0001144204-12-033324.txt : 20120605 0001144204-12-033324.hdr.sgml : 20120605 20120605162002 ACCESSION NUMBER: 0001144204-12-033324 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20110731 FILED AS OF DATE: 20120605 DATE AS OF CHANGE: 20120605 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBDIGS INC CENTRAL INDEX KEY: 0001430523 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE AGENTS & MANAGERS (FOR OTHERS) [6531] IRS NUMBER: 000000000 STATE OF INCORPORATION: MN FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-34106 FILM NUMBER: 12889338 BUSINESS ADDRESS: STREET 1: 3433 BROADWAY STREET NE STREET 2: SUITE 501 CITY: MINNEAPOLIS STATE: MN ZIP: 55413 BUSINESS PHONE: 612 767-3854 MAIL ADDRESS: STREET 1: 3433 BROADWAY STREET NE STREET 2: SUITE 501 CITY: MINNEAPOLIS STATE: MN ZIP: 55413 10-Q 1 v315023_10q.htm QUARTERLY REPORT FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2011

 

OR

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

 

Commission File Number 0-53359

 

WEBDIGS, INC.

 

(Exact name of registrant as specified in its charter)

 

Delaware 11-3820796
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification No.)

 

5775 Wayzata Blvd., Suite 810, Minneapolis, MN

(Address of Principal Executive Offices)

 

(612) 767-3854

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed from last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨   No x

 

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    x No

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

 

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

 

As of May 21, 2012 there were 383,647 shares of the issuer’s common stock, $0.001 par value, outstanding. This takes into account the 1 for 200 reverse stock split which occurred on May 17, 2012.

 

 
 

 

Table of Contents

 

     
    Page
PART I – FINANCIAL INFORMATION  
Item 1. Consolidated Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
Item 4. Controls and Procedures 9
     
PART II – OTHER INFORMATION  
Item 1. Legal Proceedings 11
Item 1A. Risk Factors 11
Item 2. Unregistered Sales of Equity Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Mine Safety Disclosures 11
Item 5. Other Information 11
Item 6. Exhibits 11
     
SIGNATURES 12
     
EXHIBIT INDEX 13

 

 
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements.

 

WEBDIGS, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

FOR THE THREE AND NINE MONTH

PERIODS ENDED JULY 31, 2011 AND 2010

 

1
 

 

WEBDIGS, INC.
 

TABLE OF CONTENTS

  PAGE
   
Consolidated Financial Statements:  
   
Consolidated Balance Sheets F-2
   
Consolidated Statements of Operations F-4
   
Consolidated Statements of Cash Flows F-5
   
Notes to Consolidated Financial Statements F-6

 

F-1
 

 

WEBDIGS, INC.
 

CONSOLIDATED BALANCE SHEETS

(Unaudited)

   July 31,
2011
   October 31,
2010
 
   (Unaudited)   (Audited) 
ASSETS          
           
Current assets:          
Cash and cash equivalents  $10,437   $5,236 
Commissions and fees receivable   -    4,669 
Prepaid expenses and deposits   7,562    4,608 
Other current assets   -    5,583 
           
Total current assets   17,999    20,096 
           
Office equipment and fixtures, net   998    9,692 
           
Intangible assets, net   29,415    107,286 
           
Total assets  $48,412   $137,074 

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

 

F-2
 

 

WEBDIGS, INC.
 

CONSOLIDATED BALANCE SHEETS (continued)

(Unaudited)

   July 31,  2011   October 31,
2010
 
   (Unaudited)   (Audited) 
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
Current liabilities:          
Current portion of capital lease obligations  $2,822   $4,603 
Accounts payable   169,217    115,355 
Accounts payable - minority stockholder   615,264    583,708 
Due to officers   6,094    8,345 
Convertible notes payable to officer/stockholder   240,724    528,500 
Convertible note payable, net of discount     12,632    - 
Accrued expenses:          
Professional fees   18,000    23,500 
Payroll and commissions   295,548    263,201 
Interest   87,297    51,924 
Other liabilities   2,948    16,481 
           
Total current liabilities   1,450,546    1,595,617 
           
Long term liabilities:          
Capital lease obligation, less current portion   -    1,631 
           
Total long term liabilities   -    1,631 
           
Total liabilities   1,450,546    1,597,248 
           
Stockholders' deficit:          
Common stock - $.001 par value; 125,000,000 shares authorized as common stock and an additional 125,000,000 shares designated as common or preferred stock; 73,035,119 and 33,396,719 common shares issued and outstanding at July 31, 2011 and October 31, 2010, respectively   73,035    33,397 
Treasury stock - $.001 par value: 963,628 shares held in treasury as of July 31, 2011 and October 31, 2010   (240,907)   (240,907)
Additional paid-in capital   6,015,076    5,626,770 
Accumulated deficit   (7,249,338)   (6,879,434)
           
Total stockholders' deficit   (1,402,134)   (1,460,174)
           
Total liabilities and stockholders' deficit  $48,412   $137,074 

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

 

F-3
 

 

WEBDIGS, INC.
 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

   Three Months Ended July 31,   Nine Months Ended July 31, 
   2011   2010   2011   2010 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
Revenue:                    
Gross revenues  $117,247   $176,159   $347,392   $592,931 
Less: customer rebates and third-party agent commissions   (35,999)   (54,889)   (92,307)   (217,867)
                     
Net revenues   81,248    121,270    255,085    375,064 
                     
                     
Operating expenses:                    
Selling   56,372    114,969    198,885    358,082 
General and administrative   101,939    106,707    300,200    359,635 
Amortization of intangible assets   18,682    291,188    77,871    728,913 
Impairment charge   -    1,262,705    -    1,262,705 
                     
Total operating expenses   176,993    1,775,569    576,956    2,709,335 
                     
Operating loss   (95,745)   (1,654,299)   (321,871)   (2,334,271)
                     
Other income (expense):                    
Other income (expense)   300    -    300    - 
Interest expense and other   (12,745)   (14,683)   (48,333)   (46,965)
                     
Total other expense   (12,445)   (14,683)   (48,033)   (46,965)
                     
Net loss before income taxes   (108,190)   (1,668,982)   (369,904)   (2,381,236)
                     
Income tax provision   -    -    -    - 
                     
Net loss  $(108,190)  $(1,668,982)  $(369,904)  $(2,381,236)
                     
Net loss per common share - basic and diluted  $(0.30)  $(9.99)  $(1.37)  $(14.26)
                     
Weighted average common shares outstanding - basic and diluted   365,176    166,984    270,162    166,984 

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

 

F-4
 

 

WEBDIGS, INC.
 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

   Nine Months Ended 
   July 31, 
   2011   2010 
   (Unaudited)   (Unaudited) 
Cash flows from operating activities:          
Net loss  $(369,904)  $(2,381,236)
Adjustments to reconcile net loss to net cash flows used in operating activities:          
Depreciation   8,694    16,746 
Amortization of intangible assets   77,871    728,913 
Impairment charge   -    1,262,705 
Amortization of discount for beneficial conversion feature on convertible debt   12,632    - 
Share-based compensation   1,560    15,368 
Changes in operating assets and liabilities:          
Commissions and fees receivable   4,669    (5,422)
Prepaid expenses and deposits   (2,954)   5,314 
Other current assets   5,583    1,200 
Accounts payable   53,862    (115,610)
Accounts payable - minority stockholder   31,556    7,091 
Accrued expenses   158,604    117,476 
Other liabilities   (13,533)   38,188 
Net cash flows used in operating activities   (31,360)   (309,267)
           
