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 January 31, 2010





OR





o    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.  Yes xNo o





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 o
              Accelerated
      filer oNon-accelerated
      filer o (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 oNo  x





As of
March 12, 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 Condition and Results of
      Operations
                2Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                9Item
      4.
                Controls
      and Procedures
                9PART
      II – OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                10Item
      1A.
                Risk
      Factors
                10Item
      2.
                Unregistered
      Sales of Equity Securities
                10Item
      3.
                Defaults
      Upon Senior Securities
                10Item
      4.
                Submission
      of matters to a Vote of Security Holders
                10Item
      5.
                Other
      Information
                10Item
      6.
                Exhibits
                10SIGNATURES
                11EXHIBIT
      INDEX
                12





PART
I – FINANCIAL INFORMATION





Item
1.  Consolidated Financial Statements.




WEBDIGS,
INC.
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 (UNAUDITED)
 
 FOR
THE THREE MONTH
 PERIODS
ENDED JANUARY 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)





January 31, 2010
                    (Unaudited)
                  
                  
                  October 31, 2009
                    (Audited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  41,964
                  
                  
                  $
                  36,023Commissons
      and fees receivable
                  
                  
                  1,794
                  
                  
                  
                  9,449Prepaid
      expenses and deposits
                  
                  
                  32,400
                  
                  
                  
                  10,847Other
      current assets
                  
                  
                  6,087
                  
                  
                  
                  10,284Total
      current assets
                  
                  
                  82,245
                  
                  
                  
                  66,603Office
      equipment and fixtures, net
                  
                  
                  25,096
                  
                  
                  
                  30,678Intangible
      assets, net
                  
                  
                  1,978,465
                  
                  
                  
                  2,103,243Total
      assets
                  
                  $
                  2,085,806
                  
                  
                  $
                  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)





January 31, 2010
                            (Unaudited)
                          
                          
                          October 31, 2009
                            (Audited)LIABILITIES AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Current
      portion of capital lease obligations
                          
                          $
                          4,295
                          
                          
                          $
                          4,197Accounts
      payable
                          
                          
                          267,674
                          
                          
                          
                          259,064Accounts
      payable - minority stockholder
                          
                          
                          535,068
                          
                          
                          
                          562,858Due
      to officers
                          
                          
                          75,583
                          
                          
                          
                          58,606Convertible
      notes payable - officer/stockholder
                          
                          
                          378,000
                          
                          
                          
                          173,000Accrued
      expenses:Professional
      fees
                          
                          
                          9,750
                          
                          
                          
                          39,000Payroll
      and commissions
                          
                          
                          66,126
                          
                          
                          
                          53,207Other
                          
                          
                          32,149
                          
                          
                          
                          20,174Total
      current liabilities
                          
                          
                          1,368,645
                          
                          
                          
                          1,170,106Long
      term liabilities:Capital
      lease obligation, less current portion
                          
                          
                          5,122
                          
                          
                          
                          6,233Total
      liabilities
                          
                          
                          1,373,767
                          
                          
                          
                          1,176,339Stockholders'
      equity: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 January 31, 2010 and October 31, 2009
                          
                          
                          33,397
                          
                          
                          
                          33,397Treasury
      stock - $.001 par value; 1,063,628 shares held intreasury
      as of January 31, 2010 and October 31, 2009
                          
                          
                          (265,907
                          )
                          
                          
                          (265,907
                          )Additional
      paid-in-capital
                          
                          
                          5,041,980
                          
                          
                          
                          5,034,458Accumulated
      deficit
                          
                          
                          (4,097,431
                          )
                          
                          
                          (3,777,763
                          )Total
      stockholders' equity
                          
                          
                          712,039
                          
                          
                          
                          1,024,185Total
      liabilities and stockholders' equity
                          
                          $
                          2,085,806
                          
                          
                          $
                          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 EndedJanuary 31,2010
                          
                          
                          2009(Unaudited)
                          
                          
                          (Unaudited)Revenue:Gross
      revenues
                          
                          $
                          156,729
                          
                          
                          $
                          88,026Less:
      rebates and third-party agent commissions
                          
                          
                          (65,212
                          )
                          
                          
                          (49,399
                          )Net
      revenues
                          
                          
                          91,517
                          
                          
                          
                          38,627Operating
      expenses:Selling
                          
                          
                          139,761
                          
                          
                          
                          117,907General
      and administrative
                          
                          
                          110,124
                          
                          
                          
                          155,445Amortization
      of intangible assets
                          
                          
                          146,538
                          
                          
                          
                          34,460Total
      operating expenses
                          
                          
                          396,423
                          
                          
                          
                          307,812Operating
      loss from continuing operations
                          
                          
                          (304,906
                          )
                          
                          
                          (269,185
                          )Other
      income (expense):Equity
      in income from Marketplace Home MortgageWebdigs,
      LLC
                          
                          
                          -
                          
                          
                          
                          18,853Interest
      expense
                          
                          
                          (14,762
                          )
                          
                          
                          (37,042
                          )Loss
      on change in fair value of derivatives and warrants
                          
                          
                          -
                          
                          
                          
                          (25,554
                          )Total
      other income (expense)
                          
                          
                          (14,762
                          )
                          
