Attached files
SECURITIES
AND EXCHANGE COMMISSION
AMENDMENT
NO. 3
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
WECOSIGN,
INC.
(Exact
Name of Small Business Issuer in its Charter)
California
|
6351
|
26-1476002
|
(State
or other Jurisdiction of Incorporation)
|
(Primary
Standard Classification Code)
|
(IRS
Employer Identification No.)
|
WECOSIGN,
INC.
3400
West MacArthur Blvd, Suite I
Santa
Ana, CA 92704
Tel.:
(714) 556-6800
(Address
and Telephone Number of Registrant’s Principal
Executive
Offices and Principal Place of Business)
CT
Corporation System
818
West Seventh St.
Los
Angeles, CA 90017
Tel.:
(213) 627-8252
(Name,
Address and Telephone Number of Agent for Service)
Copies of
communications to:
Joseph
M. Lucosky, Esq.
Anslow
& Jaclin, LLP.
195
Route 9 South, Suite204
Manalapan,
NJ 07726
Tel
No.: (732) 409-1212
Fax
No.: (732) 577-1188
Approximate
date of commencement of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective. If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following box.
x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list
the Securities Act registration Statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer
|
o
|
Accelerated
filer
|
o
|
Non-accelerated
filer
|
o
|
Smaller
reporting company
|
x
|
CALCULATION
OF REGISTRATION FEE
Title
of Each Class Of Securities to be Registered
|
Amount
to be
Registered
(1)
|
Proposed
Maximum
Aggregate
Offering
Price
per
share (2)
|
Proposed
Maximum
Aggregate
Offering
Price
|
Amount
of
Registration
fee (3)
|
||||||||||||
Common
Stock, $0.001 par value per share
|
3,784,133
|
$
|
0.25
|
$
|
946,033.25
|
$
|
52.79
|
(1) This
Registration Statement covers the resale by our selling shareholders of up to
3,784,133 shares of common stock previously issued to such selling
shareholders.
(2) The
offering price has been estimated solely for the purpose of computing the amount
of the registration fee in accordance with Rule 457(o). Our common stock is not
trade on any national exchange and in accordance with Rule 457; the offering
price was determined by the price of the shares that were sold to our
shareholders in a private placement memorandum. The price of $0.25 is a fixed
price at which the selling security holders may sell their shares until our
common stock is quoted on the OTCBB at which time the shares may be sold at
prevailing market prices or privately negotiated prices. There can be no
assurance that a market maker will agree to file the necessary documents with
the Financial Industry Regulatory Authority, which operates the OTC Bulletin
Board, nor can there be any assurance that such an application for quotation
will be approved.
(3)
Previously paid.
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY
DETERMINE.
The
information in this preliminary prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
U.S. Securities and Exchange Commission (“SEC”) is effective. This preliminary
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
PRELIMINARY
PROSPECTUS
Subject
to completion, dated , 2009
WECOSIGN,
INC.
3,784,133 SHARES OF COMMON STOCK
The
selling security holders named in this prospectus are offering all of the shares
of common stock offered through this prospectus. We will not receive
any proceeds from the sale of the common stock covered by this
prospectus.
Our
common stock is presently not traded on any market or securities exchange. The
selling security holders have not engaged any underwriter in connection with the
sale of their shares of common stock. Common stock being registered
in this registration statement may be sold by selling security holders at a
fixed price of $0.25 per share until our common stock is quoted on the OTC
Bulletin Board (“OTCBB”) and thereafter at a prevailing market prices or
privately negotiated prices or in transactions that are not in the public
market. There can be no assurance that a market maker will agree to file the
necessary documents with the Financial Industry Regulatory Authority (“FINRA”),
which operates the OTCBB, nor can there be any assurance that such an
application for quotation will be approved. We have agreed to bear the expenses
relating to the registration of the shares of the selling security
holders.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” beginning
on page 4 to read about factors you should consider before investing in
shares of our common stock.
NEITHER THE SEC NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The
Date of This Prospectus
is:
, 2009
PAGE
|
|
Prospectus
Summary
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1
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Summary
of Financial Information
|
4
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Risk
Factors
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5
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Use
of Proceeds
|
10
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Determination
of Offering Price
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10
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Dilution
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10
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Selling
Shareholders
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10
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Plan
of Distribution
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14
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Description
of Securities to be Registered
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15
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Interests
of Named Experts and Counsel
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16
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Description
of Business
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16
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Description
of Property
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20
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Legal
Proceedings
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20
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Market
for Common Equity and Related Stockholder Matters
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20
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Management
Discussion and Analysis of Financial Condition and Financial
Results
|
21
|
Plan
of Operations
|
22
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Executive
Compensation
|
29
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Security
Ownership of Certain Beneficial Owners and Management
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29
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Transactions
with Related Persons, Promoters and Certain Control
Persons
|
30
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Disclosure
of Commission Position on Indemnification of Securities Act
Liabilities
|
30
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Index
to the Financial Statements
|
F-1
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Other
Expenses of Issuance and Distribution
|
31
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Indemnification
of Directors and Officers
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31
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Recent
Sales of Unregistered Securities
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31
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Exhibits
and Financial Statement Schedules
|
35
|
i
ITEM
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed
Charges
This
summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all the information that
you should consider before investing in the common stock. You should
carefully read the entire prospectus, including “Risk Factors”, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
the Financial Statements, before making an investment decision. In this
Prospectus, the terms “WECOSIGN™,” “Company,” “we,” “us” and “our” refer to
WeCosign, Inc.
Overview
We were
incorporated in the State of California on November 24, 2007. The WECOSIGN
business model is to charge a monthly service fee to applicants of rental
properties (that have poor credit) in exchange for cosigning on their apartment
or rental home lease agreements. The WECOSIGN service now allows landlords and
owners to allow poor credit applicants to apply at their facility. Using the
WECOSIGN service reduces (1) Overall vacancy across the board (2) Reduces risk
associated with poor credit tenants for landlords (3) Finally, our service helps
tenants with poor credit immediately gain access to apartment home
living.
We
provide guarantees of monthly rental payments to landlords on behalf of their
tenants. Our exposure to credit loss, in the event of nonperformance by the
tenant, is represented by the amounts stipulated in the rental contract which
has a fixed expiration date that mirror the tenant's lease term ranging from six
months to one year. Commitments made by us to guarantee lease agreements are
first approved through an underwriting process to mitigate the risk of
nonpayment by a tenant. Since many of the guarantees are expected to expire
without being drawn upon, the total guarantee amounts do not necessarily
represent future cash requirements. We evaluate each applicant's credit and
payment worthiness on a case-by-case basis. The landlord does not pay us any
fees for the guarantee. Fees paid by a tenant to us consist of an upfront
$100 application fee, a monthly service fee of $20, and a recurring monthly fee
over the guarantee period which is based on 10% of the monthly lease cost to the
tenant. Application fees paid are fully refunded by us in the event that an
application is denied.
Our
proprietary underwriting consists of an algorithm-based system designed to
evaluate the potential risk of an applicant by looking beyond typical screening
methods such as today’s FICO credit scores. Our scoring system is designed to
evaluate an applicant’s actual performance and other intangible traits rather
than relying solely on credit scores. Our system assigns designated numbers to,
among other things, an applicant’s character, references, employment, time on
job, bank account balance, and past rental payment history. Additionally, our
system also assigns designated numbers to particular events in an applicant’s
everyday life that could cause credit problems, such as divorce, employment
interruptions, or even death of a providing spouse. Our system takes into
consideration all of these every day events in evaluating a potential client’s
ability to pay their rent.
To apply
for our services, an applicant only needs to go to our website located at www.wecosign.com,
push the “apply now button” (on the website’s top front page), fill out the
application, and pay a processing fee in the amount of $100. When the
application is received, our intake personnel will make contact with the client
via telephone and requests faxed copies of: (1) pay stubs, (2) bank statements,
(3) three references, (4) employment history, and (5) rental verification.
Additionally, a client is required to furnish any and all identification
documents such as driver’s license, State I.D. cards, Social Security Cards, and
any and all I-9 documents necessary to establish a legal and positive I.D.
Finally, a client is required to provide three non-related personal references.
Our underwriting department will then contact the applicant and conduct an
interview to corroborate the applicant’s life event and to inquire about
irregularities, if any, within the documents submitted to us. After
verification, we input the information related to the applicant in our database
and evaluate the following; The applicants’ character, time on job,
bank account, funds on hand, debt ratio, and past rental payment history to
analyze the risk rates. Our evaluation will tell us (a) When and if the
applicant will default, and (b) How well the applicant will perform in his
rental payments. We utilize a proprietary scoring system (developed
internally) which automatically assigns a numerical value to various categories,
including a “life event” of an applicant (divorce, employment interruption,
death of a providing spouse, etc.). After a client is approved, they can then
select any facility that they wish to live in. We then contact the
approved client via telephone, and conduct our final interview explaining what a
cosigner is, and what is expected of them as new tenants. No tenants are
admitted without a final telephone interview. The tenant is then sent a
disclosure statement concerning the monthly charges along with a printed tenant
manual for future reference.
If the
applicant fails our underwriting process, his $100 application fee is refunded
promptly. However, if the application goes through our entire underwriting
process and is approved, the $100 application fee will not be refunded unless
the applicant requests a rescission of his contract with us prior to the
commencing date of such lease. Under our scoring system, our approval
rate is approximately 83%.
A copy of
the standard contract with application is included herein as Exhibit
10.4.
1
Approved
applicants are responsible for paying rent to their landlord, and paying an
additional monthly service fee to us based on a percentage of their rent.
The average monthly rent paid by our customers is approximately $1,200. Charging
a percentage of the actual rent automatically makes the fee fair in varying
rental priced markets. If pursuant to a rental facility’s requirement, an
applicant is also required to provide a security deposit or other type of
deposit to the property manager of such rental facility, the tenant needs to
make such arrangements. The rental facility, not WECOSIGN Inc, determines
whether the tenant needs to provide a security deposit based upon their internal
operating policies and procedures. Since our business is limited to providing
cosigning services, we are not involved in any transactions related to providing
a security deposit or other type of deposit for any applicant.
