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EX-21 - EXHIBIT 21 - REALBIZ MEDIA GROUP, INCv315139_ex21.htm
EX-31.1 - EXHIBIT 31.1 - REALBIZ MEDIA GROUP, INCv315139_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - REALBIZ MEDIA GROUP, INCv315139_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - REALBIZ MEDIA GROUP, INCv315139_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - REALBIZ MEDIA GROUP, INCv315139_ex32-1.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

(Mark One)

S ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended October 31, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from _______________________ to ___________________

 

Commission File Number 001-34106

 


 

 WEBDIGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   11-3820796
(State of incorporation)   (I.R.S. Employer Identification No.)
     
3445 Zenith Ave So.    
Minneapolis, MN   55416
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (612) 767-3854

 

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common stock, $.001 par value

  


 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act.   

£ Yes   S No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.                                    

£ Yes   S No

 

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 the filing requirements for the past 90 days.  

£ Yes   S 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   S No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   S

 

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  ¨    Smaller reporting company  S

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).

£ Yes   S No

 

The aggregate market value of the voting stock held by persons other than officers, directors and more than 5% stockholders of the registrant (non-affiliates) was approximately $29,000 as of April 30, 2011 when the last reported sales price was $0.20 per share. As of May 21, 2012, 383,647 shares of common stock were outstanding. This takes into account the 1 for 200 reverse stock split which occurred on May 17, 2012

 

 

 
 

 

Webdigs, Inc.

 Form 10-K

Table of Contents

 

        Page
         
PART I        
Item 1.   Business   1
Item 1A.   Risk Factors   6
Item 2.   Properties   11
Item 3.   Legal Proceedings   11
Item 4.   Mine Safety Disclosures   11
         
PART II        
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   11
Item 6.   Selected Financial Data   14
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   15
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk    
Item 8.   Financial Statements and Supplementary Data   20
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   21
Item 9A.   Controls and Procedures   21
Item 9B.   Other Information   22
         
PART III        
Item 10.   Directors, Executive Officers and Corporate Governance   23
Item 11.   Executive Compensation   24
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   25
Item 13.   Certain Relationships and Related Transactions, and Director Independence   26
Item 14.   Principal Accountant Fees and Services   28
         
PART IV        
Item 15.   Exhibits and Financial Statement Schedules   29
    Signatures   30

 

 
 

 

PART I

ITEM 1. BUSINESS

 

Overview of our Business and its History

 

During the period of these financial statements, we were a web-assisted real estate services company primarily focused on residential home buyers and sellers. We utilized 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 attempted 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 operated under three brands. Webdigs.com, our first brand, is our full-service discounted real estate brokerage. Webdigs offered 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 did 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, was a month-to-month listing service that allows home sellers to list their home on their local MLS through our licensed real estate broker partners (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 $49.95 per month, with various other ala carte services available for purchase.

 

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

 

As reflected in our financial statements, our business lacks the revenue required to operate with positive cash flow. We have essentially exhausted all avenues to reduce our operating costs further and we will not be able to continue operating on a full scale basis unless we are able to raise a significant amount of operating capital. Without a significant capital infusion, in the very near future, we will consider shutting down our operations. We will also explore other strategic alternatives. Ultimately, due to our limited success over the last several years, on March 16, 2012, we made the decision to sell our Webdigs brand.

 

On April 3, 2012, the Company entered into a share exchange agreement with Next 1 Interactive, Inc. (“Next 1”), a publicly traded company. The agreement calls for Next 1 to exchange 100% of the common shares (100,000,000) of their wholly-owned subsidiary Next One Realty, Inc., for newly issued Series A Convertible Preferred Stock of Webdigs. The Series A Convertible Preferred Stock has not yet been designated and is the subject of negotiation. At the closing of this transaction Next 1 would own, on an as-converted basis, approximately 93% of the issued and outstanding shares of Webdigs, Inc. As a result, Next 1 would be in control of the Company and potential future operations have not been determined at this time.

 

Background and Industry Trends

 

We believe that the real estate market is undergoing a dramatic change not dissimilar to that previously experienced by traditional stock brokerages. We believe that the most critical aspect driving this change is the advent of the Internet as a tool for searching for and researching real estate, eliminating the commitments of time and expense involved with visiting multiple properties in person.  According to the National Association of Realtors’ 2010 “Member Profile,” 74% of home buyers use the internet to search for a home. This actually exceeds the 69% who use a realtor for their search. Note: many buyers use both the internet and a realtor in their search. In addition, home sellers can use the Internet to check home valuations, track the housing market and research comparable sales information.

  

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The increased use of technology throughout the entire process of a typical residential real estate transaction is an important development in the real estate market. For instance, electronic communication and electronic data storage permits a real estate brokerage to quickly reproduce standard real estate transaction documents, store such documents and store other important information about customers and properties, and communicate quickly with other parties involved in real estate transactions (e.g., title companies, insurers, surveyors, inspectors and governmental agencies), all of which permits increased efficiencies in the process of buying and selling a home. The technological changes and developments generally make it possible to effect a greater volume of transactions with less effort and expense.

 

We believe the technological developments in the real estate market and the increased amount of information available to and used by ordinary consumers appear to be circumstances that are similar to those developments that eventually gave rise to the non-traditional stock brokerages which have intruded upon the market dominance of traditional stock brokerages over the past two decades. For example, we note that the non-traditional stock brokerages developed their services and products to compete primarily on the bases of price, consumer effort and technology. Their websites, such as TD Ameritrade or e-Trade, provide not only trading capacity for the average consumer, but also a tremendous amount of information about companies. In this regard, we note that there has recently been a proliferation of various Internet-related real estate businesses that seek to provide either specific and limited services or information relating to residential real estate transactions (e.g., ForSaleByOwner.com, BuyOwner.com and Zillow.com). Like the non-traditional stock brokerages, these businesses typically rely on consumer effort, technology and price as the bases for competition. This was the model Webdigs based its business practices on.

 

Our Business Model, Products and Services

 

Services for Home Buyers

 

We provided home buyers with a number of services. Through our website at Webdigs.com, home buyers could search our database of MLS listings, view open house schedules, schedule home visits, make offers and monitor the offer and counteroffer process. Our licensed real estate agents assist buyers by preparing offers, counteroffers and other real estate documents, negotiating purchase contracts, setting up inspections, arranging for financing, and preparing for closings. Our agents supported the buyer at each step of this process, until the transaction has closed.

 

After a closing, we pay our clients their rebate check within 14 days for their portion of our buy-side commission. Our rebate payments are generally 1% of the sale price of the home.

 

Using a generally accepted industry average fee of 2.7% (our estimate using informal data collected by our agents in Minnesota and Florida) for buyer representation, any customer purchasing a home for a price exceeding $111,000 may benefit financially from using Webdigs.com as the brokerage. After collecting our minimum $3,000 fee per transaction, our buyers receive a cash rebate check of up to 1% of the purchase price of the home they have acquired through us. We believe this gives buyers a financial incentive to use our services.

 

Services for Home Sellers

 

In our Minnesota and Wisconsin markets, Webdigs.com offered our home sellers a full service listing, including a listing on the Northstar MLS, for a fee below the price of other full service brokerages. At times, our agents have offered a full service listing for a commission as low as 4.4% of the final sale price at closing of which 1.7% is paid to Webdigs, and the standard 2.7% goes to the buyer’s brokerage.  This represents a 25% savings compared to the average real estate fee of 6% of sales price.  Assuming a sales price of $300,000, a Webdigs listing customer could save 1.5% of the sales price ($4,500) by using Webdigs as their listing brokerage. To ensure that our customers received the same attention from non-Webdigs agents representing potential buyers of a home listed by Webdigs, we typically offered the standard 2.7% of sales price commission to non-Webdigs brokerages who represented buyers purchasing a home listed by Webdigs.  

 

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Our second brand was IggysHouse.com, which began operating in January 2010.   Iggys provided the value conscious consumer the ability to tightly control their expenditures and avoid the traditional percentage fee costs charged to sellers (based upon our observations the fee typically is 3.3% to seller + 2.7% for buyers brokerage = 6.0% total).    For a basic MLS listing, utilizing one of our licensed real estate broker partners, IggysHouse.com charged a flat fee of $149.95 for a three month listing, or $249.95 for a six month listing, which could continued at the election of the consumer.   

 

To date, IggysHouse.com has been a disappointment and we have eliminated our marketing support for IggysHouse.com in our primary Minnesota, Wisconsin, and Florida markets. Additionally, we have discontinued using the Iggys House website we purchased due to the higher operating costs. Instead, we found a low cost internet provider to support the small Iggys House operations for now.

 

Our third brand for selling homes, utilized our licensed real estate broker partners, is the MLSDirect.com. The MLSDirect.com website filled a void between our Webdigs.com and IggysHouse.com listing programs.  It offers a flat fee MLS listing for prices starting as low as $299. Like IggysHouse.com, there is also a full menu of add-on services on the website that the customer can choose to purchase. MLSDirect.com net revenue is still very low at only $13,966 for fiscal 2011.

 

Industry Segments

 

We currently operate in one primary operating segment: web-assisted real estate services (brokerage).

 

Competition

 

The residential real estate market is highly fragmented and we have numerous competitors, many of which have greater name recognition, longer operating histories, larger client bases, and significantly greater financial, technical and marketing resources than we do. We anticipate that the most critical competitive factors in our business and industry include price, service and the ease of using website tools.

 

Some of our competitors in the residential real estate brokerage market are traditional brokerage firms, including large national brokerage firms or franchisors, such as Prudential Financial, Inc., RE/MAX International Inc., and Edina Realty. We compete with these brokerages primarily on price, service and the ease of use of our website interfaces. Although our commissions are generally lower than other brokerages, consumers may be attracted to traditional brokerages because they offer or are perceived to offer higher levels of individual attention and service.

 

We also compete with non-traditional real estate brokerage firms including Zip Realty, Inc., and Redfin Corporation, each of which pays cash rebates to clients and relies to a large extent on the efficiencies of the Internet. We believe that these competitors generally have greater financial resources than we do, and also have a longer operating history in the realm of online discount real estate brokerage. Here too, we compete with these non-traditional brokerages primarily on price, service and on the ease of use of our website interface. Our commissions are generally competitive with these non-traditional brokerages. For example, ZipRealty and Redfin respectively rebate approximately 20% and 50% of their commissions to home buyers. We generally rebate up to 1% of the purchase price of the home (usually in the neighborhood of 35% of the commission we receive) with a minimum fee for Webdigs of $3,000.

 

IggysHouse.com competes with multiple flat fee discount real estate listing services across a broad spectrum of pricing models, such as ForSaleByOwner.com and BuyOwner.com. We compete with these discount service providers primarily on level of service. Although with Webdigs, we offer traditional services to our clients at a discounted price, highly self-motivated consumers may be attracted to IggysHouse.com or other discount listing services because they are less expensive than our Webdigs branded services. For example, we currently believe that a consumer can obtain an MLS listing through ForSaleByOwner.com for anywhere from $90 per month to a $900 flat fee.

 

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Environmental Regulation

 

We are not subject to environmental regulations that have a material effect upon our capital expenditures or otherwise.

 

Other Regulation

 

We are subject to governmental regulation by federal, state and local regulatory authorities with respect to our real estate operations.