                          
                          (43,743
                          )Loss
      from continuing operations before income taxes
                          
                          
                          (319,668
                          )
                          
                          
                          (312,928
                          )Income
      tax provision
                          
                          
                          -
                          
                          
                          
                          -Loss
      from continuing operations
                          
                          
                          (319,668
                          )
                          
                          
                          (312,928
                          )Loss
      from discontinued operations of MarquestFinancial
      Inc. net of applicable taxes of zero
                          
                          
                          -
                          
                          
                          
                          (13,285
                          )Net
      loss
                          
                          $
                          (319,668
                          )
                          
                          $
                          (326,213
                          )Net
      loss per common share - basic and diluted:Loss
      from continuing operations
                          
                          
                          (0.01
                          )
                          
                          
                          (0.01
                          )Loss
      from discontinued operations
                          
                          
                          -
                          
                          
                          
                          -Net
      loss
                          
                          $
                          (0.01
                          )
                          
                          $
                          (0.01
                          )Weighted
      average common shares outstanding - basic and diluted
                          
                          
                          33,396,719
                          
                          
                          
                          22,504,968





The
accompanying notes are an integral part of these unaudited consolidated
financial statements.





F-4





WEBDIGS,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Three Months EndedJanuary 31,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)Cash
      flows from operating activities:Net
      loss
                  
                  $
                  (319,668
                  )
                  
                  $
                  (326,213
                  )Adjustments
      to reconcile net loss to net cash flows used in operating
      activities:Depreciation
                  
                  
                  5,582
                  
                  
                  
                  3,399Amortization
      of intangible assets
                  
                  
                  146,538
                  
                  
                  
                  45,365Amortization
      of convertible note payable discounts
                  
                  
                  -
                  
                  
                  
                  29,516Amortization
      of debt issuance costs
                  
                  
                  -
                  
                  
                  
                  800Loss
      on change in fair value of derivatives and warrants
                  
                  
                  -
                  
                  
                  
                  25,554Equity
      in the income of Marketplace Home Mortgage - Webdigs, LLC
                  
                  
                  -
                  
                  
                  
                  (18,853
                  )Share-based
      compensation
                  
                  
                  7,522
                  
                  
                  
                  65,485Common
      stock issued for services
                  
                  
                  -
                  
                  
                  
                  7,000Changes
      in operating assets and liabilities:Commissions
      and fees receivable
                  
                  
                  7,655
                  
                  
                  
                  3,498Prepaid
      expenses and deposits
                  
                  
                  (21,553
                  )
                  
                  
                  24,126Other
      current assets
                  
                  
                  4,197
                  
                  
                  
                  3,136Accounts
      payable
                  
                  
                  8,610
                  
                  
                  
                  (87,847
                  )Accounts
      payable - minority stockholder
                  
                  
                  (27,790
                  )
                  
                  
                  32,865Accrued
      expenses and other liabilities
                  
                  
                  (4,356
                  )
                  
                  
                  12,428Net
      cash flows used in operating activities
                  
                  
                  (193,263
                  )
                  
                  
                  (179,741
                  )Cash
      flows from investing activities:Purchase
      of intangible assets
                  
                  
                  (21,760
                  )
                  
                  
                  -Net
      cash flows used in investing activities
                  
                  
                  (21,760
                  )
                  
                  
                  -Cash
      flows from financing activities:Proceeds
      from issuance of common stock
                  
                  
                  -
                  
                  
                  
                  500Proceeds
      from issuance of convertible debentures, net of debt
    issuancecosts
      of $4,000 and unrelated accrued legal fees of $20,000
                  
                  
                  -
                  
                  
                  
                  226,000Proceeds
      from issuance of convertible notes payable to
      officer/stockholder
                  
                  
                  205,000
                  
                  
                  
                  -Increase
      in due to officers
                  
                  
                  16,977
                  
                  
                  
                  4,831Principal
      payments on capital lease obligations
                  
                  
                  (1,013
                  )
                  
                  
                  (925
                  )Net
      cash flows provided by financing activities
                  
                  
                  220,964
                  
                  
                  
                  230,406Net
      change in cash and cash equivalents
                  
                  
                  5,941
                  
                  
                  
                  50,665Cash
      and cash equivalents, beginning of period
                  
                  
                  36,023
                  
                  
                  
                  37,802Cash
      and cash equivalents, end of period
                  
                  $
                  41,964
                  
                  
                  $
                  88,467




The
accompanying notes are an integral part of these unaudited consolidated
financial statements.




F-5


WEBDIGS,
INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)




Three Months EndedJanuary 31,2010
                          
                          
                          2009(Unaudited)
                          
                          
                          (Unaudited)Supplemental cash flow
      informationCash
      paid for interest
                          
                          $
                          -
                          
                          
                          $
                          6,029Supplemental discolsure 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 embedded
      conversionconversion
      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
                          
                          $
                          -
                          
                          
                          $
                          80,000





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 Month Periods Ended January 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.
 
 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 two main real estate brokerage brands are Webdigs and Iggys House. 
 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 one-half of
its broker commissions. IggysHouse.com is a web-assisted real-estate listing
service which enables the customer to pay a monthly discounted fee to list their
homes on their local real estate multiple listing service.
 
