UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
 

Webdigs, Inc.
(Exact name of registrant as specified in its charter)
 

 
Delaware
(State or other jurisdiction of
incorporation or organization)
 
11-3820796
(I.R.S. Employer
Identification No.)
 
3433 Broadway Street NE, Suite 501
Minneapolis, Minnesota
(Address of principal executive offices)
 
 
 
55413
(Zip code)
 
 
(612) 767-3854
(Registrant’s telephone number, including area code)
 


 
Securities to be registered pursuant to Section 12(g) of the Act: None.
 
Securities to be registered pursuant to Section 12(b) of the Act: Common stock, $0.001 par value per share.


 
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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 if the Exchange Act:

Large accelerated filer
o
 
Accelerated filer
o
 
 
 
 
 
 
 
Non-accelerated filer
o
 
Smaller reporting company
x
 
 


ITEM 1. DESCRIPTION OF BUSINESS

Overview of our Business and its History

WebDigs, Inc. (the “Company,” “Webdigs,” “we” or “us”) combines the power of the web, along with proprietary technology and trained real estate agents and mortgage brokers, to deliver a real estate buying and selling experience at a price that we expect to be significantly lower than that of the traditional “full-commission” real estate broker model. We believe that the full-commission real estate brokerage model has become expensive in relation to the value it offers consumers. For instance, the average home in the Twin Cities metropolitan area (Minnesota) sells for nearly $300,000 and the average brokerage commission on residential real estate transactions is 6%, producing an average broker’s commission of approximately $18,000. Often, the only value perceived by the consumer in hiring a real estate agent is obtaining a listing on the Multiple Listing Service, or “MLS.” Most of the other functions a traditional real estate agent customarily performs can be easily performed by the consumer. According to the National Association of Realtors, in 77% of the nationwide residential real estate transactions in 2005, the buyer itself found the home on the internet by using the very same MLS search capabilities that are available to traditional real estate agents.

Webdigs offers unique, innovative and proprietary home search, purchase and sale capabilities through the internet. Consumers can use our website to search the MLS in new, enjoyable and effective ways that we believe are not presently available on other real estate search, purchase and sale sites. We have built our site from the ground up, utilizing the MLS as a database and interfacing with it using our custom-built, proprietary, data-mining software. As with all internet- and software-related businesses, we expect to continue to evaluate and upgrade the interface and performance of our website and related software.

We have been operating since July 2007 in the Twin-Cities (Minneapolis-St. Paul) metropolitan area and since November 2007 in south Florida. Currently, we believe that market expansion opportunities exist in St. Louis, Dallas-Fort Worth, Las Vegas, Denver, Detroit, Boston, New York City, Atlanta, Philadelphia, Phoenix, Austin and Chicago, and in portions of Canada. Nevertheless, we currently have no firm plans or commitments to commence operations in those other markets.

Through our wholly owned subsidiary, Marquest Financial, Inc., we also offer seamlessly integrated mortgage brokerage services to our customers. Although the mortgage brokerage business is a separate operation, its close alignment with Webdigs enables us to make the administration of the entire home-buying process less time consuming than that ordinarily involved with traditional full-fee real estate and mortgage brokers.

Background and Industry Trends

We believe that the real estate market is undergoing a dramatic change not dissimilar to that previously experienced by traditional stock brokerages. Of course, the most critical aspect driving this change is the advent of the internet as a tool for searching for and researching real estate, eliminating the commitments of time and expense involved with visiting multiple properties in person. The changes in the industry are evident from National Association of Realtor statistics. According to that association, the percentage of home buyers using the internet to search for homes increased from 41% in 2001 to 80% in 2006. In addition, home sellers can use the internet to check home valuations, track the housing market and research comparable sales information. According to the California Association of Realtors, the percentage of California home sellers using the internet in the sale process increased from 9% in 2002 to 62% in 2006.

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In general, the internet enables transactions to be performed far more efficiently than in the past, and facilitates automated business processes where information is electronically conveyed and stored, and documents electronically signed and reviewed. All of these developments increase efficiency and serve to reduce the amount of time it takes to process a real estate transaction. Despite increased efficiencies in processing transactions, the traditional model for real estate agents and their compensation has changed little.

In light of the foregoing and especially in the current real estate market and economy, we believe that consumers are looking for ways to cut unnecessary and unjustifiable costs from their real estate transactions. In our view, consumers have specifically begun targeting for change the traditional model under which real estate agents are compensated. In fact, statistics from the National Association of Realtors indicate that over 70% of home buyers or sellers would not re-hire their prior real estate agent. Some particular factors that we believe are contributing to consumer dissatisfaction include:

·
Commission fees charged by traditional real estate agents, expressed in absolute dollars, have risen in the past years . Traditional commissions vary from market to market, but generally range from 5-6% of the total sales price of the home. Although the average total commission expressed as a percentage of the property being transacted has slowly declined in recent years, the gross dollar amount of the average per-transaction commission has increased as home prices have risen.

·
The traditional agent incentive structure creates conflicting priorities between agents and their clients . Traditionally, real estate agents are paid commissions based on the sales price of the subject property. They do not receive a salary and they do not receive their commissions unless a transaction closes. As a result, their economic interests are not fully aligned with the consumer, as they only receive compensation when and if a property is sold. As a result, it is reasonable to assume that traditional agents place great emphasis on closing transactions and may often encourage their clients to accept offers even when it may be in a selling client’s best interest to hold out for a better price.

In sum, we believe that the advent of the internet and increased participation by both home sellers and buyers, increased efficiencies in effecting business transactions in general and real estate transactions in particular, rising commissions expressed in terms of absolute dollars, historical tensions and conflicts in the priorities of traditional real estate agents, and a presently stagnant economy and real estate market, are all conspiring to foment consumer dissatisfaction with the traditional model of residential real estate brokerage.

Our Business Model, Products and Services

General

We are a full-service real estate brokerage primarily for residential home buyers and sellers. We utilize the internet, proprietary technology and efficient business processes to deliver significant savings to our home sellers and rewards to our home buyers. Our overall goal is to deliver services that are high-tech coupled with high-touch. We believe that an emphasis on client service, when and as needed or requested by our clients, will separate us from other discount brokerage models; and our efficiency and cost savings will differentiate us from traditional brokerage models.

Through subsidiary entities, we offer all services normally associated with a typical residential real estate transaction, including mortgage and insurance brokerage services. Our mortgage brokerage services are offered through our wholly owned subsidiary Marquest Financial, Inc.

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Currently, we market to potential customers principally through the internet, print advertising, television, radio, billboards, a variety of other media and word of mouth. Business with and on behalf of customers is transacted in person and through the internet. We currently have market presence (and offer(s) our services) in the Minneapolis-St. Paul metropolitan area of Minnesota, and in southwest Florida.

Services for Home Buyers

We provide home buyers with a broad range of services. Through our website at www.webdigs.com , home buyers can search our database of MLS listings, schedule home visits, make offers and monitor the offer and counteroffer process. Our licensed real estate agents, working from our offices, assist buyers by preparing offers, counteroffers and other real estate documents, negotiating purchase contracts and preparing for closings.

On our website, home buyers can view open house schedules and schedule home showings. When our buyer is ready to make a purchase offer, he or she submits the terms of the offer through our website or directly to our Agent. Our agent calls the buyer to discuss the offer and prepares the offer documents. Our agent presents the buyer’s offer to the listing agent and a series of negotiations and counteroffers often ensues. Our agents support the buyer at each step of this negotiating process, until the purchase contract is signed. Our software tracks the offer history for the property.

Normally, after a contract is accepted our licensed agents work closely with the buyer through the contingency period, when the buyer has a home inspection and arranges home financing. After a closing, we pay our clients by check within 14 days. Our payments, characterized as rebates of sales commissions, are generally two-thirds of the commission we receive from a transaction.

Our home buying clients have:

·
submitted to us more than 1,000 requests for us to schedule a personal visit of a property

·
submitted to us more than 200 requests to prepare purchase offers

·
had over 40 accepted offers to purchase properties, and

·
closed over 35 purchases of properties.

Services for Home Sellers

We provide our home sellers with Northstar MLS listings for a flat fee of $3,000 at closing. The Northstar MLS contains listings from Minnesota, portions of western Wisconsin, northern Iowa, and eastern North and South Dakota. Our listings also appear on Realtor.com and 14 other national home-listing websites.

In addition to providing home sellers with a home listing, Webdigs arranges for OBEO virtual home tours of our sellers’ homes so that the resulting virtual tour may become a part of the listing on our website. To assist with the pricing of a seller’s home, we provide a comparative market analysis to the seller and individual consultation on pricing strategies. Finally, we also provide a range of individual strategies for readying a seller’s home for sale, including appropriately staging the home. All of these sell-side services are furthered by our marketing and advertising campaign designed to drive traffic to our website.

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Our home selling clients have listed over 25 homes with us since April 1, 2008.

Additional Services

We also provide services that are complementary to real estate transactions in general, such as mortgage brokerage services and services relating to title, property and casualty insurance, including homeowner’s insurance.

Our Strategy

Our long-term goal is to become the leader in comprehensive online real estate brokerage services for buyers and sellers of residential real estate in the United States and Canada. Initially, however, we are focused on achieving profitability in our current market locations (the Minneapolis-St. Paul metropolitan area and southern Florida) to demonstrate the viability of our business model. To achieve these objectives, we are pursuing the following broad strategy:

·
Invest in our website interface and technology . We believe our website interface and technology platform will provide us with a competitive advantage. Our goal is to make the interface more easy to use, more intuitive, more enjoyable and distinguishable from the other websites and internet tools that buyers and sellers of homes are accustomed to. We believe that continuing to update and enhance our website and technology will be a key element in increasing traffic and use of our services.

·
Focus on branding and creating market awareness . We have spent considerable attention to building our brand and market awareness with an advertising campaign that uses a mix of media, including the internet, television, print, radio, direct-mail, outdoor signage and various moveable signage (e.g., branded public buses in the Twin Cities metropolitan area). We expect to continue this branding effort on a selective and thoughtful basis, with a view towards achieving maximum return for our marketing and advertising dollars and efforts.

·
Develop an efficient transaction-processing and back-office operation . We believe that one important factor in our overall profitability, especially given our discounted commissions and flat-fee model, will be our ability to process high transaction volumes efficiently. Traditional full-fee real estate brokerages typically do not have the volume, expertise or need to have efficient and low-cost administrative operations. Accordingly, we intend to structure our administrative model to reach outside traditional real estate and utilize transaction processes and computer systems more commonly found in high-volume industries such as banking and insurance.

·
Attain profitability in our current markets . There are a number of internet-based real estate brokers presently attempting to capitalize on market, demographic, trade/industry and economic changes. To our knowledge, none of these businesses have reached sustained profitability needed to validate the discounted internet-based real estate brokerage model. Therefore, we believe that an initial critical strategic goal is for Webdigs to attain overall profitability across its two current markets in the Minneapolis-St. Paul metropolitan area and southern Florida. We believe that profitability—especially sustained profitability—will buoy consumer confidence in our services and lead to further successes.

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If we can attain profitability, we believe that our business model, being predicated on greater efficiency and volume than the traditional model but with an emphasis on expertise and extensive client service, will facilitate our expansion into additional markets and the growth of our business. As indicated above and elsewhere in this document, however, we are primarily focused on attaining profitability in our current market locations.

Industry Segments
 
We currently operate in two primary operating segments: (1) online real estate brokerage, and (2) mortgage brokerage. In our online real estate brokerage business, we believe we provide customers an experience comparable to a full-service broker with a lower cost. For our customers selling homes, we offer a flat fee structure for listing services (and related services). For our customers buying homes, we offer a graduated fee structure by issuing rebates for two-thirds of our broker commissions for the related transaction. In our mortgage brokerage business, we assist customers in refinancing their existing home mortgages and in financing new home purchases.
 
Competition

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

Some of our competitors in the residential real estate brokerage market are traditional brokerage firms, including large national brokerage firms or franchisors, such as Prudential Financial, Inc., RE/MAX International Inc. and Realogy Corporation. Realogy owns the Century 21, Coldwell Banker and ERA franchise brands. Realogy also owns NRT Incorporated, which itself owns and operates brokerages that are typically affiliated with one of the franchise brands owned by Realogy. We compete with these traditional brokers primarily on price, service and the ease of use of our website interface. Although our commissions are generally lower than these traditional brokers, consumers may be attracted to traditional brokers because they offer or are perceived to offer higher levels of individual attention and service.

We also compete with non-traditional real estate brokerage firms including ZipRealty, Inc., iNest Realty, Inc. (a subsidiary of IAC/Interactive Corp) and Redfin Corporation, each of whom pays cash rebates to clients and relies to a large extent on the efficiencies of the internet. We believe that these competitors generally have greater financial resources than we do, and also have a longer operating history in the realm of online discount real estate brokerage. Here too, we compete with these non-traditional brokers primarily on price, service and on the ease of use of our website interface. Our commissions are generally equal to or lower than these non-traditional brokers. For example, ZipRealty and Redfin respectively rebate approximately 20% and 66% of their commission to home buyers. We generally rebate two-thirds of our commission to home buyers. iNest rebates 1% of the home sale price to buyers.