 

Federal Regulation. Federal laws and regulations govern the real estate brokerage business. These include the Real Estate Settlement Procedures Act of 1974, or RESPA, and federal fair housing laws. RESPA requires disclosures to home buyers and sellers of settlement costs and restricts the payment of kickback or referral fees for settlement services. RESPA does not prohibit referral fees paid by one real estate brokerage to another brokerage. Federal fair housing laws generally make it illegal to discriminate against protected classes of individuals in housing or brokerage services. Other federal regulations protect the privacy rights of consumers and affect our opportunities to solicit new clients.

 

Like real estate brokerage, mortgage brokerage is subject to RESPA and federal fair housing laws. Mortgage brokerage is also regulated by other federal laws such as the Truth in Lending Act, Regulation Z and the Equal Credit Opportunity Act. The provision of title insurance is also highly regulated.

 

State Regulation. Real estate licensing laws vary from state to state, but generally all individuals and entities acting as real estate brokers or salespersons must be licensed in the state in which they conduct business. A person licensed as a broker may either work independently or may work for another broker in the role of an associate broker, conducting business on behalf of the sponsoring broker. A person licensed as a salesperson must be affiliated with a brokerage in order to engage in licensed real estate brokerage activities. Generally, a corporation engaged in the real estate brokerage business must obtain a corporate real estate broker license. In order to obtain this license, most jurisdictions require that an officer of the corporation be licensed individually as a real estate broker in that jurisdiction. If applicable, this officer-broker is responsible for supervising the licensees and the corporation’s real estate brokerage activities within the state.

 

Real estate licensees, whether they are brokers, salespersons, individuals or entities, must follow the state’s real estate licensing laws and regulations. These laws and regulations generally prescribe minimum duties and obligations of these licensees to their clients and the public, as well as standards for the conduct of business, including contract and disclosure requirements, record keeping requirements, requirements for local offices, trust fund handling, agency representation, advertising regulations and fair housing requirements. Although payment of rebates or credits to real estate purchasers of the type we offer are permitted in most states, some states either do not permit these rebates or credits or do not permit them in the form that we currently provide them. Eight states have “minimum service laws” that require realtors to provide a level of service that purely web-assisted real estate businesses typically do not provide (Delaware, Florida, Nevada, New Mexico, Ohio, Pennsylvania, Tennessee and Wisconsin). We presently operate in the State of Florida and we believe the services we offer to residential real estate consumers comply with Florida’s minimum service law because: (i) for our clients buying homes, we show them homes, draw up the related offer paperwork, negotiate the purchase, answer all questions, and close the purchase transaction; and (ii) for our clients selling homes, we help the seller price the home (through a competitive market analysis or otherwise), draw up the listing agreement, negotiate the sale, and coordinate a closing of the sale. Nevertheless, we have not obtained any independent or governmental opinion relating to our compliance with Florida minimum-service laws. Eleven states prohibit rebates of real estate commissions (Alabama, Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, New Jersey, Oklahoma and Tennessee).

 

Governmental bodies may change the regulatory framework within which we intend to operate, without providing any recourse for adverse effects that the change may have on our business. In Minnesota, Wisconsin, and Florida (i.e., the states where we currently have operations), we have designated one of our employees as the individually licensed lead broker and we hold a corporate real estate broker’s license where required by law. In addition to state laws regarding real estate brokerage, we must comply with state laws regarding mortgage brokerage, including laws that regulate the timing and content of disclosures.

 

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Local Regulation. Local regulations also govern the conduct of our business. Local regulations generally require additional disclosures by the parties to a real estate transaction or their agents, or the receipt of reports or certifications, often from the local governmental authority, prior to the closing or settlement of a real estate transaction.

 

Trade Regulation. In addition to governmental regulations, we are subject to rules and regulations established by private real estate trade organizations, including, among others, local MLSs, the National Association of Realtors, and state and local associations of realtors. The rules and regulations of the various MLSs to which we belong vary, and specify, among other things, how we as a broker-member can use MLS listing data, including the use and display of such data on our website.

 

In 2008, the United States Department of Justice agreed to settle claims it had brought against the National Association of Realtors relating to the ability to access MLS listings. The settlement decree addressed two areas of particular concern to non-traditional real estate brokerage firms such as Webdigs. First, the decree prohibits “selective opt-outs,” which enable a broker involved in a MLS to selectively prohibit certain MLS participants from displaying that broker’s MLS listings on the participants’ website. Second, the decree prohibits “blanket opt-outs,” which enable a broker involved in a MLS to prohibit all other MLS participants from displaying that broker’s MLS listings, even though traditional real estate brokerage firms could easily display or otherwise convey these same listings in other manners. Presently, we are optimistic that the settlement will prohibit conduct that is unfair and potentially harmful to our business.

 

The National Association of Realtors, as well as the state and local associations of realtors, also have codes of ethics, rules and regulations governing the actions of members in dealings with other members, clients and the public. We are required to comply with these codes of ethics, rules and regulations by virtue of our membership in these organizations.

 

Intellectual Property

 

Our success depended significantly upon our ability to protect our core technology and intellectual property. To accomplish this, we relied on a combination of intellectual property rights, including trade secrets, copyrights and trademarks, as well as customary contractual protections.

 

During the period of these financial statements, we possessed the rights to over 50 website domain names and numerous trademarks and trade names. Some of the most prominent include:

 

·domain name rights to www.Webdigs.com
·domain name rights to www.IggysHouse.com
·domain name rights to www.buysiderealty.com
·domain name rights to www.MLSDirect.com
·trademark and trade name for “Webdigs”;
·trademark and trade name for “IggysHouse.com”;
·trademark and trade name for “buysiderealty.com”;
·trademark and trade name for “theMLSdirect.com”;
·trademark for: “The New Way to do Real Estate”

 

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On March 16, 2012, the Company sold the “Webdigs” domain, technology and certain trademarks to Fiontrai II, LLC for $15,000. These assets, which were held in Webdigs, LLC, included US Trademark No. 3,461,665 "Webdigs", along with www.webdigs.com domain name and the original webdigs.com website software and technology developed by MoCo, Inc. Included in this transaction was a royalty agreement whereby Webdigs could receive royalty payments from Fiontrai upon its licensing the technology to other third parties. Also included in this transaction was a royalty agreement for which Fiontrai II paid $1,000.00 (part of the total $15,000). Robert Buntz, CEO purchased the royalty agreement from the Company in exchange for a principal reduction of his loan to the Company of $5,000.00.

 

Employees

 

The Company (including its subsidiaries) currently has one employee.

 

Corporate Structure and Information

 

Webdigs, Inc. operates through direct and indirect subsidiaries. The principal operating subsidiary is Webdigs, LLC, a Minnesota limited liability company and licensed real estate brokerage.

 

Our principal offices are located at 3445 Zenith Ave So., Minneapolis, Minnesota 55416, and our telephone number at that office is (612) 767-3854. Our website address is www.Webdigs.com.

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock involves significant risks. Before deciding to invest in our common stock, you should carefully consider each of the following risk factors and all of the other information set forth in this document. The following risks could materially harm our business, financial condition or future results. If any such risks materialize, the value of our common stock could decline, and you could lose all or part of your investment.

 

We are a recently formed company with no history of profitability.

 

We began operations in July 2007 and to date have not generated a yearly profit. In addition, annual revenues remain under $1 million and are not growing. As a young company, we are subject to all of the risks associated with a new business enterprise. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, especially in challenging and competitive industries such as residential real estate and mortgage brokerage and particularly in light of current general economic, real estate and credit market conditions.

 

We do not yet have a significant operating history which would provide you with meaningful information about our past or future operations. The Company has not achieved positive cash flow on a monthly basis during the current fiscal year ending October 31, 2011 and there is significant risk to the survival of the enterprise. Many of our agents have now left Webdigs.

 

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We will require additional financing in the future, but such financing may not be available to us.

 

We will require significant additional capital to continue our operations. To date, our revenues from operations have not generated cash flow sufficient to finance our operations and growth. If adequate funds are not available on acceptable terms, we may be unable to fund the operation of our business. As a result, we would likely be forced to dramatically alter or cease operations.

 

We critically rely on our executive management, and the loss of certain members of management would materially and negatively affect us.

 

Our success materially depends upon the efforts of our management and other key personnel, including but not limited to Robert A. Buntz, Jr., our Chief Executive Officer. If we lose the services of Mr. Buntz, our business would be materially and adversely affected. We have entered into a formal services and non-competition agreement with Mr. Buntz in the form of a Member Services Agreement between Mr. Buntz. Mr. Buntz is working for us without receiving any cash compensation. Nevertheless, agreements do not ensure the continued availability to us of Mr. Buntz or any other manager or employee. Furthermore, we do not have “key person” life insurance insuring the life of Mr. Buntz, and we do not presently intend to purchase such insurance.

 

Our future success also depends upon our ability to attract and retain highly qualified management personnel and other employees. Any difficulties in obtaining, retaining and training qualified employees could have a material adverse effect on our results of operation or financial condition. The process of identifying such personnel with the combination of skills and attributes required to carry out our strategy is often lengthy. Any difficulties in obtaining and retaining qualified managers and employees could have a material adverse effect on our results of operation or financial condition.

 

There is substantial doubt about our ability to continue as a going concern.

 

We have had net losses for the years ended October 31, 2011 and 2010 of $453,632 and $3,080,671 respectively. Furthermore, we had a working capital deficit as of October 31, 2011 of $1,468,494. Since the financial statements were prepared assuming that we would continue as a going concern, these conditions coupled with our current liquidity position raise substantial doubt about our ability to continue as a going concern. Furthermore, since we are pursuing new business, this diminishes our ability to accurately forecast our revenues and expenses. We expect that our ability to continue as a going concern depends, in large part, on our ability to generate sufficient revenues, limit our expenses without sacrificing customer service, and obtain necessary financing. If we are unable to raise additional capital, we may be forced to discontinue our business.

 

We may be unable to obtain sufficient market acceptance of our services.

 

The market for residential real estate sales is well-established. However, the market for non-traditional residential real estate sales is relatively new, developing and even more uncertain. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for products and services are subject to tremendous uncertainty. Our future growth and financial performance will almost entirely depend upon consumers’ acceptance of our “Webdigs solution” to purchase and sell homes at discounted rates. In this regard, the failure of purchasers and sellers of residential property to accept our model or the inability of our services to satisfy consumer expectations, would have a material adverse effect on our business, and could cause us to cease operations.

 

Our officers and directors, together with certain affiliates, possess controlling voting power with respect to our common stock, which could limit your influence on corporate matters.

 

Our officers and directors collectively possess beneficial ownership of approximately 67,318,392 shares representing beneficial ownership of approximately 72.4% of our common stock. As a result, our directors and officers have or could have the ability to greatly influence, if not outright control, our management and affairs through the election and removal of our directors, and all other matters requiring stockholder approval, including the future merger, consolidation or sale of all or substantially all of our assets.

 

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This concentrated control could discourage others from initiating any potential merger, takeover or other change-of-control transaction that may otherwise be beneficial to our stockholders. Furthermore, this concentrated control will limit the practical effect of your participation in our corporate matters, through stockholder votes and otherwise. As a result, the return on your investment in our common stock through the sale of your shares or our business could be adversely affected.