 Basis of
Consolidation
 
 The
consolidated financial statements for the three month periods ended January 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 month period ended January 31, 2009
also includes its 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) is 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.
  F-7
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 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 five 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.
 
 Customer
Lists
 The
Company capitalizes the fair value of pre-existing customer relationships
acquired as part of business combinations and asset acquisitions. 
Amortization expense is calculated using the straight-line method (which
approximates the anticipated revenue stream back to the Company) over an
estimated useful life of 2 to 3 years.
 
 Non-Compete
Agreements
 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.
 
 Other
 The
Company capitalizes the fair value of website domain names and contractual
relationships acquired through business combinations or asset
acquisitions.  The Company has purchased 17 domain names and 17 contractual
broker relationships 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.
  F-8
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 The
Company last assessed impairment of the intangible assets at October 31, 2009
and determined that there was no impairment. The Company will retest for
impairment on October 31, 2010 or earlier if circumstances change in the
future.
 
 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 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 broker and (2) mortgage broker.  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.
 
 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 for its net deferred tax assets as of
January 31, 2010 and 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 January 31,
2010.
  F-9
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 Recently Issued Accounting
Pronouncements
 
 In
June 2009, the FASB amended its guidance on accounting for variable
interest entities. This guidance alters the approach to determining the primary
beneficiary of a variable interest entity and requires companies to more
frequently assess whether they must consolidate variable interest entities. The
guidance is effective for the first annual reporting period beginning after
November 15, 2009 and for interim periods within that first annual reporting
period. The Company will adopt this guidance on November 1, 2010 and
is currently assessing the potential impacts, if any, on its financial
statements and disclosures.
 
 In
October 2009, the FASB issued guidance on the accounting for
multiple-deliverable revenue arrangements. This guidance establishes a selling
price hierarchy for determining the selling price of a deliverable; eliminates
the residual method of allocation and requires arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the
relative selling price method; and requires a vendor to determine its best
estimate of selling price in a manner consistent with that used to determine the
selling price of the deliverable on a stand-alone basis. This guidance also
expands the required disclosures related to a vendor’s multiple-deliverable
revenue arrangements. The guidance is effective beginning February 1, 2011
with early adoption permitted. The Company has adopted the new guidance
prospectively from the beginning of the current fiscal year and determined that
there is no material impact on its consolidated results of operations, financial
condition, cash flows, or disclosures.
 
 3
              GOING
      CONCERN
 
 The
Company has incurred significant operating losses for the three month periods
ended January 31, 2010 and 2009.  At January 31, 2010, the Company reports
a negative working capital position of $1,286,400, and an accumulated deficit of
$4,097,431.    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.
 
 In order
to meet its working capital needs through the next twelve months, the Company
plans to raise additional funds through the issuance of additional shares of
common stock and debt through private placements.  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 will continue with
further expense reductions during the current fiscal year.  The Company
expects to increase revenues through its existing Webdigs.com customer base and
the addition of potential revenue from its IggysHouse.com website during the
current fiscal year.
  F-10
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 4
              RELATED
      PARTY TRANSACTIONS
 
 Accounts Payable – Minority
Stockholder
 
 The
Company’s principal advertising agency/website developer was owed $535,068 at
January 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 January 31,
2010.  For the three month periods ended January 31, 2010 and 2009, the
Company incurred $22,210 and $32,865 in services and rent from this related
party, respectively. Included in these amounts is office rent expense for the
Company of $10,500 for each of the three month periods ended January 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.
 
 Due to
Officers
 
 As of
January 31, 2010 and October 31, 2009, the Company was indebted to its officers
for amounts totaling $75,583 and $58,606 respectively, for business
expenses.  All of the indebtedness represents non-interest bearing payables
due on demand.
 
 Convertible Note Payable –
Officer/Stockholder
 
 During
the three months ended January 31, 2010, the Company borrowed $205,000 from its
CEO under a convertible promissory note accruing interest at an annual rate of
12%.   At January 31, 2010 and October 31, 2009, the balances due
under this note were $378,000 and $173,000 respectively.   The note is
convertible into the Company’s common stock at $0.11 per share at any
time.  There was no beneficial conversion feature because the Company’s
stock price was trading at $0.11 at the time the Board of Directors approved the
Note agreement.  For the three months ended January 31, 2010, the Company
incurred $7,772 of interest expense in connection with this note. 
 Accrued interest due under the note as of January 31, 2010 was
$9,188.
 
 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.  In August 2008, the Company had entered into a joint venture with
Marketplace Home Mortgage, LLC forming Marketplace Home Mortgage – Webdigs, LLC,
and thus, there has been limited current activity within Marquest Financial,
Inc.
 
 Marquest
was sold back to its founder, Mr. Edward Graca for 1,063,628 shares of the
Company’s common stock which was fair valued at $0.25 per share which took into
account the large number of shares involved compared to the average trading
volume.  The shares had a total value of $265,907 and the net carrying
value of the Marquest entity was a negative $31,505 at the date of
closing.  Accordingly, the transaction resulted in a gain of $297,412 for
the fiscal year ended October 31, 2009.  The shares received by the Company
were the shares provided to Mr. Graca back when it was originally purchased from
him in October 2007 and included shares earned through a stock compensation
arrangement.  As of the closing date, there were 240,970 shares of unvested
common stock remaining under this compensation arrangement and those were
forfeited as part of this transaction.  The shares returned in this
divestiture were retained by the Company as treasury stock.
  F-11
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 As of
January 31, 2010 and for the three month period ended January 31, 2010, there
were no assets or liabilities related to the discontinued operations. 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 month period ended January 31, 2009 is as follows:
 
 Discontinued Operations of
                      Marquest Financial, Inc.
                    