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 officer/stockholder convertible notes payable   12,224    - 
Proceeds from issuance of convertible note payable to officer/stockholder   30,000    319,800 
Decrease in due to officers   (2,251)   (17,001)
Principal payments on capital lease obligations   (3,412)   (3,110)
Net cash flows provided by financing activities   36,561    299,689 
           
Net change in cash and cash equivalents   5,201    (31,338)
           
Cash and cash equivalents, beginning of period   5,236    36,023 
           
Cash and cash equivalents, end of period  $10,437   $4,685 
           
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   $- 
Reclassification of amounts due to officers as accrued expenses  $-   $33,275 

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

 

F-5
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Periods Ended July 31, 2011 and 2010

 

1 BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial information has been prepared by Webdigs, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, it does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of this financial information have been included. Financial results for the interim period presented are not necessarily indicative of the results that may be expected for the fiscal year as a whole or any other interim period. This financial information should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10K for the year ended October 31, 2010. See also Note 10, Subsequent Events.

 

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

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

 

F-6
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Periods Ended July 31, 2011 and 2010

 

Basis of Consolidation

 

The consolidated financial statements for the three and nine month periods ended July 31, 2011 and 2010 include the accounts of Webdigs, Inc. and its wholly-owned subsidiary, Webdigs, LLC, which includes the wholly-owned subsidiary of Iggyshouse.com, Inc. All significant intercompany accounts and transactions have been eliminated in the consolidation.

 

Estimates

 

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

 

Intangible Assets

 

The Company has two types of intangible assets described below (see Note 10 for updates).

 

Website Software

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

 

Website Domain Names

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

 

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

 

Given the current financial condition of the business and decreasing sales, the Company’s remaining Iggyshouse.com intangible asset may be impaired, however, there remains only $29,415 of cost at July 31, 2011 and this will be fully amortized by December 31, 2011.

 

F-7
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Periods Ended July 31, 2011 and 2010

 

Income Taxes

 

The Company accounts for income taxes using an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period. The Company has recorded a full valuation allowance against its net deferred tax assets as of July 31, 2011 and 2010 because realization of those assets is not more likely than not.

 

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

 

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

 

Recently Issued Accounting Pronouncements

 

There were no new accounting standards issued or effective during the three months ended July 31, 2011 that had or are expected to have a material impact on the Company’s results of operations, financial condition, or cash flows.

 

3 GOING CONCERN

 

The Company has incurred significant operating losses for the three and nine month periods ended July 31, 2011 and 2010. At July 31, 2011, the Company reports a negative working capital position of $1,432,547, and an accumulated deficit of $7,249,338. It is management’s opinion that these facts raise substantial doubt about the Company’s ability to continue as a going concern without additional debt or equity financing.

 

F-8
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Periods Ended July 31, 2011 and 2010

 

In order to meet its working capital needs through the next twelve months, the Company plans to raise additional funds through the issuance of additional shares of common stock, debt to its officers and through private placements. Although the Company intends to obtain additional financing to meet its cash needs, it may be unable to secure any additional financing on terms that are favorable or acceptable to it, if at all. The Company has reduced operating expenditures as much as it can during the nine months ended July 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 had 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).

 

4 FIXED ASSETS AND INTANGIBLE ASSETS

 

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

   July 31, 2011   October 31, 2010 
   Gross       Net   Gross       Net 
   Carrying   Accumulated   Carrying   Carrying   Accumulated   Carrying 
   Amount   Depreciation   Amount   Amount   Depreciation   Amount 
Fixed Assets                              
Furniture and Fixtures  $9,981   $(8,983)  $998   $9,981   $(7,187)  $2,794 
Computer hardware   33,324    (33,324)   -    50,972    (44,074)   6,898 
Total Fixed Assets  $43,305   $(42,307)  $998   $60,953   $(51,261)  $9,692 

 

Depreciation expense amounted to $1,333 and $5,583 for the three month periods ended July 31, 2011 and 2010, respectively. For the nine month periods ended July 31, 2011 and 2010, depreciation expense was $8,694 and $16,746, respectively.

 

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

   July 31, 2011   October 31, 2010 
   Gross       Net   Gross       Net 
   Carrying   Accumulated   Carrying   Carrying   Accumulated   Carrying 
   Amount   Amortization   Amount   Amount   Amortization   Amount 
Identifiable assets with  determinable lives:                              
Website Software  $100,000   $(70,585)  $29,415   $100,000   $-   $100,000 
Website domain names   25,000    (25,000)   -    25,000    (17,714)   7,286 
Total Intangible Assets  $125,000   $(95,585)  $29,415   $125,000   $(17,714)  $107,286 

 

F-9
 

 

 
WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Periods Ended July 31, 2011 and 2010

 

Amortization expense amounted to $18,682 and $291,188 for the three month periods ended July 31, 2011 and 2010, respectively. For the nine month periods ended July 31, 2011 and 2010, amortization expense was $77,871 and $728,913, respectively. The Iggyshouse website software is not currently in service. The Company is currently determining its future course of action with this asset. The asset will be fully amortized by December 31, 2011.

 

5 CONVERTIBLE NOTE PAYABLE

 

In November 2010, the Company entered into a $30,000 convertible loan agreement with a private investor which has a maturity date of June 30, 2012. The loan accrues interest at a simple interest rate of 12% per annum. For the three and nine month periods ended July 31, 2011, the Company incurred $900 and $2,560 of interest expense in connection with this note, respectively. Accrued interest totals $2,560 at July 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 $4,737 and $12,632 for the three and nine month periods ended July 31, 2011, respectively. The note balance at July 31, 2011, net of the remaining unamortized discount of $17,368, was $12,632.

 

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

 

6 RELATED PARTY TRANSACTIONS

  

Accounts Payable – Minority Stockholder

 

The Company’s principal advertising agency/website developer was owed $615,264 at July 31, 2011 and $583,708 at October 31, 2010, respectively. The two principals of this advertising company are also minority stockholders in the Company – holding approximately 0.7% of the Company’s outstanding shares at July 31, 2011. For the nine month periods ended July 31, 2011 and 2010, the Company incurred $35,361 and $57,091 in services and rent from this related party, respectively.

 

F-10
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Periods Ended July 31, 2011 and 2010

 

Included in the $35,361 and $57,091 is $29,636 and $31,500 in office rent expense for the Company for each of the nine month periods ended July 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.

 

Due to Officers

 

As of July 31, 2011 and October 31, 2010, the Company was indebted to its officers for amounts totaling $6,094 and $8,345 respectively, for unreimbursed business expenses. All of the indebtedness represents non-interest bearing payables due on demand.

