VERUS INTERNATIONAL, INC. - FORM 10-Q

Attached files

file	filename
EX-32.1 - VERUS INTERNATIONAL, INC.	v226357_ex32-1.htm
EX-31.1 - VERUS INTERNATIONAL, INC.	v226357_ex31-1.htm
EX-31.2 - VERUS INTERNATIONAL, INC.	v226357_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2011

|_| 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 |X|No |_|

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

Large accelerated filer \|_\|	Accelerated filer \|_\|
Non-accelerated filer \|_\| (Do not check if a smaller reporting company)	Smaller reporting company \|X\|

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

As of June 14, 2011, there were 73,035,119 shares of the issuer’s common stock, $0.001 par value, outstanding.

Table of Contents

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	10
Item 4.	Controls and Procedures	10

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	12
Item 1A.	Risk Factors	12
Item 2.	Unregistered Sales of Equity Securities	12
Item 3.	Defaults Upon Senior Securities	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
Item 5.	Other Information	12
Item 6.	Exhibits	12

SIGNATURES		13

EXHIBIT INDEX		14

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

WEBDIGS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE AND SIX MONTH

PERIODS ENDED APRIL 30, 2011 AND 2010

WEBDIGS, INC.

TABLE OF CONTENTS

	PAGE


Consolidated Financial Statements:

Consolidated Balance Sheets		F-2

Consolidated Statements of Operations		F-4

Consolidated Statements of Cash Flows		F-5

Notes to Consolidated Financial Statements		F-6

F-1

WEBDIGS, INC.

CONSOLIDATED BALANCE SHEETS
(Unaudited)

	April 30, 2011		October 31, 2010
	(Unaudited)		(Audited)
ASSETS

Current assets:
Cash and cash equivalents	$	9,496	$	5,236
Commissions and fees receivable		-		4,669
Prepaid expenses and deposits		5,466		4,608
Other current assets		3,083		5,583

Total current assets		18,045		20,096

Office equipment and fixtures, net		2,331		9,692

Intangible assets, net		48,097		107,286

Total assets	$	68,473	$	137,074

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

F-2

WEBDIGS, INC.

CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)

	April 30, 2011			October 31, 2010
	(Unaudited)			(Audited)
LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Current portion of capital lease obligations	$	3,985		$	4,603
Accounts payable		163,162			115,355
Accounts payable - minority stockholder		608,089			583,708
Due to officers		8,398			8,345
Convertible notes payable to officer/stockholder		222,000			528,500
Accrued expenses:
Professional fees		12,000			23,500
Payroll and commissions		250,778			263,201
Interest		79,372			51,924
Other liabilities		7,258			16,481

Total current liabilities		1,355,042			1,595,617

Long term liabilities:
Capital lease obligation, less current portion		-			1,631
Convertible note payable, net of discount		7,895			-

Total long term liabilities		7,895			1,631

Total liabilities		1,362,937			1,597,248

Stockholders' deficit:
Common stock - $.001 par value; 125,000,000 shares authorized as common
stock and an additional 125,000,000 shares designated as common or
preferred stock; 73,035,119 and 33,396,719 common shares issued and
outstanding at April 30, 2011 and October 31, 2010, respectively		73,035			33,397
Treasury stock - $.001 par value: 963,628 shares held in
treasury as of April 30, 2011 and October 31, 2010		(240,907	)		(240,907	)
Additional paid-in capital		6,014,556			5,626,770
Accumulated deficit		(7,141,148	)		(6,879,434	)

Total stockholders' deficit		(1,294,464	)		(1,460,174	)

Total liabilities and stockholders' deficit	$	68,473		$	137,074

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

F-3

WEBDIGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenue:
Gross revenues	$	110,963		$	260,043		$	230,145		$	416,772
Less: customer rebates and third-party
agent commissions		(34,126	)		(97,766	)		(56,308	)		(162,978	)

Net revenues		76,837			162,277			173,837			253,794


Operating expenses:
Selling		66,594			103,352			142,513			243,113
General and administrative		111,666			142,804			198,261			252,928
Amortization of intangible assets		20,771			291,187			59,189			437,725

Total operating expenses		199,031			537,343			399,963			933,766

Operating loss		(122,194	)		(375,066	)		(226,126	)		(679,972	)

Other expense:
Interest expense		(16,271	)		(17,520	)		(35,588	)		(32,282	)

Total other expense		(16,271	)		(17,520	)		(35,588	)		(32,282	)

Net loss before income taxes		(138,465	)		(392,586	)		(261,714	)		(712,254	)

Income tax provision		-			-			-			-

Net loss	$	(138,465	)	$	(392,586	)	$	(261,714	)	$	(712,254	)

Net loss per common share - basic and diluted	$	-		$	(0.01	)	$	(0.01	)	$	(0.02	)

