OneMeta AI (ONEI) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:  September 30, 2010
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 333-140378

WEBSAFETY, INC.

(Exact name of small business issuer as specified in its charter)

Nevada	20-5150818
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2201 W. Royal Lane, Suite 200, Irving, Texas 75063

(Address of Principal Executive Offices)

(214) 716-6909

(Issuer’s telephone number)

BLINDSPOT ALERT, INC.

(1 Hampshire Court, Newport Beach, CA 92660)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.

¨ Large accelerated filer	¨  Accelerated filer
¨ Non-accelerated filer	x  Small reporting company

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

Yes ¨     No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 22, 2010:

Class	Outstanding shares as of November 22, 2010
Common Stock, $0.001 par value	70,777,862

INDEX	Page
PART 1-FINANCIAL INFORMATION	3
Item 1.  Financial Statements	3
Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009	F-2
Statements of Operations (unaudited) for the three and nine months ended September 30, 2010 and September 30, 2009.	F-3
Statements of Cash Flows (unaudited) for the nine months ended September 30, 2010 and September 30, 2009.	F-4
Statement of Stockholder’s Equity (Deficit) for the year ended December 31, 2009 and the nine months ended September 30, 2010 (unaudited)	F-5
Notes to Financial Statements	F-6
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	6
Item 4.  Control and Procedures	6
PART II-OTHER INFORMATION	7
Item 1.  Legal Proceedings	7
Item 1A.  Risk Factors	8
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 6.  Exhibits	10
SIGNATURES	11

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

3

INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

Table of Contents

	PAGE
BALANCE SHEETS	F-2
STATEMENTS OF OPERATIONS	F-3
STATEMENTS OF CASH FLOWS	F-4
STATEMENTS OF STOCKHOLDERS EQUITY	F-5
FOOTNOTES TO FINANCIAL STATEMENTS	F-6

F-1

WEBSAFETY, Inc.

 Formerly Known as BlindSpot Alert, Inc.

 BALANCE SHEETS

	As of
	September 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash	$	42,489		$	5,748
Accounts receivable		-			17,171
Total current assets		42,489			22,919
Property and Equipment:
Computer equipment, computer software and furniture, net		12,199			14,433
Software license and website development, net		115,332			138,383
Total property and equipment		127,531			152,816
Other Assets:
Deposits		6,837			6,820
WebSafety Technology, net		1,881,877			2,587,580
Total other assets		1,888,714			2,594,400
	$	2,058,734		$	2,770,135
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	266,578		$	152,359
Accrued expense		43,193			13,868
Deferred revenue		20,591			114,740
Shareholder Loan		380,999			81,374
Liability to issue shares		150,762			103,120
Total current liabilities		862,123			465,461
Stockholders' equity:
Preferred stock; $.001 par value, 25,000,000 shares authorized, 2,863,335 and 4,230,002 shares issued and outstanding respectively		2,863			4,230
Common stock; $.001 par value, 300,000,000 shares authorized, 68,477,860 and 54,895,714 shares issued and outstanding, respectively		68,478			54,896
Additional paid in capital		6,562,557			4,817,805
Deficit accumulated		(5,437,287	)		(2,572,257	)
Total stockholders' equity		1,196,611			2,304,674
	$	2,058,734		$	2,770,135

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

F-2

WebSafety, Inc.

 Formerly Known as BlindSpot Alert, Inc.

 STATEMENTS OF OPERATIONS

 For The Three  and Nine Months Ended September 30, 2010 and 2009

 (Unaudited)

	(Unaudited)						(Unaudited)
	For The Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenue	$	119,779		$	4,788		$	242,269		$	4,788
Cost of goods sold		(50,127	)		-			(108,269	)
Gross margin		69,652			4,788			134,000			4,788
Operating expenses:
General and administrative expenses		975,184			368,354			2,245,369			697,903
Impairment loss		-			300,000			-			300,000
Research & Development		-			-			2,500			-
Depreciation and amortization expense		248,847			588			746,253			588
Total operating expenses		1,224,031			668,942			2,994,122			998,491
(Loss) from operations		(1,154,379	)		(664,154	)		(2,860,122	)		(993,703	)
Other income (expense):
Loss on option acquire		-			-			-			(245,000	)
Interest expense		(4,908	)		-			(4,908	)		-
Total other income (expense)		(4,908	)		-			(4,908	)		(245,000	)
(Loss) before provision for income taxes		(1,159,287	)		(664,154	)		(2,865,030	)		(1,238,703	)
Provision for income taxes								-
Net (loss)	$	(1,159,287	)	$	(664,154	)	$	(2,865,030	)	$	(1,238,703	)
Basic and diluted loss per share	$	(0.017	)	$	(0.022	)	$	(0.045	)	$	(0.050	)
Basic and diluted weighted average common shares outstanding		67,107,250			30,065,714			63,216,245			24,917,017

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

F-3

Websafety, Inc.

 Formerly Known as BlindSpot Alert, Inc.

  STATEMENTS OF CASH FLOWS

 For the Nine Months Ended September 30, 2010 and 2009

 (Unaudited)

	(Unaudited)
	Nine Months Ended September 30,
	2010			2009
Operating activities:
Net loss	$	(2,865,030	)	$	(1,238,703	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		746,253			588
Stock issued for services		989,542			36,583
Impairment charge for WQN License		-			300,000
Loss on option expiration		-			245,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		17,171			(4,625	)
Decrease  in prepaid expense		-			7,137
Decrease in subscriptions receivable		-			200
Decrease in advance to shareholder		-			(1,104	)
Increase in deposit		(17	)		(2,297	)
Increase  in accounts payable		114,219			38,636
Decrease  in deferred revenue		(94,149	)		41,372
Increase in Liability to Issue Shares		47,642			-
Increase in accrued expense		29,325			13,818
Net cash (used in) operating activities		(1,015,044	)		(563,395	)
Investing activities:
Purchase of long term assets		(15,265	)		(134,528	)
Increase (decrease) investment in option to acquire		-			(150,000	)
Net cash (used in) investing activities		(15,265	)		(284,528	)
Financing activities:
Proceeds from borrowing		100,000			-
Proceeds of advances from shareholders		299,625			-
Proceeds from stock sales		667,425			744,000
Net cash provided by financing activities		1,067,050			744,000
Net changes in cash		36,741			(103,923	)
Cash, beginning of year		5,748			224,269
Cash, end of period	$	42,489		$	120,346
Cash paid during the period for:
Interest paid		-			90
Tax paid		-			-
Non Cash Investing and Financing Activities:
Issuance of common stock for services	$	289,919		$	32,500
Voluntary conversion of shareholders advance to pain in Capital	$	-		$	-
Common stock issued for equipment	$	-		$	-

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

F-4

WEBSAFETY, INC.