 

Convertible Note Payable – Officer/Stockholder

 

The Company borrowed cash from its CEO under a convertible promissory note that accrues interest at an annual rate of 12%. At July 31, 2011 and October 31, 2010, the balances due under this note were $240,724 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 for the year ended October 31, 2010 because the stock was trading at $0.03 on October 12, 2010. On March 15, 2011, the Company’s Chairman and CEO exercised his right to convert $300,000 of the Convertible Note Payable – Officer/Stockholder he held with the Company at a price of $0.01 per common share resulting in the issuance of an additional 30,000,000 common shares to him and concurrently reducing the balance of the Convertible Note Payable – Officer/Stockholder by $300,000. During the nine months ended July 31, 2011, the Company received a net of $12,224 of additional principal advances on the note. For the three and nine month periods ended July 31, 2011, the Company incurred $7,025 and $48,005 of interest expense in connection with this note, respectively. Accrued interest due under the note as of July 31, 2011 and October 31, 2010 was $84,737 and $51,924, respectively.

 

7 SHARE-BASED COMPENSATION

 

Stock Options

 

The Company recognizes compensation expense for stock option grants over the requisite service period for vesting of the award. Total stock-option compensation expense included in the Company's consolidated statements of operations for the nine month periods ended July 31, 2011 and 2010 was $1,560 and $8,243, respectively. Total stock compensation (benefit) for the three months ended July 31, 2011 and 2010 was $520 and ($551), respectively. This expense is included in general and administrative expense. The compensation expense had no impact on the basic loss per common share for the three and nine month periods ended July 31, 2011 and 2010. As of July 31, 2011, the Company had $0 of remaining unrecognized compensation expense related to the outstanding stock options.

 

F-11
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Periods Ended July 31, 2011 and 2010

 

The following is a summary of stock option activity for the nine month period ended July 31, 2011:

               Weighted
average
remaining
 
       Weighted   Aggregate   contractual  
   Number of   average   intrinsic   term 
   options   exercise price   value   (years) 
Outstanding at October 31, 2010   800,000   $0.25   $-      
Granted   -    -    -      
Exercised   -    -    -      
Forfeited or expired   -    -    -      
Outstanding at July 31, 2011   800,000   $0.25   $-    2.06 
Exercisable at July 31, 2011   800,000   $0.25   $-    2.06 

 

The aggregate intrinsic value in the table above represents the difference between the closing stock price on July 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 July 31, 2011. There were no options exercised during the nine month period ended July 31, 2011.

 

Stock Warrants

 

The following is a summary of stock warrant activity for the nine month period ended July 31, 2011:

 

               Weighted 
               average 
       Weighted   Aggregate   remaining 
   Number of   average   intrinsic   contractual term 
   warrants   exercise price   value   (years) 
Outstanding at October 31, 2010   200,000   $0.30   $-      
Granted   -    -    -      
Exercised   -    -    -      
Forfeited or expired   -    -    -      
Outstanding at July 31, 2011   200,000   $0.30   $-    0.37 
Exercisable at July 31, 2011   200,000   $0.30   $-    0.37 

 

F-12
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Periods Ended July 31, 2011 and 2010

 

8STOCKHOLDERS’ EQUITY

 

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

 

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

 

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 loss per common share is not presented because it is anti-dilutive.

 

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

 

   Three months ended   Nine months ended 
   July 31   July 31 
   2011   2010   2011   2010 
Basic earnings per share calculation:                    
Net loss to common shareholders  $(108,190)  $(1,668,982)  $(369,904)  $(2,381,236)
Weighted average of common shares outstanding   365,176    166,984    270,162    166,984 
Basic net loss per share  $(0.30)  $(9.99)  $(1.37)  $(14.26)
                     
Diluted earnings per share calculation:                    
Net loss to common shareholders  $(108,190)  $(1,668,982)  $(369,904)  $(2,381,236)
Weighted average of common shares outstanding   365,176    166,984    270,162    166,984 
Stock options (1)   -    -    -    - 
Stock warrants (2)   -    -    -    - 
Convertible notes payable - officer/stockholder (3)   -    -    -    - 
Convertible note payable (4)   -    -    -    - 
Diluted weighted average common shares outstanding   365,176    166,984    270,162    166,984 
Diluted net loss per share  $(0.30)  $(9.99)  $(1.37)  $(14.26)

 

F-13
 

 

WEBDIGS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Periods Ended July 31, 2011 and 2010

 

9BASIC AND DILUTED EARNINGS PER SHARE (continued)

 

(1)The dilutive effect of stock options in the above table excludes 800,000 and 800,000 of underlying stock options for the three and nine month periods ended July 31, 2011 and 2010, respectively, as they would be anti-dilutive to our net loss for those periods.

 

(2)The dilutive effect of stock warrants in the above table excludes 200,000 and 200,000 of underlying stock warrants for the three and six month periods ended July 31, 2011 and 2010, as they would be anti-dilutive to our net loss for those periods.

 

(3)The dilutive effect of potential convertible notes and accrued interest equivalent to 29,971,200 and 2,727,273 shares related to the convertible promissory note from the Company’s CEO as of July 31, 2011 and 2010, respectively, have been excluded as they would be anti-dilutive to our net loss for those periods.

 

(4)The dilutive effect of a potential convertible note equivalent to 3,166,000 shares related to a convertible promissory note as of July 31, 2011 has been excluded as it would be anti-dilutive to our net loss for that period.

 

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. Robert Buntz, CEO then purchased the royalty agreement from the Company in exchange for a principal reduction of his loan to the Company of $5,000.

 

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 effected 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.

 

F-14
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operation set forth below should be read in conjunction with our audited consolidated financial statement contained in our Form 10K filed with the SEC on January 12, 2011 relating to our fiscal year ended October 31, 2010.

 

Cautionary Note Regarding Forward-Looking Statements

 

Some of the statements made in this section of our report are forward-looking statements. These forward-looking statements generally relate to and are based upon our current plans, expectations, assumptions and projections about future events. Our management currently believes that the various plans, expectations, and assumptions reflected in or suggested by these forward-looking statements are reasonable. Nevertheless, all forward-looking statements involve risks and uncertainties and our actual future results may be materially different from the plans, objectives or expectations, or our assumptions and projections underlying our present plans, objectives and expectations, which are expressed in this section.

 

In light of the foregoing, prospective investors are cautioned that the forward-looking statements included in this filing may ultimately prove to be inaccurate—even materially inaccurate. Because of the significant uncertainties inherent in such forward-looking statements, the inclusion of such information should not be regarded as a representation or warranty by Webdigs, Inc. or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. The risks discussed in the 10K filed with the SEC on January 12, 2011 should be considered in evaluating our prospects and future performance.

 

General Overview

 

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 attempted to provide efficiency and cost savings to 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.

 

2
 

 

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.

 

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.

 

Our business continues to lack the revenue required to operate with positive cash flow and thus, we ultimately sold our Webdigs brand name, technology and other certain assets on March 16, 2012.

 

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 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 fully been 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.