Weighted average common shares outstanding -
basic and diluted		55,665,483			33,396,719			44,531,101			33,396,719

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

F-4

WEBDIGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	April 30,
	2011			2010
Cash flows from operating activities:	(Unaudited)			(Unaudited)
Net loss	$	(261,714	)	$	(712,254	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation		7,361			11,165
Amortization of intangible assets		59,189			437,725
Amortization of discount for beneficial conversion feature on convertible debt		7,895			-
Share-based compensation		1,040			11,919
Changes in operating assets and liabilities:
Commissions and fees receivable		4,669			(7,500	)
Prepaid expenses and deposits		(858	)		2,331
Other current assets		2,500			(10,700	)
Accounts payable		47,807			(96,875	)
Accounts payable - minority stockholder		24,381			(6,987	)
Accrued expenses		99,909			68,706
Other liabilities		(9,223	)		31,355
Net cash flows used in operating activities		(17,044	)		(271,115	)

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 (payments to) officer/stockholder convertible notes payable		(6,500	)		304,000
Proceeds from issuance of convertible note payable - third party		30,000			-
Increase (decrease) in due to officers		53			(14,721	)
Principal payments on capital lease obligations		(2,249	)		(2,050	)
Net cash flows provided by financing activities		21,304			287,229

Net change in cash and cash equivalents		4,260			(5,646	)

Cash and cash equivalents, beginning of period		5,236			36,023

Cash and cash equivalents, end of period	$	9,496		$	30,377

Supplemental disclosure of non-cash investing activities
Beneficial conversion feature related to convertible note payable	$	30,000		$	-

Conversion of accrued officer salary to common stock	$	96,384		$	-

Conversion of convertible notes payable from officer/stockholder	$	300,000		$	-

Reclassification of amounts due to officers as accrued expenses	$	-		$	33,275

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

F-5

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

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, 2010.

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 subsidiaries Webdigs, LLC, and Iggyshouse.com, Inc.

All of the Company’s real estate brokerage operations are operated under Webdigs, LLC. Webdigs offers rebates to its customers of up to 1% of the sales price of the home they purchase through us and offers listing services below the price of traditional full-service brokerages as well. We do not mandate that our Webdigs real estate agents charge a pre-determined price for listing a seller’s home, but believe that all of our agents offer listings to their customers for less than other traditional brokerages, who we believe most often charge 5-7% for listing services.

The Company’s second brand, Iggyshouse.com, which launched in January 2010, is a pay as you go listing service that allows home sellers to list their home on their local MLS through a series of participating licensed real estate brokerage partners in 16 different states (who, pursuant to the rules of the MLS, are the only parties eligible to submit listings on the MLS) and on Iggyshouse.com for a flat fee of $149.95 for three months, with various other time periods and ala carte services available for purchase.

The third brand, theMLSDirect.com, offers a $299 fixed price six month MLS listing, utilizing our participating licensed real estate brokerage partners, to consumers not wishing to engage the services of a listing real estate agent.

F-6

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

Basis of Consolidation

The consolidated financial statements for the three and six month periods ended April 30, 2011 and 2010 include the accounts of Webdigs, Inc. and its wholly-owned subsidiary, Webdigs, LLC, which includes the wholly-owned subsidiary of Iggyshouse.com, Inc. All significant intercompany accounts and transactions have been eliminated in the consolidation.

Estimates

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

Intangible Assets

The Company has two types of intangible assets:

Website Development

The primary interface with the customer in our web-assisted real estate 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. The Company’s principal www.webdigs.com website has been fully amortized and the Iggyshouse.com website technology, which is not currently being used, is being amortized on a straight-line basis over its remaining estimated life of 17 months after its fair value was written down to $100,000 on July 31, 2010.

Website Domain Names

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

The Company reviews the carrying amounts of its intangible assets whenever facts and circumstances indicate the assets may be impaired. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset is considered impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds its fair value.

F-7

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

Segment Reporting

The Company operates and manages the business under one 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 against its net deferred tax assets as of April 30, 2011 and 2010 because realization of those assets is not more likely than not.

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 April 30, 2011 and 2010.

Recently Issued Accounting Pronouncements

There were no new accounting standards issued or effective during the three months ended April 30, 2011 that had or are expected to have a material impact on the Company’s results of operations, financial condition, or cash flows.

3	GOING CONCERN

The Company has incurred significant operating losses for the three and six month periods ended April 30, 2011 and 2010. At April 30, 2011, the Company reports a negative working capital position of $1,336,997, and an accumulated deficit of $7,141,148. It is management’s opinion that these facts raise substantial doubt about the Company’s ability to continue as a going concern without additional debt or equity financing.