 

We rely on third parties for key aspects of the process of providing services to our customers, and any failure or interruption in the services provided by these third parties could harm our ability to operate our business and damage our reputation.

 

We rely on third-party vendors, including website providers and licensed real estate brokers. Any disruption in access to the websites developed and hosted by these third-party providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our business. Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise little or no control over all of these third-party vendors, which increases our vulnerability to problems with the services they provide.

 

In addition, we license technology and related databases from third parties to facilitate aspects of our website and connectivity operations, including, among other things, internet home search services. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services could materially and negatively impact our relationship with our customers and adversely affect our brand and our business. It is possible that such errors, failures, interruptions or delays could even expose us to liabilities to our customers or other third parties.

 

Interruption or failure of our information technology and communications systems would impair our ability to effectively provide our services, which could in turn damage our reputation and harm our business.

 

Our ability to provide our services critically depends on the continuing operation of our information technology and communications systems. Any damage to or failure of our systems would likely result in interruptions in our service to customers and the closings of real estate transactions from which we principally derive revenue. Accordingly, interruptions in our service would likely reduce our revenues and profits, and our brand could be damaged, perhaps irreparably, if people believe our system and services are unreliable.

 

To our knowledge, our systems are vulnerable to damage or interruption from terrorist or malicious attacks, floods, tornados, fires, power loss, telecommunications failures, computer viruses and other attempts to harm our systems, and similar types of events. Our data centers are subject to break-ins, sabotage and intentional acts of vandalism, and to other potential disruptions. Some of our systems are not fully redundant (i.e., backed up), and our disaster recovery planning cannot account for all eventualities. The occurrence of a natural disaster, or a decision to close a facility we are using without adequate notice for financial reasons or other unanticipated problems at our data centers, could result in lengthy interruptions in our service. Any unscheduled interruption in our service would likely place a burden on our entire organization and result in an immediate loss of revenue. The steps we have taken to increase the reliability and redundancy of our systems are expensive, reduce our operating margin and even then may not be successful in reducing the frequency or duration of unscheduled downtime.

 

Our certificate of incorporation grants our Board of Directors, without any action or approval by our stockholders, the power to issue additional shares of capital stock, including the power to designate additional classes of common and preferred stock.

 

Our authorized capital consists of 250,000,000 shares of capital stock. Pursuant to authority granted by our certificate of incorporation and applicable state law, our Board of Directors, without any action or approval by our stockholders, may designate and issue shares in such classes or series (including other classes or series of preferred stock) as it deems appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights. The rights of holders of other classes or series of capital stock, including preferred stock that may be issued could be superior to the rights of the shares of common stock offered hereby. The designation and issuance of shares of capital stock having preferential rights could adversely affect other rights appurtenant to the shares of our common stock. Finally, any issuances of additional capital stock (common or preferred) will dilute the percentage of ownership interest of our stockholders and may dilute the per-share book value of the Company.

 

8
 

 

On May 17, 2012, the Company affected a 1 for 200 reverse stock split. The Company retrospectively restated the outstanding shares for the earnings per share calculation. The balance sheet has not been restated and will be adjusted during the period the split occurred.

 

There is limited public market for our common stock.

 

We commenced trading on the OTC Bulletin Board on December 19, 2008 and there are currently over 6 million shares registered and eligible for sale via the OTCQB (a market tier on the over-the-counter Pink Sheets market). To date, however, our stock has been thinly traded with some days having no shares sold. We cannot guarantee that a highly liquid market will exist in the near future.

 

We are required to comply with governmental regulations, which will increase our costs and could prohibit us from conducting business in certain jurisdictions.

 

We are subject to governmental regulation by federal, state and local regulatory authorities with respect to our real estate brokerage. As is standard in the residential real estate brokerage industry, our real estate agents must be licensed. In some states, our proposed business activities are prohibited and we may not operate in those states. Eight states have “minimum service laws” that require realtors to provide a level of service that web-assisted real estate businesses typically do not provide. Eleven states outrightly prohibit rebates of real estate commissions. Governmental bodies may change the regulatory framework within which we intend to operate, without providing any recourse for adverse effects that the change may have on our business.

 

We can give no assurance that we will be able to comply with existing laws and regulations, that additional regulations that harm our business will not be adopted, or that we will continue to maintain our licenses, approvals or authorizations. Our failure to comply with applicable laws and regulations, or the adoption of new laws and regulations restricting our intended operations, could have a material adverse effect on our business and could cause us to cease operations.

 

The efforts of the National Association of Realtors or other organizations could prevent us from operating our business, and could lead to the imposition of significant restrictions on our operations.

 

The online residential real estate sales model generally, and the Webdigs business model specifically, is based on the assertion that full-commission real estate brokerages and agents do not provide an acceptable level of value to consumers and that consumers are willing to engage in online home search activities via the internet if they can reduce the dollar amount of commissions paid on home sales and purchases. This model is a direct and significant threat to traditional residential real estate brokerages and agents.

 

In response to previous and ongoing efforts by discount web-assisted real estate companies, the National Association of Realtors, which represents real estate brokerages, has issued rules that attempt to block access of web-assisted real estate companies to the Multiple Listing System (MLS) and may adopt additional rules intended to reduce or eliminate competition from web-assisted (online) discount real estate businesses such as Webdigs. Our business is dependent upon the ability to access the MLS to be competitive. We can give no assurance that the National Association of Realtors will not be successful in preventing our access to the MLS, or that it or another organization will not be successful in adopting rules or imposing other restrictions on web-assisted real estate businesses such as Webdigs. Such adoption or imposition of regulations or restrictions would have a material adverse effect on our business.

 

9
 

 

Competition in the traditional and online residential real estate industry is intense.

 

The residential real estate industry is highly competitive. We believe that important competitive factors in this industry include (but are not limited to) price, service, and ease of use. We presently face competition from numerous companies engaged in traditional residential real estate brokerage services and several online residential real estate sales companies, and we expect online competition to increase in the future from existing and new competitors. Most of our current and potential competitors have substantially greater financial, marketing and technical resources than us, as well as significant operating histories. Accordingly, we may not be able to compete successfully against new or existing competitors. Furthermore, competition may reduce the prices we are able to charge for our services, thereby potentially lowering revenues and margins, which would likely have a material adverse effect on our results of operation and financial condition.

 

The online residential real estate industry is subject to significant and rapid technological change.

 

The online residential real estate industry is subject to rapid innovation and technological change, shifting customer preferences, new service introductions and competition from traditional real estate brokerage firms. Competitors in this market have frequently taken different strategic approaches and have launched substantially different products or services in order to exploit the same perceived market opportunity. Although we believe that we are offering a unique solution, there can be no assurance that our services will be competitive technologically or otherwise, or that any other services developed by us will be competitive.

 

Our ability to compete in this industry will depend upon, among other things, broad acceptance of our services and on our ability to continually improve current and future services we may develop to meet changing customer requirements. There can be no assurance that we will successfully identify new service or product opportunities and develop and bring to the market new and enhanced solutions in a timely manner, that such products or services will be commercially successful, that we will benefit from such development, or that products and services developed by others will not render our products and services noncompetitive or obsolete. If we are unable to penetrate markets in a timely manner in response to changing market conditions or customer requirements, or if new or enhanced products or services do not achieve a significant degree of market acceptance, our business would be materially and adversely affected.

 

Consumer access to mortgage financing has been affordable and widely available by historic standards and any tightening in the availability of credit will have the potential to negatively impact our operating results.

 

The affordability and availability of mortgage financing is influenced by a number of factors, including interest rates, lender underwriting criteria, loan product availability and the performance of mortgage backed securities in the secondary market. While the federal government has supported programs to make loans easier to obtain in recent months, we believe that the mortgage market still remains tight despite these efforts and near record low interest rates. Real estate transaction volume remains significantly below levels of the market’s peak in 2006.

 

We may be impacted by general economic conditions within the United States residential real estate market.

 

The residential real estate market has experienced vast fluctuations in recent times. In some years, real estate home sales are brisk, while in other years the residential real estate market has been stagnant. Our ability to attract home sellers and buyers to use our website will, in part, depend upon consumers’ willingness in general to buy or sell a home. When consumers sense that the overall economy is not doing well, they are less likely to make an expensive purchase such as a home.

 

In addition, unemployment remains at the high levels by historical standards. There also remains an enormous inventory of unsold and vacant homes. In the first quarter of 2010, the US Census Bureau reported there were 19 million vacant homes in the United States.

 

10
 

 

Failure to achieve and maintain effective internal controls could limit our ability to detect and prevent fraud and thereby adversely affect our business and stock price.

 

Effective internal controls are necessary for us to provide reliable financial reports. All internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our most recent evaluation of our internal controls resulted in our conclusion that our disclosure controls and procedures were not effective due to a lack of segregation of duties in our accounting and financial functions, including financial reporting and our quarterly closing process. In our case, our failure to achieve and maintain an effective internal control environment could cause us to be unable to produce reliable financial reports or prevent fraud. This may cause investors to lose confidence in our reported financial information, which could in turn have a material adverse effect on our stock price.

 

Important Note: The foregoing risks are not a complete list of all risks that do or may affect the results of operation, financial condition or business prospects of Webdigs, but do represent management’s understanding and belief of the material risks associated with the Company, its business and any investment in securities of the Company. In addition to the above risks, businesses are often subject to risks not foreseen or fully appreciated by management. In reviewing this document, potential investors should keep in mind other possible risks that could be important. In sum, investors are urged to make their own evaluation of Webdigs.

 

ITEM 2. PROPERTIES

 

We lease approximately 1,000 square feet of space at 3445 Zenith Ave So., Minneapolis, Minnesota 55416, on a month-to-month basis and at a per-month cost of approximately $1,200. This cost is being paid for by the CEO.

 

ITEM 3. 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 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

General

 

Our common stock is listed on the OTCQB under the symbol WBDG.PK. Our stock began trading under the symbol “WBDG” on December 19, 2008. The following table shows our high and low closing prices of our common stock at the end of each quarter for the fiscal years 2011 and 2010. These stock prices below take into account the 1 for 200 reverse stock split which occurred on May 17, 2012.

 

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Period  High
Price
   Low
Price
 
         
Fiscal Year Ended October 31, 2011          
First Quarter  $4.00   $0.14 
Second Quarter  $0.32   $0.16 
Third Quarter  $4.00   $0.20 
Fourth Quarter  $0.42   $0.42 
           
Fiscal Year Ended October 31, 2010          
First Quarter  $42.00   $14.00 
Second Quarter  $42.00   $8.00 
Third Quarter  $8.00   $2.00 
Fourth Quarter  $14.00   $2.00 

 

Our closing stock price on May 21, 2012 was $0.22. As of the date of this filing, we had approximately 257 holders of record of our common stock.

 

Dividends

 

We have not paid any dividends on our common stock and do not anticipate paying any such dividends in the near future. Instead, we intend to use any earnings for future acquisitions and expanding our business. Nevertheless, at this time there are not any restrictions on our ability to pay dividends on our common stock.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The table below sets forth certain information, as of the close of business on October 31, 2011, regarding equity compensation plans (including individual compensation arrangements) under which our securities were then authorized for issuance.