Formerly Known as BlindSpot Alert, Inc.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

For the Year Ended December 31, 2009 and the Nine Months Ended September 30, 2010

														Additional						Total
	Preferred Stock						Common Stock				Subscription			Paid-in			Accumulated			Stockholders'
	Shares			Amount			Shares		Amount		Receivable			Capital			(Deficit)			Equity (Deficit)
Balances December 31, 2008		3,833,335		$	3,833			22,300,000	$	22,300	$	(200	)	$	1,357,967		$	(644,808	)	$	739,092
Subscription receivable paid												200									200
Issuance of preferred stock for cash
May 8, 2009 one issuance at $0.30		133,334			134										39,866						40,000
May 11, 2009 one issuance at $0.30		56,667			57										16,943						17,000
June 4, 2009 four issuances at $0.30		40,000			40										11,960						12,000
Issuance of preferred stock for cash
September 14, 2009 one issuance at $0.30		166,666			167										49,833						50,000
Issuance of common stock for services
July 9, 2009 one issuance at $0.01								1,800,000	$	1,800					16,200						18,000
July 9, 2009 one issuance at $0.01								1,000,000	$	1,000					9,000						10,000
September 14, 2009 one issuance at $0.001								1,000,000	$	1,000					-						1,000
September 14, 2009 one issuance at $0.35								10,000	$	10					3,490						3,500
Issuance of common stock for WebSafety Technology:
September 14, 2009 one issuance at $0.001								27,000,000	$	27,000					2,673,000						2,700,000
Issuance of common stock for cash
August 31, 2009 one issuance at $0.35								1,000,000	$	1,000					349,000						350,000
September 14, 2009 one issuance at $0.35								100,000	$	100					34,900						35,000
September 14, 2009 one issuance at $0.35								142,857	$	143					49,857						50,000
October 5, 2009 one issuance at $0.35								542,857	$	543					189,457						190,000
Stock Compensation Expense															16,331						16,331
Net loss for the period ended December 31, 2009																		(1,927,449	)		(1,927,449	)
Balances December 31, 2009		4,230,002		$	4,230			54,895,714	$	54,896	$	-		$	4,817,805		$	(2,572,257	)	$	2,304,674
Issuance of common stock for cash
January 6, 2010 one issuance at $0.45								100,000	$	100					44,900						45,000
January 27, 2010 one issuance at $0.043								1,600,000	$	1,600					68,400						70,000
March 9, 2010 one issuance at $0.05								400,000	$	400					19,600						20,000
March 9, 2010 one issuance at $0.045								33,333	$	33					14,967						15,000
March 9, 2010 one issuance at $0.045								23,000	$	23					10,327						10,350
																					-
Issuance of common stock for services																					-
January 6, 2010 one issuance at $0.04								100,000	$	100					3,900						4,000
January 6, 2010 one issuance at $0.04								200,000	$	200					7,800						8,000
January 6, 2010 one issuance at $0.04								28,000	$	28					1,092						1,120
March 17, 2010 one issuance at $0.025								7,000,000	$	7,000					168,000						175,000
																					-
Stock Compensation Expense															128,911						128,911
Net loss for the period ended March 31, 2010																		(849,604	)		(849,604	)
Balances March 31, 2010		4,230,002		$	4,230			64,380,047	$	64,380	$	-		$	5,285,702		$	(3,421,861	)	$	1,932,451
Issuance of common stock for cash
April 5, 2010 one issuance at $0.45								26,500	$	27					11,898						11,925
April 5, 2010 one issuance at $0.45								155,400	$	155					69,775						69,930
April 5, 2010 one issuance at $0.45								22,222	$	22					9,978						10,000
June 2, 2010 one issuance at $0.45								50,000	$	50					22,450						22,500
June 18, 2010 one issuance at $0.45								534,192	$	534					239,852						240,386
																					-
Issuance of common stock for services																					-
June 2, 2010 one issuance at $0.45								15,000	$	15					6,735						6,750
June 2, 2010 one issuance at $0.45								4,522	$	5					2,030						2,035
June 2, 2010 one issuance at $0.45								55,555	$	56					24,944						25,000
June 18, 2010 one issuance at $0.45								200,000	$	200					89,800						90,000
																					-
Conversion of preferred shares to common shares at 1.25 to 1		(1,000,000	)		(1,000	)		1,250,000	$	1,250					(250	)					-
Issuance of common stock to adjust issue price								11,111	$	11					4,989						5,000
Stock Compensation Expense															128,910						128,910
Net loss for the period ended June 30, 2010																		(856,139	)		(856,139	)
Balances June 30, 2010		3,230,002		$	3,230			66,704,549	$	66,705	$	-		$	5,896,813		$	(4,278,000	)	$	1,688,748
Issuance of common stock for cash
August 6, 2010 one issuance at $0.45								47,223	$	47					21,203						21,250
September 7, 2010 one issuance at $0.45								124,446	$	124					55,876						56,001
September 15, 2010 one issuance at $0.45								100,000	$	100					44,900						45,000
September 22, 2010 one issuance at $0.45								55,740	$	56					25,027						25,083
																					-
Issuance of common stock for services																					-
August 6, 2010 one issuance at $0.45								25,000	$	25					975						1,000
August 6, 2010 one issuance at $0.45								100,000	$	100					44,900						45,000
September 15, 2010 one issuance at $0.25								135,000	$	135					33,615						33,750
September 15, 2010 one issuance at $0.40								125,000	$	125					49,875						50,000
September 15, 2010 one issuance at $0.45								42,500	$	43					19,083						19,125
September 22, 2010 one issuance at $0.45								10,068	$	10					4,521						4,531
September 22, 2010 one issuance at $0.25								550,000	$	550					136,950						137,500
																					-
Conversion of preferred shares to common shares at 1.25 to 1		(366,667	)		(367	)		458,334	$	458					(92	)					-
Stock Compensation Expense															128,910						128,910
Beneficial Conversion Feature of Promissory Note															100,000						100,000
Net loss for the period ended September 30, 2010																		(1,159,287	)		(1,159,287	)
Balances September 30, 2010		2,863,335		$	2,863			68,477,860	$	68,478	$	-		$	6,562,557		$	(5,437,287	)	$	1,196,611

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

F-5

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 1.  Condensed Financial Statement

The accompanying financial statements have been prepared by Websafety ( the Company) without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2010, and for all periods presented herein, have been made.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2009 audited financial statements.  The results of operations for the nine months ended September 30, 2010 are not necessarily indicative of the operating results that can be anticipated for a complete operating period.

