                                    
                                    20,174Total
      current liabilities
                                    
                                    
                                    1,520,351
                                    
                                    
                                    
                                    1,170,106Long
      term liabilities:Capital
      lease obligation, less current portion
                                    
                                    
                                    2,822
                                    
                                    
                                    
                                    6,233Total
      liabilities
                                    
                                    
                                    1,523,173
                                    
                                    
                                    
                                    1,176,339Stockholders'
      equity (deficit):Common
      stock  - $.001 par value; 125,000,000 shares authorized as
      commonstock
      and an additional 125,000,000 shares designated as common
    orpreferred
      stock;  33,396,719 common shares issued andoutstanding
      at July 31, 2010 and October 31, 2009
                                    
                                    
                                    33,397
                                    
                                    
                                    
                                    33,397Treasury
      stock - $.001 par value; 963,628 and 1,063,628 shares held
    intreasury
      as of July 31, 2010 and October 31, 2009, respectively
                                    
                                    
                                    (240,907
                                    )
                                    
                                    
                                    (265,907
                                    )Additional
      paid-in-capital
                                    
                                    
                                    5,045,826
                                    
                                    
                                    
                                    5,034,458Accumulated
      deficit
                                    
                                    
                                    (6,179,999
                                    )
                                    
                                    
                                    (3,777,763
                                    )Total
      stockholders' equity (deficit)
                                    
                                    
                                    (1,341,683
                                    )
                                    
                                    
                                    1,024,185Total
      liabilities and stockholders' equity (deficit)
                                    
                                    $
                                    181,490
                                    
                                    
                                    $
                                    2,200,524
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
 
 F –
3
  WEBDIGS,
INC.
  
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
                                        
                                        
                                        Nine Months EndedJuly 31,
                                        
                                        
                                        July 31,2010
                                        
                                        
                                        2009
                                        
                                        
                                        2010
                                        
                                        
                                        2009(unaudited)
                                        
                                        
                                        (unaudited)
                                        
                                        
                                        (unaudited)
                                        
                                        
                                        (unaudited)Revenue:Gross
      revenues
                                        
                                        $
                                        176,159
                                        
                                        
                                        $
                                        451,841
                                        
                                        
                                        $
                                        592,931
                                        
                                        
                                        $
                                        631,033Less:
      customer rebates and third-party agent commissions
                                        
                                        
                                        (54,889
                                        )
                                        
                                        
                                        (204,515
                                        )
                                        
                                        
                                        (217,867
                                        )
                                        
                                        
                                        (285,839
                                        )Net
      revenues
                                        
                                        
                                        121,270
                                        
                                        
                                        
                                        247,326
                                        
                                        
                                        
                                        375,064
                                        
                                        
                                        
                                        345,194Operating
      expenses:Selling
                                        
                                        
                                        114,969
                                        
                                        
                                        
                                        238,270
                                        
                                        
                                        
                                        358,082
                                        
                                        
                                        
                                        489,170General
      and administrative
                                        
                                        
                                        106,707
                                        
                                        
                                        
                                        180,837
                                        
                                        
                                        
                                        359,635
                                        
                                        
                                        
                                        528,490Amortization
      of intangible assets
                                        
                                        
                                        291,188
                                        
                                        
                                        
                                        49,878
                                        
                                        
                                        
                                        728,913
                                        
                                        
                                        
                                        118,797Impairment
      charge
                                        
                                        
                                        1,262,705
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,262,705
                                        
                                        
                                        
                                        -Total
      operating expenses
                                        
                                        
                                        1,775,569
                                        
                                        
                                        
                                        468,985
                                        
                                        
                                        
                                        2,709,335
                                        
                                        
                                        
                                        1,136,457Operating
      loss from continuing operations
                                        
                                        
                                        (1,654,299
                                        )
                                        
                                        
                                        (221,659
                                        )
                                        
                                        
                                        (2,334,271
                                        )
                                        
                                        
                                        (791,263
                                        )Other
      income (expense):Equity
      in income from Marketplace Home MortgageWebdigs,
      LLC
                                        
                                        
                                        -
                                        
                                        
                                        
                                        117
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        18,902Interest
      expense
                                        
                                        
                                        (14,683
                                        )
                                        
                                        
                                        (210,630
                                        )
                                        
                                        
                                        (46,965
                                        )
                                        
                                        
                                        (303,484
                                        )Loss
      on change in fair value of derivatives and warrants
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (63,708
                                        )Total
      other income (expense)
                                        
                                        
                                        (14,683
                                        )
                                        
                                        
                                        (210,513
                                        )
                                        
                                        
                                        (46,965
                                        )
                                        
                                        
                                        (348,290
                                        )Loss
      from continuing operations before income taxes
                                        
                                        
                                        (1,668,982
                                        )
                                        
                                        
                                        (432,172
                                        )
                                        
                                        
                                        (2,381,236
                                        )
                                        
                                        
                                        (1,139,553
                                        )Income
      tax provision
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      loss from continuing operations
                                        
                                        
                                        (1,668,982
                                        )
                                        
                                        
                                        (432,172
                                        )
                                        
                                        
                                        (2,381,236
                                        )
                                        
                                        
                                        (1,139,553
                                        )Income
      from discontinued operations of MarquestFinancial
      Inc. net of applicable taxes of zero
                                        
                                        
                                        -
                                        
                                        
                                        
                                        292,686
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        284,409Net
      loss
                                        
                                        $
                                        (1,668,982
                                        )
                                        
                                        $
                                        (139,486
                                        )
                                        
                                        $
                                        (2,381,236
                                        )
                                        
                                        $
                                        (855,144
                                        )Net
      loss per common share - basic and diluted:Loss
      from continuing operations
                                        
                                        $
                                        (0.05
                                        )
                                        
                                        $
                                        (0.01
                                        )
                                        
                                        $
                                        (0.07
                                        )
                                        
                                        $
                                        (0.04
                                        )Income
      from discontinued operations
                                        
                                        
                                        -
                                        
                                        
                                        
                                        0.01
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        0.01Net
      loss
                                        
                                        $
                                        (0.05
                                        )
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (0.07
                                        )
                                        
                                        $
                                        (0.03
                                        )Weighted
      average common shares outstanding -basic
      and diluted
                                        
                                        
                                        33,396,719
                                        
                                        
                                        
                                        28,417,170
                                        
                                        
                                        
                                        33,396,719
                                        
                                        
                                        
                                        24,553,883
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
 F –
4
  WEBDIGS,
INC.
 
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Nine
      Months EndedJuly
      31,2010
                              
                              
                              2009(unaudited)
                              
                              
                              (unaudited)Cash
      flows from operating activities:Net
      loss
                              
                              $
                              (2,381,236
                              )
                              
                              $
                              (855,144
                              )Adjustments
      to reconcile net loss to net cash flows used in operating
      activities:Depreciation
                              
                              
                              16,746
                              
                              
                              
                              10,948Stock
      warrant expense to debt holders for agreement modification
                              
                              
                              -
                              
                              
                              
                              138,010Amortization
      of intangible assets
                              
                              
                              728,913
                              
                              
                              
                              145,331Amortization
      of convertible note payable discounts
                              
                              
                              -
                              
                              
                              
                              129,873Amortization
      or debt issuance costs
                              
                              
                              -
                              
                              
                              
                              3,520Impairment
      charge
                              
                              
                              1,262,705
                              
                              
                              
                              -Loss
      on change in fair value of derivatives and warrants
                              
                              
                              -
                              
                              
                              
                              63,708Equity
      in the income of Marketplace Home Mortgage - Webdigs, LLC
                              
                              
                              -
                              
                              
                              
                              (18,902
                              )Share-based
      compensation
                              
                              
                              15,368
                              
                              
                              