In addition, we compete with discount real estate listing services, such as ForSaleByOwner.com and BuyOwner.com. We compete with these discount service providers primarily on level of service. Although we offer traditional services to our clients at a discounted price, highly self-motivated consumers may be attracted to these discount listing services because they are cheaper than our services. For example, we currently believe that a consumer can obtain an MLS listing through ForSaleByOwner.com for anywhere from $90 per month to a $900 flat fee.

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We compete or may in the future compete with various online services, including Move, Inc., Zillow.com, HouseValues, Inc., HomeGain.com, Yahoo!, Inc., Google Inc. and Trulia, Inc., that also look to attract and monetize home buyers and sellers using the internet. For instance, Move, Inc. operates the www.realtor.com website. Move, Inc. is affiliated with National Association of Realtors, the National Association of Home Builders, the Manufactured Housing Institute and hundreds of MLSs, which may provide Move, Inc. with preferred access to listing information and other competitive advantages. We compete with these service providers primarily on the basis of service and the ease of use of our website interface. We do not provide home valuation data, and some other sites (such as Realtor.com) have more listings and more data about the community. Many of these currently limited competitors and future competitors have significantly more resources than we do.

Finally, we expect to face significant competition in the home mortgage brokerage industry. Wholesale Access, an industry research and consulting firm, reports that in 2004 there were 53,000 mortgage brokerages operating in the United States with the ten largest accounting for 37.3% of total loan originations. In addition to other mortgage brokerage firms, our mortgage brokerage business competes with consumer finance companies and commercial banks. In this market, we expect to compete primarily on the basis of price and service. Although we believe we offer competitive mortgage interest rates, consumers may be attracted to other mortgage brokers or lenders because they offer or are perceived to offer a higher level of service.

Environmental Regulation

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

Other Regulation

The Company is subject to governmental regulation by federal, state and local regulatory authorities with respect to our real estate brokerage and mortgage lending operations.

Federal Regulation . Federal laws and regulations govern the real estate brokerage business. These include the Real Estate Settlement Procedures Act of 1974, or RESPA, and federal fair housing laws. RESPA requires disclosures to home buyers and sellers of settlement costs and restricts the payment of kickback or referral fees for settlement services. RESPA does not prohibit referral fees paid by one real estate broker to another broker. Federal fair housing laws generally make it illegal to discriminate against protected classes of individuals in housing or brokerage services. Other federal regulations protect the privacy rights of consumers and affect our opportunities to solicit new clients. Like real estate brokerage, mortgage brokerage is subject to RESPA and federal fair housing laws. Mortgage brokerage is also regulated by other federal laws such as the Truth in Lending Act, Regulation Z and the Equal Credit Opportunity Act. The provision of title insurance is also highly regulated.

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

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Real estate licensees, whether they are brokers, salespersons, individuals or entities, must follow the state’s real estate licensing laws and regulations. These laws and regulations generally prescribe minimum duties and obligations of these licensees to their clients and the public, as well as standards for the conduct of business, including contract and disclosure requirements, record keeping requirements, requirements for local offices, trust fund handling, agency representation, advertising regulations and fair housing requirements. Although payment of rebates or credits to real estate purchasers of the type we offer are permitted in most states, some states either do not permit these rebates or credits or do not permit them in the form that we currently provide them. In each of Minnesota and Florida (i.e., the states where we currently have operations), we have designated one of our employees as the individually licensed lead broker and we hold a corporate real estate broker’s license where required by law. In addition to state laws regarding real estate brokerage, we must comply with state laws regarding mortgage brokerage, including laws that regulate the timing and content of disclosures.

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

Trade Regulation . In addition to governmental regulations, we are subject to rules and regulations established by private real estate trade organizations, including, among others, local MLSs, the National Association of Realtors, and state and local associations of realtors. The rules and regulations of the various MLSs to which we belong vary, and specify, among other things, how we as a broker member can use MLS listing data, including the use and display of such data on our website.
 
The United States Department of Justice recently agreed to settle claims it had brought against the National Association of Realtors relating to the ability to access MLS listings. The settlement decree addresses two areas of particular concern to non-traditional real estate brokerage firms such as Webdigs. First, the decree prohibits "selective opt-outs," which enable a broker involved in a MLS to selectively prohibit certain MLS participants from displaying that broker's MLS listings on the participants' website. Second, the decree prohibits "blanket opt-outs," which enable a broker involved in a MLS to prohibit all other MLS participants from displaying that broker's MLS listings, even though traditional real estate brokerage firms could easily display or otherwise convey these same listings in other manners. Presently, we are optimistic that the settlement will prohibit conduct that is unfair and potential harmful to our business.

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

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Intellectual Property

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

We presently possess the following intellectual property rights:

·
domain name rights to www.webdigs.com
·
domain name rights to www.homeequityadvisorsllc.com
·
domain name rights to www.creditgarage.com
·
domain name rights to www.marquestfin.com
·
certain patents in process (applications for which have not yet been filed) relating to proprietary software
·
trademark and trade name for “Webdigs”; and
·
trademark for: “The New Way to do Real Estate”

We do not have any issued patents, nor do we have any registered copyrights.

Our ability to enforce our intellectual-property rights is subject to general litigation risks. Typically, when a party seeks to enforce its intellectual-property rights, it is often subjected to claims that the intellectual-property right is invalid, or is licensed to the party against whom the claim is being asserted. We cannot be certain that our intellectual-property rights will not be infringed upon, that others will not develop products in violation of our intellectual-property rights, or that others may assert, rightly or wrongly, that our intellectual-property rights are invalid or unenforceable. In instances where we will rely on trade secrets for the protection of our confidential and proprietary business information, we cannot be certain that we would have adequate remedies for any such breach or that our trade secrets will not otherwise become discovered or independently developed by competitors. In general, defending intellectual-property rights is expensive and consumes considerable time and attention of management. Our involvement in intellectual-property litigation would likely have a materially adverse effect on our business, even if we were ultimately successful in defending our intellectual-property rights.

Employees

The Company (including its subsidiaries) currently has 19 employees, all of whom are full time.

Corporate Structure and Information

Webdigs, Inc. operates through direct and indirect subsidiaries. The principal operating subsidiary is Webdigs, LLC, a Minnesota limited liability company. WebDigs, LLC was originally organized as a limited liability company in May 2007, under the laws of the State of Minnesota. In October 2007, Webdigs, LLC engaged in a merger transaction with Select Video, Inc., a Delaware corporation. Following the merger transaction, Select Video, Inc. changed its name to Webdigs, Inc. (which we refer to throughout this document as the “Company”). Webdigs, LLC continues to exist as a wholly owned operating subsidiary of the Company.

Webdigs, LLC itself owns 100% of the ownership interests of (i) Marquest Financial, Inc., a Minnesota corporation and mortgage broker, (ii) Home Equity Advisors, LLC, a Minnesota limited liability and mortgage broker, and (iii) Credit Garage, LLC, a Minnesota limited liability company and consumer credit counseling company. We believe that these separate business lines are all complementary, and the operations of such businesses are currently reflected in our financial statements included in Item 13 below.

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Our principal offices are located at 3433 Broadway Street NE, Suite 501, Minneapolis, Minnesota 55413, and our telephone number at that office is (888) 932-3447. Our website address is www.webdigs.com . The information contained on our website or that can be accessed through our website does not constitute part of this document.
 
Risk Factors

Investment in our common stock involves a high degree of risk and should be regarded as speculative. As a result, you should only consider an investment in Webdigs if you can reasonably afford to lose your entire investment.

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ITEM 1A. RISK FACTORS

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

We are a newly organized start-up company with little history of operations and we expect to incur losses for the foreseeable future.

We began operations in July 2007 and to date have not generated meaningful revenues. As a newly organized start-up company, we are subject to all of the risks associated with a new business enterprise. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, especially in challenging and competitive industries such as residential real estate and mortgage brokerage and particularly in light of present economic conditions.

We do not have an operating history which would provide you with information about our past or future operations. We anticipate incurring losses that will result from costs incurred in organizing our company, research and development, site development, protecting our technology, raising capital and market research. We anticipate incurring operating losses for the foreseeable future. Moreover, we may not be able to generate material revenues in the future, and it is possible that any revenues that we generate will be either insufficient for us to achieve profitability or even continue operations.

We will likely require additional financing in the future, but we are uncertain whether such financing will be available to us.

We will likely require significant additional capital to continue and expand our operations. To date, our revenues from operations have not generated cash flow sufficient to finance our operations and growth. As a result, we have periodically since our inception sought financing and we will likely continue to require additional financing in the foreseeable future. This is particularly true if actual demand for our services exceeds our current expectations (which would likely force us to incur additional expenses to meet such demands) or if our anticipated expenditures exceed our current expectations.

Additional financing could be sought from a number of sources, including but not limited to additional sales of equity or debt securities, or loans from banks, other financial institutions or our affiliates. If additional funds are raised by the issuance of our equity securities, such as through the issuance of stock, convertible securities, or the issuance and exercise of warrants, then the ownership interest of our existing stockholders will be diluted. If additional funds are raised by the issuance of debt or other equity instruments, we may become subject to certain operational limitations (e.g., negative operating covenants), and such securities may have rights senior to those of the existing holders of common stock.

If adequate funds are not available on acceptable terms, we may be unable to fund the operation or expansion of our business. As a result, we would likely be forced to dramatically alter or cease operations.

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

Our success materially depends upon the efforts of our management and other key personnel, including but not limited to Robert A. Buntz, Jr., our Chief Executive Officer. If we lose the services of Mr. Buntz or any other executive managers or significant employees, our business would be materially and adversely affected. We have entered into a formal services and non-competition agreement with Mr. Buntz in the form of a Member Services Agreement between Mr. Buntz and our wholly owned operating subsidiary, Webdigs, LLC. Nevertheless, agreements do not ensure the continued availability to us of Mr. Buntz or any other manager or employee. Furthermore, we do not have “key person” life insurance insuring the life of Mr. Buntz, and we do not presently intend to purchase such insurance.

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

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

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

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

Our officers and directors collectively possess beneficial ownership of 7,798,231 shares representing approximately 35.3% of our common stock. In addition, certain other significant stockholders identified on the beneficial ownership table in this filing (see Item 4, “Security Ownership of Certain Beneficial Owners and Management”) hold beneficial ownership of 5,154,194 shares representing an additional 23.6% of our common stock. As a result, our directors and officers, together with significant stockholders, will have the ability to greatly influence, if not outrightly control, our management and affairs through the election and removal of our directors, and all other matters requiring stockholder approval, including the future merger, consolidation or sale of all or substantially all of our assets.

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

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

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

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

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

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

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

We will continue to depend on intellectual property rights to protect our proprietary technologies, although we may not be able to successfully protect these rights.

We rely on our proprietary technology to enhance some of our service offerings. To protect this technology, we employ and rely on trademark, trade secret, and copyright law in addition to contractual restrictions and protections. We intend to apply for patent protection on our future technology developments to the extent we believe such protection is available and economically warranted. Nevertheless, even if we determine to file applications for patent protection in the United States or in other countries, we may not in the end receive letters patent. Furthermore, even if we do obtain the rights to an issued patent, such patent may not provide us with a competitive advantage.

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While we have begun the process of preparing o file a patent application for some of our proprietary software, to date we have not yet filed any applications for patent protection. Despite our efforts to date, it is entirely independently develop technology that is similar to our technology, or offer or sell products or services that utilize our technology. The development by others of technology that is similar to our technology, or the sale of products or services that incorporate our technology, would likely harm our competitive position and have a material adverse effect on our business.

Even in cases where we may apply for patent protection and receive a patent that affords us a competitive advantage, we may have to resort to litigation to protect and enforce our patent rights, or to protect our trade secrets or know-how (or other intellectual property rights), or to determine their scope, validity, or enforceability. Enforcing or defending intellectual property rights or proprietary technology is generally extremely expensive, would likely cause a significant diversion of our resources, and ultimately may not prove successful. In addition, we may not have the financial, personnel or other resources to effectively enforce or defend our intellectual property rights, if at all.

Finally, we may determine, or a legal proceeding may result in a determination, that our intellectual property infringes the intellectual property rights of others. If our technology infringes the intellectual property rights of others, we may be subject to lawsuits and incur significant liabilities.

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

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

There is no public market for our common stock, which will be subject to significant restrictions on future transfer.

Currently, there is no public market for any of our common stock and no public market will develop as a result of the filing of this registration statement on Form 10. To date, we have not registered or qualified the offer or sale, or resale, of our common shares under federal or state securities laws and, if you buy any such shares, you may not resell them unless (i) such sale is registered or qualified under federal and state securities laws or (ii) exemptions from federal and state registration and qualification are available.