By
allowing tenants approved by us to live in their properties of their choice,
landlords are guaranteed to receive the rent while enjoying an increased
occupancy level. In the event that the tenant defaults on his or her rental
payments, the rental facility has the sole responsibility to collect the missed
rental payments in the same manner as they would do with any other tenants in
default. The rental facility must apply for and achieve a successful
eviction of such tenant prior to requesting any guarantee payment from
us. After receiving the formal eviction judgment, the rental facility
needs to notify us of the eviction and then request (via form) the missed rental
payments from us in accordance with the terms and conditions of the Rental
Payment Guarantee Booklet. Because we have limited operating history, we do not
have sufficient historical data to support comparisons between the default rate
on rental payments between using our proprietary screening methods and “typical
screening methods.”
Our
policy is to act as a guarantor for an initial term of one
year. After one year, the landlord re-evaluates the tenant's payment
history to determine if a co-signer is still required on the lease. If the
tenant is determined to be in good standing then we will terminate our service
with the tenant. If the rental facility determines that a co-signer is
still required to renew the tenants lease they will advise the tenant to renew
their guarantor service for another 12 months. In the case that the tenant
renews our guarantor services after a period of one year, WECOSIGN will charge
the tenant the same fees. This condition alone is incentive for
the tenant to make his payments timely. The landlord’s incentive for approving a
tenant to terminate cosigning services is to remain competitive with tenants who
have a reliable payment history, thereby discouraging such tenants from seeking
out other rental facilities which do not require a co-signer on the lease
agreement. This is a business decision made by each individual rental facility.
To date, we have maintained “A” rating with the Better Business Bureau and have
never received a complaint regarding our services.
We
currently act as co-signer in 128 leases from 20 states nationwide. We had
four tenants who terminated our co-signing services after their landlords
approved such termination because the tenants were in good standing in their
rental payments in the one year term. The remaining 128 leases are still within
the initial one year term. The forecast number of the customer accounts by the
end of 2009 is not proportionate to the forecast number of our monthly
applicants because of the lag time involved in the process of signing up
clients. In addition, we have limited operating history, and do not have
sufficient historical data to support comparisons between using our screening
methods and traditional FICO related screening methods. Copies of the standard
application form and rental payment guarantee agreement with a landlord are
included as Exhibits 10.3 and 10.6 to this registration
statement.
Applications
are available at www.wecosign.com,
and potential customers are directed to the website primarily through online
advertising campaigns, along with referrals from our WECOSIGN™ associates and
affiliates (the “WECOSIGN™ Associates and Affiliates”) around the country.
Currently, we have established business relationships with approximately
eighteen WECOSIGNTM
Affiliates. We do not have any ownership interest in any of our WECOSIGNTM
Affiliates who are independent business entities. The WECOSIGN™ Affiliates are
real estate agents or brokers that direct customers to us through their own
websites. For each successful application referred by an
Affiliate, we pay referral fees to the Affiliate in the amount of 30% of the
initial application fee. In addition, we will pay the Affiliate 10% of each
established monthly fee from the client, not to exceed a twelve months period.
Tenants and landlords determine, at their sole discretion, whether they will use
and/or accept our co-signing services.
The
Company does not require Affiliates to disclose to the tenants and property
owners the compensation they receive from us.
2
We have
approximately 30 WECOSIGNTM
Associates. The WECOSIGN™ Associates are property managers that currently house
WECOSIGN™ approved tenants, and these WECOSIGN™ Associates provide applications
to potential tenants of their properties. We do not provide any compensation to
any of the WECOSIGNTM
Associates. Aside from recommending our co-signing services to applicants
who do not qualify to rent an apartment, the Associates have no other business
relationships with us. Our marketing strategy is online driven and
designed to bring traffic to our website where potential customers can fill out
and file their applications. Traffic is primarily generated through online
banner and button ad campaigns on leading industry specific websites (i.e.
www.apartments.com) that attract thousands of prospective customers on a daily
basis. Other avenues to drive traffic to the website include links on our
WECOSIGN™ Associate and Affiliate websites, pay-per-click ad campaigns on
leading search engines, and the maintenance of a search engine optimized website
resulting in high organic search results for specific keywords.
Advertising
in the online space makes up over 90% of our marketing strategy. Our website
activity for the three months ended August 31, 2009, showed a marked increase of
90% to 118,629 website visits from 57,647 website visits during the three months
ended May 31, 2009. During the three months ended August 31, 2009,
increased website visits contributed to the online application growth increasing
46% to 197 applications from 135 applications during the three months ended May
31, 2009. During the three months ended August 31, 2009,
accepted applications increased by 27%, to 128 accepted applications from 101
accepted applications during the three months ended May 31,
2009.
Our
remaining marketing budget goes towards offline marketing efforts such as print
ads, editorials and advertorials in regionally specific rental magazines, along
with brochures and other handouts in regionally targeted real estate and
property management offices.
Our
strategies, implemented in phases, are designed to create widespread awareness
of this national service as well as to escalate demand and acceptance regionally
and nationally. Our first phase involved the creation of a functioning website
with complete information and appropriate marketing/educational material for
inquiry fulfillment. This phase, still in operation, overcomes the lack of
understanding on the part of property managers and/or applicants in how the
guarantor process actually works. The second phase involved the
development and launch of communication efforts to drive web traffic to the
website through internet media avenues such as Craigslist, Google Ad*words, and
specific banner placement on high traffic renter-related websites. Furthermore,
additional marketing materials are provided to leasing offices for the benefit
of property managers and potential applicants. This effort, in concert with
phase one, coupled with the ongoing building of the Affiliate/Associates
network, is creating a strong base for referrals and word-of mouth advertising,
all working in concert to create the Wecosign brand. Additionally, all serve to
educate property managers and applicants as a lack of understanding has posed
the greatest obstacle. Risk exists from the standpoint of competition, so in
order to attract and retain customers and to promote and maintain our brand in
response to competitive pressures, management plans to gradually increase our
marketing and advertising budgets. If we are unable to economically promote or
maintain our brand, our business, results of operations and financial condition
could be adversely affected.
Where
You Can Find Us
Our
principal executive office is located at 3400 West MacArthur Blvd, Suite I,
Santa Ana, CA 92704, and our telephone number is (714) 556-6800. Our
internet address is http://www.wecosign.com.
The Offering
Common
stock offered by selling security holders
|
3,784,133
shares of common stock. This number represents approximately 4.62% of our
current outstanding common stock (1).
|
|
Common
stock outstanding before the offering
|
81,932,600
common shares as of July 14, 2009.
|
|
Common
stock outstanding after the offering
|
81,932,600
shares.
|
|
Terms
of the Offering
|
The
selling security holders will determine when and how they will sell the
common stock offered in this prospectus.
|
|
Termination
of the Offering
|
The
offering will conclude upon the earliest of (i) such time as all of the
common stock has been sold pursuant to the registration statement or (ii)
such time as all of the common stock becomes eligible for resale without
volume limitations pursuant to Rule 144 under the Securities Act, or any
other rule of similar effect.
|
3
Use
of proceeds
|
We
are not selling any shares of the common stock covered by this
prospectus.
|
|
Risk
Factors
|
The
Common Stock offered hereby involves a high degree of risk and should not
be purchased by investors who cannot afford the loss of their entire
investment. See “Risk Factors” beginning on page 4.
|
|
(1)
|
Based
on 81,932,600 shares of common stock outstanding as of August 31,
2009.
|
The
following table provides summary financial statement data as of and for each of
the fiscal years ended November 30, 2008 and the period from Inception (November
24, 2007) through November 30, 2007, and the unaudited financial information for
the nine months ended August 31, 2009 and 2008. The financial statement data as
of and for each of the fiscal periods ended November 30, 2008 and 2007 have been
derived from our audited financial statements. The results of operations for
past accounting periods are not necessarily indicative of the results to be
expected for any future accounting period. The data set forth below should be
read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” our financial statements and the related
notes included in this prospectus, and the unaudited financial statements and
related notes included in this prospectus.
Summary
of Statements of Operations Data
For
the Nine
|
For
the Nine
|
For
the Year
|
From
Inception
|
|||||||||||||
Months
Ended
|
Months
Ended
|
Ended
|
Through
|
|||||||||||||
August
31,
|
August
31,
|
November
|
November
|
|||||||||||||
2009
|
2008
|
30,
2008
|
30,
2007
|
|||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
REVENUE
|
$
|
85,983
|
$
|
-
|
$
|
3,538
|
$
|
-
|
||||||||
TOTAL
COSTS & OPERATING EXPENSES
|
558,426
|
54,505
|
184,404
|
1,250
|
||||||||||||
LOSS
FROM OPERATIONS
|
(472,443
|
)
|
(54,505
|
)
|
(180,866
|
)
|
(1,250
|
)
|
||||||||
TOTAL
OTHER INCOME (EXPENSES)
|
(3,773
|
) |
100
|
301
|
-
|
|||||||||||
NET
LOSS
|
$
|
(476,216
|
)
|
$
|
(54,405
|
)
|
$
|
(180,565
|
)
|
$
|
(1,250
|
)
|
||||
NET
LOSS PER COMMON SHARE - BASIC AND DILUTIVE
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
||||
Weighted
Average Number of Shares
|
80,679,067
|
79,177,333
|
79,186,126
|
79,000,000
|
||||||||||||
Summary
of Balance Sheets Data
As
of
|
As
of
|
As
of
|
||||||||||
August
31,
|
November
30,
|
November
30,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
(unaudited)
|
||||||||||||
TOTAL
CURRENT ASSETS
|
$
|
326,119
|
$
|
7,180
|
$
|
-
|
||||||
TOTAL
ASSETS
|
355,661
|
17,383
|
-
|
|||||||||
TOTAL
LIABILITIES
|
194,077
|
67,198
|
1,250
|
|||||||||
TOTAL
STOCKHOLDERS’ EQUITY (DEFICIT)
|
161,584
|
(49,815
|
)
|
(1,250
|
)
|
|||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$
|
355,661
|
$
|
17,383
|
$
|
-
|
4
The
shares of our common stock being offered for resale by the selling security
holders are highly speculative in nature, involve a high degree of risk and
should be purchased only by persons who can afford to lose the entire amount
invested in the common stock. Before purchasing any of the shares of common
stock, you should carefully consider the following factors relating to our
business and prospects. If any of the following risks actually occurs, our
business, financial condition or operating results could be materially adversely
affected. In such case, you may lose all or part of your
investment. You should carefully consider the risks described below
and the other information in this process before investing in our common
stock.