                              179,447Gain
      on sale of subsidiary
                              
                              
                              -
                              
                              
                              
                              (297,412
                              )Common
      stock issued for services
                              
                              
                              -
                              
                              
                              
                              7,000Changes
      in operating assets and liabilities:Commissions
      and fees receivable
                              
                              
                              (5,422
                              )
                              
                              
                              (19,145
                              )Prepaid
      expenses and deposits
                              
                              
                              5,314
                              
                              
                              
                              119,109Other
      current assets
                              
                              
                              1,200
                              
                              
                              
                              (7,955
                              )Accounts
      payable
                              
                              
                              (115,610
                              )
                              
                              
                              (25,893
                              )Accounts
      payable - minority stockholder
                              
                              
                              7,091
                              
                              
                              
                              76,580Accrued
      expenses
                              
                              
                              117,476
                              
                              
                              
                              48,481Other
      liabilities
                              
                              
                              38,188
                              
                              
                              
                              3,728Net
      cash flows used in operating activities
                              
                              
                              (309,267
                              )
                              
                              
                              (298,716
                              )Cash
      flows from investing activities:Purchase
      of equipment and intangible assets
                              
                              
                              (21,760
                              )
                              
                              
                              (157,733
                              )Cash
      paid for business acquisition
                              
                              
                              -
                              
                              
                              
                              (5,000
                              )Net
      cash flows used in investing activities
                              
                              
                              (21,760
                              )
                              
                              
                              (162,733
                              )Cash
      flows from financing activities:Proceeds
      from issuance of common stock
                              
                              
                              -
                              
                              
                              
                              335,500Proceeds
      from issuance of convertible debentures, net of debt
    issuancecosts
      of $4,000 and unrelated accrued legal fees of $20,000
                              
                              
                              -
                              
                              
                              
                              226,000Principal
      payments on convertible/promissory note
                              
                              
                              -
                              
                              
                              
                              (100,000
                              )Proceeds
      from issuance of convertible notes payable to
      officer/stockholder
                              
                              
                              319,800
                              
                              
                              
                              -Increase
      (decrease) in due to officers
                              
                              
                              (17,001
                              )
                              
                              
                              11,294Principal
      payments on capital lease obligations
                              
                              
                              (3,110
                              )
                              
                              
                              (2,838
                              )Net
      cash flows provided by financing activities
                              
                              
                              299,689
                              
                              
                              
                              469,956Net
      change in cash and cash equivalents
                              
                              
                              (31,338
                              )
                              
                              
                              8,507Cash
      and cash equivalents, beginning of period
                              
                              
                              36,023
                              
                              
                              
                              37,802Cash
      and cash equivalents, end of period
                              
                              $
                              4,685
                              
                              
                              $
                              46,309
  The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
 F –
5
  WEBDIGS,
INC.
  
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Nine
      Months EndedJuly 31,2010
                                                              
                                                              
                                                              2009(unaudited)
                                                              
                                                              
                                                              (unaudited)Supplemental cash flow
      informationCash
      paid for interest
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              16,958Supplemental disclosure of non-cash investing and
      financing activitiesIssuance
      of common stock to convertible debt holder as a discount on the
      debt
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              20,000Discount
      on convertible debt due to detachable warrant and embeddedconversion
      option
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              127,583Accrued
      legal fees paid from convertible debenture proceeds
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              20,000Related
      party contribution of Webdigs common stock to consultant for
      prepaidconsulting
      fees
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              40,000Common
      stock issued for prepaid consulting fees
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              80,000Reclassification
      of amounts due to officers as accrued expenses
                                                              
                                                              $
                                                              33,275
                                                              
                                                              
                                                              $
                                                              -Webdigs
      common stock received in connection with the divestiture of
                                                                Marquest
      Financial, Inc.
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              265,907Issuance
      of common stock to acquire Iggy’s assets
      ($17,648 for computer
                                                                hardware
      and $1,797,977 for intangible assets)
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              1,815,625Issuance
      of common stock to acquire theMLSDirect.com
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              47,000Convert
      accrued officer salary to common stock
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              55,000Void
      forfeited balance of unearned compensation
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              41,098
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  F –
6
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and 2009
 
 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 10K for the year ended October 31,
2009.
 
 Certain
reclassifications have been made to prior year amounts to conform to the current
year presentation. These changes had no effect on our results of operations or
stockholder’s equity as previously reported.
 
 2
                  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature of
Business
 
 Webdigs,
Inc. (“the Company”), a Delaware corporation, became a public company in October
2007 after a reverse shell transaction with Select Video, Inc. which was
incorporated in Delaware in 1994.  Our business is dedicated to
web-assisted residential real estate brokerage services. This is done through
our wholly-owned subsidiary Webdigs, LLC.
 
 All of
the Company’s real estate brokerage operations are operated under Webdigs, LLC.
Our three main real estate brokerage brands are Webdigs, Iggys House and
theMLSDirect.com.   Webdigs.com is a web-assisted real estate
website and brokerage, offering a similar customer experience as a full service
brokerage utilizing a discounted percentage fee structure for listing services
to their selling customers and a graduated fee structure for their buying
customers by rebating up to 1% of the sale price of the home to the buyer.
IggysHouse.com is a web-assisted real-estate listing service which enables the
customer to pay a monthly discounted fee of $49.95 to list their homes on their
local real estate multiple listing service. Our third brand, theMLSDirect.com,
offers consumers a flat-fee MLS listing for $299. Similar to IggysHouse.com,
there is a full menu of add-on services available for customers to
purchase.
  F –
7
  WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and 2009
  Basis of
Consolidation
 
 The
consolidated financial statements for the three and nine month periods ended
July 31, 2010 and
2009 include the accounts of Webdigs, Inc. and its wholly-owned subsidiary,
Webdigs, LLC, which includes wholly-owned subsidiaries of Home Equity Advisors,
LLC, and Credit Garage, LLC.  The consolidated financial statements
for Webdigs, Inc. for the three and nine month periods ended July 31, 2009 also
includes its former wholly-owned subsidiary of Marquest Financial Inc.
(Marquest). The Company divested Marquest on June 4, 2009 (see Note
5).  The net results from Marquest have been segregated for all
periods presented in the statement of operations.   The
investment of Marketplace Home Mortgage – Webdigs, LLC (49% ownership) was
recorded on the equity method.  This unconsolidated joint venture was
dissolved on October 26, 2009 (see Note 7). All significant intercompany
accounts and transactions have been eliminated in the
consolidation.
 
 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.
 
 Intangible
Assets
 
 The
Company has 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.  Amortization is on
a straight-line method over the estimated three year useful life of the
website.   The Company also has incurred costs for the
IggysHouse.com website. Those costs are being amortized on a straight-line
method over the estimated two year useful life of the website.
 
 Website Domain
Names
 The
Company capitalizes the fair value of website domain names acquired through
business combinations or asset acquisitions.  The Company purchased 17
domain names in 17 states in May 2009 from theMLSDirect.com and are amortizing
the fair value of these names over a 2 year estimated useful life.
 
 The
Company reviews the carrying values of its intangible asset whenever facts and
circumstances indicate the assets may be impaired. Recoverability of assets to
be held and used is measured by comparing the carrying amount of an asset to
future net undiscounted cash flows expected to be generated by the asset. If an
asset is considered impaired, the impairment is measured by the amount by which
the carrying amount of the asset exceeds its fair value.
  F –
8
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and 2009
  The
Company has experienced limited revenue from the IggysHouse.com website since it
went live on January 6, 2010. A continued lack of growth from this website
has resulted in the Company’s management
evaluating the intangible assets acquired from IggysHouse.com with respect to
future financial results and cash flows.  As a result of this review,
the Company’s management determined that the estimated future undiscounted cash
flows of the intangible assets were less than their carrying value. At July 31,
2010, the IggyHouse.com assets had a net carrying value of
$1,351,455.  The estimated fair value of the intangible assets was
reduced to $100,000 at July 31, 2010 (See Note 6). As a result, the Company
recognized an impairment loss of $1,251,455 for the three month period ended
July 31, 2010.
 