We have no obligation to register or qualify the offer, sale or resale of our shares of common stock under either federal or state law. As a result, any investor in our common stock must be prepared to bear the economic risk of investing in our common shares for an indefinite period of time.

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

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

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

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

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

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

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

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

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

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

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

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

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

The growth and expansion of our business could have a negative effect on our Company.

We believe that in order to be successful, we must grow and expand our operations. To grow, we believe we must expand, train and manage our employee base, particularly our marketing, management and skilled technical personnel, within a short time period. Rapid growth will also require an increase in the level of responsibility for both existing and new management and will require us to implement and improve operational, financial and management information procedures and controls. We compete with many companies in seeking to attract qualified personnel. We can give no assurance that the management skills and systems currently in place will be adequate, we will be able to effectively manage any significant growth we experience, or we will be able to hire or assimilate new personnel necessary to pursue our growth strategy. Our inability to adequately manage growth could have a material adverse effect on us.

Important Note : The foregoing risks are likely not a complete list of all risks that do or may affect the results of operation, financial condition or business prospects of Webdigs. In addition to the above risks, businesses are often subject to risks not foreseen or fully appreciated by management. In reviewing this document, potential investors should keep in mind other possible risks that could be important. In sum, investors are urged to make their own evaluation of Webdigs.

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ITEM 2. FINANCIAL INFORMATION
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial statements and related notes that appear at the end of this registration statement. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in “Risk Factors” elsewhere in this filing.

General

We are a web-based real estate company that offers innovative services to home buyers and sellers. We share with each buyer two-thirds of the broker commissions we receive from the seller or listing broker. This gives buyers a large financial incentive to use our services, while we earn meaningful net revenue per transaction. Our primary market targets are those home buyers who are willing and able to independently perform their initial home search on the internet. As part of our website interface and personal service, we also offer home buyers tools to manage their purchase transactions from initial search to the closing of their purchase. Currently, we also offer and generate revenue from our related buy-side services, including mortgage brokerage, title and credit counseling.

We provide our home sellers with Northstar MLS listings for a flat fee of $3,000 at closing (which averages to about 2.7% of the home sale price). The Northstar MLS contains listings from Minnesota, portions of western Wisconsin, northern Iowa, and eastern North and South Dakota. Our listings also appear on Realtor.com and 14 other national home-listing websites. In addition to providing home sellers with a home listing, Webdigs arranges for OBEO virtual home tours of our sellers’ homes so that the resulting virtual tour may become a part of the listing on our website. To assist with the pricing of a seller’s home, we provide a comparative market analysis to the seller and individual consultation on pricing strategies. Finally, we also provide a range of individual strategies for preparing a seller’s home for sale, including appropriately staging the home. All of these sell-side services are furthered by our marketing and advertising campaign designed to drive traffic to our website.

We currently offer our services in two states—Minnesota and Florida. When we represent buyers, we share with them two-thirds of our buyer broker commission, which we receive from the seller or listing broker. Since inception (May 1, 2007), our closed buy-side transaction gross revenue has exceeded $140,000, from which we have earned average gross commissions of over $7,000 per transaction. From this, on average, we have paid buyers over $3,900 per transaction and earned net revenue per transaction of approximately $3,100. The amount of the commission we receive on a transaction depends on the price of the home and percentage commission offered to the buyer’s broker by the seller or listing broker. When choosing a percentage commission to offer to buyer brokers, a seller or listing broker may consider factors such as the general state of the local housing market, how long the home has been on the market and how much the seller or listing broker values the services of buyer’s brokers. As of October 31, 2007, we had received, on average, a gross buyer’s broker commission equal to 2.7% percent of the home sale price before rebates to our customers.

Currently, our revenues consist primarily of (i) mortgage broker business commissions received and loan fees earned at the time a mortgage transaction closes; (ii) online real estate brokerage commissions received, as agents in residential real estate transactions, at the time a real estate transaction closes. We record revenues as gross revenue. Consumer rebates and third-party agent commissions paid to buyer’s brokers (in those instances where we represent the seller of a home) are treated as offsetting reductions to gross revenue. Our net revenues are principally driven by the number of transactions we close and the average net revenue per transaction. Average net revenue per transaction is a function of (1) the home purchase price and percentage commission we receive on each transaction and (2) the fee income received from mortgage loan origination.

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Due to the highly publicized distress of the subprime mortgage lending industry, all banks have tightened restrictions on new borrowers. This has noticeably affected our mortgage brokerage business even though we have not engaged in any subprime mortgage lending. Nevertheless, we are currently in the process of obtaining our license as an FHA approved mortgage broker. We believe that adding this lending option will at least offset any lost transactions resulting from the nationwide subprime lending crisis. Primarily, this belief is based on our tracking of Webdigs buyers, which has indicated that a large percentage would qualify for FHA lending. We expect to have approval to engage in FHA lending by September 2008.

We have also made some recent changes to further enhance our competitive positioning. In March 2008, we consolidated the previously separate mortgage brokerage operations of Home Equity Advisors, LLC and Marquest Financial, Inc., into one operating unit. The savings resulting from this consolidation of operations is expected to help us better leverage our overhead costs. Our mortgage operations are now headquartered in our Bloomington, Minnesota offices and supported with a satellite office in Naples, Florida.

Results of Operation

The following information should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10 registration statement.

From Inception (May 1, 2007) to October 31, 2007 :

Selected financial information about our operations by segment for the period from inception (May 1, 2007) to October 31, 2007 is as follows:

   
Online
Real Estate
Brokerage
 
Retail
Mortgage
Brokerage
 
Corporate
and Other
 
Total
 
Net revenues
 
$
6,400
 
$
93,454
 
$
-
 
$
99,854
 
Operating loss
   
(305,220
)
 
(70,267
)
 
(227,229
)
 
(602,716
)
Depreciation and amortization
   
11,486
   
3,425
   
1,492
   
16,403
 
Assets
   
412,030
   
187,372
   
157,892
   
757,294
 
Capital expenditures and website development costs
   
413,516
   
-
   
17,386
   
430,902
 

Consolidated gross revenues from inception (May 1, 2007) to October 31, 2007 totaled $105,675. After deducting customer rebates and third-party agent commissions, we finished our first six months (i.e., the fiscal year ended October 31, 2007) with $99,854 in net revenues. These gross revenues resulted for the closing of 21 real estate transactions during the period. The real estate brokerage commissions earned on buy-side real estate transactions represented approximately 5% of our total revenues and gross fee revenue for mortgage origination represented 95% of the consolidated gross revenues. We did not have any sell-side real estate transactions during this period.

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From inception (May 1, 2007) through October 31, 2007, our total selling-related expenses were $385,955, and our total general and administrative expenses were $316,615. Selling-related expenses consist of salaries and wages of $149,703, advertising and promotion of $156,082, website maintenance of $39,333, computer supplies of $13,247, and other selling expenses of $27,590. General and administrative expenses consist of salaries and wages of $202,369, professional fees of $61,733, amortization and depreciation of $16,403, rent of $9,073 and other general and administrative expenses of $27,037.

To date, we have spent considerable attention to building our brand and market awareness with an advertising campaign that uses a mix of media, including the internet, television, print, radio, direct-mail, outdoor signage and various moveable signage (e.g., branded public buses in the Minneapolis/St. Paul metropolitan area). These efforts generally commenced in September 2007. The costs of these marketing campaigns, along with the startup expenses associated with developing our state-of-the-art website and organizing our business operation, resulted in an operating loss of $602,716 from inception (May 1, 2007) to October 31, 2007. Our accumulated deficit as of October 31, 2007 was $602,716.

Six-month period from November 1, 2007 to April 30, 2008 :

Selected financial information about our operations by segment for the six-month period ended April 30, 2008 is as follows:

   
Online
Real Estate
Brokerage
 
Retail
Mortgage
Brokerage
 
Corporate
and Other
 
Total
 
Net revenues
 
$
65,333
 
$
434,028
 
$
-
 
$
499,361
 
Operating loss
   
(845,088
)
 
(79,902
)
 
(262,527
)
 
(1,187,517
)
Interest expense
   
-
   
4,512
   
42
   
4,554
 
Depreciation and amortization
   
73,392
   
39,775
   
-
   
113,167
 
Assets
   
371,130
   
194,318
   
114,338
   
679,786
 
Capital Expenditures
   
15,938
   
2,278
   
-
   
18,216
 

Consolidated gross revenues for the six months ended April 30, 2008 totaled $565,964. After deducting customer rebates and third party agent commissions, we finished the first six months of our current fiscal year (i.e. the fiscal year ending October 31, 2008) with $499,361 in net revenues. These results represent 400% sequential growth over the preceding six-month period ended October 31, 2007. In the six-month period ending April 30, 2008, combined real estate services (the revenue we earned from representing home buyers and home sellers) represented approximately 23% of total gross revenues. Gross fee income for mortgage origination during the same six-month period decreased to 77% of total revenues as compared to 95% of total revenues during the prior six months from inception (May 1, 2007) to October 31, 2007. Based on current trends, we presently anticipate that approximately 35% of our total revenues for the fiscal year ending October 31, 2008 will be derived from real estate brokerage services, with the remaining 65% being derived from mortgage brokerage services.

Over the six-month period ended April 30, 2008, our most significant cash outlays continued to be directed to those efforts and areas that are intended to generate long-term growth for our shareholders. For the six-month period ended April 30, 2008, our total selling-related expenses were $1,345,720, and general and administrative expenses totaled $341,158. Selling expense consists of salaries and wages of $351,079; advertising and promotion of $351,086; website maintenance and IT support of $274,525; amortization of $97,580 and other selling expenses of $271,450. General and administrative expenses consist of salaries, wages and stock compensation of $109,774; contract labor of $27,747; professional fees of $105,183; rent of $61,201; depreciation of $15,586 and other administrative expenses of $21,667. This compares to total selling-related expenses of $385,955, and general and administrative expenses of $316,615, in the prior six-month period ended October 31, 2007.

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For the six months ended April 30, 2008, we closed 21 real estate service transactions resulting in net revenues (after deducting customer rebates) of $65,333. Mortgage origination revenues were $434,028 for the same six-month period. As a sign of progress, in May 2008 we closed 13 real estate transactions, representing a new monthly record, and more than twice the total of the next highest month since inception in May 2007. For the six-month period from November 1, 2007 to April 30, 2008, primarily as a result of continued brand building and investment in enhancing the experience our customers have with our state-of-the-art real estate website, we incurred a net loss of $1,192,071.

Assets and Employees; Research and Development

Our primary assets are cash and intellectual-property rights, which are the foundation for our services. At this time, we do not anticipate purchasing or selling any significant equipment or other assets in the near term. Neither do we anticipate any imminent or significant changes in the number of our employees. We may, however, increase the number of independent contractor real estate agents upon whom we rely to provide personal services in the event that we expand into other markets or our business in our current markets significantly increases.

We expect that we will invest time, effort and expense in the continued refinement of our website and user interface. Currently, we expect to spend approximately $400,000 in such improvement activities over the course of fiscal 2008.

Liquidity and Capital Resources; Anticipated Financing Needs

From inception (May 1, 2007) to October 31, 2007, we incurred net operating losses aggregating $602,716 to fund technology development, marketing and advertising, business development and other activities as discussed above. We funded these operations primarily through cash of $485,500 received from sales of membership interests in Webdigs, LLC prior to the merger transaction on October 24, 2007, and $75,000 received from common stock sales subsequent to the merger transaction.
 
We used $56,881 of cash in operating from inception (May 1, 2007) to October 31, 2007. Cash used in operations included a net loss of $602,716, which was offset by $195,373 of non-cash expenses for depreciation, amortization and share-based compensation. Changes in operating assets and liabilities also offsetting the loss were increases in accounts payable of $318,355 and accrued expenses of $34,656, respectively. Cash flows used in investing activities included payments for website development of $413,516. Cash flows from financing activities included issuance of common stock for $553,937 and an increase in due to officer of $17,601. The due to officer amount was for business expenses paid on behalf of the Company which were reimbersed to the officer during the six months ended April 30, 2008.

We had $113,280 of cash and cash equivalents as of October 31, 2007. From October 31, 2007 through January 31, 2008 (the end of our first fiscal quarter), we raised $269,000 through the sale of our common stock in a private placement offering. From February 1, 2008 through April 30, 2008 (the end of our second fiscal quarter), we raised an additional $557,500 through the sale of our common stock as part of the same private placement offering. We also raised $15,000 through the sale of our common stock subsequent to April 30, 2008. Therefore, since the end of fiscal 2007 through June 17, 2008, we raised an aggregate of $841,500 in gross proceeds from the sale of our common stock. In consideration of such proceeds, we issued a total of 3,366,000 shares of common stock. We had $114,338 of cash and cash equivalents as of April 30, 2008.
 
