x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
For the fiscal year ended October 31,
2008
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
|
For the transition period from _______________________ to
___________________
|
Delaware
|
11-3820796
|
|
(State
of incorporation)
|
(I.R.S.
Employer Identification No.)
|
|
3433
West Broadway St, NE, Suite 501
Minneapolis,
MN
|
55413
|
|
(Address
of principal executive offices)
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(Zip
Code)
|
Page
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||
PART
I
|
1
|
|
Item
1.
|
Business
|
1
|
Item
1A.
|
Risk
Factors
|
10
|
Item
1B.
|
Unresolved
Staff Comments
|
|
Item
2.
|
Properties
|
17
|
Item
3.
|
Legal
Proceedings
|
17
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
17
|
PART
II
|
18
|
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
18
|
Item
6.
|
Selected
Financial Data
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
21
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
33
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
34
|
Item
9A.
|
Controls
and Procedures
|
34
|
Item
9B.
|
Other
Information
|
36
|
PART
III
|
37
|
|
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
37
|
Item
11.
|
Executive
and Director Compensation
|
39
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
41
|
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
43
|
Item
14.
|
Principal
Accountant Fees and Services
|
43
|
PART
IV
|
44
|
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
44
|
Signatures
|
|
·
|
submitted
to us more than 2,000 requests for us to schedule a personal visit of a
property
|
|
·
|
submitted
to us more than 400 requests to prepare purchase offers,
and
|
|
·
|
closed
over 110 purchases or sales of
properties.
|
|
·
|
Invest in our website
interface and technology. Our goal is to make the interface more
easy to use, more intuitive, more enjoyable and distinguishable from the
other websites and Internet tools that buyers and sellers of homes are
accustomed to. We believe that continuing to update and enhance our
website and technology will be a key element in increasing traffic and use
of our services.
|
|
·
|
Focus on branding and creating
market awareness. We have spent considerable attention to building
our brand and market awareness with an advertising campaign that uses a
mix of media, including the Internet, television, print, radio,
direct-mail, outdoor signage and various moveable signage (e.g., branded
public buses in the Twin Cities metropolitan area). We expect to continue
this branding effort on a selective and thoughtful basis, with a view
towards achieving maximum return for our marketing and advertising dollars
and efforts.
|
|
·
|
Develop an efficient
transaction-processing and back-office operation. We believe that
one important factor in our overall success, especially given our
discounted commissions and flat-fee model, will be our ability to process
high transaction volumes efficiently. Accordingly, we intend to utilize
transaction processes and computer systems more commonly found in
high-volume industries such as banking and
insurance.
|
|
·
|
Attain profitability in our
current markets. There are a number of Internet-based real estate
brokers presently attempting to capitalize on perceived market,
demographic, trade/industry and economic changes. To our knowledge, none
of these businesses have reached sustained profitability needed to
validate the discounted Internet-based real estate brokerage model.
Therefore, we believe that an initial critical strategic goal is for
Webdigs to attain overall profitability across its three current markets
in the Minneapolis-St. Paul metropolitan area, Wisconsin, and southern
Florida. We believe that profitability—especially sustained
profitability—will buoy consumer confidence in our services and lead to
further successes.
|
|
·
|
domain
name rights to www.webdigs.com
|
|
·
|
trademark
and trade name for “Webdigs” and
|
|
·
|
trademark
for: “The New Way to do Real
Estate”
|
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
|
0 | N/A | 0 | |||||||||
Restricted
Stock Plan and Stock Option equity compensation plans not
approved by shareholders (1)
(2)
|
9,210,347 | $ | 0.25 |
None
|
(1)
|
8,610,347
shares reflected in the table were subject to our 2007 Restricted Stock
Plan.
|
(2)
|
We
granted a total of 600,000 stock options to three non-employee directors
in May 2008. These options grant purchase of Webdigs, Inc.
common stock at $0.25 each and expire in May, 2013 (see Note 9 of the
financial statements for more
information).
|
|
·
|
A
total of 35 accredited investors in Minnesota acquired 3,458,000 of these
shares and were sold at the per-share price of $0.25. One
accredited investor purchased 260,000 shares at the per-share price of
$0.18. Another investor (unaccredited) purchased 500,000 shares
at a per share price of $0.10. The total aggregate gross
proceeds to Webdigs from these sales totaled $961,300, with net proceeds
of $960,159. All of purchasers of these shares, except
the one individual referenced above, represented to us in writing that
they were “accredited investors” (as defined by Rule 501 under the
Securities Act of 1933), and all investors represented to us that they
were acquiring the shares for investment and not distribution, that they
could bear the risks of the investment and could hold the securities for
an indefinite period of time; and
|
|
·
|
In
October 2008, we issued 1,200 shares for services to a Company
consultant. The 1,200 shares satisfied a $300 payable ($0.25
per share) to the consultant.