 A
separate impairment test for the intangible assets acquired in the May 2009
acquisition of the MLSDirect,com also produced an impairment charge of
$11,250.  The Company’s re-evaluation of the 17 affiliate broker
relationships acquired as part of the acquisition revealed than none of the 17
affiliates were acting as brokers for the MLSDirect.com as of July 31,
2010.   After the impairment charge, the Company maintains an
intangible asset balance of assets for the MLSDirect.com of $10,412 for the
domain names acquired as part of the MLSDirect.com acquisition.
 
 Including
the remaining $22,973 net value of the Company’s Webdigs.com website, as of July
31, 2010, the Company’s total net intangible assets are $133,385.
 
 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 7).
The Company previously accounted for its investment in the joint venture using
the equity method. Accordingly, the Company recorded an increase in its
investment for contributions to the joint venture and for its 49% share of any
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.  On October 26, 2009, the Company and Marketplace Home
Mortgage, LLC agreed to dissolve Marketplace Home Mortgage – Webdigs,
LLC.  All remaining assets were distributed upon
dissolution.
 
 Segments
 
 Historically,
the Company has reported two strategic operating segments; (1) web-assisted real
estate brokerage and (2) mortgage brokerage.  Due to the divestiture
of Marquest Financial, Inc. and the dissolution of Marketplace Home Mortgage –
Webdigs, LLC in 2009, the Company has determined that the mortgage segment is no
longer significant to its operations and therefore, now reports as one strategic
reporting segment.
  F –
9
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and 2009
 
 Income
Taxes
 
 The
Company accounts for income taxes using 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
against its net deferred tax assets as of July 31, 2010 and October 31, 2009
because realization of those assets is not reasonably assured.
 
 The
Company will recognize 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.
 
 The
Company believes its income tax filing positions and deductions will be
sustained upon examination and, accordingly, no reserves, or related accruals
for interest and penalties has been recorded at July 31, 2010 and October 31,
2009.
 
 Recently Issued Accounting
Pronouncements
 
 In
January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820).  ASU 2010-06 provides additional disclosure
requirements related to fair value measurements. ASU 2010-06 is effective
for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances, and settlements in
the roll forward of activity in Level 3 fair value
measurements.  Disclosure requirements applicable to Level 3
transactions are effective for fiscal years beginning after December 15,
2010 and for interim periods within those fiscal years, with early adoption
permitted.  The portion of ASU 2010-06 that was effective beginning
after December 15, 2009 did not have a material effect on the financial
position, results of operations or cash flows of the Company. Additionally, the
Company does not anticipate that the disclosure requirements applicable to
Level 3 transactions that are effective for fiscal years beginning after
December 15, 2010 will have a material effect on the financial position,
results of operations or cash flows of the Company.
 
 3
                  GOING
      CONCERN
 
 The
Company has incurred significant operating losses for the three and nine month
periods ended July 31, 2010 and 2009.  At July 31, 2010, the Company
reports a negative working capital position of $1,486,178, and an accumulated
deficit of $6,179,999.  It is management’s opinion that these facts
raise substantial doubt about the Company’s ability to continue as a going
concern without additional debt or equity financing.
  F –
10
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and
2009
 
 In order
to meet its working capital needs through the next twelve months, the Company
plans to raise additional funds through the issuance of debt to its officers and
other private placements.  The Company is also working with some of
its current vendors (including the Company’s principal website
developer/minority stockholder) to potentially negotiate a payout settlement
that could be less than the July 31, 2010 balances owed. Although the Company
intends 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.  The Company significantly reduced operating
expenditures during the year ended October 31, 2009 and has continued reducing
operating expenses during the nine months ended July 31,
2010.  Management of the Company anticipates that further expense
reductions will be difficult to achieve during the last quarter of our current
fiscal year.   The Company expects to increase revenues through
its existing Webdigs.com customer base, increased website traffic (driven
largely by internet advertising) and the addition of real estate agents joining
the Webdigs team in the months ahead.
 
 4
                  RELATED
      PARTY TRANSACTIONS
 
 Accounts Payable – Minority
Stockholder
 
 The
Company’s principal advertising agency/website developer was owed $569,949 at
July 31, 2010 and $562,858 at October 31, 2009.  The two principals of
this advertising company are also minority stockholders in the Company – holding
approximately 1.6% of the Company’s outstanding shares at July 31,
2010.  For the nine month periods ended July 31, 2010 and 2009, the
Company incurred $57,091 and $126,579 in services and rent from this related
party, respectively. Included in these amounts is office rent expense for the
Company of $31,500 for each of the nine month periods ended July 31, 2010 and
2009.  The Company informally rents office space for its headquarters
and real estate operation in Minneapolis from the related party on a month to
month basis.  The Company is currently in negotiations with the
website developer to settle this debt with cash and some form of the Company’s
equity.
 
 Due to
Officers
 
 As of
July 31, 2010 and October 31, 2009, the Company was indebted to its officers for
amounts totaling $8,330 and $58,606 respectively, for business
expenses.  All of the indebtedness represents non-interest bearing
payables due on demand.
  F –
11
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and 2009
 Convertible Note Payable –
Officer/Stockholder
 
 During
the nine months ended July 31, 2010, the Company borrowed $319,800 from its CEO under a
convertible promissory note accruing interest at an annual rate of
12%.   At July 31, 2010 and October 31, 2009, the balances due
under this note were $492,800 and $173,000, respectively.   The
board of directors has approved conversion of up to $300,000 of the note into
the Company’s common stock at $0.11 per share at any time.  An
additional $166,000 of the note has been approved for conversion into the
Company’s common stock at aprice equal to the price
of shares to potentially be sold
to current shareholders under a resolution passed by the Company’s board
of directors on April 23, 2010.   Under the April 23, 2010
resolution, the Company is authorized to sell up to 15 million shares of the
Company’s common stock to existing shareholders at a price as low as $0.03 per
share.   There was no beneficial conversion feature for the first
conversion element because the Company’s stock price was trading at $0.11 at the
time the Board of Directors approved the first conversion feature (allowing the
CEO to convert shares at $0.11 per share).  The second conversion
feature is a contingent conversion feature and will need to be reviewed for a
beneficial conversion feature if and when the conversion occurs.  For
the three and nine month periods ended July 31, 2010, the Company incurred
$14,497 and $35,053 of interest expense in connection with this note,
respectively.   Accrued interest due under the note as of July
31, 2010 was $36,469.
 
 5
                  DISCONTINUED
      OPERATIONS
 
 On June
4, 2009, the Company sold its 100% equity interest in Marquest Financial, Inc.,
a non-operating entity which until August 2008 had been the Company’s principal
mortgage brokerage operation, back to its former owner and founder.
 
 As of
July 31, 2010 and for the three and nine month periods ended July 31, 2010,
there were no assets or liabilities related to the discontinued operations and
there were no revenues and expenses. All of the assets and liabilities were sold
back to its former owner as of June 4, 2009.
 
 A
summarized statement of operations for the discontinued operations for the
comparable three and nine month periods ended July 31, 2009 is as
follows:
  F –
12
  WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and 2009
 
 Discontinued Operations of
                                    
                                    Three months ended
                                    
                                    
                                    Nine months endedMarquest Financial, Inc.
                                    