Note 2. Significant Accounting Policies

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred cumulative net losses of $5,437,287 from the period of July 3, 2006 (Inception) through September 30, 2010 and has used significant cash in support of its operating activities raising substantial doubt about the Company’s ability to continue as a going concern.  The Company in 2010 has raised additional capital and will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.

The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company’s plan.  The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The Company is subject to uncertainty of future events, economic, environmental and political factors and changes in the Company’s business environment; therefore, actual results could differ from these estimates.  Accordingly, accounting estimates used in the preparation of the Company’s financial statements will change as new events occur; more experience is acquired, as additional information is obtained and as the Company’s operating environment changes.  Changes are made in estimates as circumstances warrant.  Such changes in estimates and refinement of estimation methodologies are reflected in the statements. 

Earnings per Share

Basic earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during each year presented. Diluted earnings per common share give the effect to the assumed exercise of stock options when dilutive. In a loss year, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. At September 30, 2010, there were 2,100,000 stock options and 1,393,235 stock warrants issued and outstanding that could dilute future earnings.

Stock-Based Compensation

In December 2004, FASB issued FASB ASC 718 (Previously SFAS No. 123R, Share-Based Payment.)   FASB ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.  FASB ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  FASB ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements.  That cost will be measured based on the fair value of the equity or liability instruments issued.

F-6

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Stock Based Compensation-continued

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of EITF 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees.”  The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.  Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with SFAS 123R.

Beneficial Conversion Feature

Costs incurred with parties who are providing financing, which include the intrinsic value of beneficial conversion features associated with the underlying debt, are reflected as a debt discount.  These discounts are generally amortized over the life of the related debt.  In certain circumstances, the intrinsic value of the beneficial conversion feature may be greater than the proceeds associated to the convertible instrument.  In such situations, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the convertible instrument.

Fair Value of Financial Instruments

The fair value of the Company’s financial instruments is determined by using available market information and appropriate valuation methodologies. The Company’s principal financial instruments are cash, accounts receivable, accounts payable, common stock and preferred stock. At September 30, 2010 and December 31, 2009, cash, accounts receivable, and accounts payable, due to their short maturities, and liquidity, are carried at amounts which reasonably approximate fair value.

Note 3. Property and Equipment

Property and equipment consist of the following at :

	September 30, 2010			December 31, 2009
Computer Equipment	$	15,715		$	15,715
Web Site Software		165,928			150,963
Accumulated depreciation		(54,112	)		(13,862	)
Total	$	127,531		$	152,816

The Company has incurred website development costs as part of web site application and infrastructure development activities. Specifically, activities include coordination of design, engineering, initial integration and design modifications, script writing, web site designs and revisions, application side designs, pre-video production build/test flash prototype for oversize video browser scaling, eCommerce engine, etc.   All of these development costs were capitalized in accordance with FASB ASC 350-50 (Prior authoritative literature: FASB EITF 00-2, “Accounting for Web Site Development Costs”) (see Exhibit 00-2A section a to f within Website Application and Infrastructure Development Stage).

F-7

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

The intended write-off did not include web site development costs of $201,523.  The Company plans to utilize the web site to launch the WebSafety software products and expects to generate revenues in the future.  The purchase of WebSafety assets from WQN, Inc. did not change the recoverability of the carrying amount of the capitalized website development cost and therefore is not considered impaired in accordance with FASB ASC 360-10 (Prior authoritative literature: FASB Statement No. 144, paragraph 8).  The website development costs will be amortized over its useful life once the Websafety software products are put in use in accordance with FASB ASC 350-30-50 (Prior authoritative literature: FASB Statement No. 142, “Goodwill and Other Intangible Assets”).

Note 4. WebSafety Technology

On July 2, 2009, the Company entered into an agreement with WQN, Inc. to acquire the software technology, known as “Websafety”. The Company capitalizes software development costs when technological feasibility has been established for the software in accordance with ASC 985-20, formerly SFAS No. 86, “Accounting for the Costs of Computer Software to be sold, leased, or otherwise marketed.” Such capitalized costs are amortized on a product-by-product basis over their economic life or the ratio of current revenues to current anticipated revenues from such software, whichever provides the greater amortization. The Company periodically reviews the carrying value of capitalized software development costs and impairments are recognized in the results of operations when the expected future undiscounted operating cash flow derived from the capitalized software is less than its carrying value. Should the Company inaccurately determine when a product reaches technological feasibility or the economic life of a product, results could differ materially from those reported. The Company uses what it believes are reasonable assumptions and where applicable, established valuation techniques in making its estimates.

Note 5. Intangible Asset

As a result of the Websafety Technology asset purchase, the Company gained all rights of ownership to the intellectual property of Websafety Technology.  The Company invested an additional $122,815 to develop technology to complete the project.  On October 1, 2009, the Company deemed the technology ready to be sold and used by the general public.  The Company recorded the Intangible Asset in the amount of $2,822,815 and elected to amortize the asset over a 36 month period.

	September 30, 2010			December 31, 2009
Intangible assets
Websafety Technology	$	2,822,815		$	2,822,815
Less accumulated amortization		(940,938	)		(235,235	)
Total intangible assets	$	1,881,887		$	2,587,580

Amortization expense for the three months ended September 30, 2010 and for fiscal 2009 was $235,235.  Accumulated amortization at September 30, 2010 was $940,938.

In accordance with ASC 360-10-35 a long-lived asset shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The following are examples of such events or changes in circumstances:

a. A significant decrease in the market price of a long-lived asset

b. A significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition

c. A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator

d. An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset

F-8

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

e. A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset

f. A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

Management conducted an impairment analysis which reviewed the carrying value of capitalized software development costs and impairments against the expected future undiscounted operating cash flows derived from the capitalized software to determine if the cash flows were less than its carrying value of the asset.