|
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Real
Estate
|
Mortgage
|
Corporate
|
||||||||||||||
Brokerage
|
Brokerage
|
&
Other
|
Total
|
|||||||||||||
Year
Ended October 31, 2008
|
||||||||||||||||
Revenues
|
$ | 344,209 | $ | 538,579 | $ | - | $ | 882,788 | ||||||||
Operating
loss
|
(1,129,413 | ) | (208,893 | ) | (735,296 | ) | (2,073,602 | ) | ||||||||
Equity
in loss from MHMW
|
- | (9,064 | ) | - | (9,064 | ) | ||||||||||
Interest
expense
|
285 | 7,281 | - | 7,566 | ||||||||||||
Depreciation
& amortization
|
147,803 | 65,964 | - | 213,767 | ||||||||||||
Identifiable
net assets
|
322,499 | 91,736 | 39,984 | 454,219 | ||||||||||||
Capital
expenditures
|
15,938 | 2,278 | - | 18,216 | ||||||||||||
For
the period from Inception (May 1, 2007) to October 31,
2007
|
||||||||||||||||
Revenues
|
$ | 6,400 | $ | 93,454 | $ | - | $ | 99,854 | ||||||||
Operating
loss
|
(305,220 | ) | (70,267 | ) | (227,229 | ) | (602,716 | ) | ||||||||
Equity
in loss from MHMW
|
- | - | - | - | ||||||||||||
Interest
expense
|
- | - | - | - | ||||||||||||
Depreciation
& amortization
|
11,486 | 3,425 | 1,492 | 16,403 | ||||||||||||
Identifiable
net assets
|
412,030 | 187,372 | 157,892 | 757,294 | ||||||||||||
Capital
expenditures
|
413,516 | - | 17,386 | 430,902 |
|
·
|
determining
the life of our website and customer list intangible
assets
|
|
·
|
determining
some of the inputs for our stock option fair value calculation,
and
|
|
·
|
assessing
the valuation allowance for income
taxes.
|
Office
equipment
|
2
to 5 years
|
Furniture
and fixtures
|
3
to 7
years
|
PAGE
|
||
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated
Financial Statements:
|
||
Consolidated
Balance Sheets
|
F-2
|
|
Consolidated
Statements of Operations
|
F-4
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
F-5
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 37,802 | $ | 113,280 | ||||
Commissions
and fees receivable
|
12,467 | 12,255 | ||||||
Prepaid
expenses and deposits
|
14,011 | 19,192 | ||||||
Other
current assets
|
6,125 | - | ||||||
Total
current assets
|
70,405 | 144,727 | ||||||
Investment
in Marketplace Home Mortgage - Webdigs, LLC
|
2,182 | - | ||||||
Office
equipment and fixtures, net
|
30,202 | 55,699 | ||||||
Intangible
assets, net
|
351,430 | 556,868 | ||||||
Total
assets
|
$ | 454,219 | $ | 757,294 |
2008
|
2007
|
|||||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of capital lease obligations
|
$ | 3,828 | $ | 8,929 | ||||
Accounts
payable
|
377,538 | 98,581 | ||||||
Accounts
payable - minority stockholder
|
550,206 | 274,413 | ||||||
Due
to officers
|
27,277 | 17,601 | ||||||
Accrued
expenses:
|
||||||||
Professional
fees
|
50,000 | 50,000 | ||||||
Payroll
and commissions
|
32,269 | 11,183 | ||||||
Lease
expenses for vacated office space
|
55,913 | - | ||||||
Other
|
15,170 | 11,902 | ||||||
Total
current liabilities
|
1,112,201 | 472,609 | ||||||
Capital
lease obligations, less current portion
|
10,431 | 36,470 | ||||||
Total
liabilities
|
1,122,632 | 509,079 | ||||||
Stockholders'
equity (deficit)
|
||||||||
Common
stock - $.001 par value; 125,000,000 shares authorized as common stock and
an additional 125,000,000 shares designated as either common or preferred
stock; 22,308,711 and 18,442,840 common shares issued and outstanding at
October 31, 2008 and 2007, respectively.
|
22,309 | 18,443 | ||||||
Additional
paid-in capital
|
2,002,226 | 832,488 | ||||||
Accumulated
deficit
|
(2,692,948 | ) | (602,716 | ) | ||||
Total
stockholders' equity (deficit)
|
(668,413 | ) | 248,215 | |||||
Total
liabilities and stockholders' equity (deficit)
|
$ | 454,219 | $ | 757,294 |
2008
|
2007
|
|||||||
Revenue:
|
||||||||
Gross
revenue
|
$ | 1,220,041 | $ | 105,675 | ||||
Less:
customer rebates and third-party agent commissions
|
(337,253 | ) | (5,821 | ) | ||||
Net
revenues
|
882,788 | 99,854 | ||||||
Operating
expenses:
|
||||||||
Selling
|
2,095,932 | 385,955 | ||||||
General
and administrative
|
860,458 | 316,615 | ||||||
Total
operating expenses
|
2,956,390 | 702,570 | ||||||
Operating
loss
|
(2,073,602 | ) | (602,716 | ) | ||||
Other
income (expense):
|
||||||||
Equity
in loss from Marketplace Home Mortgage Webdigs, LLC
|
(9,064 | ) | - | |||||
Interest
expense
|
(7,566 | ) | - | |||||
Total
other income (expense)
|
(16,630 | ) | - | |||||
Net
loss before income taxes
|
(2,090,232 | ) | (602,716 | ) | ||||
Income
tax provision
|
- | - | ||||||
Net
loss
|
$ | (2,090,232 | ) | $ | (602,716 | ) | ||
Net
loss per common share - basic and diluted
|
$ | (0.10 | ) | $ | (0.06 | ) | ||
Weighted
average common shares outstanding - basic and diluted
|
21,071,802 | 9,359,494 |
|
Total
|
|||||||||||||||||||
Common Stock
|
Additional
Paid-in
|
Accumulated
|
Stockholders'
Equity
|
|||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
(Deficit)
|
||||||||||||||||
Balance
at inception (May 1, 2007)
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
Issuance
of founders' shares
|
4,403,020 | 4,403 | 6,097 | - | 10,500 | |||||||||||||||
Restricted
common stock awards - no immediate vesting
|
8,610,347 | 8,610 | (8,610 | ) | - | - | ||||||||||||||
Shares
issued to acquire Home Equity Advisors, LLC
|
260,920 | 261 | 31,739 | - | 32,000 | |||||||||||||||
Shares
issued to acquire Marquest Financial, Inc.