F-8

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

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, debt to its officers and through private placements. Although the Company intends to obtain additional financing to meet its cash needs, it may be unable to secure any additional financing on terms that are favorable or acceptable to it, if at all. The Company began reducing operating expenditures during the year ended October 31, 2009 and has continued with further expense reductions during the year ended October 31, 2010 and the six months ended April 30, 2011. The Company is hopeful that its decreased cost base coupled with an increased base of real estate agents (obtained through the more agent friendly compensation plan it put it place in July 2010) will enable it to reach its goal of breaking even on cashflow from operations in the current fiscal year. The Company is also potentially looking at other strategic alternatives for its three business units.

4	FIXED ASSETS AND INTANGIBLE ASSETS

At April 30, 2011 and October 31, 2010, the Company’s fixed assets are as follows:

	April 30, 2011							October 31, 2010
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Depreciation			Amount		Amount		Depreciation			Amount
Fixed Assets
Furniture and Fixtures	$	9,981	$	(8,385	)	$	1,596	$	9,981	$	(7,187	)	$	2,794
Computer hardware		50,972		(50,237	)		735		50,972		(44,074	)		6,898
Total Fixed Assets	$	60,953	$	(58,622	)	$	2,331	$	60,953	$	(51,261	)	$	9,692

Depreciation expense amounted to $3,417 and $5,583 for the three month periods ended April 30, 2011 and 2010, respectively. For the six month periods ended April 30, 2011 and 2010, depreciation expense was $7,361 and $11,165, respectively.

At April 30, 2011 and October 31, 2010, the Company’s intangible assets are as follows:

	April 30, 2011							October 31, 2010
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Identifiable assets with
determinable lives:
Website Software	$	100,000	$	(52,939	)	$	47,061	$	100,000	$	-		$	100,000
Website domain names		25,000		(23,964	)		1,036		25,000		(17,714	)		7,286
Total Intangible Assets	$	125,000	$	(76,903	)	$	48,097	$	125,000	$	(17,714	)	$	107,286

F-9

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

Amortization expense amounted to $20,771 and $291,187 for the three month periods ended April, 2011 and 2010, respectively. For the six month periods ended April 30, 2011 and 2010, amortization expense was $59,189 and $437,725, respectively. The Iggyshouse website software is not currently in service. The Company is currently determining its future course of action with this asset.

5	CONVERTIBLE NOTE PAYABLE

In November 2010, the Company entered into a $30,000 convertible loan agreement with a private investor which has a maturity date of June 30, 2012. The loan accrues interest at a simple interest rate of 12% per annum. For the three and six month periods ended April 30, 2011, the Company incurred $900 and $1,660 of interest expense in connection with this note, respectively.

The lender can convert the note into the Company’s common stock at a price of $0.01 per share. Since the permitted conversion price is lower than the $.02 market price of the Company’s shares at the time of the loan agreement, the Company recognized and capitalized a beneficial conversion feature charge of $30,000 and is amortizing the charge over the life of the loan using the effective interest method. The Company recognized a beneficial conversion amortization charge to interest expense of $4,737 and $7,895 for the three and six month periods ended April 30, 2011, respectively. The note balance at April 30, 2011, net of the remaining unamortized discount of $22,105, was $7,895.

6	RELATED PARTY TRANSACTIONS

Spin-off of Iggyshouse.com, Inc.

The Company’s board of directors approved the spin-off of the Company’s Iggyshouse.com operations on March 11, 2011. Under the proposed spin-off, the Company’s shareholders will receive shares in Iggyshouse.com, Inc. proportional to their shareholdings in Webdigs, Inc. The Company expects the transaction to potentially close sometime in the current fiscal year, if at all. The approved spin-off transaction has not yet been fully executed as of the date of this 10-Q filing. All of the Iggyshouse assets, liabilities and operating results remain included in the consolidated results of the Company as of April 30, 2011.

Accounts Payable – Minority Stockholder

The Company’s principal advertising agency/website developer was owed $608,089 at April 30, 2011 and $583,708 at October 31, 2010, respectively. The two principals of this advertising company are also minority stockholders in the Company – holding approximately 0.7% of the Company’s outstanding shares at April 30, 2011. For the six month periods ended April 30, 2011 and 2010, the Company incurred $24,481 and $43,013 in services and rent from this related party, respectively.

F-10

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

Included in the $24,481 and $43,013 is $21,000 in office rent expense for the Company for each of the six month periods ended April 30, 2011 and 2010. 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 April 30, 2011 and October 31, 2010, the Company was indebted to its officers for amounts totaling $8,398 and $8,345 respectively, for unreimbursed business expenses. All of the indebtedness represents non-interest bearing payables due on demand.