Management based its analysis over a 3-year time-fame which is equal to the estimated life of the WebSafety Technology asset.  The analysis was conducted based on the following assumptions:

· The Company came out of development state in October 2009 with a fully-marketable product.

· Revenue for the year-ended 2009 was approximately $33,000.  Given the fact that this was our first quarter as an operating company, management expected sales to be relatively small and gradually increase as the Company continued to roll-out its marketing plan.

· Our gross revenue assumptions were based on the projected number of subscribers which was based on inputs received from our direct sales force.  Revenues are based on our established pricing model times the projected number of subscribers.

· Gross margin is determined primarily by established commission rates for direct sales along with the amortization of the WebSafety Technology asset.

Based on our analysis as described above, we expect future undiscounted operating cash flows derived from the WebSafety Technology asset  to exceed the carrying value of the asset as of December 31, 2009 and therefore concluded that no impairment was necessary.

Due to similar operating results between December 31, 2009 and September 30, 2010, Management deemed an impairment analysis necessary in accordance with ASC 360-10-35.

· Revenue in the nine months-ended September 30, 2010 was approximately $242,269.  Given the fact that this was our fourth quarter as an operating company, management expected sales to be relatively small and gradually increase as the Company continued to roll-out its marketing plan.

· Our gross revenue assumptions were based on the projected number of subscribers which was based on inputs received from our direct sales force.  Revenues are based on our established pricing models multiplied times the projected number of subscribers.

· Gross margin is determined primarily by established commission rates for direct sales along with the amortization of the WebSafety Technology asset.

Based on our analysis as described above, we expect future undiscounted operating cash flows derived from the WebSafety Technology asset  to exceed the carrying value of the asset as of September 30, 2010 and therefore concluded that no impairment was necessary.

Note 6. Note Payable

On September 22, 2010, the Company received a loan in the amount of $100,000, due March 22, 2011 including interest at 5%.  The promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.10 per share.

F-9

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Due to the market price per share of $0.35 at the date of commitment (September 22, 2010), the Company determined that there was a beneficial conversion feature on the promissory note of approximately $250,000.  As a result of the beneficial conversion feature exceeding the proceeds received from the promissory note, management discounted the note 100% in accordance with rule and regulations surrounding the accounting for convertible securities with beneficial conversion features.

Note 7. Option to acquire and expiration

In November 2008 the Company entered into an option agreement with Auburg Adams LLC (AA) a Texas limited liability company to acquire certain software licensing rights it had contracted for pursuant to a licensing agreement entered into with Essential Security Software, Inc. the developer. The option would have allowed the Company to secure the rights of Auburg Adams once a payment of $270,000 has been made. Any payments made pursuant to the terms of the option to acquire were to be credited to the overall price of the licensing had the option been exercised. The rights that Auburg Adams has been granted are for the marketing and sales of software that provides for total digital rights management enabling users to exercise complete control over email transmissions and any attachments related to those transmissions to include restriction of forwarding and timed removal from a recipient computer.  This licensing was to be for an initial five-year period and would be automatically renewable for periods thereafter. The overall cost for the rights is $270,000.  The option expired on April 1, 2009 without the final payment of $25,000 being made or the option being renewed or extended notwithstanding the April 1, 2009 expiration date of the original option.The accounting treatment is in recognition of the substance of the occurrence management remains in discussion with principals of Auberg Adams and ESS.

A principal of Auburg Adams LLC is a minority shareholder in WebSafety, Inc.

Note 8. Stock Issuances

During the Nine-Month period ended September 30, 2010 we had the following common stock issuances.

Date	Number of Shares		Value
January 2010		2,028,000	$	128,120
February 2010		-		-
March 2010		7,456,333		220,350
April 2010		204,122		91,855
June 2010		2,120,380		391,671
August 2010		630,557		67,250
September 2010		1,142,754		370,989
Total Common Issuances		13,582,146	$	1,270,235

In addition to the common stock issued above, during the nine month period ended September 30, 2010, we also recorded $150,762 of common stock cash receipts that at September 30, 2010 had not been issued.  These receipts were recorded as a current liability at September 30, 2010 and will be issued in the fourth quarter of 2010.   We also converted 1,366,667 preferred shares issued at $.30 to 1.25 common shares for a total of 1,708,334 common stock issued.  At June 30, 2010 we also adjusted an issue price from the first quarter, we issued 100,000 common stock on January 6, 2010 at $0.50 a share for a total of $50,000.  We adjusted the price to $0.45 and issued an additional 11,111 for total issuance of 111,111 common stock shares at $0.45 for $50,000.

Note 9. Related party transactions

In the aggregate, during the nine month period ended September 30, 2010, the Company owed to related parties $564,288 for consulting, legal and marketing services as reflected below.

Owed To	Consulting		Legal Services		Loan		Accounting
Rowland W. Day II	$	175,000	$	230,758	$	150,241
John Williams							$	8,289

F-10

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Rowland W. Day II is an affiliate in that he is a more than a 15% beneficial shareholder in the Company.  Mr. Day is our CEO and a director.  John Williams was the former contract Treasurer and CFO of the Company and is the Chief Accounting Officer of WQN, Inc.

The services that were provided are outlined below.

Legal- Rowland Day is the Company’s legal counsel.

Accounting- Accounting fees paid relates to the review of financial records and preparation of all financial reporting to SEC including audits and preparation of tax returns.

On July 2, 2009 the Company entered into an asset purchase agreement with WQN, Inc. E. Denton Jones, who is also a director of the Company, beneficially owns 335,000 shares of common stock in WQN, Inc. Also, in connection with the transactions contemplated by the Purchase Agreement, B. Michael Adler entered into an employment agreement with the Company to serve as the Company’s Chairman of the Board of Directors.  Mr. Adler still serves as the Chief Executive Officer of WQN, Inc. In addition the Company appointed David W. Sasnett, a director of WQN, Inc, as a director; and hired John Williams, Chief Financial Officer of the WQN, Inc., as the contract Treasurer and Chief Financial Officer.  Neither Mr. Sasnett nor Mr. Williams has resigned from their positions with WQN, Inc.

Concurrent with the asset purchase from WQN which was effective on September 14, 2009, the Company appointed a stockholder of WQN as the Chairman of the Board.  In connection with the appointment the Company entered into an employment agreement whereby the appointee is to receive a salary upon the achievement of a certain level of revenue. Additionally, he is to receive 1,500,000 shares of the Company’s common shares with 100,000 being vested upon the effective date of the agreement, and the remaining 1,400,000 being vested with the achievement of certain levels of revenue. The term of the agreement ends December 31, 2010.