Risks
Related to Our Business
WE
HAVE A SHORT OPERATING HISTORY AND FACE MANY OF THE RISKS AND DIFFICULTIES
FREQUENTLY ENCOUNTERED BY A YOUNG COMPANY.
We were
incorporated in the state of California on November 24, 2007 and
have limited operating history for investors to evaluate the potential of
our business development. We are continuing to build our customer base and our
brand name. In addition, we also face many of the risks and difficulties
inherent in introducing new products and services. These risks include the
ability to:
· Implement
a larger advertising and marketing plan;
· Maintain
current strategic relationships and develop new strategic
relationships;
· Respond
effectively to competitive pressures, should they exist
OUR
OPERATIONS ARE NOT YET, AND HAVE NOT YET BEEN PROFITABLE AND WE HAVE EXPERIENCED
INCREASING OPERATING COST IN REGARD TO THIS FILING
As of
the date of this registration statement, we have not yet generated any net
income. We have generated $658,031 in operating losses since our inception.
Although our operating losses have been due to the payments for professional
services, including legal, consulting, financial advisory and auditing services,
in connection with preparing and filing of the registration statement, which
management believes shall reduce substantially after the registration statement
is declared effective, there can be no assurance that we will generate net
income in the future or that we will be able to put in place the financial and
administrative structure necessary to operate as an independent public company,
or that the development of such structure will not require a significant amount
of our management's time and other resources.
IF
OUR UNDERWRITING TECHNIQUES DOES NOT ACCURATELY EVALUATE POTENTIAL DEFUALT
RISKS, THE DEFAULT RATES OF OUR CLIENT MAY EXCEED OUR EXPECTATION AND THEREBY
OUR OPERATING LOSSES MAY EXCEED OUR LOSS RESERVES.
Our
underwriting techniques are designed to evaluate actual performance and human
traits rather than merely compare credit scores. We assign a particular number
to an applicant’s character, ability, time on job, bank account review and past
rental payment history. Additionally, our system also assigns designated numbers
to particular events in an applicant’s everyday life that could cause credit
crisis, such as divorce, loss of job, or death of a providing spouse, etc. Our
system takes into consideration all of these events in evaluating a client’s
application. However, our scoring system has only operated for a
limited period of time. We do not have a large amount of data to evaluate the
accuracy of our scoring system, however we are growing. If our underwriting
techniques cannot accurately evaluate potential default risks, the default rates
of our clients may be higher than we have expected, and our operating losses may
exceed our loss reserves. As a result, we may not be able to become profitable
and develop our business operations.
5
IF WE FAIL
TO MAINTIAIN SUFFICIENT LOSS RESERVES, WE MAY NOT CONTINUE OUR BUSINESS
OPERATIONS.
Because
pursuant to our standardized co-sign agreement with rental facilities, in the
event of default and after achieving a successful eviction, the rental facility
can request us to pay the missed rental payments. As a
result, we need to maintain sufficient loss reserves to cover such missed rental
payments upon defaults. If our liability for missed rental payments exceeds our
loss reserves, our business operation will be interrupted or adversely
affected.
WE
MAY NEED ADDITIONAL CAPITAL TO EXPAND OUR BUSINESS IN THE FUTURE.
Since our
inception, the majority of our operating losses have been due to the payments
for professional services, including legal, consulting, financial advisory, and
auditing services, in connection with the preparation and filing of the
registration statement. Management believes that after the
effectiveness of our registration statement, our expenses in professional
services fees will reduce substantially, and given the current condition of our
business growth, we will be able to use cash generated from operations to meet
our short-term and long-term obligations in connection with business marketing,
operation, and development. Although management does not think we need
additional financing given the current condition of our business operations, in
the event market provides us with opportunity for business expansion in large
scale, we may need additional financing for business
expansion.
We cannot
give you any assurance that any additional financing will be available to us, or
if available, will be on terms favorable to us. If adequate additional financing
is not available on acceptable terms, we may not be able to substantially expand
our business operations.
WE
MAY NOT BE ABLE TO MAINTAIN CURRENT STRATEGIC RELATIONSHIPS WITH OUR AFFILIATES
AND DEVELOP OUR NEW STRATEGIC RELATIONSHIPS WITH NEW AFFILIATES.
We intend
to expand our business via establishing Affiliates across the country, and a
portion of our future growth is dependent upon new Affiliates which promote our
concept and reputation. To date, we have established business relationships with
approximately eighteen WECOSIGNTM
Affiliates. Currently, approximately 19% of our current approved applicants are
referred to us by Affiliates. To attract Affiliates, for each successful
application, we pay referral fees to an Affiliate in the amount of 30% of the
initial application fee, and 10% of each established monthly fee from the
client, not to exceed a 12 month period.
IF
WE CANNOT BUILD OUR BRAND AWARENESS, WE MAY NOT BE ABLE TO MAINTAIN OUR
COMPETITIVE POSITION IN THE MARKET
Development
and awareness of our brand will depend largely upon our success in increasing
our customer base and potential referral sources through our Affiliates and
Associates. In order to attract and retain customers and to promote and maintain
our brand in response to competitive pressures, management plans to gradually
increase our marketing and advertising budgets. If we are unable to economically
promote or maintain our brand, then our business, results of operations and
financial condition could be adversely affected.
OUR
CURRENT BUSINESS OPEARTIONS RELY HEAVILY UPON OUR KEY EMPLOYEE AND FOUNDER MR.
FRANK JAKUBAITIS.
We have
been heavily dependent upon the expertise and management of Mr. Frank
Jakubaitis, our Chairman and Chief Executive Officer, and our future performance
will depend upon his continued services. The loss of Mr. Jakubaitis’
services could seriously interrupt our business operations. Although we have
entered into an employment contract with Mr. Jakubaitis, pursuant to which Mr.
Jakubaitis agrees to serve as our full time Chief Executive Officer commencing
April 28, 2009 and expiring May 15, 2013, and Mr. Jakubaitis has not indicated
any intention of leaving us, the loss of his service for any reason could have a
very negative impact on our ability to fulfill our business plan.
6
OUR
FUTURE GROWTH MAY REQUIRE RECRUITMENT OF QUALIFIED EMPLOYEES.
Although
we have not encountered difficulties in the past in hiring qualified employees
on acceptable terms, in the event of our future growth in administration,
marketing, and customer support functions, we may have to increase the depth and
experience of our management team by adding new highly qualified members in the
areas of customer service management, data analysis and the like. There is no
assurance that we will be able to employ qualified persons on acceptable terms
to support our business growth. Lack of qualified employees may adversely affect
our business development and financial performance.
WE
MAY INCUR ADDITIONAL EXPENDITURES TO BE A PUBLIC COMPANY TO ENSURE COMPLIANCE
WITH U.S. CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS AND WE MAY NOT BE
ABLE TO ABSORB SUCH COSTS.
We may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the SEC. We expect all of these applicable rules and
regulations to significantly increase our legal and financial compliance costs
and to make some activities more time consuming and costly. We also expect that
these applicable rules and regulations may make it more difficult and more
expensive for us to obtain director and officer liability insurance and we may
be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified individuals to serve on our
board of directors or as executive officers. We are currently evaluating and
monitoring developments with respect to these newly applicable rules. We
estimate that it will cost us approximately $50,000 to retain a PCAOB approved
accountant to audit and review our financial statements for our annual and
quarterly reports under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), additional $60,000 for legal fees for
corporate and securities legal work to comply with rules and regulations
implemented by the SEC, and approximately $10,000 to retain a transfer and Edgar
agent. In addition, we may not be able to absorb these costs of being a public
company which will negatively affect our business operations.
LICENSE(S)
COULD BE REQUIRED ON THE STATE AND/OR FEDERAL LEVEL FOR OUR
BUSINESS.
We are in
the business of providing cosigning services to applicants that have defective
credit seeking a place to live. We are not in the loan business, nor are we in
the business of providing loss protection for property, places, or things. We
only provide rental guarantees for applicants with defective credit on rental
and commercial dwellings. We are not aware of any existing licensing
requirements and have not been informed of any license qualification to date
that would result in the necessity of obtaining any operating qualification
license to provide our cosigning services by any state attorney general or
Federal mandate. However, investors should be readily informed that in the event
that a license should be required in any particular state or on a federal level,
such license requirement could or would interrupt our business model in that
state on a very significant level of operation resulting in the loss of income
and/or profits or both, should we fail to qualify for such a
license.
THE LIMITED PUBLIC COMPANY EXPERIENCE
OF OUR MANAGEMENT TEAM COULD ADVERSELY IMPACT OUR ABILITY TO COMPLY WITH THE
REPORTING REQUIREMENTS OF U.S. SECURITIES LAWS.
Our management team has
limited public company experience, which could impair our ability to comply with
legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of
2002. Our senior management has never had sole responsibility for managing a
publicly traded company. Such responsibilities include complying with federal
securities laws and making required disclosures on a timely basis. Our senior
management may not be able to implement programs and policies in an effective
and timely manner that adequately respond to such increased legal, regulatory
compliance and reporting requirements, including the establishing and
maintaining internal controls over financial reporting. Any such
deficiencies, weaknesses or lack of compliance could have a materially adverse
effect on our ability to comply with the reporting requirements of the Exchange
Act, which is necessary to maintain our public company status. If we were to
fail to fulfill those obligations, our ability to continue as a U.S. public
company would be in jeopardy in which event you could lose your entire
investment in our company.