                    2009Net
      revenue
                    
                    $
                    -Operating
      expenses
                    
                    
                    (13,285
                    )Other
      income (expense)
                    
                    
                    -Operating
      loss
                    
                    
                    (13,285
                    )Income
      taxes
                    
                    
                    -Net
      operating loss
                    
                    $
                    (13,285
                    )
 
 6
              FIXED
      ASSETS AND INTANGIBLE ASSETS
 
 During
the three month period ended January 31, 2010, the Company capitalized an
additional $21,760 of website development costs for the rebuilding of the
IggysHouse.com website.  These costs are being amortized on a straight-line
basis over the estimated two year useful life of the website.
  F-12
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 At
January 31, 2010 and October 31, 2009, the Company’s fixed assets are as
follows:
 
 January 31, 2010
                      
                      
                      October 31, 2009Gross
                      
                      
                      
                      
                      
                      Net
                      
                      
                      Gross
                      
                      
                      
                      
                      
                      NetCarrying
                      
                      
                      Accumulated
                      
                      
                      Carrying
                      
                      
                      Carrying
                      
                      
                      Accumulated
                      
                      
                      CarryingAmount
                      
                      
                      Depreciation
                      
                      
                      Amount
                      
                      
                      Amount
                      
                      
                      Depreciation
                      
                      
                      AmountFixed
      AssetsFurniture
      and Fixtures
                      
                      $
                      9,981
                      
                      
                      $
                      (5,390
                      )
                      
                      $
                      4,591
                      
                      
                      $
                      9,981
                      
                      
                      $
                      (4,791
                      )
                      
                      $
                      5,190Computer
      hardware
                      
                      
                      50,972
                      
                      
                      
                      (30,467
                      )
                      
                      
                      20,505
                      
                      
                      
                      50,972
                      
                      
                      
                      (25,484
                      )
                      
                      
                      25,488Total
      Fixed Assets
                      
                      $
                      60,953
                      
                      
                      $
                      (35,857
                      )
                      
                      $
                      25,096
                      
                      
                      $
                      60,953
                      
                      
                      $
                      (30,275
                      )
                      
                      $
                      30,678
 
 Depreciation
expense amounted to $5,582 and $3,399 for the three month periods ended January
31, 2010 and 2009, respectively.
 
 At
January 31, 2010 and October 31, 2009, the Company’s intangible assets are as
follows:
 
 January 31, 2010
                        
                        
                        October 31, 2009Gross
                        
                        
                        
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        
                        
                        
                        NetCarrying
                        
                        
                        Accumulated
                        
                        
                        Carrying
                        
                        
                        Carrying
                        
                        
                        Accumulated
                        
                        
                        CarryingAmount
                        
                        
                        Amortization
                        
                        
                        Amount
                        
                        
                        Amount
                        
                        
                        Amortization
                        
                        
                        AmountIdentifiable
      assets with determinable lives:Website
      Software
                        
                        $
                        1,793,397
                        
                        
                        $
                        (379,120
                        )
                        
                        $
                        1,414,277
                        
                        
                        $
                        1,771,637
                        
                        
                        $
                        (287,164
                        )
                        
                        $
                        1,484,473Customer
      lists
                        
                        
                        355,922
                        
                        
                        
                        (14,830
                        )
                        
                        
                        341,092
                        
                        
                        
                        355,922
                        
                        
                        
                        -
                        
                        
                        
                        355,922Non-compete
      agreements
                        
                        
                        266,019
                        
                        
                        
                        (77,588
                        )
                        
                        
                        188,431
                        
                        
                        
                        266,019
                        
                        
                        
                        (44,336
                        )
                        
                        
                        221,683Other
                        
                        
                        52,000
                        
                        
                        
                        (17,335
                        )
                        
                        
                        34,665
                        
                        
                        
                        52,000
                        
                        
                        
                        (10,835
                        )
                        
                        
                        41,165Total
      Fixed Assets
                        
                        $
                        2,467,338
                        
                        
                        $
                        (488,873
                        )
                        
                        $
                        1,978,465
                        
                        
                        $
                        2,445,578
                        
                        
                        $
                        (342,335
                        )
                        
                        $
                        2,103,243
 
 Amortization
expense amounted to $146,538 and $45,365 for the three month periods ended
January 31, 2010 and 2009, respectively.
 
 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. 
Upon dissolution on October 26, 2009, the Company’s total investment in
Marketplace Home Mortgage Webdigs – LLC was $21,084.  The Company received
cash proceeds of $5,064 and was relieved of $10,397 in payables due to
Marketplace Home Mortgage, LLC resulting in a dissolution loss on investment in
Marketplace Home Mortgage – Webdigs, LLC of $5,623.
  F-13
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 At
October 31, 2009 and for the three month period ended January 31, 2010, there
were no assets or liabilities related to the investment in Marketplace Home
Mortgage – Webdigs, LLC. All remaining assets were distributed upon
dissolution.
 