 

   Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
   Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
   Number of Securities
Remaining Available for
Issuance Under Equity
Compensation Plans
(excluding securities reflected
in column a)
 
   (a)   (b)   (c) 
Equity compensation plans approved by shareholders   -    N/A    - 
                
Restricted Stock Plan and Stock Option equity compensation plans not approved by shareholders (1)   800,000   $0.25    None 

 


(1)In May 2008, the Board of Directors approved the issuance of incentive stock options totaling 600,000 shares to three of its non-employee directors, expiring in May 2013. An additional 200,000 options were granted to a new director on October 31, 2009, expiring in October 2014.

 

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Presently, we are not required by applicable state law or the listing standards of any self-regulatory agency (e.g., the OTCQB, NASD, AMEX or NYSE) to obtain the approval of our security holders prior to issuing any such compensatory options, warrants or other rights to purchase our securities.

 

Potential Anti-Takeover Effects

 

Certain provisions set forth in our Amended and Restated Certificate of Incorporation, as amended, in our bylaws and in Delaware law, which are summarized below, may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.

 

Blank Check Preferred Stock. Our Certificate of Incorporation and bylaws contain provisions that permit us to issue, without any further vote or action by the stockholders, up to 125,000,000 shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series, and the preferences and relative, participating, optional and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of such series.

 

Special Meetings of Stockholders. Our bylaws provide that special meetings of stockholders may be called only by the chairman or by our board. Stockholders are not permitted to call a special meeting of stockholders, to require that the board call such a special meeting, or to require that our board request the calling of a special meeting of stockholders.

 

While the foregoing provisions of our certificate of incorporation, bylaws and Delaware law may have an anti-takeover effect, these provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors and to discourage certain types of transactions that may involve an actual or threatened change of control. In that regard, these provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.

 

Delaware Takeover Statute

 

In general, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation that is a public company from engaging in any “business combination” (as defined below) with any “interested stockholder” (defined generally as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with such entity or person) for a period of three years following the date that such stockholder became an interested stockholder, unless: (1) prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (2) on consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (3) on or subsequent to such date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

 

13
 

 

Section 203 of the Delaware General Corporation Law defines “business combination” to include: (1) any merger or consolidation involving the corporation and the interested stockholder; (2) any sale, transfer, pledge or other disposition of ten percent or more of the assets of the corporation involving the interested stockholder; (3) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (4) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (5) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

 

Transfer Agent and Registrar

 

Our transfer agent is Pacific Stock Transfer Company, located at 4045 South Spencer Street, Suite 403, Las Vegas, Nevada 89119. The transfer agent’s telephone number is (702) 361-3033. The transfer agent is registered under the Securities and Exchange Act of 1934.

 

Listing

 

Our common stock is currently traded on the OTCQB (a market tier on the over-the-counter Pink Sheets market) under the symbol WBDG.PK.

 

Sales of Unregistered Securities

 

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.

 

For these issuances of common stock, we relied on the exemption from federal registration under Section 4(2) of the Securities Act of 1933 and, in those instances where the issuances were made to affiliates or accredited investors, upon Rule 506 promulgated thereunder. In that regard, we relied on Rule 506 based on the fact that the investors who purchased these securities qualified as an “accredited investors” under Rule 501 of the Securities Act of 1933. In all cases, investors had knowledge and experience in financial and business matters such that they were capable of evaluating the risks of the investment. The securities offered and sold in the transactions were not registered under the Securities Act of 1933 and therefore may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 

ITEM 6. SELECTED FINANCIAL DATA

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our audited consolidated financial statements and related notes that appear elsewhere in this filing.

 

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 Item 1A of this filing should be considered in evaluating our prospects and future performance.

 

General Overview

 

General Overview

 

During the period of these financial statements, we were a web-assisted real estate services company primarily focused on residential home buyers and sellers. We utilized 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 emphasized 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 operated under three brands. Webdigs.com, our first brand, was our full-service discounted real estate brokerage. Webdigs offered 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 offered listing services below the price of traditional full-service brokerages. We did 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, was and remains 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, offered 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.

 

15
 

 

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.

 

On March 16, 2012, the Company sold the “Webdigs” domain, technology and certain trademarks to Fiontrai II, LLC for $15,000. These assets, which were held in Webdigs, LLC, included US Trademark No. 3,461,665 "Webdigs", along with www.webdigs.com domain name and the original webdigs.com website software and technology developed by MoCo, Inc. Included in this transaction was a royalty agreement whereby Webdigs could receive royalty payments from Fiontrai upon its licensing the technology to other third parties. Also included in this transaction was a royalty agreement for which Fiontrai II paid $1,000.00 (part of the total $15,000). Robert Buntz, CEO purchased the royalty agreement from the Company in exchange for a principal reduction of his loan to the Company of $5,000.00.

 

On April 3, 2012, the Company entered into a share exchange agreement with Next 1 Interactive, Inc. (“Next 1”), a publicly traded company. The agreement calls for Next 1 to exchange 100% of the common shares (100,000,000) of their wholly-owned subsidiary Next One Realty, Inc., for newly issued Series A Convertible Preferred Stock of Webdigs. The Series A Convertible Preferred Stock has not yet been designated and is the subject of negotiation. At the closing of this transaction Next 1 would own, on an as-converted basis, approximately 93% of the issued and outstanding shares of Webdigs, Inc. As a result, Next 1 would be in control of the Company and potential future operations have not been fully determined at this time.

 

The Company has been offering real estate brokerage services under the trade name “Red Bear Realty” since the sale of the Webdigs technology and brand.

 

Please see Note 10, Subsequent Events, for other recent developments.

 

Significant Trends and Uncertainties

 

Our core Webdigs business regressed in the year ended October 31, 2011. We recorded $324,463 in net sales from business generated under our www.webdigs.com real estate brand in the year ended October 31, 2011. This represents a 31% drop from the $468,152 revenue we had in our fiscal year ended October 31, 2010. This decline was significant and discouraging.

 

Our CEO and CFO received no cash compensation during the 12 months ended October 31, 2011. Our CFO was unwilling to continue working under the same conditions in our current fiscal year. We also remain very concerned regarding our ability to make the necessary payments on our payables. We have been able to convince several vendors to allow us to continue operating without insisting on current payment, but that could change.

 

Results of Operations

 

The following information should be read in conjunction with the audited financial statements and notes thereto appearing elsewhere in this Annual Report.

 

From October 31, 2010 to October 31, 2011:

 

Selected financial information about our operations for the fiscal years ended October 31, 2011 and 2010:

 

   2011   2010   Change   Percent
Change
 
                 
Net revenues  $324,463   $468,152   $(143,689)   -31%
Selling, general and administrative expenses   609,826    888,102    (278,276)   -31%
Amortization of intangible assets   107,286    755,012    (647,726)   -87%
Impairment charge   -    1,262,705    (1,262,705)   -100%
Operating loss   (392,649)   (2,437,667)   2,045,018    -86%
Interest expense   (61,283)   (643,004)   581,721    -90%
Total assets   8,169    137,074    (128,905)   -94%
Capital expenditures   -    21,760    (21,760)   -100%

 

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Net revenues for the year ended October 31, 2011 totaled $324,463, representing a 31% decrease over the $468,152 in net revenues for the year ended October 31, 2010. The decline was attributable to closing fewer transactions in fiscal 2011.

 

We incurred total selling general and administrative expenses for fiscal 2011 of $609,826 compared to $888,102 for fiscal 2010, a 31% year-to-year decrease. This is consistent with the drop off in revenue as we continued to reduce expenses as much as possible.

 

Selling expenses consisted of advertising and promotion, information technology, selling-related compensation expense, depreciation expense, and other general selling expenses, all of which aggregated to $260,257 for fiscal 2011 compared to $429,984 for fiscal 2010, a 39% decrease. This decrease is directly attributable to our declining revenues and lack of resources available to mount an effective advertising campaign. We continued to move away from broad advertising expenses such as billboards, print and TV advertising, and focused on targeted marketing to consumers who are likely to buy or sell their home in the near future. Apart from customer referrals, our two main avenues for generating new customers in the year ended October 31, 2011 were highly targeted web-based adword campaigns and purchased third party generated leads. The largest decrease in selling expenses was due to reduced commissions from $238,483 in 2010 compared to $197,181 in 2011, a decrease of $41,302, which was due to lower sales. We cut advertising and promotion spending from $20,638 in the year ended October 31, 2010 to $7,033 for year ended October 31, 2011. The $169,727 selling expense decrease was also due to wages and salaries (down $28,300 to $0), consulting fees (down $30,893 to $0), depreciation (down $11,294 to $9,692), office supplies and other selling expenses (down $21,193 to $5,074) with smaller reductions in IT support and maintenance ($10,082) and travel ($5,036). The $28,300 decrease in wages and salaries came from the elimination of our full-time salaried sales and support positions.

 

We incurred $349,569 in general and administrative (G&A) expenses for the year ended October 31, 2011 compared to $458,118 for the year ended October 31, 2010, representing a $108,549 period-to-period decrease. There were three significant factors in the 24% year over year G&A expense decrease. The largest factor contributing to the cost reduction was decreased administrative staffing. We had 3 administrative staff people for the year ended October 21, 2010. During the third quarter of the year ended October 31, 2011, we reduced administrative staffing to one person. Secondary cost savings resulted from a decrease in rent expense of $11,000 due to our relocation to smaller offices in July 2011. We also were able to reduce legal and professional service spending by taking on some more work ourselves, limiting issuance of new equity instruments and not acquiring any new businesses. These had been factors in legal and accounting spending for the year ended October 31, 2010. No other significant changes in G&A spending occurred during the year ended October 31, 2011.

 

Amortization expense from continuing operations was $107,286 for the year ended October 31, 2011 compared to $755,012 for fiscal 2010. Amortization expense decreased due to the fact that we took a $1,262,705 impairment charge for the intangible assets related to the June 2009 Iggys House purchase during the year ended October 31, 2010. After the impairment charge, we maintained a small $100,000 value for the Iggyshouse.com software acquired in June 2009. For the year ended October 31, 2011, we amortized the remaining $100,000 Iggyshouse software that had remained as of October 31, 2010 and the remaining asset costs for the MLSDirect website names.

 

For the year ended October 31, 2011, we recorded interest expense of $61,283. For the fiscal year ended October 31, 2010, we incurred $643,004 of interest expense. Interest expense for 2011 reflects the cost of the Company’s borrowings from our CEO and interest charges in the new $30,000 convertible note including the amortization of the beneficial conversion feature discount of $17,368. For the year ended October 31, 2010 interest expense included a non-cash beneficial conversion feature amounting to $580,424 as a result of a conversion modification of our convertible note payable to the CEO. Of the remaining $62,580 expense, $50,508 was accrued interest for the convertible note with our CEO. The other $12,072 was vendor interest charges.

 

17
 

 

Assets and Employees; Research and Development

 

We do not anticipate purchasing any equipment or other assets in the near term nor do we anticipate staffing changes at our corporate office since we are already down to one salaried employee.

 

Liquidity and Capital Resources; Anticipated Financing Needs

 

In the most recent year ended October 31, 2011, we funded operating losses primarily through cash of $14,579 received from a convertible note from our CEO and $30,000 from a convertible note from a third party. In the prior year ended October 31, 2010, operating losses were funded through $355,500 in cash received from a convertible note from our CEO. As of October 31, 2011, we had $8,169 of cash and cash equivalents, and current liabilities of $1,494,031.