 

Results of Operation

 

For the three month periods ended July 31, 2011 and 2010

 

Our third quarter results were in line with expectations. Although our revenues declined, our operating loss was substantially reduced versus the prior year three month period ended July 31, 2010. For the quarter ended July 31, 2011, our net revenue decreased by 33% to $81,248 from $121,270 for the three months ended July 31, 2010. Driving the 33% revenue decrease was a decrease in closed transactions. Exacerbating the revenue decline was a significant drop in gross revenue per transaction due to a decrease average price of a home sold through Webdigs. As reported in the Minneapolis Star Tribune reported on June 1, 2011, on a relative price basis, the Twin Cities is the weakest major market in the US. The Star Tribune notes that “As home prices across the country continue to decline, the Twin Cities is leading the plunge among the largest U.S. cities. Home prices in the Minneapolis-St. Paul area were 10 percent lower in March than a year earlier, according to the Standard & Poor's/Case-Shiller index of 20 cities. The Twin Cities was the only metro area to see prices drop by double digits since March 2010”.

 

In addition to pricing issues, the Twin Cities market is also soft in terms of transactions. The federal tax credit for first time home buyers seems to have pushed up sales substantially for the three months ended July 31, 2010. We do not have that “bump” effect this fiscal year. The June 1, 2011 Star Tribune also quoted Brad Fisher, president of the Minneapolis Association of Realtors commenting on 2011 transaction volume in the Twin Cities. According to Fisher, “the Case-Shiller numbers are skewed in part by the federal tax credit for first-time home buyers and trade-up home buyers. “That was a huge issue (in 2010)”. Fisher notes “metro area pending sales for April were off about 25 percent (compared to April 2010)”

 

3
 

 

Our operating loss for the three months ended July 31, 2011 was $95,745 compared to $1,654,299 for the comparable three month period ended July 31, 2010. Operating expenses mainly decreased due to a reduction of amortization of intangible assets of $272,506 ($18,682 for the three months ended July 31, 2011 compared to $291,188 for the three months ended July 31, 2010 ) and due to an impairment charge in 2010 of $1,262,705.

 

As mentioned in prior quarterly management comments, the Company continues to focus on reducing unneeded operating expenses to lower our monthly break even sales level. We made progress in this area in the three months ended July 31, 2011. We reduced selling expenses by 51% from $114,969 for the three months ended July 31, 2010 to $56,372 for the same period this year, mostly due to reduced sales commissions.

 

In addition to our selling expense cuts, we reduced general and administrative spending by $4,768 ($101,939 for the quarter ended July 31, 2011 versus $106,707 for the same period last year). The primary factor in our general and administrative expense reduction was a decrease in wages and salaries.

 

We incurred interest costs of $12,745 in the quarter ended July 31, 2011 compared to $14,683 for the period ended July 31, 2010. Interest expense mainly relates to a convertible note from our CEO and a $30,000 convertible note with a beneficial conversion feature discount that brought in operating capital for us in November 2010.

 

4
 

 

For the Nine month periods ended July 31, 2011 and 2010

 

Our business continues to lack the revenue required to operate with positive cash flow. We have essentially exhausted all avenues to reduce our operating costs further. Without increased revenue in the very near future, we may have to consider shutting down our operations. We may also explore other strategic alternatives.

 

Our operating loss was reduced by 86%, ($2,012,400) to $321,871 for the nine months ended July 31, 2011 as compared to the same nine month period in 2010 (loss of $2,334,271) Excluding the amortization charge for intangible assets and an impairment charge in 2010 of $1,262,705, our operating loss would have been reduced by 29%, from $342,653 for the nine months ended July 31, 2010 compared to $244,000 for the nine months ended July 31, 2011. This reduction was due to continued cost cutting which will not be possible in the future.

 

Due to the very difficult third quarter noted above, our year to date July 31, 2011 nine month gross revenues of $347,392 decreased by $245,539 from the $592,931. This was mainly due to reduced transaction closings.

 

The Company reduced selling expenses by $159,197 from $358,082 for the nine months ended July 31, 2010 to $198,885 for the most recent nine months ended July 30, 2011 mainly due to reductions in commissions, sales and marketing salaries, and web maintenance and hosting.

 

General and administrative expenses were reduced by $59,435 ($300,200 for the quarter ended July 31, 2011 versus $359,635 for the same period last year). Due to ongoing efforts to reduce operating expenses, we have reached a point in general and administrative spending where significant additional cuts will be difficult to achieve.

 

5
 

 

Our intangible asset base has shrunk considerably in the last 12 months. This accounts for the major decrease in amortization charges from $728,913 for the nine months ended July 31, 2010 to $77,871 for the current nine month period ended July 31, 2011.

 

We incurred interest costs of $48,333 in the quarter ended July 31, 2011 compared to $46,965 for the period ended July 31, 2010. Interest expense mainly relates to a convertible note from our CEO and a $30,000 convertible note with a beneficial conversion feature discount that brought in operating capital for us in November 2010.

 

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.

 

Liquidity and Capital Resources; Anticipated Financing Needs

 

As of July 31, 2011, we had $10,437 of cash and cash equivalents and current liabilities of $1,437,914. The most significant change in liabilities versus October 31, 2010 has been the $287,776 decrease in the convertible note payable balance due our CEO. In March 2011, he converted $300,000 of the note into 30,000,000 shares of the Company’s common stock at a conversion price of $.01 per share. Accounts payable and accrued expenses continue to increase due to the negative cash flow from operations.

 

For the nine months ended July 31, 2011, we used $31,360 of cash in operating activities compared to a use of $309,267 for the nine months ended July 31, 2010. Cash used in operations for the nine months ended July 31, 2011 included a net loss of $369,904 which was partially offset by $100,757 of various non-cash expenses for depreciation, amortization, amortization of debt discount related to a beneficial conversion feature, and share-based compensation. For the nine months ended July 31, 2010, these non-cash items totaled $2,023,732. The significant decrease is largely due to our decision to impair a significant portion of the Iggyshouse.com assets in July 2010 which has significantly lowered our current year amortization cost. Additionally, for the nine months ended July 31, 2011, we continued to defer payments of salary to our CEO and CFO. In addition, a few select vendors have allowed us to temporarily withhold payment until our sales situation improves. Finally, our CEO has permitted us to defer interest payments to him on his convertible loan. These three items reduced our cash flow usage totaling $36,560 for the nine months ended July 31, 2011.

 

For the nine months ended July 31, 2011, we did not use any cash flows in investing activities. For the same period last year, we invested $21,760 in website development for the IggysHouse.com website.

 

In total, financing activities provided $36,561 and $299,689 for the nine month periods ended July 31, 2011 and 2010, respectively. We received $30,000 in proceeds from a convertible note in November 2010. In the prior year, proceeds from the convertible note with our CEO totaled a net $319,800. Repayments of $17,001 in payables to our officers provided an offsetting decrease in financing activities for the nine months ended July 31, 2010.

 

6
 

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. We evaluate these estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant estimates are determining some of the inputs for our stock option fair value calculation and assessing the valuation allowance for income taxes.