 A
summarized statement of operations for this joint venture for the three month
period ended January 31, 2009 is as follows:
 
 2009Revenue
                      
                      $
                      169,120Operating
      expenses
                      
                      
                      (132,195
                      )Operating
      income
                      
                      
                      36,925Other
      expense
                      
                      
                      -Net
      income
                      
                      $
                      36,925The
      Company's share in the income of Marketplace Home Mortgage Webdigs, LLC
      (49%)
                      
                      $
                      18,093Amortization
      of deferred gain on transfer of non-cash assets
                      
                      
                      760Net
      equity in the income of Marketplace Home Mortgage - Webdigs,
      LLC
                      
                      $
                      18,853
 
 8
              SHARE-BASED
      COMPENSATION
 
 Stock
Options
 
 In May
2008, the Board of Directors approved the issuance of incentive stock
options totaling 600,000 shares to its non-employee directors. 
The exercise price of the options to purchase common stock was at
the fair market value of such shares on the date of the grant. Options
generally become exercisable ratably on the anniversary of the date of the grant
over a period of up to 2 years. There are no vesting provisions tied to
performance conditions for any outstanding options. Vesting for all outstanding
options is based solely on continued service as a director of the Company
and vest one-half on the grant date and one-quarter on each of the next two
yearly anniversaries of the grant. Options to purchase shares expire not later
than five years after the grant of the option.  An additional 200,000
options were granted to a new director on October 31, 2009 under the same two
year vesting period.
  F-14
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 In
October 2009, the Board of Directors approved the issuance of 200,000 incentive
stock options to an employee of the Company.  The options were issued on
October 31, 2009 and shall vest annually (50,000 options each) on each of the
four anniversary dates of the granting of the options.  The exercise price
of the shares purchased under these options shall be $0.25.  The options
will expire five years after the original grant date.
 
 The
Company recognizes compensation expense for the stock options over the requisite
service period for vesting of the award.  Total stock-option based
compensation expense included in the Company's consolidated statements of
operations for the three month periods ended January 31, 2010 and 2009 were
$4,397 and $4,625, 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 month
periods ended January 31, 2010 and 2009.  As of January 31, 2010,
the Company had $15,874 of unrecognized compensation expense related to the
outstanding stock options, which will be recognized over a weighted average
period of 1.1 years.
 
 The
following is a summary of stock option activity for the three month period ended
January 31, 2010:
 
 WeightedaverageWeighted
                          
                          
                          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
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at January 31, 2010
                          
                          
                          1,000,000
                          
                          
                          $
                          0.25
                          
                          
                          $
                          -
                          
                          
                          
                          3.85Exercisable
      at January 31, 2010
                          
                          
                          600,000
                          
                          
                          $
                          0.25
                          
                          
                          $
                          -
                          
                          
                          
                          3.85
 
 The
aggregate intrinsic value in the table above represents the difference between
the closing stock price on January 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 January 31,
2010.  There were no options exercised during the three months ended
January 31, 2010.
  F-15
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 Restricted Stock
Compensation
 
 In June
2009, the Company granted a new employee 50,000 shares of time-based restricted
common stock.  As a condition of the award, the employee had to have been
employed with the Company throughout the six month vesting period ended December
2009.  The total award was valued at $12,500 (or $0.25 per share). 
The 12,500 shares and associated unearned compensation of $3,125 at October 31,
2009 was vested in full as of January 31, 2010.
 
 The
Company recorded $3,125 and $60,860 of stock compensation expense in the
consolidated statement of operations related to vested shares (restricted stock)
for the three month periods ended January 31, 2010 and 2009,
respectively.
 
 A summary
of the status of non-vested shares and changes as of January 31, 2010 is set
forth below:
 
 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
                    
                    
                    -
                    
                    
                    $
                    -
  F-16
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 Stock
Warrants
 
 The
following is a summary of stock warrant activity for the three month period
ended January 31, 2010:
 
 WeightedaverageWeighted
                      
                      
                      Aggregate
                      
                      
                      remainingNumber of
                      
                      
                      average
                      
                      
                      intrinsic
                      
                      
                      contractual termwarrants
                      
                      
                      exercise price
                      
                      
                      value
                      
                      
                      (years)Outstanding
      at October 31, 2009
                      
                      
                      500,000
                      
                      
                      $
                      0.13Granted
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      -
                      
                      
                      
                      -Forfeited
      or expired
                      
                      
                      (300,000
                      )
                      
                      
                      0.01Outstanding
      at January 31, 2010
                      
                      
                      200,000
                      
                      
                      $
                      0.30
                      
                      
                      $
                      -
                      
                      
                      
                      1.88Exercisable
      at January 31, 2010
                      
                      
                      200,000
                      
                      
                      $
                      0.30
                      
                      
                      $
                      -
                      
                      
                      
                      1.88
 
 9
              SHAREHOLDERS
      EQUITY
 
 There
were no equity issuances for the three month period January 31,
2010.
 