                                    July 31, 2009
                                    
                                    
                                    July 31, 2009Net
      revenue
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Operating
      loss
                                    
                                    
                                    (4,726
                                    )
                                    
                                    
                                    (13,003
                                    )Other
      income
                                    
                                    
                                    297,412
                                    
                                    
                                    
                                    297,412Earnings
      before income taxes
                                    
                                    
                                    292,686
                                    
                                    
                                    
                                    284,409Income
      taxes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Net
      operating income
                                    
                                    $
                                    292,686
                                    
                                    
                                    $
                                    284,409
 
 6
                  FIXED
      ASSETS AND INTANGIBLE ASSETS
 
 At July
31, 2010 and October 31, 2009, the Company’s fixed assets are as
follows:
  Fixed Assets
                            
                            July 31, 2010
                            
                            
                            October 31, 2009Furniture
      and Fixtures
                            
                            $
                            9,981
                            
                            
                            $
                            9,981Computer
      hardware
                            
                            
                            50,972
                            
                            
                            
                            50,97260,953
                            
                            
                            
                            60,953Accumulated
      depreciation
                            
                            
                            (47,021
                            )
                            
                            
                            (30,275
                            )Net
      fixed assets
                            
                            $
                            13,932
                            
                            
                            $
                            30,678
 
 Depreciation
expense amounted to $5,582 and $4,260 for the three month periods ended July 31,
2010 and 2009, respectively.  For the nine month periods ended July
31, 2010 and 2009, depreciation expense was $16,746 and $10,948,
respectively.
  F –
13
  WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and
2009
  At July
31, 2010 and October 31, 2009, the Company’s intangible assets are as
follows:
 
 Intangible Assets
                              
                              July 31, 2010
                              
                              
                              October 31, 2009Website
      Software
                              
                              $
                              1,793,397
                              
                              
                              $
                              1,771,637Customer
      lists
                              
                              
                              355,922
                              
                              
                              
                              355,922Non-compete
      agreements
                              
                              
                              266,019
                              
                              
                              
                              266,019Other
                              
                              
                              52,000
                              
                              
                              
                              52,0002,467,338
                              
                              
                              
                              2,445,578Accumulated
      amortization
                              
                              
                              (1,071,248
                              )
                              
                              
                              (342,335
                              )Net
      before impairment charge
                              
                              
                              1,396,090
                              
                              
                              
                              2,103,243Impairment
      charge
                              
                              
                              (1,262,705
                              )
                              
                              
                              -Net
      intangible assets
                              
                              $
                              133,385
                              
                              
                              $
                              2,103,243
 
 The
acquired intangible assets of IggysHouse.com, Webdigs.com and the MLSDirect.com
were tested for impairment on July 31, 2010. At this time, the carrying
value of these assets was reduced to $133,385, resulting in an impairment charge
of $1,262,705 for the three month period ended July 31, 2010. Amortization
expense of intangible assets amounted to $291,188 and $49,878 for the three
month periods ended July 31, 2010 and 2009, respectively. For the nine month
periods ended July 31, 2010 and 2009, amortization expense of intangible assets
was $728,913 and $145,331, respectively. The Company also capitalized
$21,760 in development costs relating to the IggysHouse.com website during the
nine month period ended July 31, 2010.
 
 7
                  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.  The joint venture ceased operations on July 31,
2009 and on October 26, 2009, the Company and Marketplace Home Mortgage, LLC
dissolved their joint venture.
  F –
14
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and
2009
  At
October 31, 2009 and July 31, 2010, there were no assets or liabilities related
to the investment in Marketplace Home Mortgage – Webdigs, LLC and there were no
operational activities for the three and nine month periods ended July 31, 2010.
See the table below for a summarized
statement of operations for this joint venture for the three and nine month
periods ended July 31, 2009:
 
 Three months ended
                            
                            
                            Nine months endedJuly 31, 2009
                            
                            
                            July 31, 2009Revenue
                            
                            $
                            -
                            
                            
                            $
                            246,413Operating
      expenses
                            
                            
                            (1,314
                            )
                            
                            
                            (212,491
                            )Operating
      income (loss)
                            
                            
                            (1,314
                            )
                            
                            
                            33,922Other
      expense
                            
                            
                            -
                            
                            
                            
                            -Net
      income (loss)
                            
                            $
                            (1,314
                            )
                            
                            $
                            33,922The
      Company's share in the income of Marketplace Home Mortgage Webdigs, LLC
      (49%)
                            
                            $
                            (643
                            )
                            
                            $
                            16,622Amortization
      of deferred gain on transfer of non-cash assets
                            
                            
                            760
                            
                            
                            
                            2,280Net
      equity in the income of Marketplace Home Mortgage - Webdigs,
      LLC
                            
                            $
                            117
                            
                            
                            $
                            18,902
  8
                  SHARE-BASED
      COMPENSATION
 
 The
Company recognizes compensation expense for stock option grants over the
requisite service period for vesting of the award.  Total stock-option
compensation expense included in the Company's consolidated statements of
operations for the nine months ended July 31, 2010 and 2009 was $8,243 and
$18,861, 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 three and nine
month periods ended July 31, 2010 and 2009.  As of July 31,
2010, the Company had $2,080 of unrecognized compensation expense related to the
outstanding stock options, which will be recognized over a weighted average
period of 12 months.
 
 The
following is a summary of stock option activity for the nine month period ended
July 31, 2010:
  F –
15
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and
2009
  Weighted averageWeighted
                                  
                                  
                                  Aggregate
                                  
                                  
                                  remainingNumber of
                                  
                                  
                                  average
                                  
                                  
                                  intrinsic
                                  
                                  
                                  contractual termoptions
                                  
                                  
                                  exercise price
                                  
                                  
                                  value
                                  
                                  
                                  (years)Outstanding
      at October 31, 2009
                                  
                                  
                                  1,000,000
                                  
                                  
                                  $
                                  0.25
                                  
                                  
                                  $
                                  -Granted
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Forfeited
      or expired
                                  
                                  
                                  (200,000
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      at July 31, 2010
                                  
                                  
                                  800,000
                                  
                                  
                                  $
                                  0.25
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  3.13Exercisable
      at July 31, 2010
                                  
                                  
                                  750,000
                                  
                                  
                                  $
                                  0.25
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  3.05
   The
aggregate intrinsic value in the table above represents the difference between
the closing stock price on July 31, 2010 and the exercise price, 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 July 31,
2010.  There were no options exercised during the nine months ended
July 31, 2010.
 
 Restricted Stock
Compensation
 
 The
Company recorded $7,125 and $160,586 of stock compensation expense in the
consolidated statement of operations related to vested shares (restricted stock)
for the nine month periods ended July 31, 2010 and 2009,
respectively.
 
 A summary
of the status of non-vested shares and changes as of July 31, 2010 is set forth
below:
  F –
16
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and
2009
  Restricted
                              
                              
                              UnearnedShares
                              
                              
                              CompensationOutstanding,
      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
                              
                              
                              
                              76,769Granted
                              
                              
                              50,000
                              
                              
                              
                              12,500Vested
                              
                              
                              (407,999
                              )
                              
                              
                              (38,865
                              )Forfeited/canceled
                              
                              
                              (240,970
                              )
                              
                              
                              (41,098
                              )Outstanding,
      July 31, 2009
                              
                              
                              37,224
                              
                              
                              
                              9,306Granted
                              
                              
                              
                              
                              
                              
                              -Vested
                              
                              
                              (24,724
                              )
                              
                              
                              (6,181
                              )Forfeited/canceled
                              
                              
                              -Outstanding,
      October 31, 2009
                              
                              
                              12,500
                              
                              
                              
                              3,125Granted
                              
                              
                              -
                              
                              
                              
                              -Vested
                              
                              
                              (12,500
                              )
                              
                              
                              (3,125
                              )Forfeited/canceled
                              
                              
                              -
                              
                              
                              