|
260,920 | 261 | 63,739 | - | 64,000 | |||||||||||||||
Shares
issued in private placement offering net of issuance
costs of $6,563, pre-merger
|
1,936,510 | 1,936 | 466,501 | - | 468,437 | |||||||||||||||
Shares
issued to officer (CEO) in lieu of cash compensation
|
346,534 | 347 | 84,653 | - | 85,000 | |||||||||||||||
|
||||||||||||||||||||
Preferred
dividends paid prior to the reverse merger with Select Video,
Inc.
|
- | - | (5,857 | ) | - | (5,857 | ) | |||||||||||||
Recapitalization
of shares issued by Select Video, Inc. prior to the
merger
|
3,952,325 | 3,952 | 23,929 | - | 27,881 | |||||||||||||||
Shares
issued in private placement offering, post-merger
|
300,000 | 300 | 74,700 | - | 75,000 | |||||||||||||||
Compensation
related to vesting of restricted common stock awards, net of
forfeitures
|
(1,627,736 | ) | (1,627 | ) | 95,597 | - | 93,970 | |||||||||||||
Net
loss for the period from inception (May 1, 2007) to October 31,
2007
|
- | - | - | (602,716 | ) | (602,716 | ) | |||||||||||||
Balances,
October 31, 2007
|
18,442,840 | 18,443 | 832,488 | (602,716 | ) | 248,215 | ||||||||||||||
Directors
stock option compensation
|
- | - | 46,237 | - | 46,237 | |||||||||||||||
Common
stock issued for services
|
1,200 | 1 | 299 | - | 300 | |||||||||||||||
Shares
issued in private placement offering, net of $1,141 for issuance
costs
|
4,218,000 | 4,218 | 955,941 | - | 960,159 | |||||||||||||||
Compensation
related to vesting of restricted common stock awards, net of
forfeitures
|
(353,329 | ) | (353 | ) | 167,261 | - | 166,908 | |||||||||||||
Net
loss for the year ended October 31, 2008
|
- | - | - | (2,090,232 | ) | (2,090,232 | ) | |||||||||||||
Balances,
October 31, 2008
|
22,308,711 | $ | 22,309 | $ | 2,002,226 | $ | (2,692,948 | ) | $ | (668,413 | ) |
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (2,090,232 | ) | $ | (602,716 | ) | ||
Adjustments
to reconcile net loss to net cash flows used in operating
activities:
|
||||||||
Depreciation
|
22,031 | 1,492 | ||||||
Amortization
|
191,736 | 14,911 | ||||||
Equity
in the loss of Marketplace Home Mortgage - Webdigs, LLC
|
9,064 | - | ||||||
Share-based
compensation
|
213,145 | 178,970 | ||||||
Loss
on disposition of office equipment and fixtures
|
580 | - | ||||||
Common
stock issued for services
|
300 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Commissions
and fees receivable
|
(212 | ) | 6,288 | |||||
Prepaid
expenses and deposits
|
5,181 | (8,837 | ) | |||||
Other
current assets
|
(6,125 | ) | - | |||||
Accounts
payable
|
278,957 | 43,942 | ||||||
Accounts
payable - minority stockholder
|
275,793 | 274,413 | ||||||
Accrued
expenses
|
80,267 | 34,656 | ||||||
Net
cash flows used in operating activities
|
(1,019,515 | ) | (56,881 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Payments
for web-site development costs
|
- | (413,516 | ) | |||||
Purchase
of equipment and fixtures
|
(18,216 | ) | (17,386 | ) | ||||
Cash
paid in connection with acquisition of HEA, net of cash
acquired totaling $1,896
|
- | (92 | ) | |||||
Cash
acquired with acquisition of Marquest, net of legal costs of
$560
|
- | 7,593 | ||||||
Cash
obtained from reverse merger with Select Video, Inc.
|
- | 27,881 | ||||||
Net
cash flows used in investing activities
|
(18,216 | ) | (395,520 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Payment
of preferred dividends
|
- | (5,857 | ) | |||||
Issuance
of common stock, net of issuance costs of $1,141 and $6,563,
respectively
|
960,159 | 553,937 | ||||||
Increase
in due to officer
|
9,676 | 17,601 | ||||||
Principal
payments on capital lease obligations
|
(7,582 | ) | - | |||||
Net
cash flows provided by financing activities
|
962,253 | 565,681 | ||||||
Net
change in cash and cash equivalents
|
(75,478 | ) | 113,280 | |||||
Cash
and cash equivalents, beginning of period
|
113,280 | - | ||||||
Cash
and cash equivalents, end of period
|
$ | 37,802 | $ | 113,280 |
Office
equipment
|
2
to 5 years
|
Furniture
and fixtures
|
3
to 7 years
|
Cash
|
$ | 1,896 | ||
Commissions
receivable
|
15,543 | |||
Office
equipment
|
900 | |||
Customer
lists
|
27,404 | |||
Accounts
payable and accrued expenses
|
(11,745 | ) | ||
$ | 33,998 |
Cash
|
$ | 8,153 | ||
Commissions
receivable
|
3,000 | |||
Prepaid
expenses
|
10,355 | |||
Office
equipment
|
38,905 | |||
Deferred
tax assets, net
|
11,000 | |||
Valuation
allowance
|
(11,000 | ) | ||
Customer
lists
|
130,859 | |||
Accounts
payable
|
(49,281 | ) | ||
Accrued
expenses
|
(32,032 | ) | ||
Capital
lease obligation
|
(45,399 | ) | ||
$ | 64,560 |
For the Period from Inception (May 1, 2007) to October 31, 2007
|
||||||||||||||||
Webdigs, Inc.