Note 10. Facilities

The Company’s corporate headquarters are presently located at 2201 W Royal Lane, Suite 200, Irving, Texas 75063.

On March 22, 2010, we entered into a five year lease agreement for 5,502 square feet of corporate office space located in Irving, Texas.  The total lease payment will be $472,255 over the five year period beginning May 1, 2010 and expiring on April 30, 2015.  Total annual lease payments are $70,609 in the first year, $96,285 in the second year, $99,036 in the third year, $101,787 in the fourth year and $104,538 in the fifth year.  We expect this space to meet our needs for the foreseeable future.

Note 11. Sales and Marketing Program

In July 2010 we entered into a sales and marketing agreement with Manage Mobility.  Manage Mobility manages Telecom services for corporations and municipalities and intends to market our products to their clients.

In October 2010 we entered into an agreement with AAA of Northwest Ohio.  AAA of Northwest Ohio offers auto related products and services to their members.

Management has developed direct selling, multi-level-marketing channels for the sales of the Websafety PC and Cellular products. This channel allows the sales of our services through a person-to-person transaction, away from a fixed retail location. All of the individuals offering our services are independent salespeople.

F-11

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 12. Revenue Recognition

In August of 2009 the Company began recognizing revenue from the sales of WebSafety products.  WebSafety is a comprehensive software package that gives parents the capability to monitor and protect children against potentially dangerous emergency situations.  For the period August 2009 through March 2010 customers purchased annual subscriptions to the WebSafety service.  Since this revenue is earned over a 12-month period, the company recognizes 1/12 of sales in the month of sale.  The remaining 11/12 of revenue is deferred and recognized equally over an 11-month period.  After March 2010 WebSafety changed to monthly subscriptions.

Note 13. Newly issued pronouncements

In May 2009, the FASB issued FASB ASC 855-10 (Prior authoritative literature: Statement No. 165, “Subsequent Events”). FASB ASC 855-10 established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. FASB ASC 855-10 will be effective in the second quarter of fiscal 2009. The adoption of FASB ASC 855-10 did not have a material effect on our financial position, cash flows, or results of operations.

Note 14.  Off-balance sheet arrangements

At September 30, 2010, we did not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

Note 15. Legal Proceedings

On August 25, 2009, the Company terminated its President Clifton Jolley for cause.  In June 2010, the Company and Mr. Jolley settled the pending arbitration.  According to the settlement the Company must issue 85,000 shares of common stock to Mr. Jolley and receive a full release from Mr. Jolley. 

Note 16. Private Placement Agreement

On February 8, 2010 Litchfield Enterprises, Inc. signed a non-exclusive consulting agreement with the Company to assist with a private placement of the Company’s stock. Per this agreement, Litchfield Enterprises, Inc. will on a “best effort” basis, seek to raise one million one hundred and twenty-five thousand dollars ($1,125,000) by selling 2,500,000 shares at $.45 per share.  Also, under the private placement agreement, the Company granted Litchfield Enterprises, Inc. one (1) warrant exercisable at $.80 per share for each share of their private placement placed.  These warrants will be valid for one (1) year from the date of issuance.  As of September 30, 2010, we issued 800,000 shares of common stock to Litchfield and their investors along with 600,000 warrants.

On September 11, 2010 Wakabayashi Fund, LLC. signed a non-exclusive consulting agreement with the Company to act as a capital consultant for a six month period.  Under the private placement agreement, the Company agrees to pay Wakabayashi a success fee of seven percent (7%), inclusive of all fees, in cash of the amount of capital raised as a result of contact by Wakabayashi.

Note 17. Stock Based Compensation

In November 2009, the Board of Directors and Shareholders adopted the 2008 Stock Option Plan providing for the issuance of up to 10,000,000 shares to Company officers, directors, employees and to independent contractors who provide services to the Company.

Options granted under the 2008 Stock Option Plan vest as determined by the Board of Directors and terminate after the earliest of the following events: expiration of the option as provided in the option agreement, 90 days subsequent to the date of termination of the employee, or ten years from the date of grant (five years from the date of grant for incentive options granted to an employee who owns more than 10% of the total combined voting power of all classes stock at the date of grant).  In some instances, granted stock options are immediately exercisable into restricted shares of common stock, which vest in accordance with the original terms of the related options. The Company recognizes compensation expense ratably over the requisite service period.

F-12

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

The option price of each share of common stock shall be determined by the Board of Directors or compensation committee (when one is established), provided that with respect to incentive stock options, the option price per share shall in all cases be equal to or greater than 100% of the fair value of a share of common stock on the date of the grant, except an incentive option granted under the 2008 Stock Option Plan to a shareholder that owns more than 10% of the total combined voting power of all classes of stock, shall have an exercise price of not less than 110% of the fair value of a share of common stock on the date of grant. No participant may be granted incentive stock options, which would result in shares with an aggregate fair value of more than $10,000,000 first becoming exercisable in one calendar year. 

In September 2009, 700,000 stock options with an exercise prices ranging from of $0.10 to $0.35 were granted to officers of the Company which vest as follows: 20% at the conclusion of each 12 month period from the 5 year term.  These options carry a grant expiration date of 5 years after issuance.  In January 2010, 1,400,000 stock options with exercise prices of $0.025 were granted to an officer and a board member of the Company which vest monthly over a 36 month term.  These options carry a grant expiration date of 3 years after issuance.  As of September 30, 2010, 268,666 of the stock options had vested.

For the nine months ended September 30, 2010, the Company recorded compensation costs for options and shares granted under the plan amounting to $128,910.  There were no stock options or shares granted or outstanding prior to September 30, 2009, therefore no compensation expense was recorded for the three months ended June 30, 2009.  A deduction is not allowed for income tax purposes until nonqualified options are exercised. The amount of this deduction will be the difference between the fair value of the Company’s common stock and the exercise price at the date of exercise. The tax effect of the income tax deduction in excess of the financial statement expense, if any, will be recorded as an increase to additional paid-in capital.  No tax deduction is allowed for incentive stock options. Accordingly no deferred tax asset is recorded for GAAP expense related to these options.