                              -Outstanding,
      January 31, 2010
                              
                              
                              -
                              
                              
                              
                              -Granted
                              
                              
                              -
                              
                              
                              
                              -Vested
                              
                              
                              -
                              
                              
                              
                              -Forfeited/canceled
                              
                              
                              -
                              
                              
                              
                              -Outstanding,
      April 30, 2010
                              
                              
                              -
                              
                              
                              
                              -Granted
                              
                              
                              -
                              
                              
                              
                              -Vested
                              
                              
                              -
                              
                              
                              
                              -Forfeited/canceled
                              
                              
                              -
                              
                              
                              
                              -Outstanding,
      July 31, 2010
                              
                              
                              -
                              
                              
                              $
                              -
  Stock
Warrants
 
 The
following is a summary of stock warrant activity for the nine month period ended
July 31, 2010:
  F –
17
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and
2009
  WeightedaverageWeighted
                              
                              
                              Aggregate
                              
                              
                              remainingNumber of
                              
                              
                              average
                              
                              
                              intrinsic
                              
                              
                              contractual termwarrants
                              
                              
                              exercise price
                              
                              
                              value
                              
                              
                              (years)Outstanding
      at October 31, 2009
                              
                              
                              500,000
                              
                              
                              $
                              0.13
                              
                              
                              $
                              -Granted
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Exercised
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Forfeited
      or expired
                              
                              
                              (300,000
                              )
                              
                              
                              0.01
                              
                              
                              
                              -Outstanding
      at July 31, 2010
                              
                              
                              200,000
                              
                              
                              $
                              0.30
                              
                              
                              $
                              -
                              
                              
                              
                              1.36Exercisable
      at July 31, 2010
                              
                              
                              200,000
                              
                              
                              $
                              0.30
                              
                              
                              $
                              -
                              
                              
                              
                              1.36
   9
                  SHAREHOLDERS
      EQUITY
 
 In May
2010, the Company issued 100,000 treasury common stock shares, held by the
Company, to an employee as compensation with a total fair value of $4,000. 
The treasury shares had a cost of $25,000 and the resulting $21,000 difference
was recorded against the accumulated deficit account.
 
 10
                  BASIC
      AND DILUTED EARNINGS PER SHARE
 
 The
Company computes earnings per share under two different methods, basic and
diluted, and presents 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 equivalents
outstanding.
 
 The
following table provides a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share for the three and nine
month periods ended July 31, 2010 and 2009, respectively.
  F –
18
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and
2009
  Three
      months ended
                          
                          
                          Nine
      months endedJuly 31,
                          
                          
                          July 31,Basic
      earnings per share calculation:
                          
                          2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Net
      loss from continuing operations
                          
                          $
                          (1,668,982
                          )
                          
                          $
                          (432,172
                          )
                          
                          $
                          (2,381,236
                          )
                          
                          $
                          (1,139,553
                          )Net
      income (loss) from discontinued operations
                          
                          
                          -
                          
                          
                          
                          292,686
                          
                          
                          
                          -
                          
                          
                          
                          284,409Net
      loss
                          
                          $
                          (1,668,982
                          )
                          
                          $
                          (139,486
                          )
                          
                          $
                          (2,381,236
                          )
                          
                          $
                          (855,144
                          )Weighted
      average of common shares outstanding
                          
                          
                          33,396,719
                          
                          
                          
                          28,417,170
                          
                          
                          
                          33,396,719
                          
                          
                          
                          24,553,883Net
      loss per share - basicLoss
      from continuing operations
                          
                          $
                          (0.05
                          )
                          
                          $
                          (0.01
                          )
                          
                          $
                          (0.07
                          )
                          
                          $
                          (0.04
                          )Loss
      from discontinued operations
                          
                          
                          -
                          
                          
                          
                          0.01
                          
                          
                          
                          -
                          
                          
                          
                          0.01Net
      loss per basic share
                          
                          $
                          (0.05
                          )
                          
                          $
                          -
                          
                          
                          $
                          (0.07
                          )
                          
                          $
                          (0.03
                          )Diluted
      earnings per share calculation:Net
      loss from continuing operations
                          
                          $
                          (1,668,982
                          )
                          
                          $
                          (432,172
                          )
                          
                          $
                          (2,381,236
                          )
                          
                          $
                          (1,139,553
                          )Net
      income (loss) from discontinued operations
                          
                          
                          -
                          
                          
                          
                          292,686
                          
                          
                          
                          -
                          
                          
                          
                          284,409Net
      loss
                          
                          $
                          (1,668,982
                          )
                          
                          $
                          (139,486
                          )
                          
                          $
                          (2,381,236
                          )
                          
                          $
                          (855,144
                          )Weighted
      average of common shares outstanding
                          
                          
                          33,396,719
                          
                          
                          
                          28,417,170
                          
                          
                          
                          33,396,719
                          
                          
                          
                          24,553,883Stock
      options (1)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Stock
      warrants (2)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Convertible
      notes payable - officer/stockholder (3)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Diluted
      weighted average common shares outstanding
                          
                          
                          33,396,719
                          
                          
                          
                          28,417,170
                          
                          
                          
                          33,396,719
                          
                          
                          
                          24,553,883Net
      loss per common share - dilutedLoss
      from continuing operations
                          
                          $
                          (0.05
                          )
                          
                          $
                          (0.01
                          )
                          
                          $
                          (0.07
                          )
                          
                          $
                          (0.04
                          )Loss
      from discontinued operations
                          
                          
                          -
                          
                          
                          
                          0.01
                          
                          
                          
                          -
                          
                          
                          
                          0.01Net
      loss per diluted share
                          
                          $
                          (0.05
                          )
                          
                          $
                          -
                          
                          
                          $
                          (0.07
                          )
                          
                          $
                          (0.03
                          )
  F –
19
 WEBDIGS,
INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three and Nine Month Periods Ended July 31, 2010 and
2009
  (1)
                  The
      dilutive effect of stock options in the above table excludes 800,000 and
      600,000 of underlying stock options for the three and nine month periods
      ended July 31, 2010 and 2009, respectively as they would be anti-dilutive
      to our net loss for those periods.
 
 (2)
                  The
      dilutive effect of stock warrants in the above table excludes 200,000 and
      500,000 of underlying stock warrants for the three and nine month
      periods ended July 31, 2010 and 2009, respectively, as they would be
      anti-dilutive to our net loss for those
periods.
  (3)
                  The
      dilutive effect of potential convertible notes equivalent to 2,727,273
      shares related to the loan from our CEO has been excluded as it would be
      anti-dilutive to our net loss for those
periods.
 
 11
                  SUBSEQUENT
      EVENTS
 
 Loan from Related
Party
 
 From July
31, 2010 to September 13, 2010, the Company’s Chairman and Chief Executive
Officer loaned the Company $17,700 under the Convertible Note Payable –
Officer/Stockholder (See Note 4). The total principal amount outstanding at
September 13, 2010 is $510,500.
  F –
20
  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 January 29,
2010  relating to our fiscal year ended October 31,
2009.
 
 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 January29, 2010 should be considered in
evaluating our prospects and future performance.
 
 General Overview
 
 We are a web-assisted real estate
brokerage primarily for residential home buyers and sellers. We utilize the
Internet, proprietary technology and efficient business processes to attempt to
deliver significant savings to our home sellers and rewards to our home buyers
over the traditional “full commission” brokerage model.  We attempt to
emphasize client service, when and as needed or requested by our
clients, to separate us from other discount brokerage models; and we
attempt to provide efficiency and cost savings that will differentiate
us from traditional brokerage models.
 
 We operate under threebrands. Webdigs.com, our first brand, is
ourfull-servicediscountedreal estate
brokerage.  Webdigs offersrebates to its customersof up to 1% of the sales price of the
home they purchase through usand offers listing services starting as
low as 3.99% (compared to a traditional
full-service brokerage
which we believe most oftencharge 5-7% for listing service).
 