Risk
Related To Our Capital Stock
WE
DO NOT INTEND TO PAY ANY DIVIDENDS TO SHAREHOLDERS.
We have
never declared or paid any cash dividends or distributions on our capital stock.
We currently intend to retain our future earnings, if any, to support operations
and to finance expansion and therefore we do not anticipate paying any cash
dividends on our common stock in the foreseeable future.
The
declaration, payment and amount of any future dividends will be made at the
discretion of the board of directors, and will depend upon, among other things,
the results of our operations, cash flows and financial condition, operating and
capital requirements, and other factors as the board of directors considers
relevant. There is no assurance that future dividends will be paid, and, if
dividends are paid, there is no assurance with respect to the amount of any such
dividend.
7
OUR
CONTROLLING SECURITY HOLDER MAY TAKE ACTIONS THAT CONFLICT WITH YOUR
INTERESTS.
Mr. Frank
Jakubaitis beneficially owns approximately 96.44% of our capital stock with
voting rights. In this case, Mr. Jakubaitis will be able to exercise
control over all matters requiring stockholder approval, including the election
of directors, amendment of our certificate of incorporation and approval of
significant corporate transactions, and they will have significant control over
our management and policies. The directors elected by our controlling security
holder will be able to significantly influence decisions affecting our capital
structure. This control may have the effect of delaying or preventing changes in
control or changes in management, or limiting the ability of our other security
holders to approve transactions that they may deem to be in their best interest.
For example, our controlling security holder will be able to control the sale or
other disposition of our operating businesses and subsidiaries to another
entity.
OUR
ARTICLES OF
INCORPORATION PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS AT OUR
EXPENSE AND LIMIT THEIR LIABILITY WHICH MAY RESULT IN A MAJOR COST TO US AND
HURT THE INTERESTS OF OUR SHAREHOLDERS BECAUSE CORPORATE RESOURCES MAY BE
EXPENDED FOR THE BENEFIT OF OFFICERS AND/OR DIRECTORS.
Our
articles of incorporation and applicable California law provide for the
indemnification of our directors, officers, employees, and agents, under certain
circumstances, against attorney's fees and other expenses incurred by them in
any litigation to which they become a party arising from their association with
or activities on our behalf. We will also bear the expenses of such litigation
for any of our directors, officers, employees, or agents, upon such person's
written promise to repay us if it is ultimately determined that any such person
shall not have been entitled to indemnification. This indemnification policy
could result in substantial expenditures by us which we will be unable to
recoup.
We have
been advised that, in the opinion of the SEC, indemnification for liabilities
arising under federal securities laws is against public policy as expressed in
the Securities Act of 1933, as amended (the “Securities Act”), and is,
therefore, unenforceable. In the event that a claim for indemnification for
liabilities arising under federal securities laws, other than the payment by us
of expenses incurred or paid by a director, officer or controlling person
in the successful defense of any action, suit or proceeding, is asserted by a
director, officer or controlling person in connection with the securities being
registered, we will (unless in the opinion of our counsel, the matter has been
settled by controlling precedent) submit to a court of appropriate jurisdiction,
the question whether indemnification by us is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such
issue. The legal process relating to this matter if it were to occur is likely
to be very costly and may result in us receiving negative publicity, either of which factors is
likely to materially reduce the market and price for our shares, if such a
market ever develops.
THE
OFFERING PRICE OF THE COMMON STOCK WAS ARBITRARILY DETERMINED, AND THEREFORE
SHOULD NOT BE USED AS AN INDICATOR OF THE FUTURE MARKET PRICE OF THE SECURITIES.
THEREFORE, THE OFFERING PRICE BEARS NO RELATIONSHIP TO OUR ACTUAL VALUE, AND MAY
MAKE OUR SHARES DIFFICULT TO SELL.
Since our
shares are not listed or quoted on any exchange or quotation system, the
offering price of $0.25 per share for the shares of common stock was arbitrarily
determined. The facts considered in determining the offering price were our
financial condition and prospects, our limited operating history and the general
condition of the securities market. The offering price bears no relationship to
the book value, assets or earnings of our company or any other recognized
criteria of value. The offering price should not be regarded as an indicator of
the future market price of the securities.
8
YOU
MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL
SHARES OF OUR COMMON STOCK AND OUR PREFERRED STOCK.
If market
provides favorable expansion opportunities to our business, we may pursue
substantial business expansion, and may need to obtain financing through
issuance of our authorized but previously unissued equity securities, which will
result in the dilution of the ownership interests of our present stockholders. We are
currently authorized to issue an aggregate of 125,000,000 shares of capital
stock consisting of 100,000,000 shares of common stock, par value $0.001 per
share, and 25,000,000 shares of “blank check” preferred stock, par value $0.001
per share.
We may
also issue additional shares of our common stock or other securities that are
convertible into or exercisable for common stock in connection with hiring or
retaining employees or consultants, future acquisitions, future sales of our
securities for capital raising purposes, or for other business purposes. The
future issuance of any such additional shares of our common stock or other
securities may create downward pressure on the trading price of our common
stock. There can be no assurance that we will not be required to issue
additional shares, warrants or other convertible securities in the future in
conjunction with hiring or retaining employees or consultants, future
acquisitions, future sales of our securities for capital raising purposes or for
other business purposes, including at a price (or exercise prices) below the
price at which shares of our common stock are currently quoted on the
OTCBB.
OUR
COMMON STOCK IS CONSIDERED PENNY STOCKS, WHICH MAY BE SUBJECT TO RESTRICTIONS ON
MARKETABILITY, SO YOU MAY NOT BE ABLE TO SELL YOUR SHARES.
If our
common stock becomes tradable in the secondary market, we will be subject to the
penny stock rules adopted by the SEC that require brokers to provide extensive
disclosure to their customers prior to executing trades in penny stocks. These
disclosure requirements may cause a reduction in the trading activity of our
common stock, which in all likelihood would make it difficult for our
shareholders to sell their securities.
Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the NASDAQ system). Penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer’s account. The broker-dealer must also make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction. These
requirements may have the effect of reducing the level of trading activity, if
any, in the secondary market for a security that becomes subject to the penny
stock rules. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in our
securities, which could severely limit the market price and liquidity of our
securities. These requirements may restrict the ability of broker-dealers to
sell our common stock and may affect your ability to resell our common
stock.
THERE
IS NO ASSURANCE OF A PUBLIC MARKET OR THAT OUR COMMON STOCK WILL EVER TRADE ON A
RECOGNIZED EXCHANGE. THEREFORE, YOU MAY BE UNABLE TO LIQUIDATE YOUR INVESTMENT
IN OUR STOCK.
There is
no established public trading market for our common stock. Our shares have not
been listed or quoted on any exchange or quotation system. There can be no
assurance that a market maker will agree to file the necessary documents with
FINRA, which operates the OTCBB, nor can there be any assurance that such an
application for quotation will be approved or that a regular trading market will
develop or that if developed, will be sustained. In the absence of a
trading market, an investor may be unable to liquidate their
investment.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The
information contained in this report, including in the documents incorporated by
reference into this report, includes some statement that are not purely
historical and that are “forward-looking statements.” Such forward-looking
statements include, but are not limited to, statements regarding our and
their management's expectations, hopes, beliefs, intentions or strategies
regarding the future, including our financial condition, results of operations,
and the expected impact of the Share Exchange on the parties' individual
and combined financial performance. In addition, any statements that refer to
projections, forecasts or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. The words “anticipates,” “believes,” “continue,” “could,”
“estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,”
“potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and
similar expressions, or the negatives of such terms, may identify
forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking.
9
The
forward-looking statements contained in this report are based on current
expectations and beliefs concerning future developments and the potential
effects on the parties and the transaction. There can be no assurance that
future developments actually affecting us will be those anticipated. These that
may cause actual results or performance to be materially different from
those expressed or implied by these forward-looking statements, including
the following forward-looking statements involve a number of risks,
uncertainties (some of which are beyond the parties' control) or other
assumptions.
We will
not receive any proceeds from the sale of common stock by the selling security
holders. All of the net proceeds from the resale of our common stock will go to
the selling security holders as described below in the sections entitled
“Selling Security Holders” and “Plan of Distribution”. We have agreed to
bear the expenses relating to the registration of the common stock for the
selling security holders.
We have,
however, received proceeds from the sale of our common stock in the private
offering, which has been used for salaries, rent, the legal and accounting fees
arising from this offering and other expenses relating to the registration of
the common stock for the selling securities holders.
Since our
common stock is not listed or quoted on any exchange or quotation system, the
offering price of the shares of common stock was arbitrarily determined. The
offering price was determined by the price of the common stock that was sold to
our security holders pursuant to an exemption under Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act.
The
offering price of the shares of our common stock has been determined arbitrarily
by us and does not necessarily bear any relationship to our book value, assets,
past operating results, financial condition or any other established criteria of
value. The facts considered in determining the offering price were our financial
condition and prospects, our limited operating history and the general condition
of the securities market.
Although
our common stock is not listed on a public exchange, we will be filing to obtain
a listing on the OTCBB concurrently with the filing of this prospectus. In order
to be quoted on the OTCBB, a market maker must file an application on our behalf
in order to make a market for our common stock. There can be no assurance that a
market maker will agree to file the necessary documents with FINRA, which
operates the OTC Bulletin Board, nor can there be any assurance that such an
application for quotation will be approved.
In
addition, there is no assurance that our common stock will trade at market
prices in excess of the initial offering price as prices for the common stock in
any public market which may develop will be determined in the marketplace and
may be influenced by many factors, including the depth and
liquidity.
The
common stock to be sold by the selling shareholders are provided in Item 7 is
common stock that is currently issued. Accordingly, there will be no dilution to
our existing shareholders.