Management has valued the options at their date of grant utilizing the Black Scholes Merton option pricing model.  The fair value of the underlying shares was determined based on the closing price of the Company’s publicly-traded shares as of date of the grant.   Further, the expected volatility was calculated using the historical volatility of the Company’s stock.  

 The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options.  The expected life of options used was based on the contractual life of the option granted.  The Company determined the expected dividend rate based on the assumption and expectation that earnings generated from operations are not expected to be adequate to allow for the payment of dividends in the near future. The following weighted-average assumptions were utilized in the fair value calculations for options granted:

	Nine months Ended
	September 30, 2010
Expected dividend yield		0	%
Expected stock price volatility		418.5	%
Risk-free interest rate  (1)		1.56	%

F-13

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

The Company has granted stock options to officers and employees as follows:

Date of	Options		Exercise		Options Outstanding		Expiration	Vesting
Grant	Granted		Price		As of 9/30/2009		Date	Date
9/10/09		100,000	$	0.35		100,000	9/10/2014	9/102010
9/14/09		100,000		0.10		100,000	9/14/2014	9/14/2010
9/14/09		500,000		0.10		500,000	9/14/2014	9/14/2010
01/08/10		900,000		.025		900,000	01/08/13	01/08/13
01/08/10		500,000		.025		500,000	01/08/13	01/08/13
Total						2,100,000

The following table summarizes the status of The Company aggregate stock options granted under the incentive stock option plan:

	Number		Weighted
	of Shares		Average		Weighted
	Remaining		Intrinsic		Average		Aggregate
Subject to Exercise	Options		Price		Life (Years)		Value
Outstanding as of September, 2008		-	$	-		-		-
Granted – 2009		700,000	$	0.214		5.00	$	150,000
Forfeited – 2009		-	$			-		-
Exercised – 2009		-	$	-		-		-
Granted – 2010		1,400,000	$	0.975		5.00	$	1,365,000
Forfeited – 2010		-	$	-		-		-
Exercised – 2010		-	$	-		-		-
Outstanding as of September 30, 2010		2,100,000	$	0.721		5.00	$	1,515,000
Exercisable as of September 30, 2010		268,866	$	-		-	$	-

The weighted-average grant date fair value of options outstanding at September 30, 2010 was $0.062. The total intrinsic value of options exercised during the three months ended September 30, 2010 was $0.

The following table summarizes the status of the Company aggregate non-vested shares granted under the 2008 Stock Option Plan.

	Number of Non- vested Shares Subject to Options		Weighted- Average Grant- Date Fair Value
Non-vested as of September 30, 2010		-	$
Non-vested granted —nine months ended September 30, 2010		2,100,000	$	0.062
Vested — nine months ended September 30, 2010		268,666	$	0.00
Forfeited — nine months ended September 30, 2010		-	$
Non-vested as of September 30, 2010		1,831,334	$	0.062

F-14

WEBSAFETY, INC.

Formerly Known as Blindspot Alert, Inc.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

As of September 30, 2010 the unrecognized compensation cost related to non-vested share based compensation arrangements granted under the plan that was approximately $1,370,761.  These costs are expected to be recognized on a straight line basis from September 10, 2009 through January 08, 2015.  The total fair value of options and shares vested during the year period ended September 30, 2010 was $205,738.

Note 17. Subsequent Events

On August 25, 2009, the Company terminated President Clifton Jolley for cause.  In June 2010, the Company and Mr. Jolley agreed to settle the pending arbitration.  According to the settlement the Company must issued 85,000 shares of common stock to Mr. Jolley and receive a full release from Mr. Jolley.

Note 18. Reclassifications

Certain amounts in the prior year financial statements have been reclassified to conform with the current period presentation.

F-15

Item 2. Management’s Discussion and Analysis and Plan of Operations

The following discussion should be read in conjunction with our unaudited condensed financial statements as of, and for the three and nine months ended September 30, 2010 and 2009, and with our annual report on Form 10-K for the year ended December 31, 2009. Certain items have been reclassified to conform to the current year’s presentation.

Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for stock of WebSafety, Inc., and other matters. Statements in this report that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. Such forward-looking statements, including, without limitation, those relating to the future business prospects, revenues, and income of WebSafety, Inc., wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of WebSafety, Inc. on the date on which they were made, or if no date is stated, as of the date of this report. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described in the “Risk Factors” described below, that may affect the operations, performance, development, and results of our business. Because the factors discussed in this report could cause actual results or outcomes to differ materially from thoseexpressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Plan of Operation

WebSafety, Inc., a development stage company, formerly known as BlindSpot Alert, Inc., commenced a corporate redirection in June 2008 with the objective of marketing and selling through the internet a range of software applications and services for computers and cell phones that allow parents or other caregivers to monitor and be notified of occurrences of predator advances, cyber bullying and pornography received on children’s computers. The cell phone application would also restrict text messaging while driving and provide location information to parents using GPS technology. In June 2008 we acquired for $300,000 a worldwide non-exclusive license that permits the Company to sell the proprietary software that identifies the threats from predators, cyber bullies and transmitters of pornography. The license also allows for selective exclusivity within certain markets. We acquired this license from WQN, Inc.

In November 2008 we executed an option to acquire licensing rights to software that provides digital rights management to email and other data transmitted over the internet. We had intended to begin selling this proprietary software in 2009, however, the option to acquire the rights expired on April 1, 2009 and an expense in the amount of $245,000 was recorded as of March 31, 2009 to reflect the substance of the expiration as of that date.

On July 2, 2009 the Company entered into an asset acquisition agreement with WQN, Inc. Under the agreement we acquired all of the technology known as The WebSafety Technology and Software for approximately 27,000,000 shares of our common stock. Consequently, the Company no longer has any royalty commitments to WQN under the September 30, 2008 license agreement.

Management believes that our products are a timely solution to the dangers that come with the unprecedented access to information and people that the internet and cell phones provide.

From June 2008 through September 30, 2009 we have refined our website and we commenced revenue activity in the third quarter of 2009.  We also intend to market our products and services through relationships developed with “trusted” sources consisting child protection advocacy groups including church, school and civic organizations. We intend to also explore opportunities to enter into strategic revenue sharing partnerships with companies having synergy with our products.  These partners may include auto insurers and cell phone manufacturers.

4

Cumulatively through September 30, 2010 we have raised $2,577,024 through the sale of common and preferred stock.  The proceeds of which are being used to implement WebSafety’s plan of operations.  This funding has been utilized in the furtherance of our plan of operations.  Future funding is intended to be used in the commercialization process.