 Our second brand, IggysHouse.com, which
launched in January 2010, is a month-to-month listing service that allows home
sellers to list their home on their local MLS and on IggysHouse.com completely
free for 30 days. After 30 days, the seller has theoption to continue to list their home
for a flat fee of $49.95per month, with various other ala carte
services available for purchase.
 
 2
 Our third brand, theMLSDirect.com,
offers a $299 fixed price six month MLS listing to consumers not wishing to
engage the services of a listing real estate
agent.   TheMLSDirect.com appeals to consumers who otherwise
might choose to sell their home themselves without a realtor (commonly referred
to as For Sale by Owner).
 
 Currently, we market to potential
customers principally through internet ad campaigns, limited but highly targeted
e-mail, direct mail, and print advertising.  Our most consistent
source of business,however,has been referrals from previous
satisfied customers of ourWebdigs.combusiness.
 
 Results of Operation
 
 For the three month periods endedJuly 31, 2010 and 2009
 
 Our third quarter results were very
disappointing.    For the quarter ended July 31, 2010ournet revenuefell 51%to $121,270from $247,326 for the same period in
2009.    On a transaction basis, we closed 34 home sale
transactions in the quarter ended July 31, 2010.  In 2009, we closed
62 transactions in the same period.  Our operating loss for the three
months ended July 31, 2010 was $1,654,299 compared to $221,659 for the
comparable three month period endedJuly 31, 2009.   Fueling the large
operating loss increase was an impairment charge of$1,262,705 for the write-down of selected
intangible assets purchased in 2009 for our IggysHouse.com and MLSDirect.com
business units.On a comparable basis excluding the
impairment charge, operating losses increased by $169,935 from $221,659 for the
three month period ended July 31, 2009 to $391,594for the three monthsendedJuly 31, 2010.If we further exclude amortization from
our operating losses,our
operating loss from continuing operations declined in 2010by42% - from $171,781to $100,406.
 
 We believe the sales decrease results
largely from the expiration of the April 30, 2010 federal government’s home
buyer tax credit program.  The home buyer tax credit program, while
well intentioned, seems to have served more to move home buying forward than
actually increasing home buyer demand.  In the Twin Cities, our
principal market, July 2010 signed home sales agreements fell 38% from July 2009
to the lowest level in over 10 years according to data included in the
Minneapolis Area of Realtors (MAR) Monthly Indicators Report for July
2010.  MAR also reports that “there were 3,226 signed purchased
agreements in July (for the Twin Cities MLS area), a decrease of 1,948 contracts
from last year.”   Seller activity has also
slowed.
 
 We also made a significant change in
pricing in the quarter ended July 31, 2010.  We revised our overall
buyer rebate program to make it simpler for our customers to
understand.  Up until June 2010, we offered buyers a cash rebate of up
to 50% of the commission Webdigs received as the buyer’s broker in a
transaction.  This typically averaged 1.35% of the sales price of the
home. Starting in June, we switched our rebate to a straight 1% of the home
purchase price.  In both cases, we will maintain our minimum
commission at $3,000.   We are confident the simplified rebate
structure will benefit us in the future.  It is much easier for a
prospective customer to calculate 1% of the sales price of a home than it is to
calculate 50% of our broker commission.  Furthermore, we will actually
save money by switching to the clearer pricing structure.  We hope to
notice a benefit to this policy change in the upcoming
quarter.
  3
  Helping us reduce our non-GAAP operating
loss (excluding amortization and impairment charges) were significant decreases
in selling and general and administrative expenses.   We reduced
selling expenses by 52% from $238,270 for three months ended July 31, 2009 to
$114,969 for the comparable period in 2010.  The most significant
selling expense decreases come from a decrease in sales commission expense
resulting from the year to year decline in sales and our own restraint in
spending.    Our sales commission expenses declined by
$47,760 (43%) due to decreased sales.  We also cut advertising and
promotion expenses by $17,864 (58%) versus last year.  We continue to
strive to reach a break-even quarterly cash flow.  For that reason, we
have also reduced staffing and cut spending on our website.  We
reduced selling related wages and salaries by about $29,416 for the three months
ended July 31, 2010.  In addition, we reduced website maintenance
spending by $19,097.   We are in the process of developing a new
more cost-effective website that should be implemented in September
2010.  For that reason, we anticipate spending almost no money on new
activities for our existing website.
 
 In addition to our selling expense cuts,
wereduced general
and administrative spending
by $74,130($106,707for the quarter endedJuly 31, 2010 versus $180,837for the same period last
year).The primary factorsin our general andadministrative expenses were decreased
non-cash compensation costs and investor relations expenses.  Overall
non-cash compensation costs decreased by $45,030 for the three months ended July
31, 2010 versus July 31, 2009 (from$48,479to $3,449).  We also achieved
reductions in  investor relations expense (from $80,000 to
$0).   Offsetting some of the expense reductions was an increase
in wage and salary expense of $49,243.  Of this total, nearly $33,000
comes from recognition this year that some previously classified executive
salaries are more administrative than selling related in
nature.  These costs were classified as selling expenses for the three
months ended July 31, 2009.  In addition, we accrued an additional
$9,973 for administrative payroll for the quarter ended July 31, 2010. The
remaining difference can be attributed to having one more full-time accounting
staff person than last year.  This represents a year over year salary
expense increase of $6,270.
 
 Our biggest disappointment for the
quarter continues to be our “pay as you go”IggysHouse.com brand.  For the
quarter ended July 31, 2010, we recorded only $1,566 in revenue for
Iggyshouse.com.  We launched the brand in January 2010 with the
expectation that our “pay
as you go model”would
beunique to the consumer
real estate marketand
capable of generating significant revenues.  Combined with the
revenues recorded by IggysHouse.com for the 4 months ended April 30, 2010,IggysHouse.comhas only provided us $2,026 in total
revenue since its launch in January 2010.
 
 The financial struggles of
IggysHouse.com have forced us to record an impairment charge of $1,251,455 for
the three months ended July 31, 2010.     The only
remaining intangible asset relating to IggysHouse.com is the website and
associated database.  We have re-valued these together at
$100,000.
 
 While IggysHouse.com has disappointed,
we remain hopeful that the brand will eventually produce positive results. As of
August 1, 2010, we have temporarily switched Iggys to a lower cost website
platform.   We have also upgraded the consumer interface portion
of the new website.  Results of these two changes have been moderately
encouraging.  In August 2010, we recorded by far the most monthly
revenues ever for IggysHouse.com.  Werecorded$1,563 in sales revenue, 77%ofthe $2,026 total we had booked in the
first seven months since Iggys launch in January 2010.   We
believe the IggysHouse.com website technology, which we have temporarily stopped
using, remains a valuable asset.  It can handle massive transaction
volumes and activity and will be useful to us if the Iggys brand grows
substantially.  If not, our analysis suggests there will be a ready
market for the website technology for use in a high volume national real estate
operation.
 
 4
 In addition to the IggysHouse.com
intangible asset impairment charge, we also took a $11,250 impairment charge for
our MLSDirect.com intangible assets.  The $11,250 represents the
remaining book value of MLSDirect’s affilitate broker relationships that were
assumed by Webdigs in its acquisition of the MLSDirect in May
2009.   Due to our focus on the Minnesota and Florida markets for
our MLSDirect.com brand, we have not realized value from the affiliate broker
relationships in other states for the MLSDirect.  These relationships
no longer retain any value and therefore the impairment was
necessary.    The encouraging part of our MLSDirect.com
business is that our core markets in Florida and Minnesota are healthy and
vibrant with quarterly revenues up 109% versus the quarter ended April 30, 2010
to $5,477.  For the three months ended July 31, 2009 MLSDirect.com
produced only $205 in sales revenue.
 