 

On an aggregate level, cash used in operations was $30,645 for the year ended October 31, 2011 and $343,345 for the same period last year. Offsetting the operating loss for the year ended October 31, 2011 were various non-cash expenses for depreciation, amortization, and share-based compensation. For the year ended October 31, 2011, these non-cash items totaled $135,906. As we continued to conserve cash, our CEO and CFO have accepted to defer the cash element of their payroll and have agreed with our CEO to accrue the monthly interest on his convertible note with the Company. This resulted in an increase in accrued expenses of $221,795.

 

Financing activities provided $33,578 and $334,318 for the years ended October 31, 2011 and 2010, respectively. For the current fiscal year ended October 31, 2011, we generated $14,579 in loan proceeds from our CEO and we received $30,000 in cash from a third party by issuing a convertible note. . We also were able to reduce balances due to our officers by $4,767. In the prior fiscal year ended October 31, 2010, we generated $355,500 in loan proceeds from our CEO.

 

Given our low cash position, we have curtailed operations as we determine the best course of action for our shareholders. See Note 10 of the consolidated financial statements for recent developments.

 

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 providing increased shareholder value.

 

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.

 

18
 

 

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 October 31, 2011 and 2010 because realization of those assets is not reasonably assured.

 

The Company will recognize a financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

The Company believes its income tax filing positions and deductions will be sustained upon examination and, accordingly, no reserves, or related accruals for interest and penalties has been recorded at October 31, 2011 and 2010.

 

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 years ended October 31, 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.

 

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. At October 31, 2011 and 2010, the Company considers its accounts receivable to be fully collectible and therefore, has not recorded an allowance for doubtful accounts.

 

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

 

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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 October 31, 2011, the Company’s principal www.webdigs.com and Iggyshouse.com website has been fully amortized.

 

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 is amortizing these names over a 2 year estimated useful life.

 

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

 

Recently Issued Accounting Pronouncements

 

ASU 2011-05 – Presentation of comprehensive income

 

ASU 2011-05 was the result of a joint project with the IASB and amends the guidance in ASC 220, Comprehensive Income, by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders’ equity. Instead, the new guidance now requires entities to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements.

 

All entities that report OCI items will be impacted by the changes in this ASU. The components of OCI have not changed, nor has the guidance on when OCI items are reclassified to net income; however, the amendments require entities to present all reclassification adjustments from OCI to net income on the face of the statement of comprehensive income.

 

The amendments to ASC 220, Comprehensive Income, included in ASU 2011-05, Presentation of Comprehensive Income, are effective for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2011 (that is, the fiscal year beginning January 1, 2012 for calendar-year entities) for public entities and for interim and annual periods thereafter. The amended guidance must be applied retrospectively and early adoption is permitted. The Company does not expect the adoption of this recently issued accounting pronouncement to have a significant impact on its results of operations, financial position or cash flows.

 

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. Revenues in each quarter can 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.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See financial statements starting on page 29.

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

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 October 31, 2011 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.

 

Management’s Annual Report On Internal Control Over Financial Reporting

 

Based on this evaluation and taking into account that certain material weaknesses existed as of October 31, 2011, our Chief Executive Officer and Chief Financial Officer have 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 Annual Report on Form 10-K were prepared with particular attention to the material weaknesses previously disclosed. Notwithstanding the material weaknesses in internal controls that continue to exist as of October 31, 2011, we have concluded that the financial statements included in this Annual Report on Form 10-K present fairly, the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America (GAAP).

   

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, 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 our assets;

 

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

 

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control 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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

  

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Our management assessed the effectiveness of our internal control over financial reporting as of October 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

 

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.  In connection with the assessment described above, management has re-evaluated the control deficiencies identified in the prior fiscal year.

 

Here is an update to the control deficiencies identified last year.

 

(1)In 2009, we recognized our small size and single person financial department as a weakness that prohibited segregation of duties. In 2010 we had a full year working with our second full-time professional accountant. This enables some segregation of duties on material matters related to cash management, however, as of December 31, 2011, we no longer have any internal accounting staff and all future needs will be outsourced.
(2)We have had some minor GAAP adjustments made to our interim financial statements, although in reduced instances from prior years. We did have a significant audit adjustment made at the year-end for the fiscal year ended October 31, 2010.

 

We conclude that, as of October 31, 2011, our internal control over financial reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO.  We intend to further improve our internal controls in our current fiscal year and add additional measures to further mitigate our material internal control weaknesses as the Company grows assuming our operating funds are sufficient.

 

This annual 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 the rules of the SEC to provide only management’s report in this annual report.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended October 31, 2011, that have materially affected, or are 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, 2011 have not been fully remediated. 

 

ITEM 9B. OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

Directors, Executive Officers and Other Key Employees

 

Our Board of Directors and management team includes:

 

Name   Age   Position(s)   Independent Director
Robert A. Buntz, Jr.   60   Director (Chairman), Chief Executive Officer and President and Principal Financial Officer   No
Edward Wicker   52   Director, Chief Financial Officer   No
Joseph Fox*   45   Former Director   Yes
Donald Miller*   71   Former Director   Yes
Steven Sjoblad*   62   Former Director   Yes

 

* Messrs. Fox, Miller and Sjoblad resigned from the Board on January 11, 2012

 

Biographies for the members of our Board of Directors and our management team are set forth below:

 

Robert A. Buntz, Jr., has served as a director of the Company, including Webdigs, LLC, since inception in May 2007. Mr. Buntz has been an entrepreneur for more than 30 years and a real estate broker for more than 25. In 1981, Mr. Buntz developed the award-winning Bluefin Bay on Lake Superior, Tofte, Minnesota, and operated that resort until 2007. Among his achievements, Mr. Buntz’s development company donated the land, time and funding to help create the North Shore Commercial Fishing Museum and Mr. Buntz created and developed one of the first rural affordable housing projects, Tofte Homestead. From 1984 through 2006, and while he was simultaneously operating Bluefin Bay, Mr. Buntz was the owner and operator of Tofte Land Co., Inc., a real estate holding and brokerage firm. He now has more than 25 years of hospitality experience as an owner-operator of destination properties.

 

Mr. Buntz has served on the board of directors of the Explore Minnesota Tourism Council and the (Minnesota) Governor’s Tourism Advisory Committee for more than 15 years. Currently, Mr. Buntz is a board member and past-chair of the board of the American Museum of Asmat Art. Mr. Buntz received the (Minnesota) Governor’s Entrepreneurship Award from Governor Rudy Perpich and the Outstanding Individual in Tourism Award from Governor Jesse Ventura. He is a graduate of Grinnell College.

 

Edward Wicker has served as the Chief Financial Officer of the Company, including Webdigs, LLC, since September 2007.  Mr. Wicker provides a combination of large and small company finance executive experience.  Most recently, Mr. Wicker has served as CFO of several start-up companies in the Twin Cities, including Talor Building Systems (2005-2007), Michelina’s Inc. (2002), and Wireless Ronin Technologies (2001-2002).  Mr. Wicker also founded KMR Designs in 2002, which was a niche supplier of ultra high performance custom winter accessories supplying people who worked and played outdoors for long periods at below-zero temperatures.  Prior to these positions, Mr. Wicker had a long career at personal care products maker Coty, Inc., where he served in several senior finance executive positions.  His final ten years with Coty were spent in Europe, where he served as VP of Finance at Spanish and UK subsidiaries, as well as controller of Coty’s global operations division.  Prior to Europe, Mr. Wicker served as finance director of Coty’s then sister company—Reckitt Benckiser US Consumer Products Division.  Prior to working at Reckitt, he began his career at Ecolab, where he worked in internal audit and financial analyst positions.  Mr. Wicker holds undergraduate and MBA degrees from the University of Minnesota’s Carlson school of management.  Mr. Wicker is a CPA.

 

23
 

 

Joseph Fox was appointed as a director of the Company on July 7, 2009. Back in the mid 1990s, Mr. Fox identified the internet as a tool that would level the playing field for consumers in the stock brokerage industry. He, along with brother Avi, created Web Street Securities, a highly successful on-line investment brokerage company. Web Street became a publicly traded company in 1999 before merging with E*Trade Financial Group in 2001. In 2005, Mr. Fox’s desire to leverage the internet to empower consumers in their financial decision making process resulted in the forming of Iggys House Realty, Inc. (Iggys House and Buyside Realty), where he served as Chairman and Chief Executive Officer. Iggy's goal was to capture the power of the internet to facilitate consumers to manage their own real estate sales and purchases, thereby saving themselves thousands of dollars on commissions on their transactions. Iggys’ web-assisted real estate brokerage operated in 38 states within 2 years of its startup. Mr. Fox resigned from the Board on January 11, 2012.

 

Donald Miller was appointed as a director of the Company on July 7, 2009.  Mr. Miller worked almost forty years at Schwan's Inc, primarily as CFO.  During his tenure, Schwan's grew from a small local home-delivery dairy service to a multi-billion dollar consumer packaged goods giant.  Throughout his employment, he was involved in all of the acquisitions and divestitures of the company. He currently serves as chairman of the finance committee at Schwan's, as well as serving on the audit and risk committees.  He is also Chairman of the Board of Multiband Corp. In 2008, Mr. Miller was appointed to the Board of Directors of FoodShacks, Inc. Mr. Miller resigned from the Board on January 11, 2012.

 

Steven Sjoblad was appointed as a director of the Company on October 25, 2007. Steve Sjoblad has more than 35 years of corporate strategy and marketing expertise. Mr. Sjoblad spent 19 years building Fallon McElligott, one of the world’s preeminent advertising agencies, where he guided global strategy and marketing programs for industry leaders and has worked in virtually every consumer and business-to-business category (1981-1999). From 2001 through 2003, Mr. Sjoblad ran Global Consumer Services for Fair Isaac Corporation (NYSE: FIC), originated the myFICO.com business and ran the Fair Isaac Marketing Services business, transforming it into a “precision marketing unit.” Additionally, he was a member of the Fair Isaac Executive Committee and held the position of Chief Marketing Officer. From 2003 through 2006, Mr. Sjoblad worked as an independent business consultant. Since 2006, Mr. Sjoblad has served as the Chairman and Chief Executive Officer of Captira Analytical, a software, data and analytics firm serving the criminal justice vertical market based in Albany, NY. Mr. Sjoblad is also Chairman of uBid.com (UBHI.OB), an online retailer, a board member of Schwan’s Foods, a $3.6 billion international food concern, and a founder and board member of Fluxion, LLC, a marketing automation concern. Mr. Sjoblad resigned from the Board on January 11, 2012.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth the cash and non-cash compensation for the years ended October 31, 2011 and 2010 which was awarded to or earned by (i) our Chief Executive Officer during fiscal year 2011 and (ii) our other executive officers (other than the Chief Executive Officer) who served the Company and who received in excess of $100,000 in total compensation for a year (collectively, the “named executive officers”).