 

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

 

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

 

Income Taxes. The Company accounts for income taxes using an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period. The Company has recorded a full valuation allowance for its net deferred tax assets as of July 31, 2011 and 2010 because realization of those assets is not more likely than not.

 

Share-Based Compensation. The Company accounts for stock incentive plans by measurement and recognition of compensation expense for all stock-based awards based on estimated fair values, net of estimated forfeitures. Share-based compensation expense recognized for the periods ended July 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.

 

7
 

 

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 July 31, 2011, the Company’s principal www.webdigs.com website has been fully amortized and the Iggyshouse.com website technology, which is not currently being used, is being amortized over its remaining estimated life until December 31, 2011.

 

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

 

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

 

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

 

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

 

Office Equipment and Fixtures. Office equipment and fixtures are recorded at cost. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. When items of property or equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in operating income.

 

Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets as follows:

 

Office equipment 2 to 5 years
Furniture and fixtures 3 to 7 years

 

8
 

 

Segment Information

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

 

Recently Issued Accounting Pronouncements

There were no new accounting standards issued or effective during the three months ended July 31, 2011 that had or are expected to have a material impact on the Company’s results of operations, financial condition, 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. We expect revenues in each quarter to be significantly affected by activity during the prior quarter, given the time lag between contract execution and closing. A typical real estate transaction has a 30 day lag between contract signing and closing of the transaction.

 

Going Concern

 

The Company incurred significant operating losses for the three months ended July 31, 2011. At July 31, 2011, the Company reports a negative working capital position of $1,419,915 and accumulated deficit of $7,249,338. It is management’s opinion that these facts raise substantial doubts about the Company’s ability to continue as a going concern without additional debt or equity financing.

 

Our consolidated financial statements included do not include any adjustments related to recoverability and classification of asset carrying amounts, or the amount and classification of liabilities that might result, should we be unable to continue as a going concern. Our ability to continue as a going concern ultimately depends on achieving profitability, producing revenues or raising additional capital to sustain operations. Although we need to obtain additional financing to meet our cash needs, we may be unable to secure any additional financing on terms that are favorable or acceptable to us, if at all.

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Management’s Report on Internal Control Over Financial Reporting

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”))) as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

 

9
 

 

Based on this evaluation and taking into account that certain material weaknesses existed as of October 31, 2010, our Chief Executive Officer and Chief Financial Officer have each concluded that our disclosure controls and procedures were not effective. As a result of this conclusion, the financial statements for the period covered by this Quarterly Report on Form 10-Q were prepared with particular attention to the material weaknesses previously disclosed. Notwithstanding the material weaknesses in internal controls that continue to exist as of July 31, 2011, we have concluded that the financial statements included in this Quarterly Report on Form 10-Q present fairly, the financial position, results of operations and cash flows of the Company as required for interim financial statements.

 

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended July 31, 2011, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Management has concluded that the material weaknesses in internal control as described in Item 9A of the Company’s Form 10-K for the year ended October 31, 2010 have not been remediated. Due to the small number of employees dealing with general administrative and financial matters and the expenses associated with increasing the number of employees to remediate the disclosure control and procedure material weaknesses that have been identified, the Company continued to operate without changes to its internal controls over financial reporting for the period covered by this Quarterly Report on Form 10-Q while continuing to seek the expertise its needs to remediate the material weaknesses.

 

10
 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not currently a party to any material litigation and are not aware of any threatened litigation that would have a material effect on our business.

 

Item 1A. Risk Factors.

 

None.

 

Item 2. Unregistered Sales of Equity Securities

`

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4 Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits.

  

Exhibit No.   Description
31.1   Certification of Chief Executive Officer
31.2   Certification of Chief Financial Officer
32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2  

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

11
 

 

SIGNATURES

 

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

  

  WEBDIGS, INC.  
     
  /s/ Robert A. Buntz, Jr.  
  Robert A. Buntz, Jr.  
 

Chief Executive Officer

June 5, 2012

 
 

 

/s/ Edward Wicker

 
  Edward Wicker  
 

Chief Financial Officer

June 5, 2012

 

  

12
 

 

INDEX TO EXHIBITS FILED WITH THIS REPORT

 

Exhibit No.   Description
31.1   Certification of Chief Executive Officer
31.2   Certification of Chief Financial Officer
32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2  

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

 

 

13

 

EX-31.1 2 v315023_ex31-1.htm EXHIBIT 31.1

 

Exhibit 31.1

 

CERTIFICATION

 

I, Robert A. Buntz, Jr., certify that:

 

1.I have reviewed this Quarterly Report on Form 10-Q of Webdigs, Inc. (the “Registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e)) for Registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Dated: June 5, 2012 /s/ Robert A. Buntz, Jr.
 

Robert a. Buntz, jr. 

Chief Executive Officer

 

 

 

 

EX-31.2 3 v315023_ex31-2.htm EXHIBIT 31.2

 

Exhibit 31.2

 

CERTIFICATION

 

I, Edward Wicker, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Webdigs, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e)) for Registrant and have:
  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
  (c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  (d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Dated: June 5, 2012 /s/ Edward Wicker
 

Edward Wicker

Chief Financial Officer

 

 

  

EX-32.1 4 v315023_ex32-1.htm EXHIBIT 32.1

 

Exhibit 32.1

 

Certification

of

Chief Executive Officer and Chief Financial Officer

 

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Webdigs, Inc. does hereby certify that, to the best of his knowledge:

 

a)the Quarterly Report on Form 10-Q of Webdigs, Inc. for the quarter ended July 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
b)information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Webdigs, Inc.

 

June 5, 2012   /s/ Robert A. Buntz, Jr.
    Robert a. Buntz, jr.
    Chief Executive Officer

 

 

 

 

EX-32.2 5 v315023_ex32-2.htm EXHIBIT 32.2

 

Exhibit 32.2

 

Certification

of

Chief Financial Officer

 

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Webdigs, Inc. does hereby certify that, to the best of his knowledge:

 

  a) the Quarterly Report on Form 10-Q of Webdigs, Inc. for the quarter ended July 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
  b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Webdigs, Inc.