 We incurred interest costs of
$14,683in thequarterendedJuly 31, 2010compared to $210,630 for theperiod endedJuly 31, 2009.Of the current quarter’s
interest expense,$14,497is for accrued interest on a loan from
our CEO with an additional $186resulting from interest charges passed
on from vendors.For the same period ended July 31, 2009,
we experienced significant
interest costs of $210,630.    Ofthe$210,630, approximately $202,000 relatedto a now repaid promissory note with
Lantern AdvisorsLLC.The remaining increase of
approximately $8,000 comes from interest charges from our suppliers for overdue
payables.
 
 Our joint venture was dissolved on
October 26, 2009,so there is no joint venture incomeforthe three months endedJuly 31, 2010.
 
 We also booked a net gain of $292,686 on
the disposition of Marquest Financial, Inc. in June
2009.
 
 For theninemonth periods endedJuly 31,2010and2009
 
 The Company incurred operating losses of
$2,334,271for theninemonth period endedJuly 31,2010compared to a loss of $791,263for the same period last
year.Net revenuesincreased9%from $345,194for theninemonths endedJuly 31,2009to $375,064for theninemonths endedJuly 31,2010.Our revenues increased over the prior
year as a result of higher net revenues per transactions (up 11% from $3,831 in
FY 2009 to $4,263 in FY 2010) and incremental revenues of $2,026 from
IggysHouse.com and $11,590 from the MLSDirect.com in the current fiscal
year.  On a transaction basis, we were stagnant as real estate
transactions closed dropped by one from 87 to 86 for the nine months ended July
31, 2009 and 2010, respectively.
 
 As noted above, we lost our sales
momentum in the most recent three month period ended July 31,
2010.  Through April 30, 2010, year to date sales had risen by
159%.  To have to report that year to year revenue growth had dropped
to only 9% for the nine months ended July 31, 2010 versus the nine months ended
July 31, 2009 really stings.   Though valid reasons exist for our
current struggles, namely the expiration of the federal government generous home
buyer tax credits and overall sluggishness of the economy, we acknowledge that
we must re-ignite our sales engine in the months ahead.
 
 5
  Fortunately, we believe that we have
excelled at controlling expenses.For theninemonth period endedJuly 31, 2010, we reduced general and
administrative expenses by $168,855from$528,490for theninemonths endedJuly 31, 2009 to$359,635for the same period this
year.  Two main items comprised thedecrease:First, non-cash
compensation, which relates primarily to accounting for share grants made to
company founders, was reduced by $164,079from $179,447for theninemonths endedJuly 31, 2009 to $15,368for theninemo
nths endedJuly 31, 2010.  The second
significant general and administrative expense decrease comes from reductions in
investor relations expenses of $95,000.  Additionally, an aggressive
focus on cost cutting produced expense reductions ofapproximately$25,000 in legal
fees.Partially
offsetting the above mentioned decreases was an increase of $115,015for wages and salaries versus the prior
year (of which $88,145can be attributed to re-classifying CEO
compensation expense from selling to general and administrative and$26,870can be attributed tohavingone additional accountingand financeemployee on staff in the current
year.
 
 We have identified recruitment of agents
to be a key component in the growth of our Webdigs.com real estate
brokerage.  Our selling expenses for the nine months ended July 31,
2010 reflects a continuationof ourre-prioritization of efforts towards
lower advertising expenses offset by increased emphasis on the creation of a
high performance sales team.Total selling expenses
declined by 27% to $358,082 for the nine months ended July 31, 2010
from $489,170 for the nine months ended July 31, 2009.   The
biggest components of the selling expense decrease were cuts of $61,283 in
advertising and promotion expense.   Of the remaining decrease in
selling expenses, $88,145 comes from a reclassification this year of a portion
of our CEO compensation costs into general and administrative
expenses.  Small increases in sales compensation costs due to a higher
rate of payment on closed transactions and the contracting of a part time
consultant to run our MLSDirect operation accounts for the offset to the two
decreases mentioned above.      We do expect sales
commissions and overall sales compensation costs to continue to increase in
coming months as we recently have enacted a more generous sales commission plan
that should help us recruit new agents.
  For the nine months ended July 31, 2010,
weincurred $46,965ininterest costs compared to $303,484 for
the nine months ended July 31, 2009.Interest expense for the nine months
ended July 31, 2010 includes $35,053 ofaccrued interest on a loan from our CEOand $11,912 interest charges passed on from
vendors.   For theninemonths endedJuly 31, 2009, we incurred $289,400ininterest expense for our convertible
promissory note with Lantern Advisors.In our prior fiscal year, we also were
invoiced $14,084in
interestexpense from one
of our main vendors bringing the total interest for the nine months ended July
31, 2009 to $303,484.
 
 The loss on change in fair value of
derivatives and warrants of$63,708for the nine months ended July 31, 2009relates to the convertible
promissory note mentioned above.We settled this note on September 30,
2009.
 
 6
  Assets and Employees; Research and
Development
  Aside from our dedicated team of agents
and employees, our primary assets are cash and intellectual-property rights,
which are the foundation for our services.As mentioned above, in the current
quarter ended July 31, 2010, we were forced to take a $1,251,455 impairment
charge againstintangible
assetsacquiredin our June2009IggysHouse.comasset purchase. As mentioned above, we re-launched our
IggysHouse.com service in January 2010 and
believedthat the assets we acquired from Iggys,
Inc. wouldbe critical to our
success.  IggysHouse.com was formerly a web-based online real
estate brokeragethat had operations in 38
states.As
mentioned above, results thus far have not been satisfactory with only $2,026 in
revenues for the nine months ended July 31, 2010.
 
 As of July 31, 2010, we revalued theintangible assetsfor the IggysHouse.com website and
database to be only worth $100,000.   We believe this valuation
represents a reasonable resale valuation for a self-service online MLS listing
service capable of handling hundreds of thousands of
listings.
 
 Philosophically, we are now looking to
maximize our cash flows and minimize fixed asset investment.  For that
reason, prior to the end of fiscal year 2010, we will replace our current
Webdigs.com website with a new site that should require significantly less
ongoing maintenance costs than our current website.  The website, which
will be built to our exact specifications at minimal cost, will not produce any
intangible assets but will provide our sales and marketing teams with enhanced
capabilities to market our services and serve our consumers.  The
existing website will be fully amortized in September 2010 - approximately the
same time we will start up with our new website solution.
  Liquidity and Capital Resources;
Anticipated Financing Needs
 
 As ofJuly 31, 2010, we had $4,685 of cash and cash equivalentsand current liabilities of
$1,520,351.The most significant change in
liabilities versus October 31,2009has been the increase in the balance
due our CEO on the convertible note payable he has with
us.   This balance increased by $319,800 to $492,800 as ofJuly 31, 2010.
 
 We used $309,267of cash in operating activities during the
ninemonths endedJuly 31, 2010 compared to $298,716for theninemonths endedJuly 31,2009.  Cash used in operations for
theninemonths endedJuly 31, 2010 included a net loss of
$2,381,236 which was partially offset by
$2,023,732of various non-cash expenses for
depreciation, amortization,
impairment charges,and
share-based compensation.  For theninemonths endedJuly 31,2009, these non-cash items plus some
additional non-cash items generated by our convertible promissory note and our
joint venture totaled $361,523. For theninemonths endedJuly 31, 2010, we were able to make progress on
reducing balances owed tosome of our main vendors through a
combination of cashpayments by Webdigs and vendor
forgiveness of a portion of payables.   Offsetting apayablesdecreaseof $108,519100,615 was an increase of $117,476in accruedexpenses.The entire increase in
accrued expenses as ofJuly
31, 2010 is due to
increases in accrued payroll - primarily due to officers of the
company.
 