We used $785,263 of cash in operating activities during the six months ended April 30, 2008. Cash used in operations included a net loss of $1,192,071, which included $196,887 of non-cash expenses for depreciation, amortization, loss on disposal of fixed assets and share-based compensation. Changes in operating assets and liabilities contributing to the use of use of cash primarily included decreases in accrued expenses and commissions and fees of $18,356 and $23,258, respectively, while an increase in accounts payable of $244,929 partially mitigated the use of cash from operations. Cash flows used in investing activities included payments for computer equipment of $18,216. Cash flows from financing activities included issuance of common stock for $826,500 and a decrease in due to officer of $17,601.

For the issuances of common stock in the private placement offering, we relied on the exemption from federal registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. We relied on this exemption and the safe harbor thereunder based on the fact that there are and will continue to be a limited number of investors, all of whom will be “accredited investors” under Rule 501 of the Securities Act of 1933 and all of whom have and will have knowledge and experience in financial and business matters such that the investors were capable of evaluating the risks of the investment. The securities offered and sold in these transactions were not (and, with respect to the aforementioned anticipated future sales, will not be) registered under the Securities Act of 1933 and therefore may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The disclosure about the private placement offering contained in this information statement is not an offer to sell or a solicitation of an offer to buy any securities of the Company.

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Over the course of the next several months, we expect to continue seeking additional financing. The amount of financing we seek may be significant, and may range from $5 million to $6 million. Assuming that we successfully obtain additional financing, in such amount, over the next several months, our management believes that such financing will be sufficient to finance our operations through October 31, 2009. Thereafter, our management believes that we may require additional capital to continue operations in our present markets or expand into other markets. If, however, we are unable to obtain any of such additional financing, we believe we will have cash sufficient to finance our operations through August 31, 2008.

Additional financing may not be available on terms favorable to us, especially in light of current debt and equity markets. If additional funds are raised by the issuance of our equity securities, such as through the issuance and exercise of common stock, then existing stockholders will experience dilution of their ownership interest. If additional funds are raised by the issuance of debt or other types of (typically preferred) equity instruments, then we may be subject to certain limitations in our operations, and issuance of such securities may have rights senior to those of the then existing holders of our common stock. If adequate funds are not available or not available on acceptable terms, we may be unable to fund expansion, develop or enhance products or respond to competitive pressures.

During the period from inception (May 1, 2007) to October 31, 2007 and from November 1, 2007 to April 30, 2008, we awarded certain key employees shares of restricted common stock as a form of compensation. The total value of all restricted stock awarded (utilizing the principles of SFAS 123R, discussed below under the caption “Critical Accounting Policies”) was $463,360. Using the vesting schedule applicable to each individual grant of restricted stock, compensation expense recorded for the period from inception (May 1, 2007) to October 31, 2007 and from November 1, 2007 to April 30, 2008, totaled $93,970 and $83,453, respectively. During the period ended October 31, 2007, 3,992 shares of restricted stock were forfeited. The remaining unvested shares awarded, having a total valuation at grant date of $281,945, have been recorded as unearned compensation as of April 30, 2008. As these remaining shares vest, they will be accounted for as additional compensation expense.

Effective as of May 7, 2008, we granted options to three non-employee directors as a means of inducing them to join the Board of Directors, giving each of them the right to purchase up to 200,000 shares of common stock at the per-share price of $0.25. These options may be exercised, to the extent vested, at any time prior to October 24, 2012. Rights to purchase one-half of the shares issuable under the options vested immediately upon issuance, with the remaining rights scheduled to vest in two equal annual installments on each of October 24, 2008 and 2009. Under SFAS No. 123R, for stock-based awards granted after January 1, 2006, we recognize compensation expense based on estimated grant date fair value using the Black-Scholes option-pricing model. Black-Scholes is used to determine the fair value for options issued to both employees and non-employees. The estimated fair value of these stock option grants was $107,000, and will be recorded as stock compensation expense over the vesting period starting on May 7, 2008. We expect to take a third quarter charge of $53,695 as director’s compensation expense for 300,000 vested options awarded to our outside directors.

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.

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

Revenue Recognition . Our online real estate brokerage business recognizes revenue at the closing of a real estate transaction. Commissions and rebates due to third party real estate agents or consumers are accrued at the time of closing and treated as an offset to gross revenues. Our mortgage brokerage business recognizes commissions received and loan fees earned at the time a mortgage loan closes.

Income Taxes . Subsequent to the reverse merger on October 24, 2007, we account for income taxes in accordance with SFAS No. 109, as clarified by FIN No. 48, which requires 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.
 
FIN No. 48 requires the recognition of 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. See Note 9 to the consolidated financial statements included elsewhere in the Form 10 for additional information regarding income taxes.

Share-Based Compensation . The Company accounts for stock incentive plans under the recognition and measurement provisions of FASB Statement No. 123(R), Share-Based Payments , which requires the 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 period from inception (May 1, 2007) to October 31, 2007 under Statement 123(R) includes compensation cost for restricted awards.
 
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Intangible Assets. We have two types of intangible assets:

Website Development

The primary interface with the customer in our online real estate broker operation is the Webdigs.com website. Certain costs incurred in development of this website have been capitalized according to provision in Emerging Issues Task Force Issue No. 00-2, Accounting for Website Development Costs (EITF 00-2), and AICPA Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use . These capitalized costs totaled $413,516 from inception (May 1, 2007) to October 31, 2007. Amortization is on a straight-line based over the estimated useful life of the website of 3 years.
 
Customer Lists

As part of our acquisitions of HEA and Marquest (See Note 2 to our financial statements for the period from date of inception (May 1, 2007) to October 31, 2007 included elsewhere in this Form 10), we recorded the fair value of pre-existing customer relationships of these two entities. The fair value estimated for each customer list was $27,404 for HEA and $130,859 for Marquest, for a total of $158,263. The fair values of these relationships will be amortized on a straight-line basis (which approximates the anticipated revenue stream) over their estimated useful lives based on an estimated revenue period ranging from 2 to 3 years.
 
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.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.
 
ITEM 3. PROPERTIES

We lease approximately 3,000 square feet of space at 3433 Broadway Street NE, Suite 501, Minneapolis, Minnesota 55413, on a month-to-month basis and at a per-month cost of approximately $3,500.

Marquest Financial, Inc., our wholly owned subsidiary that offers mortgage brokerage services, also leases two office properties. The first property, an office suite of approximately 3,000 square feet located at 3800 American Blvd W, Suite 1400, Bloomington, Minnesota 55431, houses Marquest Financial’s main sales and administrative offices. The lease for this property has a term that expires in August 2009. Marquest Financial leases the property for approximately $5,550 per month. The second property is approximately 1,500 square feet of office space located at 5621 Strand Blvd. Naples, Florida. Maquest Financial leases this space, which is used as its Florida sales office, at a per-month cost of approximately $1,774. The lease for this property expires in May 2009.

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ITEM 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

·
each Company director

·
each executive officer of the Company

·
all executive officers and directors of the Company as a group, and

·
each other beneficial holder (or group of holders) of five percent or more of our common stock

Each person or entity included in the table below has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, except as indicated by footnote and subject to community property laws where applicable. Percentage ownership is based on 21,808,840 shares of common stock outstanding as of June 12, 2008.

Name
 
Shares Beneficially
Owned  (1)
 
Percentage of
Outstanding
Shares
 
Robert A. Buntz, Jr. (2)
   
4,545,710
   
20.8
%
Thomas Meckey (3)
   
1,304,598
   
5.9
%
Robert L. Lumpkins (4)
   
403,843
   
1.8
%
Steven Sjoblad (5)
   
100,000
   
*
 
Christopher Larson (6)
   
100,000
   
*
 
Edward Wicker (7)
   
1,344,598
   
6.2
%
All current executive officers and directors
as a group (six persons) (8)
   
7,798,749
   
35.3
%
Jesse Olson (9)
   
1,304,598
   
5.9
%
Larry Olson (9)
   
1,304,598
   
5.9
%
Ed Graca (9)
   
1,304,598
   
5.9
%
Amit Sela
13564 Westernesse Road
Minnetonka, MN 55305
   
1,240,400
   
5.6
%
 

*   Less than 1%

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(1)
Beneficial ownership is determined in accordance with the applicable rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants (or similar purchase rights) held by that person that are presently exercisable, or will become exercisable within 60 days hereafter, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Unless otherwise indicated, the business address of each of the following persons is 3433 Broadway Street NE, Suite 501, Minneapolis, Minnesota 55413.

(2)
Mr. Buntz is a director of the Company and the Company’s Chief Executive Officer and President.

(3)
Mr. Meckey is a director of the Company, and also serves as Vice President of Operations. 1,030,400 shares held by Mr. Meckey are contractually restricted pursuant to the Company’s Restricted Stock Plan and the terms and conditions of a Member Services Agreement by and between Mr. Meckey and Webdigs, LLC, dated as of October 22, 2007. Restrictions lapse thereunder based on certain service-based conditions set forth in the Member Services Agreement. Of the restricted shares, 386,400 shares are eligible to vest on July 15, 2008 and the remaining shares are eligible to vest on July 15, 2009.

(4)
Mr. Lumpkins is a non-employee director of the Company. Of those shares set forth on the table, 100,000 shares are issuable upon exercise of vested options to purchase common stock. In addition, 203,843 outstanding common shares are held jointly with Mr. Lumpkins’ spouse.

(5)
Mr. Sjoblad is a non-employee director of the Company. Of those shares set forth on the table, 100,000 shares are issuable upon exercise of vested options to purchase common stock.

(6)
Mr. Larson is a non-employee director of the Company. All 100,000 shares are issuable upon exercise of vested options to purchase common stock.

(7)
Mr. Wicker is the Company’s Chief Financial Officer. 1,030,400 shares held by Mr. Wicker are contractually restricted pursuant to the Company’s Restricted Stock Plan and the terms and conditions of a Member Services Agreement by and between Mr. Wicker and Webdigs, LLC, dated as of October 22, 2007. Restrictions lapse thereunder based on certain service-based conditions set forth in the Member Services Agreement. Of the restricted shares, 386,400 shares are eligible to vest on July 15, 2008 and the remaining shares are eligible to vest on July 15, 2009.

(8)
Includes Messrs. Buntz, Meckey, Lumpkins, Sjoblad, Larson and Wicker.

(9)
1,030,400 shares held by the stockholder are contractually restricted pursuant to the Company’s Restricted Stock Plan and the terms and conditions of a Member Services Agreement by and between the stockholder and Webdigs, LLC. Restrictions lapse thereunder based on certain service-based conditions set forth in the Member Services Agreement. Of the restricted shares, 386,400 shares are eligible to vest on July 15, 2008 and the remaining shares are eligible to vest on July 15, 2009.

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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

Directors, Executive Officers and Other Key Employees

Our Board of Directors and management team includes:

Name
 
Age
 
Position(s)
 
Independent Director
Robert A. Buntz, Jr.
 
56
 
Director (Chairman), Chief Executive Officer and President
 
No
Robert L. Lumpkins
 
64
 
Director
 
Yes
Steven Sjoblad
 
58
 
Director
 
Yes
Christopher Larson
 
36
 
Director
 
Yes
Thomas Meckey
 
32
 
Director, Vice President of Operations
 
No
Edward Wicker
 
48
 
Chief Financial Officer
 
N/A

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

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

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

Robert L. Lumpkins was appointed as a director of the Company on October 25, 2007. Mr. Lumpkins is currently the Chairman of the Board of The Mosaic Company, a NYSE-listed crop nutrition business with revenues of $7 billion. Mr. Lumpkins retired in the fall of 2006 as an executive and board member of Cargill Incorporated, a global commodity trading and processing company with over $70 billion in revenues and 150,000 employees. He served in a variety of financial and general management assignments during his 38 years with Cargill, including Chief Financial Officer (1989-2005) and Vice Chairman (1995-2006). He also serves as a director of Ecolab Inc., and as the chairman of Black River Asset Management LLC (a $10 billion fixed-income-oriented asset management company). He is a trustee of Howard University in Washington, D.C. Mr. Lumpkins is a graduate of the University of Notre Dame and the Stanford Graduate School of Business.

25


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

Christopher Larson was appointed as a director of the Company on October 25, 2007. Mr. Larson is a co-founder and has served as Chief Financial Officer of Cash Systems Inc. (AMEX: CKN), a provider of cash access service to the casino industry, from June 1999 to January 2005. In January 2005, Mr. Larson was promoted to Chief Operating Officer of Cash Systems. Mr. Larson has served as a director of Cash Systems since that company went public in October 2001. Mr. Larson is presently also the Chief Executive Officer and President, and director of URON Inc. Mr. Larson is a certified public accountant.