The
common shares being offered for resale by the selling security holders consist
of the 3,784,133 shares of our common stock held by 61 shareholders. Such
shareholders include the holders of the 2,788,000 shares sold in our private
offering pursuant to Rule 506 Regulation D promulgated under section 4(2) of the
Securities Act completed in July 2009.The offering price was $0.25 per share. In
addition, we are also registering a total of 976,133 shares to six (6) holders
who received shares in consideration for their services rendered valued at
$256,533.25 in reliance upon the exemption provided under section 4(2) of the
Securities Act. Furthermore, we are registering a total of 12,600 shares to two
(2) holders as payment for the loan they tendered to us in reliance upon section
4(2) of the Securities Act.
10
The
following table sets forth the name of the selling security holders, the number
of shares of common stock beneficially owned by each of the selling stockholders
as of July 13, 2009 and the number of shares of common stock being offered
by the selling stockholders. The shares being offered hereby are being
registered to permit public secondary trading, and the selling stockholders may
offer all or part of the shares for resale from time to time. However, the
selling stockholders are under no obligation to sell all or any portion of such
shares nor are the selling stockholders obligated to sell any shares immediately
upon effectiveness of this prospectus. All information with respect to share
ownership has been furnished by the selling stockholders.
Name
|
Shares
Beneficially Owned prior to Offering
|
Shares
to be Offered
|
Shares
Beneficially Owned after Offering
|
Percent
Beneficially Owned after Offering
|
Frank
& Tara Jakubaitis *
|
79,012,000
(1)
|
913,533
(8)
|
78,098,467
|
95.32%
|
Frank
Watson & Connie Watson *
|
8,000
|
8,000
|
0
|
0%
|
Robert
Watson & Julie Watson *
|
8,000
|
8,000
|
0
|
0%
|
Richard
Bond & Virginia Bond
|
4,000
|
4,000
|
0
|
0%
|
Christine
Bond
|
4,000
|
4,000
|
0
|
0%
|
Jennifer
Bond
|
4,000
|
4,000
|
0
|
0%
|
Michael
Shebanek
|
6,000
|
6,000
|
0
|
0%
|
Carole
Shebanek
|
6,000
|
6,000
|
0
|
0%
|
Michael
S. House
|
4,000
|
4,000
|
0
|
0%
|
Maud
Anne Serio
|
8,000
|
8,000
|
0
|
0%
|
Elaine
Thobe
|
12,000
|
12,000
|
0
|
0%
|
John
W. Thobe & Lidwina M. Thobe *
|
8,000
|
8,000
|
0
|
0%
|
Robert
& Maryann Cerami *
|
4,000
|
4,000
|
0
|
0%
|
Elizabeth
Marrero
|
4,000
|
4,000
|
0
|
0%
|
Lavonne
Beacom
|
4,000
|
4,000
|
0
|
0%
|
John
Cary*
|
10,000
|
10,000
|
0
|
0%
|
11
Myra
Castro & Matthew Kuntz **
|
20,000
|
20,000
|
0
|
0%
|
Tina
St. Germain *
|
10,000
|
10,000
|
0
|
0%
|
Michael
Pecken
|
40,000
|
40,000
|
0
|
0%
|
Patricia
Byrne
|
48,000
|
48,000
|
0
|
0%
|
Joseph
M. Lucosky
|
10,000
|
10,000
|
0
|
0%
|
Zhuoyao
Hui
|
3,000
|
3,000
|
0
|
0%
|
Anslow &
Jaclin, LLP (6)
|
37,000
|
37,000
|
0
|
0%
|
Kazumi
O. Devries
|
12,000
|
12,000
|
0
|
0%
|
Carlos
Padilla Jr.
|
20,000
|
20,000
|
0
|
0%
|
Randolph
E. Aguilera & Kitty Aguilera *
|
4,000
|
4,000
|
0
|
0%
|
Jerome
Padilla & Margie Padilla *
|
60,000
|
60,000
|
0
|
0%
|
Steve
Reese
|
20,000
|
20,000
|
0
|
0%
|
Penny
Adams
|
4,000
|
4,000
|
0
|
0%
|
Thomas
Doyle
|
120,000
|
120,000
|
0
|
0%
|
Lee
Glass Jr.
|
40,000
|
40,000
|
0
|
0%
|
Ami
Kim
|
450,000
|
450,000
|
0
|
0%
|
Julius
Rizzotti
|
20,000
|
20,000
|
0
|
0%
|
Frank
Laurente
|
28,000
|
28,000
|
0
|
0%
|
Walter
J. Skibicki
|
200,000
|
200,000
|
0
|
0%
|
Sylvia
Vasquez
|
360,000
|
360,000
|
0
|
0%
|
Gene
Kinum Trust (2)
|
600,000
|
600,000
|
0
|
0%
|
Rosemary
F. Padilla
|
40,000
|
40,000
|
0
|
0%
|
12
Frank
C. Childs Trust (3)
|
10,000
|
10,000
|
0
|
0%
|
Jeff
Padilla & Jocelyn Padilla *
|
180,000
|
180,000
|
0
|
0%
|
Russ
C. Reyes
|
18,000
|
18,000
|
0
|
0%
|
Susanne
M. Richardson
|
40,000
|
40,000
|
0
|
0%
|
The
Sargeant Living Trust (4)
|
40,000
|
40,000
|
0
|
0%
|
Michelle
T. Torres
|
8,000
|
8,000
|
0
|
0%
|
Steven
Serio
|
11,800
|
11,800
|
0
|
0%
|
Ashley
Holt Living Trust (5)
|
20,000
|
20,000
|
0
|
0%
|
Raymond
Gall
|
20,000
|
20,000
|
0
|
0%
|
Ronald
Donahue
|
40,000
|
40,000
|
0
|
0%
|
Lorena
A. Alvarez
|
800
|
800
|
0
|
0%
|
Denise
S Wynters
|
16,000
|
16,000
|
0
|
0%
|
Robert
Broussard
|
100,000
|
100,000
|
0
|
0%
|
Justin
Beere
|
30,000
|
30,000
|
0
|
0%
|
Joshua
Collier
|
30,000
|
30,000
|
0
|
0%
|
April
Marie Wood
|
4,000
|
4,000
|
0
|
0%
|
Lorena
A. Alvarez
|
16,000
|
16,000
|
0
|
0%
|
Rhett
Alexander, LLC (7)
|
8,000
|
8,000
|
0
|
0%
|
Dagmy
A Boch
|
8,000
|
8,000
|
0
|
0%
|
Elizabeth
Marrero
|
4,000
|
4,000
|
0
|
0%
|
Russ
C. Reyes
|
14,000
|
14,000
|
0
|
0%
|
Michelle
T. Torres
|
8,000
|
8,000
|
0
|
0%
|
Arshag
Kevorkian & Manuela Kevorkian *
|
4,000
|
4,000
|
0
|
0%
|
* The
shares are owned by respective holders as joint tenants with right of
survivorship.
** The
5,000 shares are owned by Myra Castro and Matthew Kuntz as tenants in
common.
13
(1)
|
The
79,012,000 shares are owned by Mr. and Mrs. Frank Jakubaitis as joint
tenants with right of survivorship. Among the 79,012,000 shares,
79,000,000 shares were issued to Mr. Jakubaitis as compensation for
services rendered, and the remaining 12,000 shares were purchased by Mr.
Jakubaitis from TBN Corporation, a subscriber to our private offering, at
a purchase price of $3,300 on October 1, 2008. Mr. Jakubaitis holds the
above shares and will use some of his personal shares to retire personal
obligations.
|
(2)
|
Gene
Kinum is the trustee of Gene Kinum Trust. Gene Kinum, acting alone, has
voting and dispositive power over the shares beneficially owned by Gene
Kinum Trust and has investment control of its shares of our common
stock.
|
(3)
|
Frank
C. Child is the trustee of Frank C. Child Trust. Frank C. Child, acting
alone, has voting and dispositive power over the shares beneficially owned
by Frank C. Child Trust.
|
(4)
|
Lloyd Sargeant is the
trustee of Sargeant Living Trust. Lloyd Sargeant, acting alone, has voting
and dispositive power over the shares beneficially owned by
Sargeant Living Trust.
|
(5)
|
Ashley
Holt is the trustee of Ashley Holt Living Trust. Ashley Holt, acting
alone, has the voting and dispositive power over the shares beneficially
owned by Ashley Holt Living Trust.
|
(6)
|
Rich
I. Anslow, acting alone, has voting and dispositive power over the shares
beneficially owned by Anslow & Jaclin,
LLP.
|
(7)
|
Rhett
Alexander is the principal of Rhett Alexander, LLC. Rhett Alexander,
acting alone, has voting and dispositive power over the shares
beneficially owned by Rhett Alexander, LLC.
|
(8)
|
All
of the 913,533 shares registered in this registration statement were
issued to Frank and Tara Jakubaitis, at par value, as compensation for
services rendered.
|
Among the
selling shareholders, Mr. Frank Jakubaitis and Mrs. Tara Jakubaitis are husband
and wife, and Mr. Frank Jakubaitis is our sole director and Chief Executive
Officer. In addition, Mr. Jeff Padilla is our prior Chief Financial Officer
until October 9, 2009. Except for those aforementioned, to our knowledge,
none of the selling shareholders or their beneficial owners:
-
|
has
had a material relationship with us other than as a shareholder at any
time within the past three years; or
|
|
-
|
has
ever been one of our officers or directors or an officer or director of
our predecessors or affiliates
|
|
-
|
are
broker-dealers or affiliated with broker-dealers.
|
The
selling security holders may sell some or all of their shares at a fixed price
of $0.25 per share until our shares are quoted on the OTCBB and thereafter at
prevailing market prices or privately negotiated prices. Prior to being quoted
on the OTC Bulletin Board, shareholders may sell their shares in
private transactions to other individuals. Although our common stock is not
listed on a public exchange, we will be filing to obtain a listing on the OTCBB
concurrently with the filing of this prospectus. In order to be quoted on the
OTC Bulletin Board, a market maker must file an application on our behalf in
order to make a market for our common stock. There can be no assurance that a
market maker will agree to file the necessary documents with FINRA, which
operates the OTC Bulletin Board, nor can there be any assurance that such an
application for quotation will be approved. However, sales by selling security
holder must be made at the fixed price of $0.25 until a market develops for the
stock.