|
HEA
|
Marquest
|
Total
|
|||||||||||||
Net
revenues
|
$ | 6,400 | $ | 143,269 | $ | 465,334 | $ | 615,003 | ||||||||
Selling,
general and administrative expense
|
(538,699 | ) | (185,541 | ) | (530,212 | ) | (1,254,452 | ) | ||||||||
Operating
(loss)
|
(532,299 | ) | (42,272 | ) | (64,878 | ) | (639,449 | ) | ||||||||
Interest
expense
|
- | (266 | ) | (7,489 | ) | (7,755 | ) | |||||||||
Net
loss before income taxes
|
(532,299 | ) | (42,538 | ) | (72,367 | ) | (647,204 | ) | ||||||||
Income
tax provision
|
- | - | - | - | ||||||||||||
Net
loss
|
$ | (532,299 | ) | $ | (42,538 | ) | $ | (72,367 | ) | $ | (647,204 | ) | ||||
Loss
per common share - basic and diluted
|
$ | (0.06 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.07 | ) | ||||
Weighted
average common shares outstanding - basic and diluted
|
9,359,494 | 9,359,494 | 9,359,494 | 9,359,494 |
Net
Book
Value
|
||||
Fixed
assets
|
$ | 21,102 | ||
Customer
list
|
13,702 | |||
Capital lease
obligations
|
(23,558 | ) | ||
Net investment in joint
venture
|
$ | 11,246 |
Current
assets
|
$ | 18,850 | ||
Other
assets
|
22,136 | |||
Current
liabilities
|
(15,859 | ) | ||
Net assets
|
$ | 25,127 |
Underlying
assets in Marketplace Home Mortgage - Webdigs, LLC (49%)
|
12,312 | |||
Less:
deferred gain on excess of fair value received over net book value of
assets contributed to Marketplace Home Mortgage - Webdigs, LLC
(1)
|
(10,130 | ) | ||
Investment
in Marketplace Home Mortgage - Webdigs, LLC at October 31,
2008
|
$ | 2,182 |
|
(1)
|
At
October 31, 2008, the Company’s share of the underlying net assets of
Marketplace Home Mortgage – Webdigs, LLC exceeded its investment by
$10,130. The excess, which relates to office equipment, is
being amortized into income over the estimated remaining life of the
respective asset (43 months).
|
Revenue
|
$ | 102,768 | ||
Operating
expenses
|
(121,933 | ) | ||
Operating
loss
|
(19,165 | ) | ||
Other
expense
|
(883 | ) | ||
Net
loss
|
$ | (20,048 | ) | |
Equity
in the loss of Marketplace Home Mortgage - Webdigs, LLC
(49%)
|
$ | (9,824 | ) | |
Amortization
of deferred gain on transfer of non-cash assets at book
value
|
760 | |||
Total
net equity in the loss of Marketplace Home Mortgage - Webdigs,
LLC
|
$ | (9,064 | ) |
2008
|
2007
|
|||||||
Office
equipment and fixtures
|
$ | 43,305 | $ | 57,191 | ||||
Less
accumulated depreciation
|
(13,103 | ) | (1,492 | ) | ||||
Office
equipment and fixtures, net
|
$ | 30,202 | $ | 55,699 |
2008
|
2007
|
|||||||
Website
development
|
$ | 413,516 | $ | 413,516 | ||||
Customer
lists
|
130,859 | 158,263 | ||||||
544,375 | 571,779 | |||||||
Less
accumulated amortization
|
(192,945 | ) | (14,911 | ) | ||||
Intangible
assets, net
|
$ | 351,430 | $ | 556,868 |
Years ending October 31,
|
||||
2009
|
$ | 181,452 | ||
2010
|
169,978 | |||
$ | 351,430 |
Years ending October 31,
|
||||
2009
|
$ | 4,987 | ||
2010
|
4,987 | |||
2011
|
4,987 | |||
2012
|
1,663 | |||
Total
|
16,624 | |||
Less: amount
representing interest
|
(2,365 | ) | ||
Net
capital lease obligation
|
14,259 | |||
Less: current
portion
|
(3,828 | ) | ||
Long-term
obligations under capital lease
|
$ | 10,431 |
2008
|
2007
|
|||||||
Current
|
$ | — | $ | — | ||||
Deferred
|
(755,000 | ) | (8,000 | ) | ||||
(755,000 | ) | (8,000 | ) | |||||
Establishment
of net deferred tax asset as of October 24, 2007 due to the reverse merger
and change in tax status
|
— | (32,000 | ) | |||||
(755,000 | ) | (40,000 | ) | |||||
Valuation
allowance
|
755,000 | 40,000 | ||||||
Provision
for income taxes
|
$ | — | $ | — |
2008
|
2007
|
|||||||
Federal
income tax benefit at statutory rate (34%)
|
$
|
(710,000
|
)
|
$
|
(205,000
|
)
|
||
State
tax benefit, net of federal
|
(125,000
|
)
|
(36,000
|
)
|
||||
Non-deductible
expenses
|
80,000
|
1,000
|
||||||
Operating
loss passed to LLC members prior to reverse merger (May 1, 2007
to October 23, 2007)
|
—
|
232,000
|
||||||
Establishment
of net deferred tax asset due to tax status change
|
—
|
(32,000
|
)
|
|||||
Current
valuation allowance
|
755,000
|
40,000
|
||||||
Provision