 

June 5, 2012   /s/ Edward Wicker
    Edward Wicker
    Chief Financial Officer

 

 

 

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These assets, which were held in Webdigs, LLC, included US Trademark No. 3,461,665 &#8220;Webdigs&#8221;, 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. Robert Buntz, CEO then purchased the royalty agreement from the Company in exchange for a principal reduction of his loan to the Company of $5,000.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">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.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Additionally, on April 3, 2012, the Company entered into a share exchange agreement with Next 1 Interactive, Inc. (&#8220;Next 1&#8221;), 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.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On May 17, 2012, the Company effected 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.</p> 125000000 125000000 963628 963628 XML 12 report.css IDEA: XBRL DOCUMENT /* Updated 2009-11-04 */ /* v2.2.0.24 */ /* DefRef Styles */ ..report table.authRefData{ background-color: #def; border: 2px solid #2F4497; font-size: 1em; position: absolute; } ..report table.authRefData a { display: block; font-weight: bold; } ..report table.authRefData p { margin-top: 0px; } ..report table.authRefData .hide { background-color: #2F4497; padding: 1px 3px 0px 0px; text-align: right; } ..report table.authRefData .hide a:hover { background-color: #2F4497; } ..report table.authRefData .body { height: 150px; overflow: auto; width: 400px; } ..report table.authRefData table{ font-size: 1em; } /* Report Styles */ ..pl a, .pl a:visited { color: black; text-decoration: none; } /* table */ ..report { background-color: white; border: 2px solid #acf; clear: both; color: black; font: normal 8pt Helvetica, Arial, san-serif; margin-bottom: 2em; } ..report hr { border: 1px solid #acf; } /* Top labels */ ..report th { background-color: #acf; color: black; font-weight: bold; text-align: center; } ..report th.void { background-color: transparent; color: #000000; font: bold 10pt Helvetica, Arial, san-serif; text-align: left; } ..report .pl { text-align: left; vertical-align: top; white-space: normal; width: 200px; word-wrap: break-word; } ..report td.pl a.a { cursor: pointer; display: block; width: 200px; } ..report td.pl div.a { width: 200px; } ..report td.pl a:hover { background-color: #ffc; } /* Header rows... */ ..report tr.rh { background-color: #acf; color: black; font-weight: bold; } /* Calendars... */ ..report .rc { background-color: #f0f0f0; } /* Even rows... */ ..report .re, .report .reu { background-color: #def; } ..report .reu td { border-bottom: 1px solid black; } /* Odd rows... */ ..report .ro, .report .rou { background-color: white; } ..report .rou td { border-bottom: 1px solid black; } ..report .rou table td, .report .reu table td { border-bottom: 0px solid black; } /* styles for footnote marker */ ..report .fn { white-space: nowrap; } /* styles for numeric types */ ..report .num, .report .nump { text-align: right; white-space: nowrap; } ..report .nump { padding-left: 2em; } ..report .nump { padding: 0px 0.4em 0px 2em; } /* styles for text types */ ..report .text { text-align: left; white-space: normal; } ..report .text .big { margin-bottom: 1em; width: 17em; } ..report .text .more { display: none; } ..report .text .note { font-style: italic; font-weight: bold; } ..report .text .small { width: 10em; } ..report sup { font-style: italic; } ..report .outerFootnotes { font-size: 1em; } XML 13 R9.htm IDEA: XBRL DOCUMENT v2.4.0.6
FIXED ASSETS AND INTANGIBLE ASSETS
9 Months Ended
Jul. 31, 2011
Fixed Assets and Intangible Assets [Abstract]  
Fixed Assets and Intangible Assets [Text Block]
4 FIXED ASSETS AND INTANGIBLE ASSETS

 

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

    July 31, 2011     October 31, 2010  
    Gross           Net     Gross           Net  
    Carrying     Accumulated     Carrying     Carrying     Accumulated     Carrying  
    Amount     Depreciation     Amount     Amount     Depreciation     Amount  
Fixed Assets                                                
Furniture and Fixtures   $ 9,981     $ (8,983 )   $ 998     $ 9,981     $ (7,187 )   $ 2,794  
Computer hardware     33,324       (33,324 )     -       50,972       (44,074 )     6,898  
Total Fixed Assets   $ 43,305     $ (42,307 )   $ 998     $ 60,953     $ (51,261 )   $ 9,692  

 

Depreciation expense amounted to $1,333 and $5,583 for the three month periods ended July 31, 2011 and 2010, respectively. For the nine month periods ended July 31, 2011 and 2010, depreciation expense was $8,694 and $16,746, respectively.

 

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

    July 31, 2011     October 31, 2010  
    Gross           Net     Gross           Net  
    Carrying     Accumulated     Carrying     Carrying     Accumulated     Carrying  
    Amount     Amortization     Amount     Amount     Amortization     Amount  
Identifiable assets with  determinable lives:                                                
Website Software   $ 100,000     $ (70,585 )   $ 29,415     $ 100,000     $ -     $ 100,000  
Website domain names     25,000       (25,000 )     -       25,000       (17,714 )     7,286  
Total Intangible Assets   $ 125,000     $ (95,585 )   $ 29,415     $ 125,000     $ (17,714 )   $ 107,286  

  

Amortization expense amounted to $18,682 and $291,188 for the three month periods ended July 31, 2011 and 2010, respectively. For the nine month periods ended July 31, 2011 and 2010, amortization expense was $77,871 and $728,913, respectively. The Iggyshouse website software is not currently in service. The Company is currently determining its future course of action with this asset. The asset will be fully amortized by December 31, 2011.

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GOING CONCERN
9 Months Ended
Jul. 31, 2011
Going Concern [Abstract]  
Going Concern Disclosure [Text Block]
3 GOING CONCERN

 

The Company has incurred significant operating losses for the three and nine month periods ended July 31, 2011 and 2010. At July 31, 2011, the Company reports a negative working capital position of $1,432,547, and an accumulated deficit of $7,249,338. 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, debt to its officers and through private placements. Although the Company intends to obtain additional financing to meet its cash needs, it may be unable to secure any additional financing on terms that are favorable or acceptable to it, if at all. The Company has reduced operating expenditures as much as it can during the nine months ended July 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 had 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).

XML 16 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED BALANCE SHEETS (USD $)
Jul. 31, 2011
Oct. 31, 2010
ASSETS    
Cash and cash equivalents $ 10,437 $ 5,236
Commissions and fees receivable 0 4,669
Prepaid expenses and deposits 7,562 4,608
Other current assets 0 5,583
Total current assets 17,999 20,096
Office equipment and fixtures, net 998 9,692
Intangible assets, net 29,415 107,286
Total assets 48,412 137,074
LIABILITIES AND STOCKHOLDERS' DEFICIT    
Current portion of capital lease obligations 2,822 4,603
Accounts payable 169,217 115,355
Accounts payable - minority stockholder 615,264 583,708
Due to officers 6,094 8,345
Convertible notes payable to officer/stockholder 240,724 528,500
Convertible note payable, net of discount 12,632 0
Accrued expenses:    
Professional fees 18,000 23,500
Payroll and commissions 295,548 263,201
Interest 87,297 51,924
Other liabilities 2,948 16,481
Total current liabilities 1,450,546 1,595,617
Long term liabilities:    
Capital lease obligation, less current portion 0 1,631
Total long term liabilities 0 1,631
Total liabilities 1,450,546 1,597,248
Stockholders' deficit:    
Common stock - $.001 par value; 125,000,000 shares authorized as common stock and an additional 125,000,000 shares designated as common or preferred stock; 73,035,119 and 33,396,719 common shares issued and outstanding at July 31, 2011 and October 31, 2010, respectively 73,035 33,397
Treasury stock - $.001 par value: 963,628 shares held in treasury as of July 31, 2011 and October 31, 2010 (240,907) (240,907)
Additional paid-in capital 6,015,076 5,626,770
Accumulated deficit (7,249,338) (6,879,434)
Total stockholders' deficit (1,402,134) (1,460,174)
Total liabilities and stockholders' deficit $ 48,412 $ 137,074
XML 17 R6.htm IDEA: XBRL DOCUMENT v2.4.0.6
BASIS OF PRESENTATION
9 Months Ended
Jul. 31, 2011
Accounting Policies [Abstract]  
Business Description and Basis of Presentation [Text Block]
1 BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial information has been prepared by Webdigs, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, it does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of this financial information have been included. Financial results for the interim period presented are not necessarily indicative of the results that may be expected for the fiscal year as a whole or any other interim period. This financial information should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10K for the year ended October 31, 2010. See also Note 10, Subsequent Events.