Once a
market has developed for our common stock, the shares may be sold or distributed
from time to time by the selling stockholders, who may be deemed to be
underwriters, directly to one or more purchasers or through brokers or dealers
who act solely as agents, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices or at
fixed prices, which may be changed. The distribution of the shares may be
effected in one or more of the following methods:
O
|
ordinary
brokers transactions, which may include long or short
sales,
|
O
|
transactions
involving cross or block trades on any securities or market where our
common stock is trading, market where our common stock is
trading,
|
O
|
through
direct sales to purchasers or sales effected through
agents,
|
O
|
through
transactions in options, swaps or other derivatives (whether exchange
listed of otherwise), or exchange listed or otherwise),
or
|
O
|
any
combination of the foregoing.
|
14
In
addition, the selling stockholders may enter into hedging transactions with
broker-dealers who may engage in short sales, if short sales were permitted, of
shares in the course of hedging the positions they assume with the selling
stockholders. The selling stockholders may also enter into option or other
transactions with broker-dealers that require the delivery by such
broker-dealers of the shares, which shares may be resold thereafter pursuant to
this prospectus. To our best knowledge, none of the selling security holders are
broker-dealers or affiliates of broker dealers.
We will
advise the selling security holders that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the market
and to the activities of the selling security holders and their affiliates. In
addition, we will make copies of this prospectus (as it may be supplemented or
amended from time to time) available to the selling security holders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling security holders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities
Act.
Brokers,
dealers, or agents participating in the distribution of the shares may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders and/or the purchasers of shares for whom such
broker-dealers may act as agent or to whom they may sell as principal, or
both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). Neither the selling stockholders nor we can presently
estimate the amount of such compensation. We know of no existing arrangements
between the selling stockholders and any other stockholder, broker, dealer or
agent relating to the sale or distribution of the shares. We will not receive
any proceeds from the sale of the shares of the selling security holders
pursuant to this prospectus. We have agreed to bear the expenses of the
registration of the shares, including legal and accounting fees, and such
expenses are estimated to be approximately $88,352.
Notwithstanding
anything set forth herein, no FINRA member will charge commissions that exceed
8% of the total proceeds of the offering pursuant to FINRA Rule
2710.
General
We are
authorized to issue an aggregate number of 125,000,000 shares of capital stock,
of which 100,000,000 shares are common stock, $0.001 par value per share, and
25,000,000 shares are preferred stock, $0.001 par value per share.
Common
Stock
We are
authorized to issue 100,000,000 shares of common stock, $0.001 par value per
share. Currently we have 81,932,600 shares of common stock issued and
outstanding.
Each
share of common stock shall have one (1) vote per share for all purposes. The
holders of a majority of the shares entitled to vote, present in person or
represented by proxy, shall constitute a quorum at all meetings of our
shareholders. Our common stock does not provide a preemptive, subscription or
conversion rights and there are no redemption or sinking fund provisions or
rights. Our common stock holders are not entitled to cumulative voting for
election of the board of directors.
Preferred
Stock
We are
authorized to issue 25,000,000 shares of “blank check” preferred stock, $0.001
par value per share. The preferred stock may be divided into any number of
series as our directors may determine from time to time. Our directors are
authorized to determine and alter the rights, preferences, privileges and
restrictions granted to and imposed upon any wholly issued series of preferred
stock, and to fix the number of shares of any series of preferred stock and the
designation of any such series of preferred stock. As of the date of this
filing, we do not have any preferred shares issued and outstanding.
15
Dividends
We have
not paid any cash dividends to our shareholders. The declaration of
any future cash dividends is at the discretion of our board of directors and
depends upon our earnings, if any, our capital requirements and
financial position, our general economic conditions, and other pertinent
conditions. It is our present intention not to pay any cash dividends
in the foreseeable future, but rather to reinvest earnings, if any, in our
business operations.
Warrants
There are
no outstanding warrants to purchase our securities.
Options
There are
no outstanding options to purchase our securities.
Transfer
Agent and Registrar
Currently
we do not have a stock transfer agent. We intend to engage a stock
transfer agent in the near future.
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis, or had, or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was
any such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer, or employee.
The
financial statements included in this prospectus and the registration statement
have been audited by dbbmckennon, Certified Public Accountants to the extent and
for the periods set forth in their report appearing elsewhere herein and in the
registration statement, and are included in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
Item
11. Information about the Registrant
Overview
We were
incorporated in the State of California on November 24, 2007. The WECOSIGN
business model is to charge a monthly service fee to applicants of rental
properties (that have poor credit) in exchange for cosigning on their apartment
or rental home lease agreements. The WECOSIGN service now allows landlords and
owners to allow poor credit applicants to apply at their facility. Using the
WECOSIGN service reduces (1) Overall vacancy across the board (2) Reduces risk
associated with poor credit tenants for landlords (3) Finally, our service helps
tenants with poor credit immediately gain access to apartment home
living.
We
provide guarantees of monthly rental payments to landlords on behalf of their
tenants. Our exposure to credit loss, in the event of nonperformance by the
tenant, is represented by the amounts stipulated in the rental contract which
has a fixed expiration date that mirror the tenant’s lease term ranging from six
months to one year. Commitments made by us to guarantee lease agreements are
first approved through an underwriting process to mitigate the risk of
nonpayment by a tenant. Since many of the guarantees are expected to expire
without being drawn upon, the total guarantee amounts do not necessarily
represent future cash requirements. We evaluate each applicant’s credit and
payment worthiness on a case-by-case basis. The landlord does not pay us any
fees for the guarantee. Fees paid by a tenant to us consist of an up-front $100
application fee, a monthly service fee of $20, and a recurring monthly fee over
the guarantee period which is based on 10% of the monthly lease cost to the
tenant. Application fees paid are fully refunded by us in the event
that an application is denied.
Our
proprietary underwriting consists of an algorithm-based system designed to
evaluate the potential risk of an applicant by looking beyond typical screening
methods such as today’s FICO credit scores. Mr. Frank Jakubaitis designed the
algorithms which employ manual screening techniques, and therefore, are not
subject to any licenses. Our scoring system is designed to evaluate an
applicant’s actual performance and other intangible traits rather than relying
solely on credit scores. Our system assigns designated numbers to, among other
things, an applicant’s character, references, employment, time on job, bank
account balance, and past rental payment history. Additionally, our system also
assigns designated numbers to particular events in an applicant’s everyday life
that could cause credit problems, such as divorce, employment interruptions, or
even death of a providing spouse. Our system takes into consideration all of
these every day events in evaluating a potential client’s ability to pay their
rent.
16
To apply
for our services, an applicant only needs to go to our website located at
www.wecosign.com, push the “apply now button” (on the website’s front page),
fill out the application, and pay a processing fee in the amount of
$100. When the application is received, our intake personnel make
contact with the client via telephone and requests faxed copies of: (1) pay
stubs, (2) bank statements, (3) three references, (4) employment history, and
(5) prior rental verification. Additionally, a client is required to furnish any
and all identification documents such as driver’s license, State I.D. cards,
Social Security Cards, and any and all I-9 documents necessary to establish a
legal and positive I.D. Finally, a client is required to provide three
non-related personal references. Our underwriting department will then contact
the applicant and conduct an interview to corroborate the applicant’s life event
and to inquire about irregularities if any, within the documents submitted to
us. After verification, we input the information related to the applicant in our
database and evaluate the following; The applicants ; character, time
on job, bank account, funds on hand, debt ratio, and past rental payment history
to analyze the risk rates. We utilize a proprietary scoring system (developed
internally) which automatically assigns a numerical value to various categories,
including a “life event” of an applicant (divorce, employment interruption,
death of a providing spouse, etc.). Our evaluation will tell us (a) When and if
the applicant will default, and (b) How well the applicant will perform in his
rental payments. After a client is approved, they can then select any facility
that they wish to live in. We then contact the approved client via
telephone, and conduct our final interview explaining what a cosigner is, and
what is expected of them as new tenants. No tenants are admitted without a final
telephone interview. The tenant is then sent a disclosure statement concerning
the monthly charges along with a printed tenant manual for future
reference.
If the
applicant fails our underwriting process, his $100 application fee is promptly
refunded. However, if the application goes through our entire underwriting
process and is approved, the $100 application fee will not be refunded unless
the applicant requests a rescission of his contract with us prior to the
commencement date of such lease. Under our scoring system, our
approval rate is approximately 83%.
A copy of
the standard contract with application is included herein as Exhibit
10.4.
Approved
applicants are responsible for paying rent to their landlord, and paying an
additional monthly service fee to us based on a percentage of their rent. The
average monthly rent paid by our customers is approximately $1,200. Charging a
percentage of the actual rent automatically deems the fee fair in varying rental
priced markets. If pursuant to a rental facility’s requirement, an applicant is
also required to provide a security deposit or other type of deposit to the
property manager of such rental facility, the tenant needs to make such
arrangements. The rental facility, not WECOSIGN Inc, determines whether the
tenant needs to provide a security deposit based upon their internal operating
policies and procedures. Since our business is limited to providing cosigning
services, we are not involved in any transactions related to providing a
security deposit or other type of deposit for any applicant.
By
allowing tenants approved by us to live in their properties of their choice,
landlords are guaranteed to receive the rent while enjoying an increased
occupancy level. In the event that the tenant defaults on his or her rental
payments, the rental facility has the sole responsibility to collect the missed
rental payments in the same manner as they would do with any other tenants in
default. The rental facility must apply for and achieve a successful
eviction of such tenant prior to requesting any guarantee payment from
us. After receiving the formal eviction judgment, the rental facility needs
to notify us of the eviction and then request (via form) the missed rental
payments from us in accordance with the terms and conditions of the Rental
Payment Guarantee Booklet. Because we have limited operating history, we do not
have sufficient historical data to support comparisons between the default rate
on rental payments between using our proprietary screening methods and “typical
screening methods.”