for income taxes
|
$
|
—
|
$
|
—
|
2008
|
2007
|
|||||||
Deferred
tax assets (liabilities):
|
||||||||
Net
operating loss carryforwards
|
$
|
755,000
|
$
|
76,000
|
||||
Accrued
expenses
|
56,000
|
20,000
|
||||||
Share-based
compensation
|
18,000
|
—
|
||||||
Other
|
1,000
|
—
|
||||||
Depreciation
|
(1,000
|
)
|
(5,000
|
)
|
||||
Amortization
|
(34,000
|
)
|
(51,000
|
)
|
||||
Net
deferred tax assets
|
795,000
|
40,000
|
||||||
Valuation
allowance
|
(795,000
|
)
|
(40,000
|
)
|
||||
Net
deferred tax assets
|
$
|
—
|
$
|
—
|
9
|
SHARE-BASED
COMPENSATION
|
2008
|
2007
|
|||||||
Expected
term
|
2.9
years
|
—
|
||||||
Expected
volatility
|
74.0%
|
—
|
||||||
Risk-free
interest rate
|
3.1%
|
—
|
||||||
Dividend
yield
|
—
|
—
|
||||||
Weighted-average fair value of options
granted
|
$ |
0.12
|
—
|
Number
of
options
|
Weighted
average
exercise
price
|
Aggregate
intrinsic
value
|
Weighted
average
remaining
contractual
term
(years)
|
|||||||||||||
Outstanding
at October 31, 2007
|
— | $ | — | $ | — | — | ||||||||||
Granted
|
600,000 | 0.25 | — | |||||||||||||
Exercised
|
— | — | — | |||||||||||||
Forfeited
or expired
|
— | — | — | |||||||||||||
Outstanding
at October 31, 2008
|
600,000 | $ | 0.25 | $ | 0.00 | 4.5 | ||||||||||
Exercisable
at October 31, 2008
|
300,000 | $ | 0.25 | $ | 0.00 | 4.5 |
Restricted
Shares
|
Unearned Compensation
|
|||||||
Outstanding,
May 1, 2007
|
- | - | ||||||
Granted
|
8,610,347 | $ | 463,360 | |||||
Vested
|
(2,295,707 | ) | (93,970 | ) | ||||
Forfeited/canceled
|
(1,627,736 | ) | (3,992 | ) | ||||
Outstanding,
October 31, 2007
|
4,686,904 | 365,398 | ||||||
Granted
|
- | - | ||||||
Vested
|
(2,392,762 | ) | (166,908 | ) | ||||
Forfeited/canceled
|
(353,329 | ) | - | |||||
Outstanding,
October 31, 2008
|
1,940,813 | $ | 198,490 |
10
|
SHAREHOLDERS
EQUITY
|
11
|
RELATED
PARTY TRANSACTIONS
|
12
|
SEGMENT
FINANCIAL INFORMATION
|
Web-Assisted
Real Estate
Brokerage
|
Retail
Mortgage
Brokerage
|
Corporate
And Other
|
Total
|
|||||||||||||
Year Ended October 31, 2008
|
||||||||||||||||
Revenues
|
$ | 344,209 | $ | 538,579 | $ | - | $ | 882,788 | ||||||||
Operating
loss
|
(1,129,413 | ) | (208,893 | ) | (735,296 | ) | (2,073,602 | ) | ||||||||
Equity
in loss from Marketplace Home Mortgage - Webdigs, LLC
|
- | (9,064 | ) | - | (9,064 | ) | ||||||||||
Interest
expense
|
285 | 7,281 | - | 7,566 | ||||||||||||
Depreciation
& amortization
|
147,803 | 65,964 | - | 213,767 | ||||||||||||
Assets
|
322,499 | 91,736 | 39,984 | 454,219 | ||||||||||||
Capital
expenditures and website development costs
|
15,938 | 2,278 | - | 18,216 | ||||||||||||
Period from May 1, 2007 (inception) to October 31,
2007
|
||||||||||||||||
Revenues
|
$ | 6,400 | $ | 93,454 | $ | - | $ | 99,854 | ||||||||
Operating
loss
|
(305,220 | ) | (70,267 | ) | (227,229 | ) | (602,716 | ) | ||||||||
Equity
in loss from Marketplace Home Mortgage - Webdigs, LLC
|
- | - | - | - | ||||||||||||
Depreciation
& amortization
|
11,486 | 3,425 | 1,492 | 16,403 | ||||||||||||
Assets
|
412,030 | 187,372 | 157,892 | 757,294 | ||||||||||||
Capital
expenditures and website development costs
|
413,516 | - | 17,386 | 430,902 |
13
|
BASIC
AND DILUTED EARNINGS PER SHARE
|
2008
|
2007
|
|||||||
Basic
earnings per share calculation:
|
||||||||
Net
loss to common shareholders
|
$ | (2,090,232 | ) | $ | (602,716 | ) | ||
Weighted
average of common shares outstanding
|
21,071,802 | 9,359,494 | ||||||
Basic
net loss per share
|
$ | (0.10 | ) | $ | (0.06 | ) | ||
Diluted
earnings per share calculation:
|
||||||||
Net
loss to common shareholders
|
$ | (2,090,232 | ) | $ | (602,716 | ) | ||
Weighted
average of common shares outstanding
|
21,071,802 | 9,359,494 | ||||||
Stock
options (1)
|
- | - | ||||||
Diluted
weighted average common shares outstanding
|
21,071,802 | 9,359,494 | ||||||
Diluted
net loss per share
|
$ | (0.10 | ) | $ | (0.06 | ) |
(1)
|
The
600,000 shares of options granted and outstanding were anti-dilutive due
to the Company’s net loss for the year ended October 31, 2008, therefore
they have been excluded from the
calculation.