Results of Operations

Three Months Ended September 30, 2010 compared to Three Months Ended September 30, 2009

Revenue

Revenues were $119,779 during the three months ended September 30, 2010 compared to revenues of $4,788 for the three months ended September 30, 2009.

Cost of Revenue

Cost of revenue was $50,127 during the three months ended September 30, 2010.  We did not record any cost of revenues for the three months ended September 30, 2009.

Operating Expenses, Other Income and Expenses and Loss from Operations

For the three months ended September 30, 2010 we sustained a net operating loss of $1,159,287 compared to a net operating loss of $664,154 for the three months ended September 30, 2009.  The $445,133 net operating loss increase was mainly due to higher general and administrative expense, which increased primarily due to an expansion in marketing and sales expense.  Also, there was an increase in depreciation and amortization of $248,259 for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

Nine Months Ended September 30, 2010 compared to Nine Months Ended September 30, 2009

Revenue

Revenues were $242,269 during the nine months ended September 30, 2010 compared to revenues of $4,788 for the nine months ended September 30, 2009.

Cost of Revenue

Cost of revenue was $108,269 during the nine months ended September 30, 2010.  We did not record any cost of revenues for the nine months ended September 30, 2009.

Operating Expenses, Other Income and Expenses and Loss from Operations

For the nine months ended September 30, 2010 we sustained a net operating loss of $2,865,030 compared to a net operating loss of $1,238,703 for the nine months ended September 30, 2009.  The $1,626,327 net operating loss increase was mainly due to higher general and administrative expense which increased primarily due to an expansion in marketing and sales expense.  Also, an increase in depreciation and amortization expense of $745,665 for the nine months ended September 30, 2010 was offset by a $245,000 decrease in option to acquire expense for the nine months ended September 30, 2009.

Financial Condition

Cash on hand at September 30, 2010 was $42,489 and working capital (the excess of current assets over current liabilities) was a negative $819,634 compared with $442,542 at December 31, 2009. The decrease in working capital was primarily attributable to increased disbursements in 2010 for payroll, marketing, legal, professional and other costs relating to the implementation of the operating plan.

Other assets decreased to $1,888,714 at September 30, 2010 from $2,594,400 at December 31, 2009.  The decrease in other assets was primarily a result of $705,703 of amortization related to the WebSafety Technology asset.   Total current liabilities increase to $862,123 at September 30, 2010 from $465,461.  The increase was due to increased payables for marketing, legal, professional and other costs relating to the implementation of the operating plan.

5

Stockholders’ equity was $1,196,611 at September 30, 2010 compared to $2,304,674 at December 31, 2009.  The $1,108,063 decrease was due to the issuance of $1,371,603 worth of common shares and $386,731 of additional paid-in capital related to the compensation expense for stock options off-set by net operating losses of $2,845,030 for the nine months ended September 30, 2010.

Liquidity

Cumulatively, through September 30, 2010, the Company had raised $2,682,025 in new equity including $247,334 being raised in the Third Quarter 2010 to support planned operations. In light of recent operating results and negative cash flows, additional capital will be required to fund the Company’s operations. On February 8, 2010, the Company signed a non-exclusive consulting agreement Litchfield Enterprises, Inc. (LEI).  Through this agreement, LEI will assist with a private placement of the Company’s stock.  Per this agreement, LEI will on a “best effort” basis, seek to raise one million one hundred and twenty-five thousand dollars ($1,125,000) by selling 2,500,000 shares at $.45 per share. (See “Note 15-Private Placement Agreement” for further discussion). If successful, the LEI private placement should generate sufficient capital needed to fund the Company through the fourth quarter of 2010.

There is no assurance that the Company will be successful with the LEI private placement or with the placement agent.  On August 6, 2010, the Company entered into a placement agreement with Aegis Capital (“Aegis”).  Aegis was to act as the Company’s exclusive placement agent on a best efforts basis to raiser a minimum of $1,350,000 and up to a maximum of $5,400,000.  This agreement was terminated on September 20, 2010.  It is management’s intent to continue fund raising efforts to generate the capital required to support expanding operations.  There can be no assurance that we will be able to raise any more additional capital on terms that are beneficial to us.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  Generally accepted accounting principles require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.  We base our estimates on experience and on various other assumptions that we believe 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 may not be readily apparent from other sources.  Our actual results may differ from those estimates.

Off-balance sheet arrangements

At September 30, 2010, we did not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer/Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our Chief Executive Officer/ Chief Financial Officer has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of such period, are ineffective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

6

There have been no significant changes in our internal controls over financial reporting during the third quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Quarterly Report. 

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and

· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2010. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Changes in Internal Control

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On August 25, 2009, the Company terminated its President Clifton Jolley for cause.  In July 2010 we settled the arbitration with Mr. Jolley.  According to the settlement the Company must issue 85,000 shares of common stock and received a full release.  The Company has completed the settlement agreement and has notified the Arbitrator and the Arbitrator is waiting for Mr. Jolley's signed agreement."

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Item 1.A. Risk Factors

The Company was organized during 2006 and is at an early stage of operation and has no substantial revenue. The Company devotes its full resources toward marketing, selling and distributing the software products. The Company began receiving revenue from sales of software products during the fourth quarter of 2009. The Company will need to generate significant revenues to overcome an accumulated deficit and obtain profitability. The Company may never achieve profitability. If revenues grow more slowly than anticipated, or if operating expenses exceed expectations the Company’s business, results of operations, and financial condition could be materially adversely affected.