Convertible Note Payable – Officer/Stockholder

The Company borrows cash from its CEO under a convertible promissory note that accrues interest at an annual rate of 12%. At April 30, 2011 and October 31, 2010, the balances due under this note were $222,000 and $528,500, respectively. During the six months ended April 30, 2011, the Company repaid a net of $6,500 of principal on the note. On October 12, 2010, these notes were modified to allow the CEO to convert to the Company’s common stock at $0.01 per share instead of a previous conversion price of $0.11. This modification resulted in a beneficial conversion charge to interest expense of $580,424 for the year ended October 31, 2010 because the stock was trading at $0.03 on October 12, 2010. On March 15, 2011, the Company’s Chairman and CEO exercised his right to convert $300,000 of the Convertible Note Payable – Officer/Stockholder he held with the Company at a price of $0.01 per common share resulting in the issuance of an additional 30,000,000 common shares to him and concurrently reducing the balance of the Convertible Note Payable – Officer/Stockholder by $300,000. For the three and six month periods ended April 30, 2011, the Company incurred $10,525 and $25,788 of interest expense in connection with this note, respectively. Accrued interest due under the note as of April 30, 2011 and October 31, 2010 was $77,712 and $51,924, respectively.

7	SHARE-BASED COMPENSATION

Stock Options

The Company recognizes compensation expense for stock option grants over the requisite service period for vesting of the award. Total stock-option compensation expense included in the Company's consolidated statements of operations for the six month periods ended April 30, 2011 and 2010 was $1,040 and $8,794, respectively. Total stock compensation for the three months ended April 30, 2011 and 2010 was $520 and $4,397, respectively. This expense is included in general and administrative expense. The compensation expense had no impact on the basic loss per common share for the three and six month periods ended April 30, 2011 and 2010. As of April 30, 2011, the Company had $520 of unrecognized compensation expense related to the outstanding stock options, which will be recognized over a weighted average period of 3 months.

F-11

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

The following is a summary of stock option activity for the six month period ended April 30, 2011:

							Weighted average
			Weighted		Aggregate		remaining
	Number of		average		intrinsic		contractual term
	options		exercise price		value		(years)
Outstanding at October 31, 2010		800,000	$	0.25	$	-
Granted		-		-		-
Exercised		-		-		-
Forfeited or expired		-		-		-
Outstanding at April 30, 2011		800,000	$	0.25	$	-		2.38
Exercisable at April 30, 2011		750,000	$	0.25	$	-		2.30

The aggregate intrinsic value in the table above represents the difference between the closing stock price on April 30, 2011 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 April 30, 2011. There were no options exercised during the six month period ended April 30, 2011.

Stock Warrants

The following is a summary of stock warrant activity for the six month period ended April 30, 2011:

							Weighted
							average
			Weighted		Aggregate		remaining
	Number of		average		intrinsic		contractual term
	warrants		exercise price		value		(years)
Outstanding at October 31, 2010		200,000	$	0.30	$	-
Granted		-		-		-
Exercised		-		-		-
Forfeited or expired		-		-		-
Outstanding at April 30, 2011		200,000	$	0.30	$	-	0.62
Exercisable at April 30, 2011		200,000	$	0.30	$	-	0.62

F-12

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

8	STOCKHOLDERS’ EQUITY

On March 11, 2011, the Company’s Board of Directors granted the Company’s CFO the right to convert up to $96,384 of accrued salary into shares of the Company’s common stock at a price of $0.01 per share. On March 11, 2011, the Company’s CFO exercised this right and converted $96,384 of his accrued but unpaid compensation owed to him by the Company, acquiring 9,638,400 shares of the Company’s common stock at a price per share of $0.01.

On March 15, 2011, the Company’s Chairman and CEO exercised his right to convert $300,000 of the Convertible Note Payable – Officer/Stockholder he held with the Company at a price of $0.01 per common share resulting in the issuance of an additional 30,000,000 common shares to him and concurrently reducing the balance of the Convertible Note Payable – Officer/Stockholder by $300,000 (see Note 6).

9	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.

F-13

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share for the three and six month periods ended April 30, 2011 and 2010, respectively.

	Three months ended						Six months ended
	April 30						April 30
	2011			2010			2011			2010
Basic earnings per share calculation:
Net loss to common shareholders	$	(138,465	)	$	(392,586	)	$	(261,714	)	$	(712,254	)
Weighted average of common shares outstanding		55,665,483			33,396,719			44,531,101			33,396,719
Basic net loss per share	$	-		$	(0.01	)	$	(0.01	)	$	(0.02	)

Diluted earnings per share calculation:
Net loss to common shareholders	$	(138,465	)	$	(392,586	)	$	(261,714	)	$	(712,254	)
Weighted average of common shares outstanding		55,665,483			33,396,719			44,531,101			33,396,719
Stock options (1)		-			-			-			-
Stock warrants (2)		-			-			-			-
Convertible notes payable - officer/stockholder (3)		-			-			-			-
Convertible note payable (4)		-			-			-			-
Diluted weighted average common shares outstanding		55,665,483			33,396,719			44,531,101			33,396,719
Diluted net loss per share	$	-		$	(0.01	)	$	(0.01	)	$	(0.02	)

(1)

The dilutive effect of stock options in the above table excludes 800,000 and 1,000,000 of underlying stock options for the three and six month periods ended April 30, 2011 and 2010, 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 200,000 of underlying stock warrants for the three and six month periods ended April 30, 2011 and 2010, as they would be anti-dilutive to our net loss for those periods.