 

Name and Principal
Position
  Year   Salary   Bonus   Stock
Awards
   All Other
Compensation
   Total 
                         
Robert A. Buntz, Jr   2011   $96,000   $-   $-   $-   $96,000 
Chief Executive Officer   2010   $118,000   $-   $-   $-   $118,000 
and President                              
                               
Edward P Wicker   2011   $84,000   $-   $-   $-   $84,000 
Chief Financial Officer   2010   $62,000   $-   $-   $-   $62,000 

 

24
 

 

Employment Agreements with Executives and Key Personnel

 

We do not currently have an employment agreement with Mr. Buntz. Nevertheless, our wholly owned operating subsidiary, Webdigs, LLC, is party to a Members Services Agreement with Mr. Buntz. In that agreement, Mr. Buntz has agreed not to compete against Webdigs for a period of one year following any termination of service, regardless of the reason for such termination, and has also agreed to customary confidentiality and invention-assignment provisions. The Member Services Agreement with Mr. Buntz provides that Mr. Buntz be paid an annual salary of $120,000 for the year ended October 31, 2009. In October 2010, Mr. Buntz’s annual salary was adjusted from $120,000 to $96,000. We anticipate no change in compensation for the current fiscal year 2012 which began on November 1, 2011.

 

We have also entered into a Member Services Agreements with Mr. Edward Wicker, our Chief Financial Officer through our wholly owned operating subsidiary, Webdigs, LLC. In the Member Services Agreements we agreed to pay Mr. Wicker an annual salary of $60,000, and Mr. Wicker agreed not to compete against Webdigs for a period of one year following any termination of service, regardless of the reason for such termination, and has also agreed to customary confidentiality and invention-assignment provisions. In October 2010, Mr. Wicker’s annual salary was adjusted from $60,000 to $84,000.

 

Currently, the Company does not offer any executive bonus or incentive compensation plan and there are no plans to put one in place for fiscal year 2012.

 

Outstanding Equity Awards at Fiscal Year End

 

There were no outstanding equity awards for the executives as of October 31, 2011.

 

Director Compensation 

 

Our non-employee directors have elected to forego any cash compensation for participating in Board of Directors and committee meetings telephonically until such time as we become profitable over the course of an entire fiscal year, at which time the Board of Directors may reconsider the structure of its director compensation. In general, director compensation will be subject to review and adjustment from time to time at the discretion of our Board of Directors.

 

The following table sets forth the compensation of our non-employee directors for fiscal year 2011:

 

Name   Fees
Earned
or Paid
in Cash
$
    Stock
Awards
$ (1)
    Option
Awards
$
    Non-Equity
Incentive Plan
Compensation
$
    Nonqualified
Deferred
Compensation
Plan
$
    All other
Compensation
$
    Total
$
 
Joseph Fox   -    -    -    -    -    -   $- 
Donald Miller   -    -    -    -    -    -   $- 
Steven Sjoblad   -    -    -    -    -    -   $- 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

To our knowledge, the table below identifies the beneficial ownership of:

 

·each Company director
·each executive officer of the Company
·all executive officers and directors of the Company as a group, and
·each other beneficial holder (or group of holders) of five percent or more of our common stock.

 

25
 

 

Each person or entity included in the table below has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, except as indicated by footnote and subject to community property laws where applicable. Percentage ownership is based on 33,396,719 shares of common stock outstanding as of December 31, 2011.

 

   Shares
Beneficially
owned (1)
   Percentage
of
Outstanding
Shares (%)
 
           
Robert Buntz (2)   62,169,008    69.4%
           
Joseph Fox (3)   3,243,750    9.7%
           
Donald Miller (4)   350,000    1.0%
           
Steven Sjoblad (5)   200,000    * 
           
All current executive officers and directors as a group (five persons)  (6)   65,962,758    70.7%

 


* Less than 1%
   
(1) Beneficial ownership is determined in accordance with the applicable rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants (or similar purchase rights) held by that person that are presently exercisable, or will become exercisable within 60 days hereafter, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person.  As a result of the application of these SEC rules, the number of shares reflected in the table exceeds the number of shares outstanding as of the date of this filing.
(2) Mr. Buntz is a director of the Company and the Company’s Chief Executive Officer and President.  Of those shares included in the table, 33,268,600 are issuable upon conversion of a convertible note payable and accrued interest on the note as of October 31, 2011. 
(3) Mr. Fox was previously a non-employee director of the Company.  Of those shares set forth in the table, 3,200,000 were issued in the name of Iggys House Inc but are beneficially owned by Mr. Fox.
(4) Mr. Miller was previously a non-employee director of the Company.  Of those shares set forth on the table, 150,000 shares are issuable upon exercise of vested options to purchase common stock.
(5) Mr. Sjoblad was previously a non-employee director of the Company. Of those shares set forth on the table, 200,000 shares are issuable upon exercise of vested options to purchase common stock.
(6) Includes Messrs. Buntz, Fox, Miller, and Sjoblad.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE

 

Transactions with Related Persons

 

Accounts Payable – Minority Stockholder

 

The Company’s principal advertising agency/website developer was owed $615,264 and $583,708 at October 31, 2011 and 2010, respectively. The two principals of this advertising company are also minority stockholders in the Company – holding approximately 1.6% of the Company’s outstanding shares at October 31, 2011. For the years ended October 31, 2011 and 2010, the Company incurred $31,556 and $70,850 in services and rent from this related party, respectively.

 

26
 

 

Included in the $31,556 and $28,000 are $32,000 and $42,000 in office rent expense for the Company for each of the years ended October 31, 2011 and 2010, respectively. The Company informally rented office space for its headquarters and real estate operation in Minneapolis from the related party on a month to month basis through June 2011. The Company is currently in negotiations with the website developer to settle this debt with a small amount of cash and some form of the Company’s equity.

 

Due to Officers

 

As of October 31, 2011 and 2010, the Company was indebted to its officers for amounts totaling $3,578 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

 

During the year ended October 31, 2010, the Company borrowed $355,500 from its CEO under a convertible promissory note accruing interest at an annual rate of 12%. At October 31, 2011 and 2010, the balances due under this note were $243,079 and $528,500, respectively. 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 because the stock was trading at $0.03 on that date. On March 15, 2011, the CEO converted $300,000 of the debt into 30,000,000 shares of common stock. For the years ended October 31, 2011 and 2010, the Company incurred $46,038 and $630,932 of interest expense in connection with this note, respectively. Accrued interest included in accrued expenses due under the note as of October 31, 2011 and 2010 was $91,962 and $51,924, respectively. The accrued interest is also convertible into the Company’s common stock at $0.01 per share.

 

Director Independence

 

As of October 31, 2011, The Board of Directors was comprised of one-half “independent” directors as defined in Rule 4200(a)(15) of the NASDAQ Stock Market.

 

Our Board of Directors had an Audit Committee consisting of a member who was independent as defined in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market. In addition, the member of the Audit Committee was independent as defined in Exchange Act Rule 10A-3, a non-employee director under the rules of the SEC, and an outside director under the rules of the Internal Revenue Service. During the fiscal year ended October 31, 2009, the Board of Directors created a governance structure consisting of three board committees and the naming of a lead director. The three board committees are governance, audit and compensation. The lead director was Mr. Steven Sjoblad. Mr. Sjoblad convened conversations amongst independent directors at a minimum on a quarterly basis. On January 11, 2012, three directors, Steven Sjoblad, Joseph Fox and Donald Miller, resigned.

 

27
 

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Aggregate fees billed by our principal independent registered public accounting firm for audits of the financial statements for the fiscal years indicated:

 

   2011   2010 
         
Audit fees  $23,500   $39,000 
Audit related fees   19,624   $18,387 
Tax fees   -    11,120 
All other fees   -    966 
           
Total  $43,124   $69,473 

 

Audit Fees. The fees identified under this caption were for professional services rendered by Moquist Thorvilson Kaufmann & Pieper LLC (MTK) for fiscal years 2011 and 2010 in connection with the audit of our annual financial statements. The amounts also include fees for services that are normally provided by the independent public registered accounting firm in connection with statutory and regulatory filings and engagements for the years identified.

 

Audit-Related Fees. The fees identified under this caption were for assurance and related services that were related to the review of our financial statements included in our quarterly reports on Form 10-Q and were not reported under the caption “Audit Fees.” We also incurred audit fees for the carve out and potential spinoff of IggysHouse.com. This category may include fees related to the performance of audits and attestation services not required by statute or regulations, and accounting consultations about the application of generally accepted accounting principles to proposed transactions.

 

Tax Fees. The fees identified under this caption were for tax compliance, tax planning, tax advice and corporate tax services. Corporate tax services encompass a variety of permissible services, including technical tax advice related to tax matters; assistance with withholding-tax matters; assistance with state and local taxes; preparation of reports to comply with local tax authority transfer pricing documentation requirements; and assistance with tax audits.

 

Approval Policy. Our Audit Committee approves in advance all services provided by our independent registered public accounting firm. All engagements of our independent registered public accounting firm in fiscal years 2011 and 2010 were pre-approved by the Board of Directors.

 

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PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Financial Statements

 

Description   Page
Report of Independent Registered Public Accounting Firm   F-1
Consolidated Balance Sheets   F-2
Consolidated Statements of Operations   F-4
Consolidated Statement of  Stockholders’ Deficit   F-5
Consolidated Statements of Cash Flows   F-6
Notes to Consolidated Financial Statements   F-7

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors

Webdigs, Inc.

Minneapolis, Minnesota

 

We have audited the accompanying consolidated balance sheets of Webdigs, Inc. as of October 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Webdigs, Inc. as of October 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered losses from operations since its inception on May 1, 2007. This factor raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Moquist Thorvilson Kaufmann & Pieper LLC

 

Edina, Minnesota
June 5, 2012

 

F-1
 

  

WEBDIGS, INC.
 
CONSOLIDATED BALANCE SHEETS

 

   October 31,   October 31, 
ASSETS  2011   2010 
         
Current assets:          
Cash and cash equivalents  $8,169   $5,236 
Commissions and fees receivable   -    4,669 
Prepaid expenses and deposits   -    4,608 
Other current assets        5,583 
           
Total current assets   8,169    20,096 
           
Office equipment and fixtures, net   -    9,692 
           
Intangible assets, net   -    107,286 
           
Total assets  $8,169   $137,074 

 

The accompanying notes are an integral part of these financial statements

 

F-2
 

 

WEBDIGS, INC.
 