Thomas Meckey was appointed as a director of the Company on October 24, 2007. Mr. Meckey also currently serves as the Vice President of Operations and was a co-founder of Webdigs, LLC. Mr. Meckey has five years of experience in residential real estate and finance. Mr. Meckey’s real estate and finance career includes his founding of Home Equity Advisors, LLC in 2006, serving as a realtor with Re/Max Results from 2004 to 2007, and serving as a loan officer with Wealth Spring Mortgage from 2004 to 2006. Prior to that, Mr. Meckey worked as a software consultant to Ben Nevis, Inc. (2002-2003), an account executive at Adytum Software Co. (2000-2002), and as a consultant with JD Edwards ERP Business Unit, which is a division of Ernst & Young, LLP (1998-2000). Mr. Meckey is a graduate of the University of Pittsburgh and holds a degree in Information Sciences.

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

26

 
 
 
ITEM 6. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth the cash and non-cash compensation for each of the last two fiscal years awarded to or earned by (i) our Chief Executive Officer during the period from inception (May 1, 2007) to October 31, 2007; and (ii) our four most highly-compensated executive officers (other than the Chief Executive Officer) who served in such capacity at October 31, 2007 and who received in excess of $100,000 in salary and bonus during the fiscal year ended October 31, 2007 (collectively, the “named executive officers”).

Name and Principal Position
 
Year
 
Salary ($)
 
Bonus ($)
 
Stock Awards ($)
 
All Other Compensation ($)
 
Total ($)
 
Robert A. Buntz, Jr.,
Chief Executive Officer
and President (1)
   
2007
 
$
100,000
(2)   
 $
0
 
$
0
   $
0
 
$
100,000
 
Daniel J. Shrader,
Chief Executive Officer (3)
   
2007
   
0
   
0
   
90,000
(4)
 
0
   
90,000
 
 


(1)
Mr. Buntz become our President and Chief Executive Officer on October 24, 2007. Mr. Buntz is also the Chairman of our Board of Directors.
 
(2)
$ 85,000 of this amount was paid in the form of stock in lieu of cash compensation.
 
(3)
Mr. Shrader was the Chief Executive Officer of Select Video, Inc. prior to the October 24, 2007 merger transaction with Webdigs, LLC.

(4)
Amounts listed reflects the estimated fair value of a stock award of 900,000 shares of Select Video based on contemporaneous sales of common stock of Select Video prior to the October 24, 2007 merger transaction with Webdigs, LLC.

Employment Agreements with Executives and Key Personnel

We do not currently have an employment agreement with Mr. Buntz. Nevertheless, our wholly owned operating subsidiary, Webdigs, LLC, is party to a Members Services Agreement with Mr. Buntz. In that agreement, Mr. Buntz has agreed not to compete against Webdigs for a period of one year following any termination of service, regardless of the reason for such termination, and has also agreed to customary confidentiality and invention-assignment provisions. The Member Services Agreement with Mr. Buntz provides that Mr. Buntz be paid an annual salary of $120,000 for the year ending October 31, 2008.

We have also entered into Member Services Agreements with Mr. Edward Wicker, our Chief Financial Officer, and Mr. Thomas Meckey, our Vice President of Operations, through our wholly owned operating subsidiary, Webdigs, LLC. In the Member Services Agreements with Messrs. Wicker and Meckey, we have agreed to pay each of them an annual salary of $60,000, and each of Messrs. Wicker and Meckey have agreed not to compete against Webdigs for a period of one year following any termination of service, regardless of the reason for such termination, and have also agreed to customary confidentiality and invention-assignment provisions.

27


Outstanding Equity Awards at Fiscal Year End

As of October 31, 2007, we had no options, warrants, unvested stock awards or equity incentive plan awards issued and outstanding in the name of any of the named executive officers.

Director Compensation

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

In May 2008, we granted options to three non-employee directors in connection with inducing them to join, and as a means of inducing them to remain on, our Board of Directors. The options we granted give each of them the right to purchase up to 200,000 shares of common stock at the per-share price of $0.25. These options may be exercised, to the extent vested, at any time prior to October 24, 2012. Rights to purchase one-half of the shares issuable under the options vested immediately upon issuance, with the remaining rights vesting in two equal annual installments on each of October 24, 2008 and 2009.

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE

Transactions with Related Persons

None.

Director Independence

The Board of Directors is comprised of a majority of “independent” directors as defined in Rule 4200(a)(15) of the NASDAQ Stock Market. The independent directors are identified by name in the chart that appears in the “Management and Board of Directors” section of this filing.

Our Board of Directors has an Audit Committee consisting solely of members who are independent as defined in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market. In addition, each member of the Audit Committee is independent as defined in Exchange Act Rule 10A-3, a non-employee director under the rules of the SEC, and an outside director under the rules of the Internal Revenue Service. The Board of Directors does not have a standing nominating or compensation committee (or other committees differently designed and performing similar functions.) Instead, our entire Board of Directors performs the functions traditionally discharged by nominating and compensation committees.
 
ITEM 8. 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.

28

 
ITEM 9.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock is not, and has never been publicly traded. As such, there is currently no market for our common stock. We anticipate that one or more registered broker-dealers may apply to have our common stock listed on the OTC Bulletin Board following the effective date of this registration statement. Nevertheless, the process of applying for quotation on the OTC Bulletin Board is undertaken and controlled by one or more market-makers (broker-dealers who agree to make a market for our common stock) and is largely outside of our control. Accordingly, we cannot be certain that our common stock will be listed on the OTC Bulletin Board or that, even if listed at some time in the future, an active market will ever develop.

As of the date of this filing, we had outstanding options for the purchase of up to 600,000 shares of our common stock, but no other outstanding securities convertible into or excercisable for any shares of our common (or other capital) stock. As of the date of this filing, there are approximately 264,077 shares of common stock that may potentially be sold without restriction and limitation. The Company has not, as of the date of this filing, agreed to register the resale of any common shares by securityholders.

Holders

As of the date of this filing, we had approximately 200 holders of record of our common stock.

Dividends

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

Securities Authorized for Issuance Under Equity Compensation Plans

On October 31, 2007, we had no equity compensation plans (including individual compensation arrangements) outstanding. Nevertheless, we granted options to three non-employee directors in May 2008. The options we granted give each of them the right to purchase up to 200,000 shares of common stock at the per-share price of $0.25. These options may be exercised, to the extent vested, at any time prior to October 24, 2012. Rights to purchase one-half of the shares issuable under the options vested immediately upon issuance, with the remaining rights vesting in two equal annual installments on each of October 24, 2008 and 2009.

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

Potential Anti-Takeover Effects

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

29


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

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

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

Delaware Takeover Statute

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

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

30


Transfer Agent and Registrar

Our transfer agent is Florida Atlantic Stock Transfer, Inc., located at 7130 Nob Hill Road, Tamarac, Florida 33321. The transfer agent’s telephone number is (954) 726-4954. The transfer agent is registered under the Securities and Exchange Act of 1934.

Listing

Our common stock is currently not listed on any stock exchange or consolidated quotation or reporting system.

 
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

Since October 31, 2007 (the Company’s most recent fiscal year):

The Company has sold and issued an aggregate of 3,366,000 shares of common stock in a private placement offering exempt from registration under Rule 506 of the Securities Act of 1933. The shares were sold to a total of 28 accredited investors in Minnesota (and related offers and sales were exempt from the registration requirements of the Minnesota Securities Act) at the per share price of $0.25, resulting in aggregate gross proceeds to the Company of $841,500. In such private placement offering, the Company is offering a total of up to 4,000,000 common shares at a price of $0.25 per share. All of the certificates representing shares sold in the offering contain a restrictive legend indicating that the transferability of the shares is restricted under the Securities Act of 1933.

From October 31, 2005 to October 31, 2007:

Select Video issued to one person a total of 2,500 common shares for management-related consulting services in March 2006.

Select Video issued to one person an aggregate of 13,750 common shares for management-related consulting services from April to June 2006.

Select Video issued 2,700,000 common shares for management services to three officers and directors in August 2007.

Select Video issued an aggregate of 650,000 common shares in August and September 2007 in a private placement offering exempt from registration under Rule 506 of the Securities Act of 1933. The shares were sold to a total of nine accredited investors in Minnesota (and related offers and sales were exempt from the registration requirements of the Minnesota Securities Act) at the per-share price of $0.10, resulting in aggregate gross proceeds to the Company of $65,000. None of the shares issued in the private placement were registered under the Securities Act of 1933, and all of the certificates representing shares sold in the offering contain a restrictive legend indicating that the transferability of the shares is restricted under the Securities Act of 1933.

 

31

 
 
Select Video issued to one person 300,000 common shares for real estate-related consulting services in October 2007.

Select Video issued an aggregate of 15,818,251 common shares to a total of 19 persons and entities in the merger transaction with Webdigs, LLC on October 24, 2007. None of the shares issued in the merger transaction were registered under the Securities Act of 1933, and all of the certificates representing shares issued in the merger transaction contain a restrictive legend indicating that the transferability of the shares is restricted under the Securities Act of 1933.
 
Webdigs issued an aggregate of 300,000 common shares on October 25, 2007 and October 27, 2007 in a private placement offering exempt from registration under Rule 506 of the Securities Act of 1933. The shares were sold to a total of two accredited investors in Minnesota (and related offers and sales were exempt from the registration requirements of the Minnesota Securities Act) at the per-share price of $0.25, resulting in aggregate gross proceeds to the Company of $75,000. None of the shares issued in the private placement were registered under the Securities Act of 1933, and all of the certificates representing shares sold in the offering contain a restrictive legend indicating that the transferability of the shares is restricted under the Securities Act of 1933.

Except as noted above, the sales of the securities identified above were made in transactions that did not involve a public offering of securities and, accordingly, we believe that these transactions were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof and rules promulgated thereunder. Each of the above-referenced cash investors in our common stock represented to us in connection with their investment that they were “accredited investors” (as defined by Rule 501 under the Securities Act of 1933) and were acquiring the shares for investment and not distribution, that they could bear the risks of the investment and could hold the securities for an indefinite period of time. The investors received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration or an available exemption from such registration. All of the foregoing securities were deemed restricted securities for purposes of the Securities Act when issued.
 
ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED

The following is a description of our capital stock and the material provisions of our certificate of incorporation, bylaws and certain agreements to which we and our stockholders are parties. The following is only a summary and is qualified by applicable law and by the provisions of our certificate of incorporation, bylaws and such other agreements, copies of which are available as set forth under “Where You Can Find More Information.”

General

As of June 12, 2008, 21,808,840 shares of our common stock were issued and outstanding, and there were 200 holders of record of our common stock. As of the same date, our authorized capital consisted of 250,000,000 shares of capital stock, par value $0.001 per share, of which 125,000,000 shares are designated for issuance as common stock and 125,000,000 shares are designated for issuance as preferred stock. As of June 12, 2008, we also had outstanding options for the purchase of up to an aggregate of 600,000 shares of our common stock.

Common Stock

Voting . The holders of our common stock are entitled to one vote for each outstanding share of common stock owned by that stockholder on every matter properly submitted to the stockholders for their vote. Stockholders are not entitled to vote cumulatively for the election of directors.

Dividend Rights . Subject to the dividend rights of the holders of any outstanding series of preferred stock, holders of our common stock are entitled to receive ratably such dividends and other distributions of cash or any other right or property as may be declared by our Board of Directors out of our assets or funds legally available for such dividends or distributions.

32


Liquidation Rights . In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, holders of our common stock would be entitled to share ratably in our assets that are legally available for distribution to stockholders after payment of liabilities. If we have any preferred stock outstanding at such time, holders of the preferred stock may be entitled to distribution or liquidation preferences. In either such case, we must pay the applicable distribution to the holders of our preferred stock before we may pay distributions to the holders of our common stock.

Conversion, Redemption and Preemptive Rights . Holders of our common stock have no conversion, redemption, preemptive, subscription or similar rights.

Preferred Stock

Under our Amended and Restated Certificate of Incorporation, as amended, our Board of Directors is authorized, subject to limitations prescribed by law, to issue up to 125,000,000 shares of preferred stock in one or more series without further stockholder approval. The Board of Directors has discretion to fix the number of shares of each series of our preferred stock and to determine the rights, preferences, privileges and restrictions of any preferred stock, including without limitation voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences. Accordingly, our Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest.

 
ITEM 12. INDEMNIFICATION OF OFFICERS AND DIRECTORS

Under our Amended and Restated Certificate of Incorporation, as amended, we are required to indemnify and hold harmless, to the fullest extent permitted by law, each person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of ours or, while a director or officer of ours, is or was serving at our request as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in the certificate of incorporation, we are required to indemnify a Covered Person in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative (or part thereof) commenced by such Covered Person only if the commencement of such action, suit or proceeding (or part thereof) by the Covered Person was authorized by our Board of Directors.