(3)

The dilutive effect of potential convertible notes and accrued interest equivalent to 29,971,200 and 2,727,273 shares related to the convertible promissory note from the Company’s CEO as of April 30, 2011 and 2010, respectively, have been excluded as they would be anti-dilutive to our net loss for those periods.

(4)

The dilutive effect of a potential convertible note equivalent to 3,166,000 shares related to a convertible promissory note as of April 30, 2011 has been excluded as it would be anti-dilutive to our net loss for that period.

F-14

WEBDIGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Periods Ended April 30, 2011 and 2010

10	SUBSEQUENT EVENTS

Convertible Note Payable to Officer/Shareholder

During the period from May 1, 2011 to June 14, 2011, the Company’s Chairman and Chief Executive Officer loaned the Company $8,900 under the Convertible Note Payable – Officer/Stockholder (See Note 6). The total principal amount outstanding at June 14, 2011 was $230,900.

F-15

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 12, 2011 relating to our fiscal year ended October 31, 2010.

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 12, 2011 should be considered in evaluating our prospects and future performance.

General Overview

We are a web-assisted real estate services company primarily focused on 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” real estate brokerage model. We attempt to emphasize client service, when and as needed or requested by our clients, to separate us from other real estate services and discount brokerage models; and we attempt to provide efficiency and cost savings that will differentiate us from traditional brokerage models.

We operate under three brands. Webdigs.com, our first brand, is our full-service discounted real estate brokerage. Webdigs offers a commission sharing program with buyers enabling them to receive part of our commission totaling up to 1% of the sales price of the home they purchase through us. We also offer listing services below the price of traditional full-service brokerages. We do not mandate that our Webdigs real estate agents charge a pre-determined price for listing a seller’s home, but believe that all of our agents offer listings to their customers for less than other traditional brokerages, who we believe most often charge 5-7% for listing services.

Our second brand, IggysHouse.com, which launched in January 2010, is a pay as you go listing service clearinghouse that allows home sellers to list their home on their local MLS through a series of participating licensed real estate brokers in 16 different states (who, pursuant to the rules of the MLS, are the only parties eligible to submit listings on the MLS) and on IggysHouse.com for a flat fee of $149.95 for three months, with various other time periods and ala carte services available for purchase.

Our third brand, theMLSDirect.com, offers a $299 fixed price six month MLS listing, utilizing our participating licensed real estate brokers, to consumers not wishing to engage the services of a listing real estate agent charging a commission.

Currently, we market on a very limited basis to potential customers principally through internet ad campaigns, limited but highly targeted e-mail, and direct mail. Our most consistent source of business, however, has been referrals from previous satisfied customers of our businesses.

Results of Operation

For the three month periods ended April 30, 2011 and 2010

Our second quarter results were in line with expectations. Although our revenues declined, our operating loss was substantially reduced versus the prior year three month period ended April 30, 2010. For the quarter ended April 30, 2011, our net revenue decreased by 53% to $76,837 from $162,277 for the three months ended April 30, 2010. Driving the 53% revenue decrease was a 36% decrease in closed transactions from 34 to 22. Exacerbating the revenue decline was a significant drop in gross revenue per transaction from approximately $7,200 for the three months ended April 30, 2010 to $4,500 for the three months ended April 30, 2011. For the three months ended April 30, 2011, the average price of a home sold through Webdigs was $157,000 compared to $264,000 for the same period in 2010. As reported in the Minneapolis Star Tribune reported on June 1, 2011, on a relative price basis, the Twin Cities is the weakest major market in the US. The Star Tribune notes that “As home prices across the country continue to decline, the Twin Cities is leading the plunge among the largest U.S. cities. Home prices in the Minneapolis-St. Paul area were 10 percent lower in March than a year earlier, according to the Standard & Poor's/Case-Shiller index of 20 cities. The Twin Cities was the only metro area to see prices drop by double digits since March 2010”.

In addition to pricing issues, the Twin Cities market is also soft in terms of transactions. The federal tax credit for first time home buyers seems to have pushed up sales substantially for the three months ended April 30, 2010. We do not have that “bump” effect this fiscal year. The June 1, 2011 Star Tribune also quoted Brad Fisher, president of the Minneapolis Association of Realtors commenting on 2011 transaction volume in the Twin Cities. According to Fisher, “the Case-Shiller numbers are skewed in part by the federal tax credit for first-time home buyers and trade-up home buyers. “That was a huge issue (in 2010)”. Fisher notes “metro area pending sales for April were off about 25 percent (compared to April 2010)”

Our operating loss for the three months ended April 30, 2011 was $122,194 compared to $375,066 for the comparable three month period ended April 30, 2010. However, if we exclude the amortization charge for intangible assets, our operating loss would actually have increased by 21%, from $83,879 for the three months ended April 30, 2010 compared to $101,423 for the three months ended April 30, 2011. We simply can’t experience a drop in sales of 53% without noticing an effect on profitability.