|
14
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
2008
|
2007
|
|||||||
Supplemental cash flow
information
|
||||||||
Cash
paid for interest
|
$ | 7,261 | $ | - | ||||
Supplemental
disclosure of non-cash investing and financing
activities
|
||||||||
Acquisition
of Home Equity, Advisors, LLC by issuing common stock valued at
$32,000:
|
||||||||
Fair
value of assets acquired
|
$ | - | $ | 45,743 | ||||
Liabilities
assumed
|
- | (11,745 | ) | |||||
Cash
paid for acquisition costs
|
- | (1,998 | ) | |||||
Shares
issued for acquisition
|
- | - | ||||||
$ | - | $ | 32,000 | |||||
Acquisition
of Marquest Financial, Inc. by issuing common stock valued at
$64,000:
|
||||||||
Fair
value of assets acquired
|
$ | - | $ | 191,272 | ||||
Liabilities
assumed
|
- | (126,712 | ) | |||||
Cash
paid for acquisition costs
|
- | (560 | ) | |||||
Shares
issued for acquisition
|
- | - | ||||||
$ | - | $ | 64,000 | |||||
Assets
and liabilities transferred to joint venture investment in
Marketplace Home Mortgage - Webdigs, LLC
|
||||||||
Net
office equipment and fixtures contributed
|
$ | 21,102 | $ | - | ||||
Net
intangible asset contributed (customer list)
|
13,702 | - | ||||||
Capital
lease obligations transferred
|
(23,558 | ) | - | |||||
Net
assets and liabilities transferred to joint venture
|
$ | 11,246 | $ | - |
15
|
OPERATING
LEAESE COMMMITMENTS
|
16
|
SUBSEQUENT
EVENTS
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect our transactions and dispositions of our
assets;
|
|
·
|
provide
reasonable assurance our transactions are recorded as necessary to permit
preparation of our financial statements in accordance with GAAP, and that
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 or disposition of our assets that could have
a material effect on the financial
statement.
|
|
·
|
The
Company does not currently have an audit committee that is actively
involved with the financial reporting process and thus the Company lacks
the board oversight role within the financial reporting
process.
|
|
·
|
The
Company’s small size and only one financial person office prohibits the
segregation of duties and the timely review of financial data and banking
information. The Company has limited review procedures in
place.
|
|
·
|
Numerous
GAAP audit adjustments were made to the financial statements for the year
ended October 31, 2008.
|
Name
|
Age
|
Position(s)
|
Independent
Director
|
|||
Robert
A. Buntz, Jr.
|
57
|
Director
(Chairman), Chief Executive Officer and President
|
No
|
|||
Robert
L. Lumpkins
|
64
|
Director
|
Yes
|
|||
Steven
Sjoblad
|
58
|
Director
|
Yes
|
|||
Christopher
Larson
|
36
|
Director
|
Yes
|
|||
Thomas
Meckey
|
32
|
Director,
Vice President of Operations
|
No
|
|||
Edward
Wicker
|
49
|
Chief
Financial Officer
|
N/A
|
Name and
Principal Position
|
Year
|
Salary ($)
|
Bonus
($)
|
Stock
Awards ($)
|
All Other
Comp-
ensation ($)
|
Total ($)
|
||||||||||||||||
Robert
A. Buntz, Jr.,
|
2008
|
$ | 120,000 | - | - | - | $ | 120,000 | ||||||||||||||
Chief
Executive Officer and President (1)
|
2007
|
100,000 | (2) | - | - | - | 100,000 | |||||||||||||||
Edward
P Wicker
|
2008
|
58,000 | - | 99,090 | (4) | - | 157,090 | |||||||||||||||
Chief
Financial Officer (3)
|
2007
|
8,400 | - | 81,000 | (4) | - | 89,400 |
(1)
|
Mr. Buntz become our President
and Chief Executive Officer on October 24, 2007. Prior to
the merger, Mr. Buntz was Managing Partner of Webdigs,
LLC. Mr. Buntz is also the Chairman of our Board of Directors.
Mr. Buntz did not receive any contractually restricted stock during
2007 or 2008.
|
|
(2)
|
$85,000 of this amount was paid
in the form of stock in lieu of cash
compensation.
|
|
(3)
|
Mr. Wicker became Chief Financial
Officer on October 24, 2007. Prior to the merger,
Mr. Wicker acted as Chief Financial Officer of Webdigs,
LLC. Mr. Wicker also serves as Corporate
Secretary.
|
(4)
|
Amounts listed reflects the
estimated fair value of the vested portion of a restricted stock
award of 1,304,598 shares granted on October 22,
2007. As of October 31, 2008, 434,867 shares of the total
1,304,598 remain unvested. These are all scheduled to vest
prior to October 31, 2009.
|
Name
|
Unvested
Share Grants
|
Market Value of
Unvested Shares
|
Vesting Date
|
||||||
Edward
Wicker, Chief Financial Officer
|
434,867 | (1) | $ | 43,487 | (2) |
07/15/2009
(3)
|
(1)
|
These
shares are included as part of Mr. Wicker’s beneficially owned shares in
the table of executive shareholdings (Item
12).
|
(2)
|
Price
per share is calculated using price of most recent
(October 2008) private placement sales of common stock in
blocks greater than 100,000 shares. The Company’s common stock
was not publicly traded or quoted as of October 31,
2008.
|
(3)
|
Shares
vest on a pro rata daily basis from July 16, 2008 through July 15,
2009.
|
|
Fees
|
|
||||||||||||||||||||||||||
Earned
|
|
|
Non-Equity
|
Nonqualified
|
|
|||||||||||||||||||||||
or Paid
|
Stock
|
Option
|
Incentive Plan
|
Deferred
|
All Other
|
|
||||||||||||||||||||||
in Cash
|
Awards
|
Awards
|
Compensation
|
Compensation
|
Compensation
|
Total
|
||||||||||||||||||||||
Name
|
($)
|
($)
|
($)(1)
|
($)
|
Earnings
|
($)
|
($)
|
|||||||||||||||||||||
Christopher
Larson
|
0 | 0 | 15,412 | 0 | 0 | 0 | 15,412 | |||||||||||||||||||||
Robert
L. Lumpkins
|
0 | 0 | 15,412 | 0 | 0 | 0 | 15,412 | |||||||||||||||||||||
Steven
Sjoblad
|
0 | 0 | 15,412 | 0 | 0 | 0 | 15,412 |
(1)
|
Represents
the amount recognized for financial reporting purposes with respect to
2008 for stock options in accordance with
FAS 123R.