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XML 19 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Jul. 31, 2011
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

Webdigs, Inc. (“the Company”), a Delaware corporation, became a public company in October 2007 after a reverse 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 three and nine month periods ended July 31, 2011 and 2010 include the accounts of Webdigs, Inc. and its wholly-owned subsidiary, Webdigs, LLC, which includes the wholly-owned subsidiary of Iggyshouse.com, Inc. All significant intercompany accounts and transactions have been eliminated in the consolidation.

 

Estimates

 

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

 

Intangible Assets

 

The Company has two types of intangible assets described below (see Note 10 for updates).

 

Website Software

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

 

Website Domain Names

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

 

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

 

Given the current financial condition of the business and decreasing sales, the Company’s remaining Iggyshouse.com intangible asset may be impaired, however, there remains only $29,415 of cost at July 31, 2011 and this will be fully amortized by December 31, 2011.

  

 Income Taxes

 

The Company accounts for income taxes using an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period. The Company has recorded a full valuation allowance against its net deferred tax assets as of July 31, 2011 and 2010 because realization of those assets is not more likely than not.

 

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

 

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

 

Recently Issued Accounting Pronouncements

 

There were no new accounting standards issued or effective during the three months ended July 31, 2011 that had or are expected to have a material impact on the Company’s results of operations, financial condition, or cash flows.

XML 20 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED BALANCE SHEETS [PARENTHETICAL] (USD $)
Jul. 31, 2011
Oct. 31, 2010
Common stock, par or stated value per share $ 0.001 $ 0.001
Common stock, shares authorized 125,000,000 125,000,000
Additional shares designated as common or preferred stock 125,000,000 125,000,000
Common stock, shares, issued 73,035,119 33,396,719
Common stock, shares outstanding 73,035,119 33,396,719
Treasury stock, shares 0.001 0.001
Treasury stock, number of shares held 963,628 963,628
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DOCUMENT AND ENTITY INFORMATION
In Thousands, unless otherwise specified
9 Months Ended
Jul. 31, 2011
May 21, 2012
Entity Registrant Name WEBDIGS INC  
Entity Central Index Key 0001430523  
Current Fiscal Year End Date --10-31  
Entity Filer Category Smaller Reporting Company  
Trading Symbol wbdgd  
Entity Common Stock, Shares Outstanding   383,647
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jul. 31, 2011  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2011  

XML 23 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
Share data in Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Jul. 31, 2011
Jul. 31, 2010
Jul. 31, 2011
Jul. 31, 2010
Revenue:        
Gross revenues $ 117,247 $ 176,159 $ 347,392 $ 592,931
Less: customer rebates and third-party agent commissions (35,999) (54,889) (92,307) (217,867)
Net revenues 81,248 121,270 255,085 375,064
Operating expenses:        
Selling 56,372 114,969 198,885 358,082
General and administrative 101,939 106,707 300,200 359,635
Amortization of intangible assets 18,682 291,188 77,871 728,913
Impairment charge 0 1,262,705 0 1,262,705
Total operating expenses 176,993 1,775,569 576,956 2,709,335
Operating loss (95,745) (1,654,299) (321,871) (2,334,271)
Other income (expense):        
Other income (expense) 300 0 300 0
Interest expense and other (12,745) (14,683) (48,333) (46,965)
Total other expense (12,445) (14,683) (48,033) (46,965)
Net loss before income taxes (108,190) (1,668,982) (369,904) (2,381,236)
Income tax provision 0 0 0 0
Net loss $ (108,190) $ (1,668,982) $ (369,904) $ (2,381,236)
Net loss per common share - basic and diluted (in dollars per share) $ (0.30) $ (9.99) $ (1.37) $ (14.26)
Weighted average common shares outstanding - basic and diluted (in shares) 365,176 166,984 270,162 166,984
XML 24 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
SHARE-BASED COMPENSATION
9 Months Ended
Jul. 31, 2011
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
7 SHARE-BASED COMPENSATION

 

Stock Options

 

The Company recognizes compensation expense for stock option grants over the requisite service period for vesting of the award. Total stock-option compensation expense included in the Company's consolidated statements of operations for the nine month periods ended July 31, 2011 and 2010 was $1,560 and $8,243, respectively. Total stock compensation (benefit) for the three months ended July 31, 2011 and 2010 was $520 and ($551), respectively. This expense is included in general and administrative expense. The compensation expense had no impact on the basic loss per common share for the three and nine month periods ended July 31, 2011 and 2010. As of July 31, 2011, the Company had $0 of remaining unrecognized compensation expense related to the outstanding stock options.

 

The following is a summary of stock option activity for the nine month period ended July 31, 2011:

 

                      Weighted
average
remaining
 
          Weighted     Aggregate     contractual   
    Number of     average     intrinsic     term  
    options     exercise price     value     (years)  
Outstanding at October 31, 2010     800,000     $ 0.25     $ -          
Granted     -       -       -          
Exercised     -       -       -          
Forfeited or expired     -       -       -          
Outstanding at July 31, 2011     800,000     $ 0.25     $ -       2.06  
Exercisable at July 31, 2011     800,000     $ 0.25     $ -       2.06  

 

The aggregate intrinsic value in the table above represents the difference between the closing stock price on July 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 July 31, 2011. There were no options exercised during the nine month period ended July 31, 2011.

 

Stock Warrants

 

The following is a summary of stock warrant activity for the nine month period ended July 31, 2011:

 

                      Weighted  
                      average  
          Weighted     Aggregate     remaining  
    Number of     average     intrinsic     contractual term  
    warrants     exercise price     value     (years)  
Outstanding at October 31, 2010     200,000     $ 0.30     $ -          
Granted     -       -       -          
Exercised     -       -       -          
Forfeited or expired     -       -       -          
Outstanding at July 31, 2011     200,000     $ 0.30     $ -       0.37  
Exercisable at July 31, 2011     200,000     $ 0.30     $ -       0.37  
XML 25 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
RELATED PARTY TRANSACTIONS
9 Months Ended
Jul. 31, 2011
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
6 RELATED PARTY TRANSACTIONS

  

Accounts Payable – Minority Stockholder

 

The Company’s principal advertising agency/website developer was owed $615,264 at July 31, 2011 and $583,708 at October 31, 2010, respectively. The two principals of this advertising company are also minority stockholders in the Company – holding approximately 0.7% of the Company’s outstanding shares at July 31, 2011. For the nine month periods ended July 31, 2011 and 2010, the Company incurred $35,361 and $57,091 in services and rent from this related party, respectively.

