Delaware
|
11-3820796
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
(Do not check if a smaller reporting company)
|
Smaller
reporting company x
|
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
|
11
|
Item
4.
|
Controls
and Procedures
|
11
|
|
||
PART
II – OTHER INFORMATION
|
|
|
Item
1.
|
Legal
Proceedings
|
12
|
Item
1A.
|
Risk
Factors
|
12
|
Item
2.
|
Unregistered
Sales of Equity Securities
|
12
|
Item
3.
|
Defaults
Upon Senior Securities
|
12
|
Item
4.
|
Submission
of matters to a Vote of Security Holders
|
12
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Item
5.
|
Other
Information
|
12
|
Item
6.
|
Exhibits
|
12
|
|
||
SIGNATURES
|
13
|
|
|
||
EXHIBIT
INDEX
|
14
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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-7
|
July 31, 2010
(Unaudited)
|
October 31, 2009
(Audited)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 4,685 | $ | 36,023 | ||||
Commissons
and fees receivable
|
14,871 | 9,449 | ||||||
Prepaid
expenses and deposits
|
5,533 | 10,847 | ||||||
Other
current assets
|
9,084 | 10,284 | ||||||
Total
current assets
|
34,173 | 66,603 | ||||||
Office
equipment and fixtures, net
|
13,932 | 30,678 | ||||||
Intangible
assets, net
|
133,385 | 2,103,243 | ||||||
Total
assets
|
$ | 181,490 | $ | 2,200,524 |
July 31, 2010
(Unaudited)
|
October 31, 2009
(Audited)
|
|||||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of capital lease obligations
|
$ | 4,498 | $ | 4,197 | ||||
Accounts
payable
|
143,454 | 259,064 | ||||||
Accounts
payable - minority stockholder
|
569,949 | 562,858 | ||||||
Due
to officers
|
8,330 | 58,606 | ||||||
Convertible
notes payable - officer/stockholder
|
492,800 | 173,000 | ||||||
Accrued
expenses:
|
||||||||
Professional
fees
|
29,250 | 39,000 | ||||||
Payroll
and commissions
|
213,708 | 53,207 | ||||||
Other
liabilities
|
58,362 | 20,174 | ||||||
Total
current liabilities
|
1,520,351 | 1,170,106 | ||||||
Long
term liabilities:
|
||||||||
Capital
lease obligation, less current portion
|
2,822 | 6,233 | ||||||
Total
liabilities
|
1,523,173 | 1,176,339 | ||||||
Stockholders'
equity (deficit):
|
||||||||
Common
stock - $.001 par value; 125,000,000 shares authorized as
common
|
||||||||
stock
and an additional 125,000,000 shares designated as common
or
|
||||||||
preferred
stock; 33,396,719 common shares issued and
|
||||||||
outstanding
at July 31, 2010 and October 31, 2009
|
33,397 | 33,397 | ||||||
Treasury
stock - $.001 par value; 963,628 and 1,063,628 shares held
in
|
||||||||
treasury
as of July 31, 2010 and October 31, 2009, respectively
|
(240,907 | ) | (265,907 | ) | ||||
Additional
paid-in-capital
|
5,045,826 | 5,034,458 | ||||||
Accumulated
deficit
|
(6,179,999 | ) | (3,777,763 | ) | ||||
Total
stockholders' equity (deficit)
|
(1,341,683 | ) | 1,024,185 | |||||
Total
liabilities and stockholders' equity (deficit)
|
$ | 181,490 | $ | 2,200,524 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
July 31,
|
July 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
Revenue:
|
||||||||||||||||
Gross
revenues
|
$ | 176,159 | $ | 451,841 | $ | 592,931 | $ | 631,033 | ||||||||
Less:
customer rebates and third-party agent commissions
|
(54,889 | ) | (204,515 | ) | (217,867 | ) | (285,839 | ) | ||||||||
Net
revenues
|
121,270 | 247,326 | 375,064 | 345,194 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling
|
114,969 | 238,270 | 358,082 | 489,170 | ||||||||||||