|
|
·
|
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.
|
Name
|
Shares Beneficially
Owned (1)
|
Percentage of
Outstanding
Shares (%)
|
||||||
Robert
A. Buntz, Jr.
(2)
|
4,510,460 | 19.5 | % | |||||
Thomas
Meckey
(3)
|
1,302,348 | 5.6 | % | |||||
Robert
L. Lumpkins
(4)
Po
Box 16228
St
Louis Park, MN 55416
|
403,843 | 1.7 | % | |||||
Steven
Sjoblad
(5)
5115
Green Farms Rd,
Edina,
MN 55436
|
100,000 | * | ||||||
Christopher
Larson (6)
8418
W 100th St,
Bloomington,
MN 55438
|
100,000 | * | ||||||
Edward
Wicker (7)
|
1,341,348 | 5.8 | % | |||||
All
current executive officers and directors
as
a group (six persons) (8)
|
7,757,999 | 33.1 | % | |||||
Jesse
Olson
(9)
|
1,302,348 | 5.6 | % | |||||
Ed
Graca
(9)
|
1,302,598 | 5.6 | % | |||||
Joseph
A. Geraci, II (10)
80
S. Eighth Street, Suite 900
Minneapolis,
MN 55402
|
4,465,665
|
16.8
|
% | |||||
Douglas
M. Polinsky (11)
130
Lake Street W., Suite 300
Wayzata,
MN 55391
|
4,508,333
|
16.9
|
% | |||||
Lantern
Advisers, LLC (12)
80
S. Eighth Street, Suite 900
Minneapolis,
MN 55402
|
3,733,333
|
14.0
|
% |
* | 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. Unless otherwise indicated, the business address of each of
the following persons is 3433 Broadway Street NE, Suite 501, Minneapolis,
Minnesota 55413.
|
(2)
|
Mr. Buntz is a director of the
Company and the Company’s Chief Executive Officer and
President.
|
(3)
|
Mr. Meckey is a director of the
Company, and also serves as Vice President of Operations. 434,866
shares held by Mr. Meckey are contractually restricted pursuant to the
Company’s Restricted Stock Plan and the terms and conditions of a Member
Services Agreement by and between Mr. Meckey and Webdigs, LLC, dated as of
October 22, 2007. Restrictions lapse thereunder based on certain
service-based conditions set forth in the Member Services Agreement. All
restricted shares are eligible to vest on July 15,
2009.
|
(4)
|
Mr. Lumpkins is a non-employee
director of the Company. Of those shares set forth on the table, 100,000
shares are issuable upon exercise of vested options to purchase common
stock. In addition, 203,843 outstanding common shares are held jointly
with Mr. Lumpkins’ spouse.
|
(5)
|
Mr. Sjoblad is a non-employee
director of the Company. Of those shares set forth on the table, 100,000
shares are issuable upon exercise of vested options to purchase common
stock.
|
(6)
|
Mr. Larson is a non-employee
director of the Company. All 100,000 shares are issuable upon exercise of
vested options to purchase common
stock.
|
(7)
|
Mr. Wicker is the Company’s Chief
Financial Officer. 434,866 shares held by Mr. Wicker are
contractually restricted pursuant to the Company’s Restricted Stock Plan
and the terms and conditions of a Member Services Agreement by and between
Mr. Wicker and Webdigs, LLC, dated as of October 22, 2007. Restrictions
lapse thereunder based on certain service-based conditions set forth in
the Member Services Agreement. All restricted shares are eligible to vest
on July 15, 2009.
|
(8)
|
Includes Messrs. Buntz, Meckey,
Lumpkins, Sjoblad, Larson and
Wicker.
|
(9)
|
434,866 shares
held by the stockholder are contractually restricted pursuant to the
Company’s Restricted Stock Plan and the terms and conditions of a Member
Services Agreement by and between the stockholder and Webdigs, LLC.
Restrictions lapse thereunder based on certain service-based conditions
set forth in the Member Services Agreement. All restricted shares are
eligible to vest on July 15, 2009.
|
(10)
|
Mr.
Geraci is a member and manager of Lantern Advisers, LLC holding
dispositive and voting power over the shares beneficially owned by Lantern
Advisers. Mr. Geraci’s beneficial ownership includes (i) all
shares beneficially owned by Lantern Advisers (see fn 12 below) and
(ii) 732,332 outstanding
shares.
|
(11)
|
Mr.
Polinsky is a member and manager of Lantern Advisers, LLC holding
dispositive and voting power over the shares beneficially owned by Lantern
Advisers. Mr. Polinsky’s beneficial ownership includes (i) all
shares beneficially owned by Lantern Advisers (see fn 12 below) and
(ii) 775,000 outstanding
shares.
|
(12)
|
Lantern
Advisers, LLC is a Minnesota limited liability. Mr. Joseph A.