Our
policy is to act as a grantor for an initial term of one year. After one
year, the landlord re-evaluates the tenant's payment history to determine if a
co-signer is still required on the lease. If the tenant is determined
to be in good standing then we will terminate our service with the tenant.
If the rental facility determines that a co-signer is still required to
renew the tenants lease they will advise the tenant to renew their
guarantor service for another 12 months. In the case that the tenant renews our
guarantor services after a period of one year, we will charge the
tenant the same monthly fee. This condition alone is incentive for the
tenant to make his payments timely. The landlord’s incentive for approving a
tenant to terminate cosigning services is to remain competitive with tenants who
have a reliable payment history, thereby discouraging such tenants from seeking
out other rental facilities which do not require a co-signer on the lease
agreement. This is a business decision made by each individual rental facility.
To date, we have maintained “A” rating with the Better Business Bureau and have
never received a complaint regarding our services.
17
We
currently act as co-signer in 128 leases from 20 states nationwide. We had
four tenants who terminated our co-signing services after their landlords
approved such termination because the tenants were in good standing in their
rental payments in the one year term. The remaining 128 leases are still within
the initial one year term. The forecast number of the customer accounts by the
end of 2009 is not proportionate to the forecast number of our monthly
applicants because of the lag time involved in the process of signing up
clients. In addition, we have limited operating history, and do not have
sufficient historical data to support comparisons between using our screening
methods and traditional FICO related screening methods. Copies of the standard
application form and rental payment guarantee agreement with a landlord are
included as Exhibits 10.3 and 10.6 to this registration
statement.
Applications
are available at www.wecosign.com, and potential customers are directed to the
website primarily through online advertising campaigns, along with referrals
from our WECOSIGN™ associates and affiliates (the (WECOSIGN™ Associates and
Affiliates”) around the country. Currently, we have established business
relationships with approximately 18 WECOSIGNTM
Affiliates. We do not have any ownership interest in any of our WECOSIGNTM
Affiliates who are independent business entities. The WECOSIGN™ Affiliates are
real estate agents or brokers that direct customers to us through their own
websites. For each successful application referred by an
Affiliate, we pay referral fees to the Affiliate in the amount of 30% of the
initial application fee. In addition, we will pay the Affiliate 10%
of each established monthly fee from the client, not to exceed a twelve months
period. Tenants and landlords determine, at their sole discretion, whether they
will use and/or accept our co-signing services.
The
Company does not require Affiliates to disclose to the tenants and property
owners the compensation they receive from us.
We have
approximately 30 WECOSIGNTM
Associates. The WECOSIGN™ Associates are property managers that currently house
WECOSIGN™ approved tenants, and these WECOSIGN™ Associates provide applications
to potential tenants of their properties. We do not provide any compensation to
any of the WECOSIGNTM
Associates. Aside from recommending our co-signing services to applicants
who do not qualify to rent an apartment, the Associates have no other business
relationships with us. Our marketing strategy is online driven and
designed to bring traffic to our website where potential customers can fill out
and file their applications. Traffic is primarily generated through online
banner and button ad campaigns on leading industry specific websites (i.e.
www.apartments.com) that attract thousands of prospective customers on a daily
basis. Other avenues to drive traffic to the website include links on our
WECOSIGN™ Associate and Affiliate websites, pay-per-click ad campaigns on
leading search engines, and the maintenance of a search engine optimized website
resulting in high organic search results for specific keywords.
Advertising
in the online space makes up over 90% of our marketing strategy. Our website
activity for the three months ended August 31, 2009, showed a marked increase of
90% to 118,629 website visits from 57,647 website visits during the three months
ended May 31, 2009. During the three months ended August 31, 2009,
increased website visits contributed to the online application growth increasing
46% to 197 applications from 135 applications during the three months ended May
31, 2009. During the three months ended August 31, 2009,
accepted applications increased by 27%, to 128 accepted applications from 101
accepted applications during the three months ended May 31,
2009.
Our
remaining marketing budget goes towards offline marketing efforts such as print
ads, editorials and advertorials in regionally specific rental magazines, along
with brochures and other handouts in regionally targeted real estate and
property management offices.
Risks and
obstacles always exist when developing a brand, especially in this case, a new
company assisting renters in getting into apartments that they can afford,
regardless of their credit score, and working with apartment communities to turn
away fewer applicants and increase their occupancy rates.
Our
strategies, implemented in phases, are designed to create widespread awareness
of this national service as well as to escalate demand and acceptance regionally
and nationally. Our first phase involved the creation of a functioning website
with complete information and appropriate marketing/educational material for
inquiry fulfillment. This phase, still in operation, overcomes the lack of
understanding on the part of property managers and/or applicants in how the
guarantor process actually works. The second phase involved the
development and launch of communication efforts to drive web traffic to the
website through internet media avenues such as Craigslist, Google Ad*words, and
specific banner placement on high traffic renter-related websites. Furthermore,
additional marketing materials are provided to leasing offices for the benefit
of property managers and potential applicants. This effort, in concert with
phase one, coupled with the ongoing building of the Affiliate/Associates
network, is creating a strong base for referrals and word-of mouth advertising,
all working in concert to create the WeCosign brand. Additionally, all serve to
educate property managers and applicants as a lack of understanding has posed
the greatest obstacle. Risk exists from the standpoint of competition, so in
order to attract and retain customers and to promote and maintain our brand in
response to competitive pressures, management plans to gradually increase our
marketing and advertising budgets. If we are unable to economically promote or
maintain our brand, our business, results of operations and financial condition
could be adversely affected.
18
Market
Opportunities
Current Market
Conditions
Landlords
currently face high levels of vacancy in their properties because of the recent
nationwide increase in apartment construction, along with a simultaneous
decrease in the number of qualified rental applicants. Landlords predominantly
use the FICO credit scoring system as a tool to screen potential tenants, since
this has long been a widely accepted method of evaluation. This system saves
landlords time by standardizing their application process and reducing personal
interaction with renters, but it has also resulted in a growing number of
applicants that fail to qualify for rental properties, since poor credit scores
have become a problem for a large number of Americans in recent years. Some
estimates put the number of Americans with bad credit as high as 45%. We help
both tenants and property owners solve the problem of poor credit in the rental
market. We allow landlords to fill vacancies in their property without having to
worry about an applicant's FICO score or their potential risk for default, and
enables tenant with poor credit to qualify for properties that would otherwise
reject them.
Targeted
Customers
Our
customers are renters with imperfect credit that don't meet the strict
requirements for a typical apartment application because of their low FICO
scores. Our proprietary underwriting techniques allow the company to determine
which applicants are likely to become financially responsible tenants, despite
their inability to meet the necessary FICO requirements for a particular rental
property. There are a variety of factors that can contribute to a rental
applicant's negative FICO score including divorce, personal bankruptcy, or late
bill payments. And often times just one of these factors can negatively affect
someone's FICO score for years and make it extremely difficult to gain approval
on a lease agreement for a rental property. We recognize that this score does
not necessarily reflect the most current or accurate financial picture of a
potential tenant, or their ability to pay the rent each month.
Operations
Our
revenue comes from the collection of the application fee, and the monthly
recurring service fee paid by approved customers currently living in rental
housing. The application fee is $100 and the monthly service fee is 10% of a
customer’s monthly rent plus $20. We currently have 128 approved customer
accounts that we collect a service fee from each month, and new applications
have increased by 15% monthly since the start of 2009. The current level of new
monthly applications exceeded 55 at $100 each as of the date hereof. Our total
revenue has increased an average of 28% per month since November of 2008 and
figures in recent months have exceeded 30%. We have developed and refined
proprietary underwriting techniques to greatly reduce the risk of default among
approved applicants, and our current rate of default is approximately
8%.
Prospects
The
future of the market for co-signing services in the United States appears strong
for a variety of factors. Vacancy rates across the country are likely to stay at
high levels as renters continue moving back in with family or other roommates in
order to lower costs, leaving property owners with empty units. In addition,
many current homeowners are now looking to rent their own unsold properties
which will create even more vacancies in the rental market. Meanwhile, current
unemployment rates and personal bankruptcies will create a large number of
potential renters in the future that will suffer from low FICO scores and
struggle to gain approval on many lease agreements. These factors point to an
increasing need in the future among property owners to fill vacancies, while
many renters will likely need assistance with their poor credit in order to
successfully gain approval to live in these properties.
We plan
to expand our operations nationwide through the WECOSIGN™ Affiliates and
Associates in 2009. There are currently 19 Affiliates and 19 Associates that are
working to bring in new applicants around the country, and we plan to add an
additional 30 Affiliates and 40 Associates through the end of 2009. This
expansion, increased online traffic, and referrals from current customers and
property owners are likely to help us reach our projected goals of 150
applications per month, and a total of 225 approved applicants living in rental
properties by the end of 2009. In addition, our operations will expand to
include a commercial division in 2009 that will provide cosigning services to
customers looking to rent commercial and retail properties.
It takes
an individual many years to substantially improve his or her FICO credit scores.
Therefore, our market capacity will not materially shrink as the economy
improves. Even if the economy improves, there will always be a need for our
services since bad credit transcends all socioeconomic status.
19
Competition
We were
first to market with the business model of providing cosigning services for
rental applicants, and have a trademark with the United States Patent and
Trademark Office. Specifically, the trademark is a service mark that protects
the name of WECOSIGN™ as being the first company that was engaged in
providing cosigning services to tenants on a nationwide
basis. Although there are no barriers to entry to compete with us,
our management is not aware of and our customers and Affiliates have not
informed us of any competition currently providing cosigning services similar to
ours.