General
and administrative
|
106,707 | 180,837 | 359,635 | 528,490 | ||||||||||||
Amortization
of intangible assets
|
291,188 | 49,878 | 728,913 | 118,797 | ||||||||||||
Impairment
charge
|
1,262,705 | - | 1,262,705 | - | ||||||||||||
Total
operating expenses
|
1,775,569 | 468,985 | 2,709,335 | 1,136,457 | ||||||||||||
Operating
loss from continuing operations
|
(1,654,299 | ) | (221,659 | ) | (2,334,271 | ) | (791,263 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Equity
in income from Marketplace Home Mortgage
|
||||||||||||||||
Webdigs,
LLC
|
- | 117 | - | 18,902 | ||||||||||||
Interest
expense
|
(14,683 | ) | (210,630 | ) | (46,965 | ) | (303,484 | ) | ||||||||
Loss
on change in fair value of derivatives and warrants
|
- | - | - | (63,708 | ) | |||||||||||
Total
other income (expense)
|
(14,683 | ) | (210,513 | ) | (46,965 | ) | (348,290 | ) | ||||||||
Loss
from continuing operations before income taxes
|
(1,668,982 | ) | (432,172 | ) | (2,381,236 | ) | (1,139,553 | ) | ||||||||
Income
tax provision
|
- | - | - | - | ||||||||||||
Net
loss from continuing operations
|
(1,668,982 | ) | (432,172 | ) | (2,381,236 | ) | (1,139,553 | ) | ||||||||
Income
from discontinued operations of Marquest
|
||||||||||||||||
Financial
Inc. net of applicable taxes of zero
|
- | 292,686 | - | 284,409 | ||||||||||||
Net
loss
|
$ | (1,668,982 | ) | $ | (139,486 | ) | $ | (2,381,236 | ) | $ | (855,144 | ) | ||||
Net
loss per common share - basic and diluted:
|
||||||||||||||||
Loss
from continuing operations
|
$ | (0.05 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.04 | ) | ||||
Income
from discontinued operations
|
- | 0.01 | - | 0.01 | ||||||||||||
Net
loss
|
$ | (0.05 | ) | $ | - | $ | (0.07 | ) | $ | (0.03 | ) | |||||
Weighted
average common shares outstanding -
|
||||||||||||||||
basic
and diluted
|
33,396,719 | 28,417,170 | 33,396,719 | 24,553,883 |
Nine
Months Ended
|
||||||||
July
31,
|
||||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (2,381,236 | ) | $ | (855,144 | ) | ||
Adjustments
to reconcile net loss to net cash flows used in operating
activities:
|
||||||||
Depreciation
|
16,746 | 10,948 | ||||||
Stock
warrant expense to debt holders for agreement modification
|
- | 138,010 | ||||||
Amortization
of intangible assets
|
728,913 | 145,331 | ||||||
Amortization
of convertible note payable discounts
|
- | 129,873 | ||||||
Amortization
or debt issuance costs
|
- | 3,520 | ||||||
Impairment
charge
|
1,262,705 | - | ||||||
Loss
on change in fair value of derivatives and warrants
|
- | 63,708 | ||||||
Equity
in the income of Marketplace Home Mortgage - Webdigs, LLC
|
- | (18,902 | ) | |||||
Share-based
compensation
|
15,368 | 179,447 | ||||||
Gain
on sale of subsidiary
|
- | (297,412 | ) | |||||
Common
stock issued for services
|
- | 7,000 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Commissions
and fees receivable
|
(5,422 | ) | (19,145 | ) | ||||
Prepaid
expenses and deposits
|
5,314 | 119,109 | ||||||
Other
current assets
|
1,200 | (7,955 | ) | |||||
Accounts
payable
|
(115,610 | ) | (25,893 | ) | ||||
Accounts
payable - minority stockholder
|
7,091 | 76,580 | ||||||
Accrued
expenses
|
117,476 | 48,481 | ||||||
Other
liabilities
|
38,188 | 3,728 | ||||||
Net
cash flows used in operating activities
|
(309,267 | ) | (298,716 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchase
of equipment and intangible assets
|
(21,760 | ) | (157,733 | ) | ||||