 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 month
periods ended January 31, 2010 and 2009, respectively.
  F-17
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 Three
      months endedJanuary 312010
                      
                      
                      2009Basic
      earnings per share calculation:Net
      loss from continuing operations
                      
                      $
                      (319,668
                      )
                      
                      $
                      (312,928
                      )Net
      income (loss) from discontinued operations
                      
                      
                      -
                      
                      
                      
                      (13,285
                      )Net
      loss
                      
                      $
                      (319,668
                      )
                      
                      $
                      (326,213
                      )Weighted
      average of common shares outstanding
                      
                      
                      33,396,719
                      
                      
                      
                      22,504,968Net
      loss per share - basicLoss
      from continuing operations
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.01
                      )Loss
      from discontinued operations
                      
                      
                      -
                      
                      
                      
                      -Net
      loss per basic share
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.01
                      )Diluted
      earnings per share calculation:Net
      loss from continuing operations
                      
                      $
                      (319,668
                      )
                      
                      $
                      (312,928
                      )Net
      income (loss) from discontinued operations
                      
                      
                      -
                      
                      
                      
                      (13,285
                      )Net
      loss
                      
                      $
                      (319,668
                      )
                      
                      $
                      (326,213
                      )Weighted
      average of common shares outstanding
                      
                      
                      33,396,719
                      
                      
                      
                      22,504,968Stock
      options (1)
                      
                      
                      -
                      
                      
                      
                      -Stock
      warrants (2)
                      
                      
                      -
                      
                      
                      
                      -Convertible
      notes payable - officer/stockholder (3)
                      
                      
                      -
                      
                      
                      
                      -Diluted
      weighted average common shares outstanding
                      
                      
                      33,396,719
                      
                      
                      
                      22,504,968Net
      loss per common share - dilutedLoss
      from continuing operations
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.01
                      )Loss
      from discontinued operations
                      
                      
                      -
                      
                      
                      
                      -Net
      loss per diluted share
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.01
                      )
 
 (1)
              The
      dilutive effect of stock options in the above table excludes 1,000,000 and
      600,000 of underlying stock options for the three month periods ended
      January 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
      300,000 of underlying stock warrants for the three month periods
      ended January 31, 2010 and 2009, respectively, as they would be
      anti-dilutive to our net loss for those
periods.
  F-18
  WEBDIGS,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Month Periods Ended January 31, 2010 and 2009
 
 (3)
              The
      dilutive effect of potential convertible notes equivalent to 3,436,364
      shares related to the loan from our CEO and 3,703,704 shares related to a
      third-party convertible debt promissory note for the three month period
      ended January 31, 2010 and 2009, respectively, have been excluded as they
      would be anti-dilutive to our net loss for those
  periods.
 
 11
              SUBSEQUENT
      EVENTS
 
 Loan from Related
Party
 
 From
February 19, 2010 to March 17, 2010, the Company’s Chairman and Chief Executive
Officer loaned the Company $65,000 under the Convertible Note Payable –
Officer/Stockholder (See Note 4).   The total principal amount
outstanding at March 17, 2010 is $443,000.
  F-19




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 January 29, 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 two brands. Webdigs.com, our first brand, is our full-service
discounted real estate brokerage.  Webdigs offers its customers up to a 50%
rebate to its clients who are buying homes and offers listing services starting
as low as 3.9% (compared to a traditional full-service brokerage which we
believe most often charge 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 the option to continue to list their home for a flat fee of
$49.99 per month, with various other ala carte services available for purchase.




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 our business.


2





Results
of Operation





For
the three month periods ended January 31, 2010 and 2009





We are
pleased with the results of the quarter ended January 31, 2010.   Our
net sales revenue more than doubled, growing by a healthy 137% to $91,517 for
the three months ended January 31, 2010 as compared to $38,627 for the three
month period ended January 31, 2009.   Our operating loss from
continuing operations for the quarter ended January 31, 2010 was $304,906
compared to $269,185 for the prior year.   Amortization, which
increased by $112,078 from $34,460 for the three months ended January 31, 2009
to $146,538 for the quarter ended January 31, 2010 was the main factor in our
increase in the operating loss for the quarter.    Excluding
amortization, our operating loss from continuing operations actually declined by
33% - from $234,725 to $158,368.





We also
achieved expense reductions for the quarter ended January 31, 2010 versus
the  same period last year in some important areas.   We reduced
general and administrative spending by $45,321 ($110,124 for the quarter ended
January 31, 2010 versus $155,445 for the same period last year). The primary
factor in our general and administrative expense decrease was a decline in
non-cash compensation and consulting expenses from $65,485 for the quarter ended
January 31, 2009 to $7,522 for three months ended January 31, 2010.   
This decrease was offset partially by increases in salary expense of $7,356
(from $15,948 to $23,304) and an increase in professional fees of $8,770 from
$34,378 to $43,148.





Selling
expenses increased by 19% from $117,907 for the quarter ended January 31, 2009
to $139,761 for the same period this year.   The $21,854 increase
was primarily the result of increased sales compensation costs (from $66,331 to
$80,285).  Sales compensation costs are largely driven by sales results and
as we continue to grow our sales we expect sales compensation costs will
continue to increase.   The other main factor in the increase in
selling costs was a small increase in marketing expenses of $4,788 ($26,069 for
the quarter ended January 31, 2010 compared to $21,281 for the three months
ended January 31, 2009).  The increase in marketing is due to the increased
expenditures on internet advertising for the three months ended January 31,
2010.