 

Included in the $35,361 and $57,091 is $29,636 and $31,500 in office rent expense for the Company for each of the nine month periods ended July 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.

 

Due to Officers

 

As of July 31, 2011 and October 31, 2010, the Company was indebted to its officers for amounts totaling $6,094 and $8,345 respectively, for unreimbursed business expenses. All of the indebtedness represents non-interest bearing payables due on demand.

 

Convertible Note Payable – Officer/Stockholder

 

The Company borrowed cash from its CEO under a convertible promissory note that accrues interest at an annual rate of 12%. At July 31, 2011 and October 31, 2010, the balances due under this note were $240,724 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 for the year ended October 31, 2010 because the stock was trading at $0.03 on October 12, 2010. On March 15, 2011, the Company’s Chairman and CEO exercised his right to convert $300,000 of the Convertible Note Payable – Officer/Stockholder he held with the Company at a price of $0.01 per common share resulting in the issuance of an additional 30,000,000 common shares to him and concurrently reducing the balance of the Convertible Note Payable – Officer/Stockholder by $300,000. During the nine months ended July 31, 2011, the Company received a net of $12,224 of additional principal advances on the note. For the three and nine month periods ended July 31, 2011, the Company incurred $7,025 and $48,005 of interest expense in connection with this note, respectively. Accrued interest due under the note as of July 31, 2011 and October 31, 2010 was $84,737 and $51,924, respectively.

XML 26 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUBSEQUENT EVENTS
9 Months Ended
Jul. 31, 2011
Subsequent Events [Abstract]  
Subsequent Events [Text Block]
10 SUBSEQUENT 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. Robert Buntz, CEO then purchased the royalty agreement from the Company in exchange for a principal reduction of his loan to the Company of $5,000.

 

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 effected 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.

XML 27 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCKHOLDERS' EQUITY
9 Months Ended
Jul. 31, 2011
Stockholders Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]
8 STOCKHOLDERS’ EQUITY

 

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

 

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

XML 28 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
BASIC AND DILUTED EARNINGS PER SHARE
9 Months Ended
Jul. 31, 2011
Earnings Per Share [Abstract]  
Earnings Per Share [Text Block]
9 BASIC AND DILUTED EARNINGS PER SHARE

 

The Company computes earnings per share under two different methods, basic and diluted, and presents per share data for all periods in which statements of operations are presented. Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted loss per common share is not presented because it is anti-dilutive.

 

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

 

    Three months ended     Nine months ended  
    July 31     July 31  
    2011     2010     2011     2010  
Basic earnings per share calculation:                                
Net loss to common shareholders   $ (108,190 )   $ (1,668,982 )   $ (369,904 )   $ (2,381,236 )
Weighted average of common shares outstanding     365,176       166,984       270,162       166,984  
Basic net loss per share   $ (0.30 )   $ (9.99 )   $ (1.37 )   $ (14.26 )
                                 
Diluted earnings per share calculation:                                
Net loss to common shareholders   $ (108,190 )   $ (1,668,982 )   $ (369,904 )   $ (2,381,236 )
Weighted average of common shares outstanding     365,176       166,984       270,162       166,984  
Stock options (1)     -       -       -       -  
Stock warrants (2)     -       -       -       -  
Convertible notes payable - officer/stockholder (3)     -       -       -       -  
Convertible note payable (4)     -       -       -       -  
Diluted weighted average common shares outstanding     365,176       166,984       270,162       166,984  
Diluted net loss per share   $ (0.30 )   $ (9.99 )   $ (1.37 )   $ (14.26 )

 

 

(1) The dilutive effect of stock options in the above table excludes 800,000 and 800,000 of underlying stock options for the three and nine month periods ended July 31, 2011 and 2010, respectively, as they would be anti-dilutive to our net loss for those periods.

 

(2) The dilutive effect of stock warrants in the above table excludes 200,000 and 200,000 of underlying stock warrants for the three and six month periods ended July 31, 2011 and 2010, as they would be anti-dilutive to our net loss for those periods.

 

(3) The dilutive effect of potential convertible notes and accrued interest equivalent to 29,971,200 and 2,727,273 shares related to the convertible promissory note from the Company’s CEO as of July 31, 2011 and 2010, respectively, have been excluded as they would be anti-dilutive to our net loss for those periods.

 

(4) The dilutive effect of a potential convertible note equivalent to 3,166,000 shares related to a convertible promissory note as of July 31, 2011 has been excluded as it would be anti-dilutive to our net loss for that period.
XML 29 R5.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
9 Months Ended
Jul. 31, 2011
Jul. 31, 2010
Cash flows from operating activities:    
Net loss $ (369,904) $ (2,381,236)
Adjustments to reconcile net loss to net cash flows used in operating activities:    
Depreciation 8,694 16,746
Amortization of intangible assets 77,871 728,913
Impairment charge 0 1,262,705
Amortization of discount for beneficial conversion feature on convertible debt 12,632 0
Share-based compensation 1,560 15,368
Changes in operating assets and liabilities:    
Commissions and fees receivable 4,669 (5,422)
Prepaid expenses and deposits (2,954) 5,314
Other current assets 5,583 1,200
Accounts payable 53,862 (115,610)
Accounts payable - minority stockholder 31,556 7,091
Accrued expenses 158,604 117,476
Other liabilities (13,533) 38,188
Net cash flows used in operating activities (31,360) (309,267)
Cash flows from investing activities:    
Purchase of intangible assets 0 (21,760)
Net cash flows used in investing activities 0 (21,760)
Cash flows from financing activities:    
Proceeds from officer/stockholder convertible notes payable 12,224 0
Proceeds from issuance of convertible note payable to officer/stockholder 30,000 319,800
Decrease in due to officers (2,251) (17,001)
Principal payments on capital lease obligations (3,412) (3,110)
Net cash flows provided by financing activities 36,561 299,689
Net change in cash and cash equivalents 5,201 (31,338)
Cash and cash equivalents, beginning of period 5,236 36,023
Cash and cash equivalents, end of period 10,437 4,685
Supplemental cash flow information    
Cash paid for interest 0 0
Supplemental disclosure of non-cash investing activities    
Beneficial conversion feature related to convertible note payable 30,000 0
Conversion of accrued officer salary to common stock 96,384 0
Conversion of convertible notes payable from officer/stockholder 300,000 0
Reclassification of amounts due to officers as accrued expenses $ 0 $ 33,275
XML 30 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONVERTIBLE NOTE PAYABLE
9 Months Ended
Jul. 31, 2011
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]
5 CONVERTIBLE NOTE PAYABLE

 

In November 2010, the Company entered into a $30,000 convertible loan agreement with a private investor which has a maturity date of June 30, 2012. The loan accrues interest at a simple interest rate of 12% per annum. For the three and nine month periods ended July 31, 2011, the Company incurred $900 and $2,560 of interest expense in connection with this note, respectively. Accrued interest totals $2,560 at July 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 $4,737 and $12,632 for the three and nine month periods ended July 31, 2011, respectively. The note balance at July 31, 2011, net of the remaining unamortized discount of $17,368, was $12,632.

 

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

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