CONSOLIDATED BALANCE SHEETS (continued)

 

   October 31,   October 31, 
   2011   2010 
LIABILITIES        
         
Current liabilities:          
Current portion of capital lease obligations  $-   $4,603 
Accounts payable   149,956    115,355 
Accounts payable - minority stockholder   615,264    583,708 
Due to officers   3,578    8,345 
Convertible notes payable to officer/stockholder   243,079    528,500 
Convertible note payable, net of discount   17,368    - 
Accrued expenses:          
Professional fees   24,000    23,500 
Payroll and commissions   344,614    263,201 
Interest   95,422    51,924 
Other liabilities   750    16,481 
           
Total current liabilities   1,494,031    1,595,617 
           
Long term liabilities:          
Capital lease obligation, less current portion   -    1,631 
           
Total long term liabilities   -    1,631 
           
Total liabilities   1,494,031    1,597,248 
           
STOCKHOLDERS' DEFICIT          
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 October 31, 2011 and 2010, respectively   73,035    33,397 
Treasury stock - $.001 par value: 963,628 shares held in treasury as of October 31, 2011 and 2010   (240,907)   (240,907)
Additional paid-in capital   6,015,076    5,626,770 
Accumulated deficit   (7,333,066)   (6,879,434)
           
Total stockholders' deficit   (1,485,862)   (1,460,174)
           
Total liabilities and stockholders' deficit  $8,169   $137,074 

 

The accompanying notes are an integral part of these financial statements

 

F-3
 

 

WEBDIGS, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS

 

   For the Years Ended October 31, 
   2011   2010 
         
Revenue:          
Gross revenues  $440,880   $728,813 
Less: customer rebates and third-party agent commissions   (116,417)   (260,661)
           
Net revenues   324,463    468,152 
           
Operating expenses:          
Selling   260,257    429,984 
General and administrative   349,569    458,118 
Amortization of intangible assets   107,286    755,012 
Impairment charge   -    1,262,705 
           
Total operating expenses   717,112    2,905,819 
           
Operating loss   (392,649)   (2,437,667)
           
Other income (expense):          
Other income   300    - 
Interest expense   (61,283)   (643,004)
           
Total other expense   (60,983)   (643,004)
           
Net loss before income taxes   (453,632)   (3,080,671)
           
Income tax provision   -    - 
           
Net loss  $(453,632)  $(3,080,671)
           
Net loss per common share - basic and diluted  $(1.54)  $(18.45)
           
Weighted average common shares outstanding - basic and diluted   293,916    166,984 

 

The accompanying notes are an integral part of these financial statements

 

F-4
 

 

WEBDIGS, INC.
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

 

                   Total 
           Additional       Stockholders' 
   Common Stock   Treasury   Paid-in   Accumulated   Equity 
   Shares   Amount   Stock   Capital   Deficit   (Deficit) 
                         
Balances, November 1, 2009   33,396,719   $33,397   $(265,907)  $5,034,458   $(3,777,763)  $1,024,185 
                               
Directors stock option compensation   -    -    -    8,763    -    8,763 
Compensation related to vesting of restricted common stock awards, net of forfeitures   -    -    -    3,125    -    3,125 
Treasury shares issued to employee as compensation   -    -    25,000         (21,000)   4,000 
Beneficial conversion charge related to a modification of the convertible notes payable to officer/stockholder   -    -    -    580,424    -    580,424 
Net loss   -    -    -    -    (3,080,671)   (3,080,671)
Balances, October 31, 2010   33,396,719   $33,397   $(240,907)  $5,626,770   $(6,879,434)  $(1,460,174)
                               
Beneficial conversion charge related to the issuance the convertible notes payable                  30,000         30,000 
Directors stock option compensation                  1,560         1,560 
Conversion of accrued salary   9,638,400    9,638         86,746         96,384 
Conversion of convertible note payable   30,000,000    30,000         270,000         300,000 
Net loss                       (453,632)   (453,632)
Balances, October 31, 2011   73,035,119   $73,035   $(240,907)  $6,015,076   $(7,333,066)  $(1,485,862)

 

The accompanying notes are an integral part of these financial statements

 

F-5
 

 

WEBDIGS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Years Ended 
   October 31, 
   2011   2010 
Cash flows from operating activities:          
Net loss  $(453,632)  $(3,080,671)
Adjustments to reconcile net loss to net cash flows used in operating activities:          
Depreciation   9,692    20,986 
Amortization of intangible assets   107,286    755,012 
Impairment charge   -    1,262,705 
Beneficial conversion charge due to debt modification   -    580,424 
Amortization of discount for beneficial conversion feature on convertible debt   17,368    - 
Share-based compensation   1,560    15,888 
Changes in operating assets and liabilities:          
Commissions and fees receivable   4,669    4,780 
Prepaid expenses and deposits   4,608    6,239 
Other current assets   5,583    4,701 
Accounts payable   34,601    (143,709)
Accounts payable - minority stockholder   31,556    20,850 
Accrued expenses   221,795    161,219 
Other liabilities   (15,731)   48,231 
Net cash flows used in operating activities   (30,645)   (343,345)
           
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   14,579    355,500 
Proceeds from issuance of convertible note payable - third party   30,000    - 
Increase (decrease) in due to officers   (4,767)   (16,986)
Principal payments on capital lease obligations   (6,234)   (4,196)
Net cash flows provided by financing activities   33,578    334,318 
           
Net change in cash and cash equivalents   2,933    (30,787)
           
Cash and cash equivalents, beginning of period   5,236    36,023 
           
Cash and cash equivalents, end of period  $8,169   $5,236 
           
Supplemental cash flow information          
Cash paid for interest  $-   $- 
           
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   $- 
Cost method deficiency of treasury shares issued as compensation to an employee  $-   $21,000 

 

The accompanying notes are an integral part of these financial statements

 

F-6
 

  

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

Webdigs, Inc. (“the Company”), a Delaware corporation, became a public company in October 2007 after a reverse merger 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.

 

Basis of Consolidation

 

The consolidated financial statements for the years ended October 31, 2011 and 2010 include the accounts of Webdigs, Inc. and its wholly-owned subsidiary, Webdigs, LLC, which includes the dormant wholly owned subsidiaries of Home Equity Advisors, LLC, and Credit Garage, LLC. 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.

 

Debt Issuance Costs

 

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

 

F-7
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash and cash equivalents, commissions and fees receivable, accounts payable, accrued expenses, notes payable and capital lease obligations. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

 

Cash and Cash Equivalents

 

For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents.

 

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 broker commission balances due the Company from clients or listing real estate brokers 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. At October 31, 2011 and 2010, the Company considers its accounts receivable to be fully collectible and therefore, has not recorded an allowance for doubtful accounts.

 

Intangible Assets

 

The Company has two types of intangible assets:

 

Website Software

The primary interface with the customer in our web-assisted real estate broker operation is the Webdigs.com website. Certain costs incurred in development of this website have been capitalized. Amortization is on a straight-line method over the estimated three year useful life of the website. As of October 31, 2011, the Company’s principal www.webdigs.com website and the Iggyshouse.com website technology has been fully amortized

 

F-8
 

 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 is amortizing these names over a 2 year estimated useful life. As of October 31, 2011, they are fully amortized.

 

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

 

Impairment of Long-Lived Assets

 

The Company accounts for the impairment or disposal of long-lived assets, such as website software costs, customer lists, non-compete agreements, website domain names, contractual agreements and furniture and equipment by reviewing for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

 

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.

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income (loss). Items defined as other comprehensive income (loss) include items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities. For the years ended October 31, 2011 and 2010, there were no adjustments to net loss to arrive at comprehensive loss.

 

F-9
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 October 31, 2011 and 2010 because realization of those assets is not reasonably assured.

 

The Company will recognize a financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

The Company believes its income tax filing positions and deductions will be sustained upon examination and, accordingly, no reserves, or related accruals for interest and penalties has been recorded at October 31, 2011 and 2010.

 

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 years ended October 31, 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.

 

Advertising

 

The Company expenses advertising costs as incurred. Advertising expense amounted to $7,012 and $20,638 for the years ended October 31, 2011 and 2010, respectively.

 

Concentrations, Risks and Uncertainties

 

Instability of the Housing Sector in the Company’s Regional Markets:

 

The Company’s operations are concentrated within the real estate brokerage industry in Minnesota, Wisconsin and Florida and its prospects for success are tied indirectly to interest rates and the general housing and business climates in these regions.

 

F-10
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Cash Deposits in Excess of Federally Insured Limits:

 

The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation at varying amounts. At times, the cash balances in these accounts may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes they are not exposed to any significant credit risk on cash and cash equivalents.

 

Recently Issued Accounting Pronouncements

 

ASU 2011-05 – Presentation of comprehensive income

 

ASU 2011-05 was the result of a joint project with the IASB and amends the guidance in ASC 220, Comprehensive Income, by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders’ equity. Instead, the new guidance now requires entities to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements.

 

All entities that report OCI items will be impacted by the changes in this ASU. The components of OCI have not changed, nor has the guidance on when OCI items are reclassified to net income; however, the amendments require entities to present all reclassification adjustments from OCI to net income on the face of the statement of comprehensive income.

 

The amendments to ASC 220, Comprehensive Income, included in ASU 2011-05, Presentation of Comprehensive Income, are effective for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2011 (that is, the fiscal year beginning January 1, 2012 for calendar-year entities) for public entities and for interim and annual periods thereafter. The amended guidance must be applied retrospectively and early adoption is permitted. The Company does not expect the adoption of this recently issued accounting pronouncement to have a significant impact on its results of operations, financial position or cash flows.

 

F-11
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

2GOING CONCERN

 

The Company has incurred significant operating losses for the years ended October 31, 2011 and 2010. At October 31, 2011, the Company reports a negative working capital position of $1,485,862, and an accumulated deficit of $7,333,066. It is management’s opinion that these facts raise substantial doubt about the Company’s ability to continue as a going concern without additional debt or equity financing.

 

In order to meet its working capital needs through the next twelve months, the Company plans to raise additional funds through the issuance of additional shares of common stock and debt through private placements. Although 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. The Company has reduced operating expenditures as much as it can during the year ended October 31, 2011. The Company has exhausted all potential options to reduce expenses and it needs to increase revenue soon in order to survive as an operating company. The Company has been looking at other potential strategic alternatives and on April 3, 2012, the Company entered into a share exchange agreement (See Note 10 for further information).

 

3FIXED ASSETS AND INTANGIBLE ASSETS

 

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

 

   October 31, 2011   October 31, 2010 
   Gross
Carrying
Amount
   Accumulated
Depreciation
   Net
Carrying
Amount
   Gross
Carrying
Amount
   Accumulated
Depreciation
   Net
Carrying
Amount
 
Fixed Assets                              
Furniture and Fixtures  $9,981   $(9,981)  $-   $9,981   $(7,187)  $2,794 
Computer hardware   50,972    (50,972)   -    50,972    (44,074)   6,898 
Total Fixed Assets  $60,953   $(60,953)  $-   $60,953   $(51,261)  $9,692 

 

F-12
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

3FIXED ASSETS AND INTANGIBLE ASSETS (continued)

 

Depreciation expense amounted to $9,692 and $20,986 for the years ended October 31, 2011 and 2010, respectively.

 

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

 

   October 31, 2011   October 31, 2010 
   Gross
Carrying
Amount
   Accumulated
Amortization
   Net
Carrying
Amount
   Gross
Carrying
Amount
   Accumulated
Amortization
   Net
Carrying
Amount
 
Identifiable assets with  determinable lives:                              
Website Software  $100,000   $(100,000)  $-   $100,000   $-   $100,000 
Website domain names   25,000    (25,000)   -    25,000    (17,714)   7,286 
Total Intangible Assets  $125,000   $(125,000)  $-   $125,000   $(17,714)  $107,286 

 

Amortization expense amounted to $107,286 and $755,012 for the years ended October 31, 2011 and 2010, respectively.  

 

4CONVERTIBLE NOTES 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 year ended October 31, 2011, the Company incurred $3,460 of interest expense in connection with this note and is accrued interest at October 31, 2011.

 

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 $17,368 for the year ended October 31, 2011.  The note balance at October 31, 2011, net of the remaining unamortized discount of $12,632 was $17,368.

 

On April 3, 2012, the $30,000 note and accrued interest of $6,624 was converted into 3,662,400 shares of common stock.