Cash
paid for business acquisition
|
- | (5,000 | ) | |||||
Net
cash flows used in investing activities
|
(21,760 | ) | (162,733 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from issuance of common stock
|
- | 335,500 | ||||||
Proceeds
from issuance of convertible debentures, net of debt
issuance
|
||||||||
costs
of $4,000 and unrelated accrued legal fees of $20,000
|
- | 226,000 | ||||||
Principal
payments on convertible/promissory note
|
- | (100,000 | ) | |||||
Proceeds
from issuance of convertible notes payable to
officer/stockholder
|
319,800 | - | ||||||
Increase
(decrease) in due to officers
|
(17,001 | ) | 11,294 | |||||
Principal
payments on capital lease obligations
|
(3,110 | ) | (2,838 | ) | ||||
Net
cash flows provided by financing activities
|
299,689 | 469,956 | ||||||
Net
change in cash and cash equivalents
|
(31,338 | ) | 8,507 | |||||
Cash
and cash equivalents, beginning of period
|
36,023 | 37,802 | ||||||
Cash
and cash equivalents, end of period
|
$ | 4,685 | $ | 46,309 |
Nine
Months Ended
|
||||||||
July 31,
|
||||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Supplemental cash flow
information
|
||||||||
Cash
paid for interest
|
$ | - | $ | 16,958 | ||||
Supplemental disclosure of non-cash investing and
financing activities
|
||||||||
Issuance
of common stock to convertible debt holder as a discount on the
debt
|
$ | - | $ | 20,000 | ||||
Discount
on convertible debt due to detachable warrant and embedded
|
||||||||
conversion
option
|
$ | - | $ | 127,583 | ||||
Accrued
legal fees paid from convertible debenture proceeds
|
$ | - | $ | 20,000 | ||||
Related
party contribution of Webdigs common stock to consultant for
prepaid
|
||||||||
consulting
fees
|
$ | - | $ | 40,000 | ||||
Common
stock issued for prepaid consulting fees
|
$ | - | $ | 80,000 | ||||
Reclassification
of amounts due to officers as accrued expenses
|
$ | 33,275 | $ | - | ||||
Webdigs
common stock received in connection with the divestiture of
Marquest
Financial, Inc.
|
$ | - | $ | 265,907 | ||||
Issuance
of common stock to acquire Iggy’s assets
($17,648 for computer
hardware
and $1,797,977 for intangible assets)
|
$ | - | $ | 1,815,625 | ||||
Issuance
of common stock to acquire theMLSDirect.com
|
$ | - | $ | 47,000 | ||||
Convert
accrued officer salary to common stock
|
$ | - | $ | 55,000 | ||||
Void
forfeited balance of unearned compensation
|
$ | - | $ | 41,098 |
1
|
BASIS
OF PRESENTATION
|
2
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
3
|
GOING
CONCERN
|
4
|
RELATED
PARTY TRANSACTIONS
|
5
|
DISCONTINUED
OPERATIONS
|
Discontinued Operations of
|
Three months ended
|
Nine months ended
|
||||||
Marquest Financial, Inc.
|
July 31, 2009
|
July 31, 2009
|
||||||
Net
revenue
|
$ | - | $ | - | ||||
Operating
loss
|
(4,726 | ) | (13,003 | ) | ||||
Other
income
|
297,412 | 297,412 | ||||||
Earnings
before income taxes
|
292,686 | 284,409 | ||||||
Income
taxes
|
- | - | ||||||
Net
operating income
|
$ | 292,686 | $ | 284,409 |
6
|
FIXED
ASSETS AND INTANGIBLE ASSETS
|
Fixed Assets
|
July 31, 2010
|
October 31, 2009
|
||||||
Furniture
and Fixtures
|
$ | 9,981 | $ | 9,981 | ||||
Computer
hardware
|
50,972 | 50,972 | ||||||
60,953 | 60,953 | |||||||
Accumulated
depreciation
|
(47,021 | ) | (30,275 | ) | ||||
Net
fixed assets
|
$ | 13,932 | $ | 30,678 |
Intangible Assets
|
July 31, 2010
|
October 31, 2009
|
||||||
Website
Software
|
$ | 1,793,397 | $ | 1,771,637 | ||||