Driving
the 137% revenue growth was an 80% increase in closed transactions from 10 for
the three months ended January 31, 2009 to 18 for three months ended January 31,
2010. An additional factor in our sales growth was a change in our rebate
structure. In March 2009, we reduced the rebate we offer to our buyers from 66%
of our commission to 50%. This pricing change provided additional growth of
approximately 50% of net sales for the period ended January 31,
2010.





We
achieved a major milestone in the quarter ended January 31, 2010 with the
re-launch of IggysHouse.com.   While it remains premature to assess
the financial results of IggysHouse.com, we believe our IggysHouse.com service
meets a marketplace void that offers promise for the future.   We
believe that the IggysHouse.com “pay as you go model” is unique to the consumer
real estate market.  It provides the value conscious consumer the ability
to tightly control their expenditures and avoid the traditional percentage fee
costs charged to sellers (based upon our observations that the fee typically is
3.3% to seller + 2.7% for buyers broker = 6.0% total). 
 IggysHouse.com offers its customers the chance to pay for the exact
services they want on a fixed monthly fee basis.   For a basic MLS
listing, IggysHouse.com provides a free 30 day listing through the Webdigs
system of affiliated brokers, which can be continued at the election of the
consumer on a month-to-month basis for $49.99 per month.


3





We
incurred interest costs of $14,762 in the period ended January 31, 2010 compared
to $37,042 for the period ended January 31, 2009.  Of the current
quarter’s interest expense, $7,772 is for accrued interest on a loan from our
CEO with an additional $6,990 resulting from interest charges passed on from
vendors.   For the three months ended January 31, 2009, we incurred
$34,314 in interest expense for our convertible promissory note with Lantern
Advisors.  We extinguished this note on September 30, 2009.  An
additional $2,728 in interest was billed to us from vendors bringing total prior
quarter interest to $37,042.





Our joint
venture was dissolved on October 26, 2009 so there is no joint venture income
for the three months ended January 31, 2010.  The loss on change in fair
value of derivatives and warrants of $25,554 for the three months ended
January 31, 2009 relates to the convertible promissory note mentioned
above.    There will be no future charges for this note.





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. At this
time, we do not anticipate purchasing or selling any significant equipment or
other assets in the near term. Over 90% of our intangible assets were acquired
in our June 2009 purchase of the assets of IggysHouse.com.  As mentioned
above, we re-launched our IggysHouse.com service in January 2010 and believe
that the assets we acquired from Iggys, Inc. will be critical to our
success.  IggysHouse.com was formerly a web-based online real estate
brokerage that had operations in 38 states.   We expect that the
acquisition of IggysHouse.com, along with the continued organic growth we expect
to generate with our www.webdigs.com real estate brokerage will ultimately
result in the addition of numerous real estate field agents, an increase in
website development costs and a small increase in administrative staffing. 
We have no major acquisitions or mergers planned for the immediate
future.





We expect
that we will invest time, effort and expense in the continued refinement of our
IggysHouse.com and Webdigs.com websites. Currently, we expect to spend
approximately $120,000 in such improvement activities over the remaining three
quarters of fiscal 2010. As of January 31, 2010, we have spent
approximately $8,500 on website maintenance and improvements.




Liquidity
and Capital Resources; Anticipated Financing Needs





As of
January 31, 2010, we had $41,964 of cash and cash equivalents and current
liabilities of $1,368,645.  The most significant change in liabilities
versus October 31, 2009 has been the increase in the balance due our CEO on the
convertible note payable he has with us.   This balance increased by
$205,000 to $378,000 as of January 31, 2010.


4


We used
$193,263 of cash in operating activities during the three months ended January
31, 2010 compared to $179,741 for the three months ended January 31, 2009. 
Cash used in operations for the three months ended January 31, 2010 included a
net loss of $319,668 which was partially offset by $159,642 of various
non-cash expenses for depreciation, amortization and share-based
compensation.  For the three months ended January 31, 2009, these non-cash
items plus some additional non-cash items generated by our convertible
promissory note and our joint venture totaled $158,266. For the three months
ended January 31, 2010, we were able to make progress on reducing balances owed
to our major vendor and minority interest shareholder.  We used $27,790 in
reducing the amount owed this vendor.  All other operating asset and
liability changes compared to October 31, 2010 were minimal.





For the
three months ended January 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, we had no
investments.





In total,
financing activities provided $220,964 and $230,406 for the three month periods
ended January 31, 2010 and 2009, respectively.   As mentioned above,
an increase in the balance due our CEO accounted for financing cash proceeds of
$205,000.  An increase in the payable to our group of officers (for
salaries and commissions) accounted for an additional source of $16,977 for the
quarter ended January 31, 2010.   In the prior year, proceeds from the
convertible/promissory note we issued in December 2008 with Lantern Advisors
provided net cash proceeds of $226,000.  An additional $4,831 was provided
by an increase in balances due company officers.