Geraci, II and Douglas M. Polinsky are the two members and managers of the
company. The beneficial ownership of Lantern Advisers reflected
in the table above consists of (i) 200,000 outstanding shares, (ii)
200,000 shares issuable upon exercise of a warrant, and
(iii) 3,333,333 shares issuable upon conversion of a convertible
promissory note, in the principal amount of $250,000 and dated December
13, 2008, which matures on September 30, 2008. The convertible
promissory note permits Lantern Advisers to convert principal and interest
under the promissory note, at any time and from time to time, at
conversion rate equal to 75% of the lowest closing bid price of the common
stock of the Company on the five trading days immediately prior to
conversion. This
means that the conversion price for Lantern Advisers under the convertible
promissory note floats and changes from time to time as the bid price for
the common stock of Webdigs changes. For purposes of this
table, we have assumed that the full principal amount of the note
presently outstanding ($250,000) is convertible at a conversion price
equal to $.075 per share, which is 75% of the lowest bid price for the
common stock of the Company from February 6 through February 12,
2009. This results in a total of 3,333,333 common shares
presently issuable upon conversion of the convertible promissory
note.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR
INDEPENDENCE
|
2008
|
2007
|
|||||||
Audit
fees
|
$ | 59,230 | $ | 57,140 | ||||
Audit
related fees
|
19,870 | - | ||||||
Tax
fees
|
18,985 | - | ||||||
All
other fees
|
- | - | ||||||
Total
|
$ | 98,085 | $ | 57,140 |
Description
|
Page
|
|
Report
of Independent Registered Public Accounting Firm on Consolidated Financial
Statements
|
F-1
|
|
Consolidated
Balance Sheets – October 31, 2008 and October 31, 2007
|
F-2
|
|
Consolidated
Statements of Income – Years ended October 31, 2008, and October 31,
2007
|
F-4
|
|
Consolidated
Statement of Changes in Equity – Years ended October 31, 2008 and October
31, 2007
|
F-5
|
|
Consolidated
Statements of Cash Flows – Years ended October 31, 2008 and October 31,
2007
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
Exhibit
Number
|
Description
|
||
2.1
|
Agreement
and Plan of Merger and Reorganization. (1)
|
||
2.2
|
Stock
Purchase Agreement with Home Equity Advisors, LLC.
(1)
|
||
2.3
|
Stock
Purchase Agreement with Marquest Financial, Inc.
(1)
|
||
3.1
|
Amended
and Restated Certificate of Incorporation of Webdigs, Inc.
(originally
submitted and filed under the Company’s prior name, “Select Video,
Inc.”)
(1)
|
||
3.2
|
Amendment
to Amended and Restated Certificate of Incorporation of Webdigs, Inc.
(originally submitted and filed under the Company’s prior name, “Select
Video, Inc.”) (filed with the Minnesota Secretary of State on October 23,
2007)
(1)
|
||
3.3
|
Bylaws
of Webdigs, Inc.
(1)
|
||
4
|
Form
of Specimen Stock Certificate.
(1)
|
||
10.1
|
Webdigs,
Inc. 2007 Restricted Stock Plan.
(1)
|
||
10.2
|
Form
of Webdigs, LLC Member Services Agreements.
(1)
|
||
10.3
|
Member
Services Agreement with Robert A. Buntz, Jr., dated May 1, 2007. (2)
|
||
10.4
|
Member
Services Agreement with Thomas Meckey, dated October 22, 2007. (2)
|
||
10.5
|
Member
Services Agreement with Edward Wicker, dated October 22, 2007. (2)
|
||
10.6
|
Term
Promissory Note dated December 12, 2008 (in principal amount of $250,000,
issued in favor of Lantern Advisors, LLC). *
|
||
10.7
|
Warrant
to Purchase Common Stock dated December 12, 2008 (issued to Lantern
Advisors, LLC). *
|
||
10.8 | Pledge Agreement dated December 12, 2008 (entered into in connection with Term Promissory Note dated December 12, 2008). * | ||
10.9 | Marketplace Home Mortage-Webdigs, LLC Member Control Agreement dated August 1, 2008. * | ||
21
|
Subsidiaries
of Webdigs, Inc. *
|
||
31.1
|
Certification
of CEO pursuant to Section 302. *
|
||
31.2
|
Certification
of CFO pursuant to Section 302. *
|
||
32
|
Certification
of CEO/CFO pursuant to Section 906. *
|
||
99.1
|
Financial
statements of Home Equity Advisors, LLC from inception (September 18,
2006) to December 31, 2006. (1)
|
||
99.2
|
Financial
statements of Marquest Financial, Inc. for the fiscal years ended December
31, 2006 and 2005.
(1)
|
||
99.3
|
Financial
statements of Home Equity Advisors, LLC from January 1, 2007 to June 30,
2007.
(2)
|
||
99.4
|
Financial
statements of Marquest Financial, Inc. from Junuary 1, 2007 to September
30, 2007. (2)
|
(1)
|
Exhibits
are incorporated by reference to the corresponding exhibit number filed as
part of the registrant's original registration statement on Form 10, filed
on June 20, 2008.
|
(2)
|
Exhibits
are incorporated by reference to the corresponding exhibit number filed as
part of Amendment No. 1 to the registrants registration statement on Form
10, filed on July 31, 2008.
|
Webdigs,
Inc.
|
/s/
Robert A. Buntz, Jr.
|
Robert
A. Buntz, Jr.
|
President
and Chief Executive Officer
|
February
13, 2009
|
Name
|
Title
|
Date
|
||
/s/ Robert A. Buntz, Jr. | President, Chairman and Chief Executive Officer |
February
13, 2009
|
||
Robert
A. Buntz, Jr.
|
(Principal
Executive Officer)
|
|
||
/s/ Edward
Wicker
|
Chief
Financial Officer
|
February
13, 2009
|
||
Edward
Wicker
|
(Principal
Financial and Accounting Officer)
|
|
||
/s/ Thomas
Meckey
|
Vice President of Operations and |
February
13, 2009
|
||
Thomas
Meckey
|
Director
|
|
||
Director
|
|
|||
Steven
Sjoblad
|
||||
Director
|
|
|||
Robert
L. Lumpkins
|
|
|
||
/s/ Christopher Larson |
Director
|
February
13, 2009
|
||
Christopher
Larson
|
|
|