Customer
lists
|
355,922 | 355,922 | ||||||
Non-compete
agreements
|
266,019 | 266,019 | ||||||
Other
|
52,000 | 52,000 | ||||||
2,467,338 | 2,445,578 | |||||||
Accumulated
amortization
|
(1,071,248 | ) | (342,335 | ) | ||||
Net
before impairment charge
|
1,396,090 | 2,103,243 | ||||||
Impairment
charge
|
(1,262,705 | ) | - | |||||
Net
intangible assets
|
$ | 133,385 | $ | 2,103,243 |
7
|
INVESTMENT
IN MARKETPLACE HOME MORTGAGE – WEBDIGS,
LLC
|
Three months ended
|
Nine months ended
|
|||||||
July 31, 2009
|
July 31, 2009
|
|||||||
Revenue
|
$ | - | $ | 246,413 | ||||
Operating
expenses
|
(1,314 | ) | (212,491 | ) | ||||
Operating
income (loss)
|
(1,314 | ) | 33,922 | |||||
Other
expense
|
- | - | ||||||
Net
income (loss)
|
$ | (1,314 | ) | $ | 33,922 | |||
The
Company's share in the income of Marketplace Home Mortgage Webdigs, LLC
(49%)
|
$ | (643 | ) | $ | 16,622 | |||
Amortization
of deferred gain on transfer of non-cash assets
|
760 | 2,280 | ||||||
Net
equity in the income of Marketplace Home Mortgage - Webdigs,
LLC
|
$ | 117 | $ | 18,902 |
8
|
SHARE-BASED
COMPENSATION
|
Weighted average
|
||||||||||||||||
Weighted
|
Aggregate
|
remaining
|
||||||||||||||
Number of
|
average
|
intrinsic
|
contractual term
|
|||||||||||||
options
|
exercise price
|
value
|
(years)
|
|||||||||||||
Outstanding
at October 31, 2009
|
1,000,000 | $ | 0.25 | $ | - | |||||||||||
Granted
|
- | - | - | |||||||||||||
Exercised
|
- | - | - | |||||||||||||
Forfeited
or expired
|
(200,000 | ) | - | - | ||||||||||||
Outstanding
at July 31, 2010
|
800,000 | $ | 0.25 | $ | - | 3.13 | ||||||||||
Exercisable
at July 31, 2010
|
750,000 | $ | 0.25 | $ | - | 3.05 |
Restricted
|
Unearned
|
|||||||
Shares
|
Compensation
|
|||||||
Outstanding,
October 31, 2008
|
1,940,813 | 198,490 | ||||||
Granted
|
- | - | ||||||
Vested
|
(652,311 | ) | (60,860 | ) | ||||
Forfeited/canceled
|
- | |||||||
Outstanding,
January 31, 2009
|
1,288,502 | 137,630 | ||||||
Granted
|
- | - | ||||||
Vested
|
(652,309 | ) | (60,861 | ) | ||||
Forfeited/canceled
|
- | - | ||||||
Outstanding,
April 30, 2009
|
636,193 | 76,769 | ||||||
Granted
|
50,000 | 12,500 | ||||||
Vested
|
(407,999 | ) | (38,865 | ) | ||||
Forfeited/canceled
|
(240,970 | ) | (41,098 | ) | ||||
Outstanding,
July 31, 2009
|
37,224 | 9,306 | ||||||
Granted
|
- | |||||||
Vested
|
(24,724 | ) | (6,181 | ) | ||||
Forfeited/canceled
|
- | |||||||
Outstanding,
October 31, 2009
|
12,500 | 3,125 | ||||||
Granted
|
- | - | ||||||
Vested
|
(12,500 | ) | (3,125 | ) | ||||
Forfeited/canceled
|
- | - | ||||||
Outstanding,
January 31, 2010
|
- | - | ||||||
Granted
|
- | - | ||||||
Vested
|
- | - | ||||||
Forfeited/canceled
|
- | - | ||||||
Outstanding,
April 30, 2010
|
- | - | ||||||
Granted
|
- | - | ||||||
Vested
|
- | - | ||||||
Forfeited/canceled
|
- | - | ||||||
Outstanding,
July 31, 2010
|
- | $ | - |
Weighted
|
||||||||||||||||
average
|
||||||||||||||||
Weighted
|
Aggregate
|
remaining
|
||||||||||||||
Number of
|
average
|
intrinsic
|
contractual term
|
|||||||||||||
warrants
|
exercise price
|
value
|
(years)
|
|||||||||||||
Outstanding
at October 31, 2009
|
500,000 | $ | 0.13 | $ | - | |||||||||||
Granted
|
- | - | - | |||||||||||||
Exercised
|
- | - | - | |||||||||||||
Forfeited
or expired
|
(300,000 | ) | 0.01 | - | ||||||||||||
Outstanding
at July 31, 2010
|
200,000 | $ | 0.30 | $ | - | 1.36 | ||||||||||
Exercisable
at July 31, 2010
|
200,000 | $ | 0.30 | $ | - | 1.36 |