 For theninemonths endedJuly 31, 2010, cash flows used in investing
activities included payments of $21,760 for the purchase of website development
for the IggysHouse.com website.   For
the same period last year, weused $162,733 in cash to purchase the
assets of IggysHouse.com and the MLSDiect.com.
 
 7
  In total, financing activities provided
$299,689 and $469,956 for
the ninemonth periods
endedJuly 31, 2010 and2009, respectively.    As
mentioned above, an increase in the balance due our CEO accounted for financing
cash proceeds of $319,800.  Adecreasein the payable to our group of officers
(for commissionsand
business expenses)
accounted for ause of$17,001for thenine months endedJuly 31, 2010.In the prior year, proceeds fromtheconvertible/promissory note we issued in
December 2008 with Lantern Advisors provided net cash proceeds of
$226,000.We
also raised $335,500 in cash from the sale of common stock in the quarter ended
July 31, 2009.An
additional $11,294was provided by an increase in balances
due company officers.
 
 Given our relatively low cash position,
our near term focus for the remainingthreemonthsof fiscal 2010 continues
to be to create positive operating cash flow from our web-assisted real
estate brokerage operations.    While we believe that our
year over year revenue growth willrebound in the fourth quarter of our
current year,we recognize
that we will need tocontinue to manage our working capital to the absolute most stringent standard
possible.We are presently
expanding our efforts to recruit agents and believe that these efforts will be
successful.
 
 Wealsoretain our expectation that the growth
of our core Webdigs.combrand will provide us with a solid base from
which wewill be able to
raise additional funding in the future.  The repositioning of
IggysHouse.com to a new website interface which took place in August 2010
appears promising. We expect that lower Iggys operating expenses and higher
Iggys revenues will help us in reaching our goal of generating positive cash
flow sometime in fiscal 2011.
 
 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.   Our
significant estimates are 1) determining the life and fair value of our website
and customer list intangible assets, 2) determining some of the inputs for our
stock option fair value calculation and 3) assessing the valuation allowance for
income taxes.
 
 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
web-assisted 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.  There is no judgment or estimating in
our revenue recognition model.
 
 8
 Income
Taxes.We account for
income taxes using 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.  We have
recorded a full valuation
allowance againstournet deferred tax assets
as of July 31, 2010 and2009because realization of those assets is
not reasonably assured.
 
 We will recognize 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.
 
 Share-Based
Compensation.We account
for stock incentive plans by measurement and recognition of compensation expense
for all stock-based awards based on fair values, net of estimated
forfeitures.  Share-based compensation expense includes compensation
costsfor restricted stock awards and stock
options.  We use the Black-Scholes option-pricing model to determine
the fair value of options granted as of the grant date.
 
 Intangible
Assets.We havetwotypes of intangible
assets:
 
 Website
Development
 The primary interface with the customer
in our web-assisted real estate brokerageoperation is the Webdigs.com
website.  Certain costs incurred in development of this website have
been capitalized.  Amortization is on a straight-line method over the
estimated three year useful life of the website.  We also have
incurred costs for the IggysHouse.com website.  Those costs are being
amortized on a straight-line method over the estimated two year useful life of the
website.
 
 Website
Domain Names
 The Company capitalizes the fair value
of non-compete agreements at the inception of the agreement. Amortization
expense is calculated using the straight-line method (which approximates the
anticipated revenue stream back to the Company) over the agreement’s estimated 2
year life.
 
 Commissions
and Fees Receivable.Fees receivable are recorded at the
amount the Company expects to collect onreal estate transactions
closed.  These receivables represent broker commission balances due
the Company from investors/lenders or listing real estate brokers and usually
are settled within 10-15 days after closing.
 
 Office
Equipment and Fixtures.Office equipment and fixtures are recorded at cost.  Maintenance and
repairs are charged to expense as incurred; major renewals and betterments are
capitalized. When items of property or equipment are sold or retired, the
related costs and accumulated depreciation are removed from the accounts and any
gain or loss is included in operating income.
 
 9
  Depreciation is provided on the
straight-line method over the estimated useful lives of the respective assets as
follows:
 
 Office
      equipment
                2 to 5
  yearsFurniture and
      fixtures
                3 to 7
  years
 
 Segment Information
 
 Historically, we have reported two
strategic operating segments; (1) web-assisted real estate brokerageand (2) mortgage brokerage.  Due to the divestiture of
Marquest Financial, Inc. and the dissolution ofMarketplace Home Mortgage – Webdigs, LLC
in2009, we have determined that the mortgage
segment is no longer significant to our operations and therefore, we now report
and operate our business as one strategic reporting segment.
 
 Recently Issued Accounting
Pronouncements
 
 In
January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820).  ASU 2010-06 provides additional disclosure
requirements related to fair value measurements. ASU 2010-06 is effective
for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances, and settlements in
the roll forward of activity in Level 3 fair value
measurements.  Disclosure requirements applicable to Level 3
transactions are effective for fiscal years beginning after December 15,
2010 and for interim periods within those fiscal years, with early adoption
permitted.  The portion of ASU 2010-06 that was effective beginning
after December 15, 2009 did not have a material effect on the financial
position, results of operations or cash flows of the Company. Additionally, the
Company does not anticipate that the disclosure requirements applicable to
Level 3 transactions that are effective for fiscal years beginning after
December 15, 2010 will have a material effect on the financial position,
results of operations or cash flows of the Company.
 
 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.    A typical real estate
transaction has a 30 day lag between contract signing and closing of the
transaction.  As we look ahead, we expect improved results in our
current quarter versus our recent quarter ended July 31, 2010 despite a typical
seasonal fall slowdown.
 
 Going Concern
 
 The Company incurred significant
operating losses for theninemonthsendedJuly 31, 2010.AtJuly 31, 2010, the Company reports a negative working
capital position of $1,486,178and accumulated deficit of
$6,179,999.  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.
 
 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.
 
 10
 Item3.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 and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of our disclosure controls and
procedures (as defined in Exchange Act 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-Qto 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 of October 31,2009, 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-Qwere
prepared with particular attention to the material weaknesses previously
disclosed. Notwithstanding the material weaknesses in internal controls that
continue to exist as ofJuly 31, 2010, we have concluded that the financial
statements included inthis
Quarterly Report on Form 10-Qpresent fairly, the financial position,
results of operations and cash flows of theCompany as required for interim
financial statements.
 
 Changes in Internal Control Over
Financial Reporting
  During the fiscal quarter endedJuly 31, 2010,there wasno change in our internal control over
financial reporting(as
defined in Rule 13a-15(f) under the Exchange Act) thathasmaterially 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, 2009 have not beenremediated.Due to the small number of employees
dealing with general administrative and financial matters and the expenses
associated with increasing the number of employees to remediate the disclosure
control and procedure material weaknesses 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 its needs to remediate the material
weaknesses.
 
 11
  PART II – OTHER
INFORMATION
  Item 1.Legal Proceedings
 
 We are not currently a party to any
material litigation and are not aware of any threatened litigation that would
have a material effect on our business.
 
 Item 1A.  Risk
Factors.
 
 None.
 
 Item2.Unregistered Sales of Equity
Securities
  None.
 
 Item3.Defaults Upon Senior
Securities
 
 None.
 
 Item4Submission of Matters to a Vote of
Shareholders
 
 None.
 
 Item5.Other Information
 
 There
have been no material changes to the procedures by which security holders may
recommend nominees to the registrant’s board of directors.
 
 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
 
 12
  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:  September 14,
      2010/s/ Edward
      WickerEdward
    WickerChief Financial
      OfficerDated:  September 14,
      2010
  13
  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
  14