As we have mentioned in our prior quarterly management comments, we continue to focus on reducing unneeded operating expenses to lower our monthly break even sales level. We made progress in this area in the three months ended April 30, 2011. We reduced selling expenses by 36% from $103,352 for the three months ended April 30, 2010 to $66,594 for the same period this year. Consistent with our significant drop in sales, by far the most significant selling expense decrease comes from a decrease in sales commissions. In the three months ended April 30, 2010, our sales agents earned commissions totaling $86,544. For the three months ended April 30, 2011, our agents received only $48,200 in commission, a drop of $38,344 (44%).

In addition to our selling expense cuts, we reduced general and administrative spending by $31,138 ($111,666 for the quarter ended April 30, 2011 versus $142,804 for the same period last year). The primary factor in our general and administrative expense reduction was a $43,782 decrease in wages and salaries. The wage and salaries decrease results from a significant reclassification of how we track our CEO’s compensation which took place in the three months ended April 30, 2010. Starting in April 2010, 100% of our chairman and CEO’s compensation has been classified as G&A expense. In the quarter ended April 30, 2010, the reclassification of his compensation to G&A expense resulted in an inflated 3 month total for the period ended April 30, 2010. This effect of this reclassification totaled $22,800 for the period ended April 30, 2011. The remaining wage and salary decrease of $20,982 reflects primarily the release of accrued payroll taxes for our CFO, which will not need to be paid due to his conversion of $96,384 of accrued salary to shares in our common stock on March 11, 2011. Offsetting partially the $43,782 salary decrease was an increase of $15,395 in legal fees most of which relate to a proposed spin-off of our Iggyshouse.com operations. There were no other significant changes in general and administrative expense.

Positive highlights for our recent quarter include increased revenues versus the same period last year for both our Iggyshouse.com brand and theMLSDirect.com. For theMLSDirect.com revenues for the three months ended April 30, 2011 and 2010 respectively are $3,124 and $2,615, an increase of 19%. Iggyshouse.com grew by 360% to $2,113 during the three months ended April 30, 2011 versus $459 for the same period last year. We are really happy that the Iggyshouse.com platform continues to show growth despite limited marketing support.

Our intangible asset base has shrunk considerably in the last 12 months. This accounts for the major decrease in amortization charges from $291,187 for the three months ended April 30, 2010 to $20,771 for the current three month period ended April 30, 2011.

We incurred interest costs of $16,271 in the quarter ended April 30, 2011 compared to $17,520 for the period ended April 30, 2010. Of the current quarter’s interest expense, all but $109 of it relates to a convertible note from our CEO or a $30,000 convertible note with a beneficial conversion feature discount that brought in operating capital for us in November 2010.

For the six month periods ended April 30, 2011 and 2010

We learned long ago that the real estate brokerage business wasn’t quite as stable a business sector as supplying electricity or selling consumer packaged goods such as bread, cereal or paper towels. Nevertheless, the impact of the downturn in the residential real estate market over the past 3-4 years still hurts. Our six month results reflect the difficulties of the current real estate market conditions in the Twin Cities and Florida. Six month operating results were in line with our recent expectations but short of our goals. We, along with everyone else in our sector continue to slug it out month after month. In our case, we also have adjusted our future outlook- recognizing we may now have found our “new normal” in the residential real estate business segment. Our challenge now is to adapt our business model to this “new normal” of limited growth in housing prices and more restrictive mortgage lending practices. We believe that there remains room in our market for innovative, consumer oriented, executionally proficient brokerages to grow in the years ahead. We plan on being part of the group of brokerages that lead this growth.

Good news comes in many forms. For us, the fact that we reduced our operating loss by 67% ($453,846) to $226,126 for the six months ended April 30, 2011 compared to same six month period in 2010 (loss of $679,972) represents good news. Excluding the amortization charge for intangible assets, our operating loss would have been reduced by 31%, from $242,247 for the six months ended April 30, 2010 compared to $166,937 for the six months ended April 30, 2011.

Due to the very difficult second quarter noted above, our year to date April 30, 2011 six month revenues of $173,837 falls short by $79,957 of the $253,794 we realized in the first six months of fiscal 2010. Total transactions closed for the six months ended April 30, 2011 were 38 compared to 52 for the same period in fiscal 2010.