In addition, as permitted by Delaware law, our certificate of incorporation provides that no director will be liable to us or to our stockholders for monetary damages for breach of certain fiduciary duties as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach of certain fiduciary duties as a director, except that a director will be personally liable for:

·
any breach of his or her duty of loyalty to us or our stockholders

·
acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law

33


·
the payment of dividends or the redemption or purchase of stock in violation of Delaware law; or

·
any transaction from which the director derived an improper personal benefit.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

34

 
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements and Information

 
Page
 
 
 
 
 
Consolidated Financial Statements from inception (May 1, 2007) to October 31, 2007
     
       
Report of Independent Registered Public Accounting Firm
 
F-1
 
       
Consolidated Balance Sheet
 
F-2
 
       
Consolidated Statement of Operations
 
F-3
 
       
Consolidated Statement of Stockholders’ Equity
 
F-4
 
       
Consolidated Statement of Cash Flows
 
F-5
 
       
 Notes to Consolidated Financial Statements
 
F-6
 
       
Consolidated Financial Statements for the three and six months ended April 30, 2008 (unaudited)
     
       
Consolidated Balance Sheets
  F-22  
       
Consolidated Statement of Operations
  F-24  
       
Consolidated Statements of Cash Flows
  F-25  
       
Notes to Consolidated Financial Statements
  F-26  

35


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Webdigs, Inc.
Minneapolis, Minnesota

We have audited the accompanying consolidated balance sheet of Webdigs, Inc. (the Company) as of October 31, 2007 and the related statement of operations, changes in stockholders’ equity, and cash flows from inception (May 1, 2007) to October 31, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Webdigs, Inc. as of October 31, 2007, and the results of its operations and its cash flows from inception (May 1, 2007) to October 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

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

/s/ Carver Moquist & O’Connor, LLC

Bloomington, Minnesota
June 17, 2008

F-1


WEBDIGS, INC.
 

CONSOLIDATED BALANCE SHEET  
October 31, 2007  

ASSETS
     
       
Current assets:
       
Cash and cash equivalents
 
$
113,280
 
Commissions and fees receivable
   
12,255
 
Prepaid expenses and deposits
   
19,192
 
       
Total current assets
   
144,727
 
         
Office equipment and fixtures, net
   
55,699
 
         
Intangible assets, net
   
556,868
 
         
Total assets
 
$
757,294
 

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


WEBDIGS, INC.
 

CONSOLIDATED BALANCE SHEET (continued)  
October 31, 2007  

LIABILITIES AND STOCKHOLDERS' EQUITY
     
       
Current liabilities:
       
Current portion of capital lease obligations
 
$
8,929
 
Accounts payable
   
98,581
 
Accounts payable - minority stockholder
   
274,413
 
Due to officer
   
17,601
 
Accrued expenses:
       
Professional fees
   
50,000
 
Commissions
   
11,183
 
Insurance and other
   
11,902
 
         
Total current liabilities
   
472,609
 
         
Long term liabilities:
       
Capital lease obligations, less current portion
   
36,470
 
         
Total long term liabilities
   
36,470
 
         
Total liabilities
   
509,079
 
         
Stockholders' equity
       
Common stock - $.001 par value; 125,000,000 shares authorized as
       
common stock and an additional 125,000,000 shares designated as
       
either common or preferred stock; 18,442,840 common shares
       
issued and outstanding
   
18,443
 
Additional paid-in capital
   
1,197,886
 
Unearned compensation
   
(365,398
)
Accumulated deficit
   
(602,716
)
         
Total stockholders' equity
   
248,215
 
         
Total liabilities and stockholders' equity
 
$
757,294
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-2

 
WEBDIGS, INC.
 

CONSOLIDATED STATEMENT OF OPERATIONS
From Inception (May 1, 2007) to October 31, 2007

Revenue:
       
Gross revenue
 
$
105,675
 
Less: customer rebates and third-party agent commissions
   
(5,821
)
         
Net revenues
   
99,854
 
         
Operating expenses:
       
Selling
   
385,955
 
General and administrative
   
316,615
 
         
Total operating expenses
   
702,570
 
         
Operating loss
   
(602,716
)
         
Interest expense
   
-
 
         
Net loss before income taxes
   
(602,716
)
         
Income tax provision
   
-
 
         
Net loss
 
$
(602,716
)
         
Net loss per common share - basic and diluted
 
$
(0.06
)
         
Weighted average common shares outstanding -
       
basic and diluted
   
9,359,495
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-3


WEBDIGS, INC.
 

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY         
Inception (May 1, 2007) to October 31, 2007

           
Additional
         
Total
 
   
Common Stock
 
Paid-in
 
Unearned
 
Accumulated
 
Stockholders'
 
   
Shares
 
Amount
 
Capital
 
Compensation
 
Deficit
 
Equity
 
                           
Balance at inception (May 1, 2007)
   
-
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
                                       
Issuance of founders' shares
   
4,403,020
   
4,403
   
6,097
   
-
   
-
   
10,500
 
                                       
Restricted common stock awards - value at grant date
   
8,610,347
   
8,610
   
454,750
   
(463,360
)
 
-
   
-
 
                                       
Shares issued to acquire Home Equity Advisors, LLC
   
260,920
   
261
   
31,739
   
-
   
-
   
32,000
 
                                       
Shares issued to acquire Marquest Financial, Inc.
   
260,920
   
261
   
63,739
   
-
   
-
   
64,000
 
                                       
Shares issued in private placement offering net of issuance costs of $6,563, pre-merger
   
1,936,510
   
1,936
   
466,501
   
-
   
-
   
468,437
 
                                       
Shares issued to officer (CEO) in lieu of cash compensation
   
346,534
   
347
   
84,653
   
-
   
-
   
85,000
 
                                       
Preferred dividends paid prior to the reverse merger with Select Video, Inc.
   
-
   
-
   
(5,857
)
 
-
   
-
   
(5,857
)
                                       
Recapitalization of shares issued by Select Video, Inc. prior to the merger
   
3,952,325
   
3,952
   
23,929
   
-
   
-
   
27,881
 
                                       
Shares issued in private placement offering, post-merger
   
300,000
   
300
   
74,700
   
-
   
-
   
75,000
 
                                       
Compensation related to vesting of restricted common stock awards, net of forfeitures
   
(1,627,736
)
 
(1,627
)
 
(2,365
)
 
97,962
   
-
   
93,970
 
                                       
Net loss for the period from inception (May 1, 2007) to October 31, 2007
   
-
   
-
   
-
   
-
   
(602,716
)
 
(602,716
)
                                       
Balances, October 31, 2007
   
18,442,840
 
$
18,443
 
$
1,197,886
 
$
(365,398
)
$
(602,716
)
$
248,215
 
     
The accompanying notes are an integral part of these consolidated financial statements.
 
F-4


WEBDIGS, INC.  
 

CONSOLIDATED STATEMENT OF CASH FLOWS  
From Inception (May 1, 2007) to October 31, 2007  

Cash flows from operating activities:
       
Net loss
 
$
(602,716
)
Adjustments to reconcile net loss to net cash flows
       
used in operating activities:
       
Depreciation
   
1,492
 
Amortization
   
14,911
 
Share based compensation
   
178,970
 
Changes in operating assets and liabilities:
       
Commissions and fees receivable
   
6,288
 
Prepaid expenses and deposits
   
(8,837
)
Accounts payable
   
43,942
 
Accounts payable - minority stockholder
   
274,413
 
Accrued expenses
   
34,656
 
Net cash flows used in operating activities
   
(56,881
)
         
Cash flows from investing activities:
       
Payments for web-site development costs
   
(413,516
)
Purchase of equipment and fixtures
   
(17,386
)
Cash paid in connection with acquisition of HEA,
       
net of cash acquired totaling $1,896
   
(92
)
Cash acquired with acquisition of Marquest,
       
net of legal costs of $560
   
7,593
 
Cash obtained from reverse merger with Select Video, Inc.
   
27,881
 
Net cash flows used in investing activities
   
(395,520
)
         
Cash flows from financing activities:
       
Payment of preferred dividends
   
(5,857
)
Issuance of common stock, net of issuance costs of $6,563
   
553,937
 
Increase in due to officer
   
17,601
 
Net cash flows provided by financing activities
   
565,681
 
         
Net change in cash and cash equivalents
   
113,280
 
         
Cash and cash equivalents, at May 1, 2007
   
-
 
         
Cash and cash equivalents, at October 31, 2007
 
$
113,280
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-5


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Webdigs, Inc. (“the Company”) was incorporated on May 25, 1994 under the name of Select Video, Inc. The Company changed to its current name on October 23, 2007. Select Video, Inc. was an inactive shell from February 29, 2000 to October 24, 2007 when it entered into a Agreement and Plan of Merger and Reorginization whereby it agreed to issue 15,818,251 shares of its common stock to its subsidiary Select Video Acquisition, LLC which in-turn used those shares to acquire all of the outstanding units of Webdigs, LLC, a private company organized in the state of Minnesota resulting in Webdigs, LLC as the surviving entity. Webdigs, LLC, based in Minneapolis, MN, was organized on May 1, 2007 and consists of two strategic operating segments; (1) mortgage broker, assisting homeowners in refinancing their home mortgages and assisting new home buyers in qualifying for home mortgages and brokering the financing, (2) online real estate broker, offering the same customer experience as a full service broker utilizing a flat fee structure for listing services to their selling customers and a graduated fee structure for their buying customers by rebating two-thirds of its broker commissions. The mortgage broker segment operates under the names of Home Equity Advisors, LLC (HEA) and Marquest Financial, Inc. (Marquest). The online real estate broker segment operates as Webdigs, LLC.

Upon completion of the transaction on October 24, 2007, Webdigs, LLC became a wholly owned subsidiary of Webdigs, Inc. Since the transaction resulted in the existing members of Webdigs, LLC acquiring control of Webdigs, Inc., for financial statement purposes, the merger has been accounted for as a recapitalization of Webdigs, Inc. (a reverse merger with Webdigs, LLC as the accounting acquirer).

The operations of Webdigs, LLC are the only continuing operations of the Company. In accounting for this transaction, Webdigs, LLC was deemed to be the purchaser and parent company for financial reporting purposes. Accordingly, its net assets were included in the consolidated balance sheet at their historical value. The accompanying consolidated financial statements as of October 31, 2007 present the historical financial information of Webdigs, LLC. The outstanding member units of Webdigs, LLC from May 1, 2007 to October 24, 2007 have been restated to reflect the shares issued upon the reorganization. The accompanying consolidated financial statements as of October 31, 2007 present the historical financial information of Webdigs, LLC from the period from inception (May 1, 2007) to October 31, 2007 consolidated with Webdigs, Inc. from the date of reorganization (October 24, 2007) to October 31, 2007.

Consolidation Policies

The consolidated financial statements for the period from inception (May 1, 2007) to October 31, 2007 include the accounts of Webdigs, Inc. and its wholly-owned subsidiary, Webdigs, LLC, which includes Marquest Financial, Inc., Home Equity Advisors, LLC, and Credit Garage, Inc. as wholly-owned subsidiaries, collectively the Company. All significant intercompany accounts and transactions have been eliminated in the consolidation.

F-6


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

Segment Information

SFAS No. 131 Disclosure About Segments of an Enterprise and Related Information defines operating segments as components of a company about which separate financial information is evaluated regularly by the chief decision maker in deciding how to allocate resources and assess performance. The Company has identified two operating segments: mortgage brokerage and online real estate brokerage.

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.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, commissions and fees receivable, accounts payable and accrued expenses. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures about Fair Value of Financial Instruments, the Company is required to estimate the fair value of all financial instruments at the balance sheet date. The Company considers the carrying value of its financial instruments in the consolidated financial statements to approximate fair value due to their short-term nature.

Cash and Cash Equivalents

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

Commissions and Fees Receivable

Loan commissions and fees receivable are recorded at the amount the Company expects to collect on loans or real estate transactions closed. These receivables represent broker commission balances due from the Company’s investors/lenders or listing real estate brokers and usually are settled within 10-15 days after closing.

F-7

 
WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

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 loan 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 accounts receivable. Historically, the Company has not experienced significant losses related to receivables from individual customers. At October 31, 2007, the Company considers its accounts receivable to be fully collectible and therefore, has not recorded an allowance for doubtful accounts.

Impairment of Long-Lived Assets

In accordance with Statements of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as website development costs, furniture, equipment and customer lists, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Intangible Assets

The Company has two types of intangible assets:

Website Development

The primary interface with the customer in the Company’s online real estate broker operation is the Webdigs.com website. Certain costs incurred in development of this website have been capitalized according to provisions in Emerging Issues Task Force Issue No. 00-2, Accounting for Website Development Costs (EITF 00-2), and AICPA Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. These capitalized costs totaled $413,516 from inception (May 1, 2007) to October 31, 2007. Amortization is on a straight-line basis over the estimated useful life of the website of 3 years.

Customer Lists

As part of the Company’s acquisitions of HEA and Marquest (See Note 2), the Company recorded the fair value of the pre-existing customer relationships of these two entities. The fair value estimated for each customer list was $27,404 for HEA and $130,859 for Marquest for a total of $158,263. The fair values of these relationships will be amortized on a straight-line basis (which approximates the anticipated revenue stream) over their estimated useful lives based on an estimated revenue period ranging from 2 to 3 years.

F-8

 
WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

Office Equipment and Fixtures

Office equipment and fixtures are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets ranging from two to seven years. 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.