Given our
relatively low cash position, our near term focus for the remaining three
quarters of  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 will remain strong, we
recognize that we will need to raise additional capital to fund our operations
beyond the upcoming spring and summer of 2010.   We are presently
expanding our efforts to recruit agents and believe that these efforts will be
successful.    We retain our expectation that the growth of our core
Webdigs.com brokerage operations and the revenue that IggysHouse.com will
produce will provide us with a solid base from which we believe we would be able
to raise an additional $5 to $6 million to fund expansion.   If we
succeed in raising such amount, we believe that we would have sufficient capital
to fund our operations and expansion for the next two years.  To achieve a
more accelerated growth, however, we would likely require additional financing
to fund acquisitions and development of related business
opportunities.





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 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.


5





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.





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 for our net deferred tax assets as of January 31,
2010 and 2009 because 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 costs for 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 have five types of intangible assets:





Website
Development


The
primary interface with the customer in our web-assisted real estate brokerage
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.  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.





Customer
Lists


We
capitalize the fair value of pre-existing customer relationships acquired as
part of business combinations and asset acquisitions.  Amortization expense
is calculated using the straight-line method (which approximates the anticipated
revenue stream back to the Company) over an estimated useful life of 2
years.


6





Non-Compete
Agreements


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.





Other


The
Company capitalizes the fair value of website domain names and contractual
relationships acquired through business combinations or asset
acquisitions.  The Company  purchased 17 domain names and 17
contractual broker relationships in 17 states in May 2009 from theMLSDirect.com
and expect to amortize the fair value of these names over a 2 year estimated
useful life.





The
Company last assessed impairment of intangible assets at October 31, 2009 and
determined that there was no impairment.  The Company will retest for
impairment again on October 31, 2010 or earlier if circumstances change in the
future.





Commissions and Fees
Receivable. Fees receivable are recorded at the amount the Company
expects to collect on real 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.





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
brokerage and (2) mortgage brokerage.  Due to the divestiture of Marquest
Financial, Inc. and the dissolution of Marketplace Home Mortgage – Webdigs,
LLC in 2009, 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
June 2009, the FASB amended its guidance on accounting for variable
interest entities. This guidance alters the approach to determining the primary
beneficiary of a variable interest entity and requires companies to more
frequently assess whether they must consolidate variable interest entities. The
guidance is effective for the first annual reporting period beginning after
November 15, 2009 and for interim periods within that first annual reporting
period. The Company will adopt this guidance on November 1, 2010 and
is currently assessing the potential impacts, if any, on its financial
statements and disclosures.


7





In
October 2009, the FASB issued guidance on the accounting for
multiple-deliverable revenue arrangements. This guidance establishes a selling
price hierarchy for determining the selling price of a deliverable; eliminates
the residual method of allocation and requires arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the
relative selling price method; and requires a vendor to determine its best
estimate of selling price in a manner consistent with that used to determine the
selling price of the deliverable on a stand alone basis. This guidance also
expands the required disclosures related to a vendor’s multiple-deliverable
revenue arrangements. The guidance is effective beginning February 1, 2011
with early adoption permitted. The Company has adopted the new guidance
prospectively from the beginning of the current fiscal year and determined that
there is no material impact on its consolidated results of operations, financial
condition, cash flows, or disclosures.





Seasonality
of Business





The
residential real estate market has traditionally experienced seasonality, with a
peak in the spring and summer seasons and a decrease in activity during the fall
and winter seasons. We expect revenues in each quarter to be significantly
affected by activity during the prior quarter, given the time lag between
contract execution and closing.    A typical real estate transaction
has a 30 day lag between contract signing and closing of the transaction. 
We expect our current quarter and third quarter to show exceptional growth due
to seasonality of the business.





Going
Concern





The
Company incurred significant operating losses for the three month period ended
January 31, 2010 and 2009.  At January 31, 2010, the Company reports a
negative working capital position of $1,286,400 and accumulated deficit of
$4,097,431.  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.


8


Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
applicable.





Item
4.  Controls and Procedures.





Management’s
Report On Internal Control Over Financial Reporting





Under the
supervision 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-Q to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms, and is accumulated
and communicated to our management as appropriate to allow timely decisions
regarding required disclosure.





Based on
this evaluation and taking into account that certain material weaknesses existed
as 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-Q were prepared with
particular attention to the material weaknesses previously disclosed.
Notwithstanding the material weaknesses in internal controls that continue to
exist as of January 31, 2010, we have concluded that the financial statements
included in this Quarterly Report on Form 10-Q present fairly, the financial
position, results of operations and cash flows of the Company as required for
interim financial statements.





Changes
in Internal Control Over Financial Reporting




During
the fiscal quarter ended January 31, 2010, there was no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting. Management has concluded that the material weaknesses in
internal control as described in Item 9A of the Company’s Form 10-K for the year
ended October 31, 2009 have not been remediated.  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.


9


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.





Item
2. Unregistered Sales of Equity Securities


`


None.





Item
3. Defaults Upon Senior Securities





None.





Item
4 Submission of Matters to a Vote of Shareholders





None.





Item
5. Other Information





a)
            All
      information required to be disclosed on a report on Form 8-K during the
      period ended January 31, 2010 has previously been
      reported.


b)
            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.





ExhibitNo.
              
              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


10


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: 
      March 17, 2010/s/ Edward WickerEdward
      WickerChief
      Financial OfficerDated: 
      March 17, 2010


11


INDEX
TO EXHIBITS FILED WITH THIS REPORT




ExhibitNo.
              
              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