Not surprisingly, our cash conservation efforts have produced good savings. We cut selling expenses by $100,600 from $243,113 for the six months ended April 30, 2010 to $142,513 for the most recent six months ended April 20, 2011. We achieved reductions versus last year in almost all major expense categories including commissions ($29,543), sales and marketing salaries ($23,936 – eliminated two positions), and web maintenance and hosting ($39,098 – due to the fact that in the current fiscal year we are using a third party Iggyhsouse.com hosted website).

We also managed to reduce general and administrative spending by $54,667 ($198,261 for the quarter ended April 30, 2011 versus $252,928 for the same period last year). Of the $54,667 decrease, $33,558 comes from cuts to our investor relations budget for the current fiscal year. Additionally, non-cash stock compensation expense has been nearly eliminated in the six months ended April 30, 2011. For the current six months ended April 30, 2011, we have incurred only $1,040 in non-cash equity compensation expenses for directors. In the six months ended April 20, 2010, we had incurred $11,919 in non-cash compensation costs. The other decreases in general and administrative costs come from reduced salary expenses. The only major increase in general and administrative expense ($16,126) comes in legal expenses largely related to work performed on the potential spin-off of our Iggyshouse.com business unit. Thanks to our ongoing efforts to reduce operating expenses, we have reached a point in general and administrative spending where significant additional cuts will be difficult to achieve.

On a year to date basis, Iggyshouse.com revenues have increased to $4,165 for the six months ended April 30, 2011. In fiscal 2010, starting with our re-launch of Iggyshouse.com in January 2010, revenues were only $459 for the six months ended April 30, 2010. For the MLSDirect.com revenues for the six months ended April 30, 2011 and 2010 respectively are $9,513 and $6,113, an increase of 56%.

Due to the impairment charge taken in July 2010 on our Iggyshouse.com intangible assets, we expect amortization expenses to continue to track significantly lower each quarter of this fiscal year. Amortization charges decreased from $437,725 for the six months ended April 30, 2010 to $59,189 for the current six month period ended April 30, 2011.

We incurred interest costs of $35,588 in the six months ended April 30, 2011 compared to $32,282 for the period ended April 30, 2010. As noted above, the only material interest expense thus far in this fiscal year has been accrued for a convertible note from our CEO and a $30,000 convertible note with a beneficial conversion feature discount that brought in operating capital for us in November 2010. In fiscal 2010, $11,726 of the total interest expense of $32,282 for the six months ended April 30, 2010 was related to charges from vendors for interest on past due receivables. The remaining $20,556 expense was charged on the convertible note payable from our CEO.

Assets and Employees; Research and Development

We do not anticipate purchasing any significant equipment or other assets in the near term nor do we anticipate staffing changes at our corporate office. We do expect to add more non-employee independent real estate agents to represent our www.webdigs.com brands in the year ahead. We plan no investments in internally developed website technology.

Liquidity and Capital Resources; Anticipated Financing Needs

As of April 30, 2011, we had $9,496 of cash and cash equivalents and current liabilities of $1,355,042. The most significant change in liabilities versus October 31, 2010 has been the $306,500 decrease in the convertible note payable balance due our CEO. In March 2011, he converted $300,000 of the note into 30,000,000 shares of the Company’s common stock at a conversion price of $.01 per share.

For the six months ended April 30, 2011, we used $17,044 of cash in operating activities compared to a use of $271,115 for the three months ended April 30, 2010. Cash used in operations for the six months ended April 30, 2011 included a net loss of $261,714 which was partially offset by $75,485 of various non-cash expenses for depreciation, amortization, amortization of debt discount related to a beneficial conversion feature, and share-based compensation. For the three months ended April 30, 2010, these non-cash items totaled $460,809. The significant decrease is largely due to our decision to impair a significant portion of the Iggyshouse.com assets in July 2010 which has significantly lowered our current year amortization cost. Additionally, for the six months ended April 30, 2011, we continued to defer payments of salary to our CEO and CFO. In addition, a few select vendors have allowed us to temporarily withhold payment until our sales situation improves. Finally, our CEO has permitted us to defer interest payments to him on his convertible loan. Increases in these three items provided us a source of cash totaling $172,097 for the three months ended April 30, 2011.

For the six months ended April 30, 2011, we did not use any cash flows in investing activities. In our prior fiscal year, we invested $21,760 in website development for the IggysHouse.com website.

In total, financing activities provided $21,304 and $287,229 for the six month periods ended April 30, 2011 and 2010, respectively. We received $30,000 in proceeds from a convertible note in November 2010. Partially offsetting the proceeds from this note was a net reduction in principal balance due our CEO on his convertible note of $6,500. In the prior year, proceeds from the convertible note with our CEO totaled a net $304,000. Repayments of $14,721 in payables to our officers provided an offsetting decrease in financing activities for the six months ended April 30, 2010.