 

5INCOME TAXES

 

The Company accounts for income taxes taking into account deferred tax assets and liabilities which represent the future tax consequences of the differences between financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year the change is enacted.

 

F-13
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

5INCOME TAXES (continued)

 

The provision (benefit) for income taxes consists of the following for the years ended October 31, 2011 and 2010:

 

   2011   2010 
         
Current  $-   $- 
Deferred   (174,000)   (1,000,000)
           
Subtotal   (174,000)   (1,000,000)
           
Valuation allowance   174,000    1,000,000 
           
Provision for income taxes  $-   $- 

 

The provision for income taxes varies from the statutory rate applied to the total loss as follows for the years ended October 31, 2011 and 2010:

 

   2011   2010 
         
Federal income tax benefit at statutory rate (34%)  $(154,000)  $(1,047,000)
State tax benefit, net of federal   (27,000)   (185,000)
           
Nondeductible expenses   7,000    232,000 
           
Current valuation allowance   174,000    1,000,000 
           
   $-   $- 

 

F-14
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

5INCOME TAXES (continued)

 

Significant components of the Company’s estimated deferred tax balances at October 31, 2011 and 2010 consist of:

 

   2011   2010 
         
Deferred tax assets (liabilities)          
Net operating loss carryforwards  $1,376,000   $1,226,000 
Accrued expenses   148,000    114,000 
Share-based compensation   33,000    32,000 
Depreciation   4,000    4,000 
Amortization   674,000    685,000 
           
Net deferred tax assets   2,235,000    2,061,000 
Valuation allowance   (2,235,000)   (2,061,000)
           
Net deferred tax assets  $-   $- 
           

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company has recorded a full valuation allowance against its net deferred tax assets because it is not currently able to conclude that it is more likely than not that these assets will be realized. The amount of deferred tax assets considered to be realizable could be increased in the near term if estimates of future taxable income during the carryforward period are increased.

 

The Company has a total net operating loss carryforward of approximately $3,440,000 of which expires beginning in 2028 through 2031. Under the Internal Revenue Code Section 382 (IRC 382), certain stock transactions which significantly change ownership, including the sale of stock to new investors, the exercise of options to purchase stock, or other transactions between shareholders could limit the amount of net operating loss carryforwards that may be utilized on an annual basis to offset taxable income in future periods. The contemplated transaction with the share exchange agreement dated April 3, 2012 (See Note 10 for further information) could significantly limit the use of these loss carryforwards.

 

The Company did not have any material unrecognized tax benefits as of October 31, 2011 and 2010. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company recorded no interest and penalties during the years ended October 31, 2011 and 2010. The Company is subject to U.S. federal tax examinations by tax authorities for all tax years since 2008. The Company is open to state tax audits until the applicable statute of limitations expires.

 

F-15
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

6SHARE-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 years ended October 31, 2011 and 2010 was $1,560 and $8,763, respectively. This expense is included in general and administrative expense. The compensation expense had less than a $0.01 and $0.05 per share impact on the basic loss per common share for the years ended October 31, 2011 and 2010, respectively.

 

The following is a summary of stock option activity for the year ended October 31, 2011 and 2010:

 

   Number of
options
   Weighted
average
exercise
price
   Aggregate
intrinsic
value
   Weighted
average
remaining
contractual term
(years)
 
                 
Outstanding at October 31, 2009   1,000,000   $0.25         4.1 
Granted   -    -           
Exercised   -    -           
Forfeited or expired   (200,000)   -           
                     
Outstanding at October 31, 2010   800,000    0.25         2.87 
Granted   -    -           
Exercised   -    -           
Forfeited or expired   -    -           
                     
Outstanding at October 31, 2011   800,000   $0.25   $-    1.87 
                     
Exercisable at October 31, 2011   800,000   $0.25   $-    1.87 

 

The aggregate intrinsic value in the table above represents the difference between the closing stock price on October 31, 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 October 31, 2011.  There were no options exercised during the years ended October 31, 2011 and 2010.

 

Restricted Stock Compensation

 

The Company recorded $0 and $3,125 stock compensation expense in the consolidated statement of operations related to vested shares (restricted stock) previously granted for the years ended October 31, 2011 and 2010, respectively. 

 

F-16
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

6SHARE-BASED COMPENSATION (continued)

 

Stock Warrants

 

As of October 31, 2011, the Company has 200,000 warrants outstanding with the exercise price of $0.30. The warrants expired on December 12, 2011.

 

7SHAREHOLDERS’ EQUITY

 

2011 Activity

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.

 

2010 Activity

In May 2010, 100,000 treasury shares with a historical cost of $25,000 were issued as compensation to an employee of the Company. The fair value of the award at issuance was $4,000. The excess of $21,000 has been recorded against accumulated deficit.

 

8RELATED PARTY TRANSACTIONS

 

Accounts Payable – Minority Stockholder

 

The Company’s principal advertising agency/website developer was owed $615,264 and $583,708 at October 31, 2011 and 2010, respectively. The two principals of this advertising company are also minority stockholders in the Company – holding approximately 1.6% of the Company’s outstanding shares at October 31, 2011. For the years ended October 31, 2011 and 2010, the Company incurred $31,556 and $70,850 in services and rent from this related party, respectively.

 

Included in the $31,556 and $28,000 are $32,000 and $42,000 in office rent expense for the Company for each of the years ended October 31, 2011 and 2010, respectively. The Company informally rents office space for its headquarters and real estate operation in Minneapolis from the related party on a month to month basis. The Company is currently in negotiations with the website developer to settle this debt with cash and some form of the Company’s equity.

 

F-17
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

8RELATED PARTY TRANSACTIONS (continued)

 

Due to Officers

 

As of October 31, 2011 and 2010, the Company was indebted to its officers for amounts totaling $3,578 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

 

During the year ended October 31, 2010, the Company borrowed $355,500 from its CEO under a convertible promissory note accruing interest at an annual rate of 12%. On March 15, 2011, the CEO converted $300,000 of this debt into 30,000,000 shares of common stock. These notes were previously modified on October 12, 2010 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 because the stock was trading at $0.03 on that date. For the years ended October 31, 2011 and 2010, the Company incurred $46,038 and $630,932 of interest expense in connection with this note, respectively. Accrued interest included in accrued expenses due under the note as of October 31, 2011 and 2010 was $91,962 and $51,924, respectively. The accrued interest is also convertible into the Company’s common stock at $0.01 per share.

 

9BASIC 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 equivalent shares outstanding.

 

F-18
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

9BASIC AND DILUTED EARNINGS PER SHARE (continued)

 

The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share for the years ended October 31, 2011 and 2010, respectively. The calculation has been retrospectively adjusted for the 1 for 200 reverse stock split which occurred on May 17, 2012.

 

Basic earnings per share calculation:  2011   2010 
         
Net loss  $(453,632)  $(3,080,671)
           
Weighted average of common shares outstanding   293,916    166,984 
           
Net loss per basic share-basic  $(1.54)  $(18.45)
           
Diluted earnings per share calculation:          
Net loss  $(453,633)  $(3,080,671)
           
Weighted average of common shares outstanding   293,913    166,984 
Stock options (1)   -    - 
Stock warrants (2)   -    - 
Convertible notes payable - officer/stockholder (3)   -    - 
Convertible notes payable (4)   -    - 
Diluted weighted average common shares outstanding   293,916    166,984 
           
Net loss per diluted share  $(1.54)  $(18.45)

 

(1)The dilutive effect of stock options in the above table excludes 4,000 and 4,000 of underlying options for the years ended October 31, 2011 and 2010, respectively, as they would be anti-dilutive to our net loss for those years.

 

(2)The dilutive effect of stock warrants in the above table excludes 1,000 and 1,000 of underlying warrants for the years ended October 31, 2011 and 2010, respectively, as they would be anti-dilutive to our net loss for those years.

 

(3)The dilutive effect of potential convertible notes and accrued interest equivalent to 167,520 and 290,212 shares related to the convertible promissory note from the Company’s CEO for the years ended October 31, 2011 and 2010 have been excluded as they would be anti-dilutive to our net losses for each of the years.

 

(4)The dilutive effect of a potential convertible note equivalent to 16,730 shares related to a convertible promissory note as of October 31, 2011 which been excluded as it would be anti-dilutive to our net loss for the year.

 

F-19
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2011 and 2010

 

10SUBSEQUENT EVENTS

 

On March 16, 2012, the Company sold the “Webdigs” domain, technology and certain trademarks to Fiontrai II, LLC for $15,000. These assets, which were held in Webdigs, LLC, included US Trademark No. 3,461,665 "Webdigs", along with www.webdigs.com domain name and the original webdigs.com website software and technology developed by MoCo, Inc. Included in this transaction was a royalty agreement whereby Webdigs could receive royalty payments from Fiontrai upon its licensing the technology to other third parties. Also included in this transaction was a royalty agreement for which Fiontrai II paid $1,000.00 (part of the total $15,000). Robert Buntz, CEO purchased the royalty agreement from the Company in exchange for a principal reduction of his loan to the Company of $5,000.00.

 

On April 3, 2012, the convertible note of $30,000 plus accrued interest of $6,624 was converted into 3,662,400 shares of common stock at a conversion price of $0.01 per share. See Note 5 for further information.

 

Additionally, on April 3, 2012, the Company entered into a share exchange agreement with Next 1 Interactive, Inc. (“Next 1”), a publicly traded company. The agreement calls for Next 1 to exchange 100% of the common shares (100,000,000) of their wholly-owned subsidiary Next One Realty, Inc., for newly issued Series A Convertible Preferred Stock of Webdigs. The Series A Convertible Preferred Stock has not yet been designated and is the subject of negotiation. At the closing of this transaction Next 1 would own, on an as-converted basis, approximately 93% of the issued and outstanding shares of Webdigs, Inc. As a result, Next 1 would be in control of the Company and potential future operations have not been determined at this time.

 

On May 17, 2012, the Company affected a 1 for 200 reverse stock split. The Company retrospectively restated the outstanding shares for the earnings per share calculation. The balance sheet has not been restated and will be adjusted during the period the split occurred.

  

On May 7, 2012, we transferred ownership of TheMLSDirect.com and associated domain names previously acquired from Tracy Johnson, back to Tracy Johnson in consideration of all monies owed to Mr. Johnson by the company totaling $8,950.

 

F-20
 

 

Exhibits

 

Exhibit
Number
  Description
21   Subsidiaries of Webdigs, Inc. *
     
31.1   Certification of CEO pursuant to Section 302. *
     
31.2   Certification of CFO pursuant to Section 302. *
     
32.1   Certification of CEO pursuant to Section 906. *
     
32.2   Certification of CFO pursuant to Section 906. *
     

 

* Filed electronically herewith.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly 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.
President and Chief Executive Officer
June 5, 2012
 
/s/ Edward Wicker.
Edward Wicker
Chief Financial Officer
June 5, 2012

 

30
 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Title   Date
         
/s/ Robert A. Buntz, Jr.   President, Chairman and Chief Executive Officer    June 5, 2012 
Robert A. Buntz, Jr.    (Principal Executive Officer)    
         
/s/ Edward Wicker   Chief Financial Officer   June 5, 2012 
Edward Wicker    (Principal Financial Officer)    

 

31