RISKS RELATING TO OUR BUSINESS

THE COMPANY HAS A LIMITED OPERATING HISTORY AND FACES SIGNIFICANT RISKS AND CHALLENGES IN BUILDING THE BUSINESS

As a result of the Company’s limited operating history, to achieve profitability, the Company must successfully and timely market and sell its software products.  Although the Company has very concrete and specific marketing and sales programs to be implemented, the Company cannot guarantee the success of such programs and alternately, more expensive marketing and sales programs may need to be implemented. Additionally, although the Company believes that a strong market exists for the software products, the Company has conducted no scientific, reliable market surveys but has only performed its own research and due diligence to ascertain the security concerns of parents and others responsible for the safety of children. A more scientific analysis could prove that no market exists for the software products that the Company intends to market and sell; or, if the market exists, the Company may not be able to reach the market with the Company’s limited financial resources and marketing budget. There can be no assurance that the Company will be able to successfully generate revenues. The Company has no significant historical basis to assess how it might respond to competitive, economic, regulatory, or technological challenges. The Company’s business must be considered in light of the risks and uncertainties frequently encountered by companies in the very early stages of operations, particularly companies that operate in new and rapidly developing industries and marketplaces. The Company’s failure to adequately address these risks and uncertainties and rapidly respond to adverse developments as they occur could materially impact the Company’s ability to achieve profitability and, if profitability is achieved, to sustain a level of operations that will cause profitability to be sustained. Although the Company intends to hire numerous people to implement the business of the Company, there is no assurance that the Company will hire the right people or that future changes will not have to be made to find the right people to implement the Company’s business strategy. There is no assurance that the Company’s business strategy or marketing plans will achieve success.

THE COMPANY’S RELIANCE ON THE CAPABILITIES OF THE SOFTWARE PRODUCTS

The Company is heavily dependent upon the capabilities of the software products. The failure of the software to accomplish the objectives as represented will damper if not destroy the Company’s marketing.

COMPANY’S RELIANCE UPON EXECUTIVES AND CONSULTANTS

The Company’s success is highly dependent upon executive officers and key consultants identified in this report for critical management decisions and to implement and pursue the Company’s business and marketing plan.  A loss of any of the executives or consultants through incapacity or for any other reason could materially adversely impact the ability of the Company to complete its business and marketing plan and would require the Company to seek the assistance of other qualified personnel who may not be available.

CHALLENGES FROM COMPETITION

Although the Company is unaware of an available product that contains all the characteristics, features and capabilities of the WEBSAFETY software, in the dynamic, ever changing field of technology, many companies of all sizes and capabilities are constantly engaged in software development.  With the notoriety given to child molesters, pedophiles and others causing harm and sometimes death to children, a reasonable assumption is that many companies are currently engaged in software development activities that will possess many of the characteristics and capabilities possessed by WEBSAFETY software.  In the event another company successfully develops and markets a competitive product before the Company can establish a significant presence in its target markets; the Company may never be able to achieve a level of revenue to sustain the Company’s operations

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RISKS RELATED TO OUR COMMON STOCK

IF MARKET FOR OUR COMMON STOCK DOES NOT DEVELOP, OUR STOCKHOLDERS MAY BE UNABLE TO SELL THEIR SHARES.

There is currently a limited market for our common stock and we can provide no assurance that a more liquid market will develop. If a liquid market does not develop for our shares, it will be difficult for stockholders to sell their stock.  In such a case, stockholders may find that they are unable to achieve benefits from their investment.

IF A MARKET FOR OUR COMMON STOCK DEVELOPS, OUR STOCK PRICE MAY BE VOLATILE.

If a market for our common stock develops, the price at which our common stock will trade may be highly volatile and may fluctuate as a result of a number of factors, including the number of shares available for sale in the market, quarterly variations in our operating results, actual or anticipated announcements of new data, studies, products or services by us or competitors, regulatory investigations or determinations, acquisitions or strategic alliances by us or our competitors, recruitment or departures of key personnel, the gain or loss of significant customers, changes in the estimates of our operating performance, market conditions in our industry and the economy as a whole.

APPROXIMATELY 39% OF OUR COMMON STOCK IS CONTROLLED BY A SINGLE STOCKHOLDER WHO HAS THE ABILITY TO SUBSTANTIALLY INFLUENCE THE ELECTION OF DIRECTORS AND THE OUTCOME OF MATTERS SUBMITTED TO STOCKHOLDERS.

As of August 9, 2010, WQN, Inc. directly owns 27,000,000 shares, which represents approximately 39% of our 68,477,860 shares of outstanding common stock.  As a result, WQN presently and is expected to continue to have the ability to determine the outcome of issues submitted to our stockholders.  The interests of this stockholder may not always coincide with our interests or the interests of other stockholders, and it may act in a manner that advances its best interests and not necessarily those of other stockholders.  One consequence of this substantial stockholder’s interest is that it may be difficult for investors to remove management of the Company.  It could also deter unsolicited takeovers, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.

INVESTORS’ INTERESTS IN OUR COMPANY WILL BE DILUTED AND INVESTORS MAY SUFFER DILUTION IN THEIR NET BOOK VALUE PER SHARE IF WE ISSUE ADDITIONAL SHARES OR RAISE FUNDS THROUGH THE SALE OF EQUITY SECURITIES.

In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors’ interests in our Company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold.  If we issue any such additional shares, such issuances also will cause a reduction in the proportionate ownership and voting power of all other stockholders.  Further, any such issuance may result in a change in our control.

WE HAVE NEVER PAID CASH DIVIDENDS AND DO NOT INTEND TO DO SO.

We have never declared or paid cash dividends on our common stock.  We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends.  Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.

WE WILL NEED ADDITIONAL FINANCING.

We will need additional financing to maintain and expand its business, and such financing may not be available on favorable terms, if at all.  We intend to finance our business through the private placement and public offering of equity and debt securities.  Additional financing may not be available on favorable terms, if at all.  If we need funds and cannot raise them on acceptable terms, we may not be able to execute our business plan, and our shareholders may lose substantially all of their investment.

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TERRORIST ATTACKS, CONTINUED WAR OR OTHER CIVIL DISTURBANCES COULD LEAD TO FURTHER ECONOMIC INSTABILITY AND ADVERSELY AFFECT OUR BUSINESS

On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scope.  The United States is currently engaged in war with Iraq and Afghanistan.  These attacks and these wars have caused instability in the marketplace and contributed to a downturn in the global economy.  In the future, there may be armed hostilities, continued wars, further acts of terrorism and civil disturbances in the United States or elsewhere, which may further contribute to economic instability in the United States. Such disturbances could have a material adverse effect on our business, financial condition and operating results.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

For the period ending September 30, 2010, the Company sold 271,669 shares of its unregistered common stock to various accredited investors for proceeds of $167,333.  The sales were exempt from registration pursuant to the Securities Act of 1933.  The proceeds were used for working capital.

Item 6. Exhibits

No.	Description of Exhibit
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13e-14(a) Certification of Chief Financial Officer
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

WEBSAFETY, INC.

Date:	November 22, 2010	By:	/s/ Rowland W. Day II
	Rowland W. Day II,
	Principal Executive Officer

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