As it has been for the past year, we remain highly focused on reaching positive operating cash flows as quickly as possible bearing in mind the “new normal’ of real estate mentioned above. The difficult conditions of the real estate market coupled with our limited cash resources have forced us to limit our expansion for the time being. Until we reach positive cash flow in our primary Twin Cities market via incrementally building market share and selectively adding new agents, we will not look to invest outside of Minnesota. We believe that our agent compensation plan and unique consumer centric reduced fee product offering will enable us to slowly improve our operating results. It will not be “business as usual” for us: we will adapt.

We believe that we will be able to fund operations for the current fiscal year with minimal cash infusions. With an additional $80,000 in funding, we believe that we will have sufficient operating capital to complete our current fiscal year successfully.

Certain vendors have been inquiring about when to expect past due payments in the past 12 months. The cash requirements mentioned above assumes that these vendors will continue to work with us patiently to allow our business to operate until we generate sufficient cash to settle past balances. In most cases, we do not have an express agreement with vendors on the exact timing of expected payment of past due invoices. Therefore, it is possible that a vendor may demand payment or refuse to provide services that are critical to the ability of the Company to either continue to operate or to timely file required reports with the SEC. If any such risk materializes, it would possibly decrease our likelihood of obtaining financing on terms acceptable to us, if at all. In addition, if we fail to reach sales revenue objectives (for any reason, including due to continued poor real estate and credit market conditions beyond our control), additional financing may not be available on terms favorable to us, if at all.

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

Given the financing needs of the Company’s business, as conducted under its three separate brands, the Company is actively reviewing possible strategic alternatives for some or all of its brands with a view to (i) presenting a clearer business and financial picture to potential financiers, thereby increasing the likelihood of obtaining financing, (ii) diminishing the chance of liabilities of one brand adversely affecting another, and, ultimately, (iii) providing increased shareholder value. One result of our strategic review was that on March 11, 2011 our board of directors approved a plan to spin-off our Iggyshouse.com business to our shareholders. This legal and financial paperwork to complete the spin-off continues as of June 15. We expect a resolution of this sometime prior to the end of the current fiscal year.

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 determining some of the inputs for our stock option fair value calculation and assessing the valuation allowance for income taxes.

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

Revenue Recognition. Real estate brokerage revenues are recognized at the closing of a real estate transaction. Commissions and rebates due to third party real estate agents or clients are accrued at the time of closing and treated as an offset to gross revenues.

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 April 30, 2011 and 2010 because realization of those assets is not more likely than not.

Share-Based Compensation. The Company accounts for stock incentive plans by measurement and recognition of compensation expense for all stock-based awards based on estimated fair values, net of estimated forfeitures. Share-based compensation expense recognized for the periods ended April 30, 2011 and 2010 includes compensation cost for restricted stock awards and stock options. The Company uses the Black-Scholes option-pricing model to determine the fair value of options granted as of the grant date.

Intangible Assets. We have two 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. As of April 30, 2011, the Company’s principal www.webdigs.com website has been fully amortized and the Iggyshouse.com website technology, which is not currently being used, is being amortized over its remaining estimated life of 8 months.

Website Domain Names

Commissions and Fees Receivable. Real estate commissions and fees receivable are recorded at the amount the Company expects to collect from real estate transactions closed. These receivables represent brokerage commission balances due the Company from clients or listing real estate brokerages and usually are settled within 1 to 10 days after closing.

The Company reviews the outstanding receivables, on a monthly basis and receivables are considered past due when payment has not been received 30 days after a transaction closes. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to receivables. Historically, the Company has not experienced significant losses related to receivables from individual customers.

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 years
Furniture and fixtures	3 to 7 years

Segment Information

The Company operates and manages the business under one reporting segment.

Recently Issued Accounting Pronouncements

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.

Going Concern

The Company incurred significant operating losses for the three months ended April 30, 2011. At April 30, 2011, the Company reports a negative working capital position of $1,336,997 and accumulated deficit of $7,141,148. 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.

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, 2010, 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 April 30, 2011, 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 April 30, 2011, 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, 2010 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.

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

There have been no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.

Item 6. Exhibits.

Exhibit No.		Description
31.1		Certification of Chief Executive Officer
31.2		Certification of Chief Financial Officer
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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

WEBDIGS, INC.

/s/ Robert A. Buntz, Jr.

Robert A. Buntz, Jr.

Chief Executive Officer

Dated: June 20, 2011

/s/ Edward Wicker

Edward Wicker

Chief Financial Officer

Dated: June 20, 2011

INDEX TO EXHIBITS FILED WITH THIS REPORT

Exhibit No.		Description
31.1		Certification of Chief Executive Officer
31.2		Certification of Chief Financial Officer
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Large accelerated filer \|_\|	Accelerated filer \|_\|
Non-accelerated filer \|_\| (Do not check if a smaller reporting company)	Smaller reporting company \|X\|

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