9
|
SHAREHOLDERS
EQUITY
|
10
|
BASIC
AND DILUTED EARNINGS PER SHARE
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||
July 31,
|
July 31,
|
|||||||||||||||
Basic
earnings per share calculation:
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Net
loss from continuing operations
|
$ | (1,668,982 | ) | $ | (432,172 | ) | $ | (2,381,236 | ) | $ | (1,139,553 | ) | ||||
Net
income (loss) from discontinued operations
|
- | 292,686 | - | 284,409 | ||||||||||||
Net
loss
|
$ | (1,668,982 | ) | $ | (139,486 | ) | $ | (2,381,236 | ) | $ | (855,144 | ) | ||||
Weighted
average of common shares outstanding
|
33,396,719 | 28,417,170 | 33,396,719 | 24,553,883 | ||||||||||||
Net
loss per share - basic
|
||||||||||||||||
Loss
from continuing operations
|
$ | (0.05 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.04 | ) | ||||
Loss
from discontinued operations
|
- | 0.01 | - | 0.01 | ||||||||||||
Net
loss per basic share
|
$ | (0.05 | ) | $ | - | $ | (0.07 | ) | $ | (0.03 | ) | |||||
Diluted
earnings per share calculation:
|
||||||||||||||||
Net
loss from continuing operations
|
$ | (1,668,982 | ) | $ | (432,172 | ) | $ | (2,381,236 | ) | $ | (1,139,553 | ) | ||||
Net
income (loss) from discontinued operations
|
- | 292,686 | - | 284,409 | ||||||||||||
Net
loss
|
$ | (1,668,982 | ) | $ | (139,486 | ) | $ | (2,381,236 | ) | $ | (855,144 | ) | ||||
Weighted
average of common shares outstanding
|
33,396,719 | 28,417,170 | 33,396,719 | 24,553,883 | ||||||||||||
Stock
options (1)
|
- | - | - | - | ||||||||||||
Stock
warrants (2)
|
- | - | - | - | ||||||||||||
Convertible
notes payable - officer/stockholder (3)
|
- | - | - | - | ||||||||||||
Diluted
weighted average common shares outstanding
|
33,396,719 | 28,417,170 | 33,396,719 | 24,553,883 | ||||||||||||
Net
loss per common share - diluted
|
||||||||||||||||
Loss
from continuing operations
|
$ | (0.05 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.04 | ) | ||||
Loss
from discontinued operations
|
- | 0.01 | - | 0.01 | ||||||||||||
Net
loss per diluted share
|
$ | (0.05 | ) | $ | - | $ | (0.07 | ) | $ | (0.03 | ) |
|
(1)
|
The
dilutive effect of stock options in the above table excludes 800,000 and
600,000 of underlying stock options for the three and nine month periods
ended July 31, 2010 and 2009, 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
500,000 of underlying stock warrants for the three and nine month
periods ended July 31, 2010 and 2009, respectively, as they would be
anti-dilutive to our net loss for those
periods.
|
|
(3)
|
The
dilutive effect of potential convertible notes equivalent to 2,727,273
shares related to the loan from our CEO has been excluded as it would be
anti-dilutive to our net loss for those
periods.
|
11
|
SUBSEQUENT
EVENTS
|
Office
equipment
|
2 to 5
years
|
Furniture and
fixtures
|
3 to 7
years
|
Exhibit No.
|
Description
|
|
31.1
|
Certification
of Chief Executive Officer
|
|
31.2
|
Certification
of Chief Financial Officer
|
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
|
WEBDIGS,
INC.
|
/s/ Robert A. Buntz,
Jr.
|
Robert A. Buntz,
Jr.
|
Chief Executive
Officer
|
Dated: September 14,
2010
|
/s/ Edward
Wicker
|
Edward
Wicker
|
Chief Financial
Officer
|
Dated: September 14,
2010
|
Exhibit No.
|
Description
|
|
31.1
|
Certification
of Chief Executive Officer
|
|
31.2
|
Certification
of Chief Financial Officer
|
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
|