Revenue Recognition

The Company’s mortgage brokerage business recognizes commissions received and loan fees earned at the time a mortgage loan closes.

The real estate brokerage business recognizes revenue at the closing of a real estate transaction. Commissions and rebates due to third party real estate agents or consumers are accrued at the time of closing and treated as an offset to gross revenues.  

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income (loss). Items defined as other comprehensive income (loss) include items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities. For the period from inception (May 1, 2007) to October 31, 2007, there were no adjustments to net loss to arrive at comprehensive loss.

Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss applicable to common shareholders by the weighted average number of commons shares outstanding during the periods presented. Diluted net loss per common share is determined using the weighted average number of common shares outstanding during the periods presented, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of options, warrants and conversion of convertible debt. In periods where losses are reported, the weighted average number of commons shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. The Company did not have any common stock equivalents outstanding at October 31, 2007.

Income Taxes

Subsequent to the reverse merger on October 24, 2007, the Company accounts for income taxes in accordance with SFAS No. 109, as clarified by FIN No. 48, which requires 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.

F-9

 
WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

FIN No. 48 requires the recognition of 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 consolidated 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. See Note 9 to the consolidated financial statements for additional information regarding income taxes.

Share-Based Compensation

The Company accounts for stock incentive plans under the recognition and measurement provisions of FASB Statement No. 123(R), Share-Based Payments , which requires the 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 period from inception (May 1, 2007) to October 31, 2007 under Statement 123(R) includes compensation cost for restricted stock awards.

Advertising

The Company expenses advertising costs as incurred. Advertising expense amounted to $150,599 for the period from inception (May 1, 2007) to October 31, 2007.

Concentrations, Risks and Uncertainties

Instability of the Housing and Mortgage Sectors in the Company’s Regional Markets:
 
The Company’s operations are concentrated within the mortgage origination and real estate brokerage industries throughout the Unites States and its prospects for success are tied indirectly to interest rates and the general housing and business climates in these regions.

Cash Deposits in Excess of Federally Insured Limits:

The Company maintains cash balances at two financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. At times, the cash balances in these accounts may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes they are not exposed to any significant credit risk on cash and cash equivalents.

F-10

 
WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

2
GOING CONCERN

The Company has incurred significant operating losses from inception (May 1, 2007) to October 31, 2007. At October 31, 2007, the Company reports a negative working capital position of $327,882, accumulated deficit of $602,716 and a stockholders’ equity of $248,215. 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 seek additional financing, which could involve the issuance of equity, debt and/or equity-linked securities. The Company is also looking to reduce advertising expenditures and increase revenues through its existing customer base and website traffic.

3
ACQUISITIONS

The following acquisitions were accounted for as a purchase in accordance with the Statement of Financial Accounting Standards No. 141, Business Combinations ; accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair values determined by the Company’s management based upon information currently available and on current assumptions as to future operations.

HEA

On July 15, 2007, the Company (then operating as Webdigs, LLC) acquired all issued and outstanding units of HEA for a total purchase price of $32,000 by issuing 64,000 member units valued at $0.50 per unit. The 64,000 units were converted into 260,920 shares of common stock on October 24, 2007 in connection with the reverse merger. The Company also incurred acquisition costs of $1,998.

The total purchase consideration of $33,998 was allocated to the acquired assets and liabilities assumed, including identifiable intangible assets, based on their estimated fair values at the acquisition date. The allocation of the purchase consideration was as follows:

Cash
 
$
1,896
 
Commissions receivable
   
15,543
 
Office equipment
   
900
 
Customer lists
   
27,404
 
Accounts payable and accrued expenses
   
(11,745
)
         
   
$
33,998
 

F-11

 
WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

Marquest

On October 22, 2007, the Company (then operating as Webdigs, LLC) acquired all issued and outstanding shares of Marquest for $64,000 by issuing 64,000 member units valued at $1.00 per unit. The 64,000 units were converted into 260,920 shares on October 24, 2007 in connection with the reverse merger. The Company also incurred acquisition costs of $560. Additionally, in connection with the acquisition of Marquest, the former owner of Marquest (a current shareholder of the Company) indemnified the Company of a certain prior debt obligation of Marquest totaling approximately $78,000 which was set forth in the purchase agreement. This debt has not been recorded by the Company in accounting for this acquisition as the Company believes the satisfaction of this debt will be settled by the former parties.

The total purchase consideration of $64,560 was allocated to the acquired assets and liabilities assumed, including identifiable intangible assets, based on their estimated fair values at the acquisition date. The allocation of the purchase consideration was as follows:

Cash
 
$
8,153
 
Commissions receivable
   
3,000
 
Prepaid expenses
   
10,355
 
Office equipment
   
38,905
 
Deferred tax assets, net
   
11,000
 
Valuation allowance
   
(11,000
)
Customer lists
   
130,859
 
Accounts payable
   
(49,281
)
Accrued expenses
   
(32,032
)
Capital lease obligation
   
(45,399
)
         
   
$
64,560
 

F-12


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

The following unaudited pro forma consolidated results of operations of the Company assume that the acquisition of HEA and Marquest occurred as of May 1, 2007:

   
Webdigs, Inc.
 
HEA
 
Marquest
 
Total
 
                   
Net revenues
 
$
6,400
 
$
143,269
 
$
465,334
 
$
615,003
 
Selling, general and administrative expense
   
(538,699
)
 
(185,541
)
 
(530,212
)
 
(1,254,452
)
                           
Operating (loss)
   
(532,299
)
 
(42,272
)
 
(64,878
)
 
(639,449
)
Interest expense
   
-
   
(266
)
 
(7,489
)
 
(7,755
)
                           
Net loss before income taxes
   
(532,299
)
 
(42,538
)
 
(72,367
)
 
(647,204
)
                           
Income tax provision
   
-
   
-
   
-
   
-
 
                           
Net loss
 
$
(532,299
)
$
(4,538
)
$
(72,367
)
$
(647,204
)
Loss per common share - basic and diluted
 
$
(0.06
)
$
(0.00
)
$
(0.01
)
$
(0.07
)
                           
Weighted average common shares outstanding - basic and diluted
   
9,359,494
   
9,359,494
   
9,359,494
   
9,359,494
 

The unaudited pro forma amounts represent the historical operating results of the entities acquired from HEA and Marquest with appropriate adjustments that give effect to depreciation and amortization and interest expense. The pro forma amounts are not necessarily indicative of the operating results that would have occurred in HEA and Marquest had they been in operation by Webdigs during the periods presented. In addition, the pro forma amounts do not reflect potential cost savings related to full optimization and the redundant effect of selling, general and administrative expense.

4
RELATED PARTY TRANSACTIONS

Accounts Payable – Minority Stockholder

The Company’s principal advertising agency/website developer was owed $274,413 at October 31, 2007. The two principals of this advertising company also are minority stockholders in the Company – holding approximately 3% of the Company’s outstanding shares at October 31, 2007. For the period from inception (May 1, 2007) to October 31, 2007, the Company incurred $586,912 in services and rent from this related party.

F-13


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

Included in the $586,912 is $6,000 in office rent expense for the Company from inception (May 1, 2007) to October 31, 2007. 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. Beginning in March 2008, due to increased space requirements, the Company has agreed to pay a monthly rent of $3,500 for dedicated office space.

Due to Officer

As of October 31, 2007, the Company was indebted to its CEO/President in the amount of $17,601 for business expenses that he had paid on the Company’s behalf. The indebtedness is due on demand and is non-interest bearing.

5
OFFICE EQUIPMENT AND FIXTURES

Office equipment and fixtures consists of the following at October 31, 2007:

Office equipment and fixtures
 
$
57,191
 
Less accumulated depreciation
   
(1,492
)
         
Office equipment and fixtures, net
 
$
55,699
 

Depreciation expense amounted to $1,492 for the period from inception (May 1, 2007) to October 31, 2007. Office equipment and fixtures held under a capital lease, included above, had a total cost of $28,011 and no accumulated depreciation as it was leased near the end of the period.

6
INTANGIBLE ASSETS

Intangible assets consist of the following at October 31, 2007:

Website development
 
$
413,516
 
Customer lists
   
158,263
 
     
571,779
 
Less accumulated amortization
   
(14,911
)
         
Intangible assets, net
 
$
556,868
 

Amortization expense amounted to $14,911 for the period from inception (May 1, 2007) to October 31, 2007.

F-14


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

The estimated remaining amortization expense is as follows:

Years ending October 31,
     
       
2008
 
$
195,164
 
2009
   
191,735
 
2010
   
169,969
 
         
   
$
556,868
 

The future amortization expense is an estimate. Actual amounts may change from such estimated amounts due to additional intangible asset acquisitions, potential impairments, accelerated amortization or other events.

7
CAPITAL LEASE

The Company, through its acquisition of Marquest, assumed a capital lease obligation on two copiers. Under this agreement, the Company is required to make monthly payments of $1,063 through February 2012 with interest at 9.25%.

Future minimum lease payments including interest required under this lease are as follows:

Years ending October 31,
     
       
2008
 
$
12,756
 
2009
   
12,756
 
2010
   
12,756
 
2011
   
12,756
 
2012
   
4,252
 
         
Total
   
55,276
 
Less: amount representing interest
   
(9,877
)
Net capital lease obligation
   
45,399
 
Less: current portion
   
(8,929
)
         
Long-term obligations under capital lease
 
$
36,470
 

F-15


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

8
COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company conducts a portion of its Marquest mortgage operations in a leased facility under a non-cancelable operating lease expiring August 2009. In addition to base rent, the Company is obligated for its share of insurance, taxes, and common area expenses. Monthly base rent expense, including related insurance, and common area expenses is $5,546 per month in its Bloomington, Minnesota office. The Company also leases space in Naples, Florida for the Florida regional office. This non-cancelable lease expires May 2009. Monthly base rent in Naples is $1,774 per month. The Company assumed these lease obligations with its acquisition of Marquest. Rent expense was $2,415 for the period from inception (May 1, 2007) to October 31, 2007.

The Company also leases office equipment under operating leases which expire at various dates through 2009. Total base monthly lease payments for these operating leases are $1,878. For the period from inception (May 1, 2007) to October 31, 2007, total equipment and furniture lease payments totaled $657.

Additionally, the Company leases office space at its Minneapolis, Minnesota location on a month-to-month basis as noted in Note 3.

Future minimum lease payments

The future minimum lease payments under the Company’s noncancelable operating leases are as follows:

Years ending October 31,
     
       
2008
 
$
102,524
 
2009
   
77,967
 
         
Total
 
$
180,491
 

9
EMPLOYEE BENEFIT PLAN

One of the Company’s mortgage subsidiaries sponsors a 401(k) retirement plan covering all employees meeting certain eligibility requirements, such as age and term of employment. Under the plan, eligible employees may elect to defer a percentage of their salary, subject to Internal Revenue Service limits. The Company contributions are voluntary and at the discretion of the Board of Directors. No contributions were made during the period from inception (May 1, 2007) to October 31, 2007.

F-16


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

10
INCOME TAXES

On October 24, 2007, the Company entered into a reverse merger transaction with Select Video, Inc. and its subsidiary, Select Video Acquisition, LLC, thereby becoming a C-Corporation for income tax purposes. Prior to the merger, net income and loss of Webdigs, LLC was passed through and reported on the tax returns of the members of the LLC, therefore, there was no tax provision recorded for the period from inception (May 1, 2007) to October 23, 2007. Subsequent to the merger on October 24, 2007, the Company is following the income tax accounting guidance of FAS 109. Also, in connection with the merger, the Company recorded net deferred tax assets of $32,000 due to a change in tax status and a valuation allowance of $32,000 because realization of these net deferred tax assets are not reasonably assured.

The provision (benefit) for income taxes consists of the following for the period from October 24, 2007 (merger date and change in tax status) to October 31, 2007:

Current
 
$
-
 
Deferred
   
(8,000
)
         
     
(8,000
)
Establishment of the net deferred tax asset as of October 24, 2007 due to the reverse merger and change in tax status
   
(32,000
)
         
     
(40,000
)
         
Valuation allowance
   
40,000
 
         
Provision for income taxes
 
$
-
 

The provision for income taxes varies from the statutory rate applied to the total loss as follows for the period from inception (May 1, 2007) to October 31, 2007:

 
 
Amount
 
       
Federal income tax benefit at statutory rate (34%)
 
$
(205,000
)
State tax benefit, net of federal
   
(36,000
)
Operating loss passed to LLC members prior to reverse merger (May 1, 2007 to October 23, 2007)
   
232,000
 
Non-deductible expenses
   
1,000
 
Establishment of net deferred tax asset due to tax status change
   
(32,000
)
Current valuation allowance
   
40,000
 
         
Provision for income taxes
 
$
-
 

F-17


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

Deferred income taxes, which result from the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes, consist of the following at October 31, 2007:

Deferred tax assets (liabilities):
     
Net operating loss carryforwards
 
$
76,000
 
Accrued expenses
   
20,000
 
Depreciation
   
(5,000
)
Amortization
   
(51,000
)
         
Net deferred tax assets
   
40,000
 
Valuation allowance
   
(40,000
)
         
Net deferred tax assets
 
$
-
 

The Company has a total net operating loss carryforward of approximately $192,000 which expires through 2027. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company has recorded a full valuation allowance against its net deferred tax assets because it is not currently able to conclude that it is more likely than not that these assets will be realized. The amount of deferred tax assets considered to be realizable could be increased in the near term if estimates of future taxable income during the carryforward period are increased.

Under the Internal Revenue Code Section 382 (IRC 382), certain stock transactions which significantly change ownership, including the sale of stock to new investors, the exercise of options to purchase stock, or other transactions between shareholders could limit the amount of net operating loss carryforwards that may be utilized on an annual basis to offset taxable income in future periods. In October 2007, the Company acquired Marquest Financial, Inc. which had a net operating loss carryforward of $172,000. Due to the limitations of IRC 382, utilization of the loss is limited to $8,607 per year for the next 20 years expiring on 2027.

11
SHAREHOLDERS' EQUITY

At inception on May 1, 2007, the Company (then operating as Webdigs, LLC) issued member units equivalent to 4,403,020 shares to the Company’s founders for $10,500 in cash.

For the period from inception (May 1, 2007) to October 31, 2007, a portion of the CEO compensation was paid in stock. In total, 346,534 shares were issued with a fair value of $85,000.

F-18


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

During the period from July 1, 2007 to October 23, 2007, the Company (then operating as Webdigs, LLC), sold Class A member units equivalent to 1,936,510 shares for a price of $0.2425 per share. The Company raised $475,000 in proceeds from this sale to accredited investors. The Company incurred issuance costs of $6,563. Preferred dividends of $5,857 were declared and paid to these members prior to their recharacterization to common stock at the time of the reverse merger on October 24, 2007.

On July 15, 2007, the Company (then operating as Webdigs, LLC), issued member units equivalent to 260,920 shares to acquire the outstanding member units in Home Equity Advisors, LLC at a valuation of $32,000.

On October 23, 2007, the Company (then operating as Webdigs, LLC), issued member units equivalent to 260,920 shares to acquire the outstanding common shares in Marquest Financial, LLC at a valuation of $64,000.

During the period from October 24, 2007 to October 31, 2007, the Company sold 300,000 shares to accredited investors for $75,000 ($0.25 per share) in cash proceeds.

Restricted Stock

For the period from inception (May 1, 2007) to October 31, 2007, the Company awarded 8,610,347 of time-based restricted stock (non-vested shares), respectively, to certain officers and employees of the Company. As a condition of the award, the officers and employees must be employed with the Company in order to continue to vest in their shares over a two year period. The fair value of the non-vested shares is equal to the fair market value on the date of grant and is amortized ratably over the vesting period.

The Company recorded $93,970 of compensation expense in the consolidated statement of operations related to vested shares (restricted stock) for the period from inception (May 1, 2007) to October 31, 2007.

A summary of the status of non-vested shares and changes as of October 31, 2007 is set forth below:

   
Shares
 
Unearned
Compensation
 
           
Outstanding, May 1, 2007
   
-
 
$  
-
 
Granted
   
8,610,347
 
 
463,360
 
Vested
   
(2,295,707
)
 
(93,970
)
Forfeited/canceled
   
(1,627,736
)
 
(3,992
)
               
Outstanding, October 31, 2007
   
4,686,904
 
$
365,398
 

F-19


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

Shares awarded as unearned compensation are scheduled to vest over periods ending October 31 as follows:

   
Shares
 
Amount
 
           
2008
   
2,311,225
 
$
166,908
 
2009
   
2,375,679
   
198,490
 
               
     
4,686,904
 
$
365,398
 

12
SEGMENT FINANCIAL INFORMATION

The Company has two reporting segments that fall within two primary business groups: mortgage broker and online real estate broker.

The mortgage broker segment assists homeowners in refinancing their home mortgages and assists prospective home buyers in qualifying for a home mortgage and brokering the financing. Its principal market is the United States.

The online real estate broker segment offers a superior customer experience to a full service real estate broker. The main distinction offered by the Company’s real estate brokerage services is that of a flat fee structure for listing services and a graduated fee structure offering customers a rebate up to two-thirds of the Company’s broker commission for real estate buyers. This business segment operates as Webdigs, Inc. Its principal market is also the United States.

The corporate segment consists primarily of investments in office equipment, personnel and other operating expenses associated with the Company’s corporate offices in Minneapolis, and certain technology initiatives.

Selected financial information about the Company’s operations by segment for the period from inception (May 1, 2007) to October 31, 2007 is as follows:

   
Online
Real Estate
Brokerage
 
Retail
Mortgage
Brokerage
 
Corporate
and Other
 
Total
 
                   
Net revenues
 
$
6,400
 
$
93,454
 
$
-
 
$
99,854
 
Operating loss
   
(305,220
)
 
(70,267
)
 
(227,229
)
 
(602,716
)
Depreciation and amortization
   
11,486
   
3,425
   
1,492
   
16,403
 
Assets
   
412,030
   
187,372
   
157,892
   
757,294
 
Capital expenditures and
                         
website development costs
   
413,516
   
-
   
17,386
   
430,902
 

F-20


WEBDIGS, INC.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From Inception ( May 1, 2007) To October 31, 2007

13
SUPPLEMENTAL CASH FLOW INFORMATION
 
Non-cash investing and financing activities:
 
Acquisition of HEA by issuing common stock valued at $32,000:
     
Fair value of assets acquired
 
$
45,743
 
Liabilities assumed
   
(11,745
)
Cash paid for acquisition costs
   
(1,998
)
Shares issued for the acquisition
 
$
32,000
 
         
Acquisition of Marquest by issuing common stock valued at $64,000:
       
Fair value of assets acquired
 
$
191,272
 
Liabilities assumed
   
(126,712
)
   
(560
)
Shares issued for the acquisition
 
$
64,000
 

14
SUBSEQUENT EVENTS

During the period from November 1, 2007 to June 17, 2008 the Company sold 3,366,000 shares of unregistered common stock to accredited investors for $841,500 ($0.25 per share) in cash proceeds.

On May 7, 2008, the Company awarded stock options to each of its three outside directors. The grant total for all three directors is 600,000 shares with an exercise price of $0.25. The fair value of these option grants total $107,000 and will be amortized over the vesting period through October 24, 2009.

F-21


WEBDIGS, INC.
 

CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
April 30, 2008
 
October 31, 2007
 
   
(Unaudited)
 
(Audited)
 
ASSETS
             
               
Current assets:
             
Cash and cash equivalents
 
$
114,338
 
$
113,280
 
Commissions and fees receivable
   
35,513
   
12,255
 
Prepaid expenses and deposits
   
12,586
   
19,192
 
               
Total current assets
   
162,437
   
144,727
 
               
Office equipment and fixtures, net
   
58,062
   
55,699
 
               
Intangible assets, net
   
459,287
   
556,868
 
               
Total assets
 
$
679,786
 
$
757,294
 

The accompanying notes are an integral part of the unaudited consolidated financial statements.
 
F-22

 
WEBDIGS, INC.


CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)

   
April 30, 2008
 
October 31, 2007
 
   
(Unaudited)
 
(Audited)
 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
         
           
Current liabilities:
         
Current portion of capital lease obligation
 
$
9,350
 
$
8,929
 
Accounts payable
   
277,497
   
98,581
 
Accounts payable - minority stockholder
   
340,426
   
274,413
 
Due to officer
   
-
   
17,601
 
Accrued expenses
   
54,729
   
73,085
 
               
Total current liabilities
   
682,002
   
472,609
 
               
Long term liabilities:
             
Capital lease obligation, less current portion
   
31,687
   
36,470
 
               
Total long term liabilities
   
31,687
   
36,470
 
               
Total liabilities
   
713,689
   
509,079
 
               
Stockholders' equity (deficit):
             
Common stock - $.001 par value; 125,000,000 shares authorized as common stock and an additional 125,000,000 shares designated as either common or preferred stock; 21,748,840 and 18,442,840 common shares issued and outstanding at April 30, 2008 and October 31, 2007, respectively
   
21,749
   
18,443
 
Additional paid-in capital
   
2,021,080
   
1,197,886
 
Unearned compensation
   
(281,945
)
 
(365,398
)
Accumulated deficit
   
(1,794,787
)
 
(602,716
)
               
Total stockholders' equity (deficit)
   
(33,903
)
 
248,215
 
               
Total liabilities and stockholders' equity (deficit)
 
$
679,786
 
$
757,294
 

The accompanying notes are an integral part of the unaudited consolidated financial statements.
 
F-23


WEBDIGS, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months
 
Six Months
 
   
Ended
 
Ended
 
   
April 30, 2008
 
April 30, 2008
 
Revenue:
         
Gross revenue
 
$
371,308
 
$
565,964
 
Less: customer rebates and third-party agent commissions
   
(41,329
)
 
(66,603
)
               
Net revenues
   
329,979
   
499,361
 
               
Operating expenses:
             
Selling
   
775,536
   
1,345,720
 
General and administrative
   
180,852
   
341,158
 
               
Total operating expenses
   
956,388
   
1,686,878
 
               
Operating loss
   
(626,409
)
 
(1,187,517
)
               
Interest expense
   
(2,344
)
 
(4,554
)
               
Net loss before income taxes
   
(628,753
)
 
(1,192,071
)
               
Income tax provision
   
-
   
-
 
               
Net loss
 
$
(628,753
)
$
(1,192,071
)
               
Net loss per common share - basic and diluted
 
$
(0.03
)
$
(0.06
)
               
Weighted average common shares outstanding - basic and diluted
   
20,984,507
   
20,131,891
 

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

F-24


WEBDIGS, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
 Six Months 
 
   
 Ended 
 
   
April 30, 2008
 
Cash flows from operating activities:
     
Net loss
 
$
(1,192,071
)
Adjustments to reconcile net income to net cash flows used in operating activities:
       
Depreciation
   
15,586
 
Amortization
   
97,581
 
Loss on disposal of fixed assets
   
267
 
Share based compensation
   
83,453
 
Changes in operating assets and liabilities:
       
Commissons and fees receivable
   
(23,258
)
Prepaid expenses and deposits
   
6,606
 
Accounts payable
   
178,916
 
Accounts payable - minority stockholder
   
66,013
 
Accrued expenses
   
(18,356
)
         
Net cash flows used in operating activities
   
(785,263
)
         
Cash flows from investing activities:
       
Purchases of computer equipment
   
(18,216
)
         
Net cash flows used in investing activities
   
(18,216
)
         
Cash flows from financing activities:
       
Issuance of common stock
   
826,500
 
Principal payments on capital lease obligation
   
(4,362
)
Decrease in due to officer
   
(17,601
)
         
Net cash flows provided by financing activities
   
804,537
 
         
Net increase in cash and cash equivalents
   
1,058
 
         
Cash and cash equivalents, beginning of year
   
113,280
 
         
Cash and cash equivalents, end of year
 
$
114,338
 

The accompanying notes are an integral part of the unaudited consolidated financial statements.
 
F-25

 
WEBDIGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For The Six Months Ended April 30, 2008

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 Untied 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 consolidated financial statements and notes for the period from inception (May 1, 2007) to October 31, 2007.

2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Webdigs, Inc. (“the Company”) was incorporated on May 25, 1994 under the name of Select Video, Inc. The Company changed to its current name on October 23, 2007. Select Video, Inc. was an inactive shell from February 29, 2000 to October 24, 2007 when they entered into a Share Exchange and Acquisition Agreement whereby it agreed to issue 15,818,251 shares of its common stock to its subsidiary Select Video Acquisition, LLC which in-turn used those shares to acquire all of the outstanding units of Webdigs, LLC, a private company organized in the state of Minnesota resulting in Webdigs, LLC as the surviving entity. Webdigs, LLC, based in Minneapolis, MN, was organized on May 1, 2007 and consists of two strategic operating segments; (1) mortgage broker, assisting homeowners in refinancing their home mortgages and assisting new home buyers in qualifying for home mortgages and brokering the financing, (2) online real estate broker, offering the same customer experience as a full service broker utilizing a flat fee structure for listing services to their selling customers and a graduated fee structure for their buying customers by rebating two-thirds of its broker commissions. The mortgage broker segment operates under the names of Home Equity Advisors, LLC (HEA) and Marquest Financial, Inc. (Marquest). The online real estate broker segment operates as Webdigs, LLC.

Upon completion of the transaction on October 24, 2007, Webdigs, LLC became a wholly owned subsidiary of Webdigs, Inc. Since the transaction resulted in the existing members of Webdigs, LLC acquiring control of Webdigs, Inc., for financial statement purposes, the merger has been accounted for as a recapitalization of Webdigs, Inc. (a reverse merger with Webdigs, LLC as the accounting acquirer).