Trademarks and
Copyrights
WECOSIGNTM is now
a U.S. Service Mark. We have not applied for a patent application for our
propriety underwriting techniques and do not intend to do so at this time. Our
management considers our service mark, and future similar intellectual
property critical to our business, so we intend to take steps to protect our
intellectual property rights. However, effective trademark and other
intellectual property may not be available in every country where we intend to
sell our products and services online.
Employees
As of
October 21, 2009, we have a total of seven (8) employees all of which are full
time, and plan to employ more qualified employees as needed in the
future.
DESCRIPTION
OF PROPERTY
We lease
approximately 1,800 square feet of office space located at 3400 West MacArthur
Blvd, Suite I, Santa Ana, CA 92704 for our principal executive office. This
lease extends through April 2010 and is currently at $1,200 per month. The lease
agreement between WECOSIGN, INC, and Adams Properties dated May 29, 2008 and the
lease renewal agreement between WECOSIGN, INC. and Adams Properties dated May
29, 2009 are included as Exhibits 10.1 and 10.2, respectively, to this
registration statement.
From time
to time, we may become involved in various lawsuits, which arise, in the
ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from
time to time that may harm our business. We are currently not aware of any such
legal proceedings or claims against us that we believe will have a material
adverse effect on our business, financial condition, or operating
results.
There is
presently no public market for our shares of common stock. We anticipate
applying for trading of our common stock on the OTCBB upon the effectiveness of
the registration statement of which this prospectus forms apart. However, we can
provide no assurance that our shares of common stock will be traded on the OTCBB
or, if traded, that a public market will materialize.
20
Holders of Capital
Stock
As of the
date of this registration statement, we had 61 holders of our common stock and
no holders of our preferred stock.
Rule 144
Shares
As of the
date of this registration statement, we do not have any shares of our common
stock that are currently available for sale to the public in accordance with the
volume and trading limitations of Rule 144.
Stock Option
Grants
We do not
have any stock option plans.
Registration
Rights
We have
not granted registration rights to the selling shareholders or to any other
persons.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULT OF OPERATIONS
The
following plan of operation provides information which management believes is
relevant to an assessment and understanding of our results of operations and
financial condition. The discussion should be read along with our financial
statements and notes thereto. This section includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. Forward-looking statements are often identified by words
like believe, expect, estimate, anticipate, intend, project and similar
expressions, or words which, by their nature, refer to future events. You should
not place undue certainty on these forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from our
predictions.
Our
Business
We help
prospective renters with poor credit by acting as their cosigner on an apartment
or house rental agreement. We provide the service of acting as the guarantor for
a renter by cosigning on their lease agreement in exchange for a monthly fee,
enabling rental applicants with low FICO scores to bypass the strict
qualifications that many property owners enforce.
A
majority of rental property owners rely on FICO credit scores to approve or deny
their new applicants, and once a tenant has a blemish on their credit history it
can be a struggle to improve their score and qualify for a lease. Our
proprietary underwriting techniques allow us to identify quality applicants with
poor credit that would have difficulty gaining approval on lease agreements
without a cosigner.
Rental
applicants that are interested in our assistance must pay a non-refundable $100
fee in order to process their application. If our underwriting department
approves the application, the renter must pay us a service fee that is 10% of
their monthly rent plus $20 for a period of 12 months. The applicant is
responsible for paying rent to the property owner, and our service fee is
collected directly from the applicant’s credit or debit card account on the
1st
of each month. After one year, the applicant’s payment history is reviewed to
determine if a cosigner is still necessary, or if we will continue to retain the
applicant for another 12 months with a new fee structure reflecting a reduced or
elevated concern of the applicant’s financial situation.
Principal
Factors Affecting Our Financial Performance
We
believe that the following factors will continue to affect our financial
performance:
Our Ability to
Establish Strategic Relationships with New Affiliates that house our applicant
tenants. We intend to expand our business via establishing WECOSIGNTM
Affiliates across the country, and a portion of our future growth is dependent
upon new affiliates which promote our concept and reputation. To date, we have
set up 19 affiliate offices in various states across the United States. To
attract Affiliates, for each successful application, we pay referral fees to an
Affiliate in the amount of 30% of the initial application fee, and 10% of each
established monthly fee from the client, not to exceed a twelve (12) months
period.
21
Plan
of Operations
We
believe the market for co-signing services in the United States will stay robust
in the next twelve (48) months because vacancy rates across the country are
likely to stay at high levels as renters continue moving back in with family or
other roommates in order to lower costs, leaving property owners with empty
units, and many current homeowners are now looking to rent their own unsold
properties which will create more vacancies.
We plan
to continue to expand our operations nationwide through the WECOSIGN™ Affiliates
and Associates throughout the remainder of 2009. Currently, we have 19
Affiliates and 19 Associates that are working to bring us new applicants around
the country, and we plan to add an additional 30 Affiliates and 40 Associates
through the end of 2009. This expansion, increased online traffic, and referrals
from current customers and property owners are likely to help us reach our
projected goals of approximately 150 applications per month, and approximately
225 approved applicants living in rental properties by the end of
2009.
Currently,
our business operations are focused on residential properties. In the fourth
quarter of 2009, we plan to expand our operations to include a commercial
division that will provide cosigning services to customers looking to rent
commercial and retail properties. To date, the number of application for our
cosigning services stands at approximately 106 per month, after a running
history of nine months.
Critical
Accounting Policies
Estimates: Our discussion and
analysis of our financial condition and results of operations are based on our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States 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 the reported amounts of revenues and expenses during
the reporting period. By their nature, these estimates and judgments are subject
to an inherent degree of uncertainty. We review our estimates on an on-going
basis, including those primarily related to guarantee obligations, the fair
value of stock-based compensation and valuations on deferred tax assets. We base
our estimates on our historical experience, knowledge of current conditions and
our beliefs of what could occur in the future considering available information.
Actual results may differ from these estimates, and material effects on our
operating results and financial position may result. We believe the following
critical accounting policies involve our more significant judgments and
estimates used in the preparation of our financial statements.
Revenue Recognition: We
generate revenue through subscriptions and recognizes revenue in accordance with
Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB104”), which
superseded Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (“SAB101”). SAB 101 requires that four basic criteria must
be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred; (3) the selling price is fixed
and determinable; and (4) collectability is reasonably
assured. Determination of criteria (3) and (4) are based are based on
management's judgments regarding the fixed nature of the selling prices of the
products delivered and the collectability of those
amounts. Application fees received from customers during the
underwriting process are fully refundable if the application is denied; such
fees are included in the guarantee liability. Also upon closing, the Company
records a receivable for the required payments due under the contract with a
corresponding increase in the guarantee liability, which represents our
stand-ready obligation. Revenues are recorded when the four conditions are met,
which is based on the period the guarantee lapses. When a tenant ceases to pay
its monthly fees, revenue recognition is ceased and provision for loss is
evaluated. If additional liability is required, we charged the expected loss to
expense.
Cost of Revenue: The
Company's Cost of Revenue consists primarily of costs for future Tenant
defaults, allocated salaries, allocated rent, and other expenses directly
related to the production of Revenue.
22
Long-lived Assets: We
continually monitor and review long-lived assets, including fixed assets and
intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of any such asset may not be recoverable. The
determination of recoverability is based on an estimate of the cash flows
expected to result from the use of an asset and its eventual disposition. The
estimate of cash flows is based upon, among other things, certain assumptions
about expected future operating performance, growth rates and other factors. If
the sums of the cash flows are less than the carrying value, we recognize an
impairment loss, measured as the amount by which the carrying value exceeds the
fair value of the asset.
Accounting for Income Taxes:
We follow SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”) for
recording the provision for income taxes. Deferred tax assets and
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are
based on the changes in the asset or liability each period. If
available evidence suggests that it is more likely than not that some portion or
all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of
change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.
Upon
incorporation, we adopted FASB Interpretation No. 48 (FIN 48), “Accounting for
Uncertainty in Income Taxes,” which prescribes a comprehensive model for the
financial statement recognition, measurement, classification and disclosure of
uncertain tax positions. The adoption and continued application did not have an
impact on the Company’s financial statements.
Guarantee: The Company
provides guarantees to landlords on behalf of their tenants. Such
guarantees generally cover the monthly rent payable by the tenant. The Company’s
exposure to credit loss, in the event of nonperformance by the tenant, is
represented by the amounts stipulated in the rental
contract. Commitments made by the Company to guarantee lease
agreements are first approved through an underwriting process which is there to
mitigate the risk of nonpayment by a tenant. The Company’s guarantees generally
have fixed expiration dates which mirror the tenant’s lease term which range
from six months to a year. Since many of the guarantees are expected
to expire without being drawn upon, the total guarantee amounts do not represent
future cash requirements. The Company evaluates each customer’s credit and
payment worthiness on a case-by-case basis. The landlord does not pay the
Company a fee for the guarantee. Fees paid by tenants to the Company consist of
up-front $100 application fee, a monthly service fee of $20, and a recurring
monthly fee over the guarantee period, which is based on 10% of the monthly
lease cost to the tenant. Application fees paid are fully refundable by the
Company in the event an application is denied.
When
we provide a guarantee to the landlord, we record the receivable for the
payments to be received by us from the tenant. We view this as our
stand-ready obligation, which we believe represents the estimated fair value of
such guarantees. Changes in fair value of these guarantees will be
recorded in operations. Additionally, we estimate the liability
related to potential defaults on tenant payments. Some of the factors used to
determine the liability include an average default rate of 10%, average re-lease
terms ranging from two to three months of rental units and the average monthly
rents. Our current default rate is 8% of total guarantees. Our
expected default rate used to estimate our losses, which we deemed are probable
based on our limited history, was approximately 10%. Our expected
default rate is higher than actual because of our recent commencement and our
limited history.
The
Company obtains full recourse for its damages against the tenant under its
assigned judgment agreement with the landlord. Recourse amounts include rental
payments, processing fees and the Company’s legal fees incurred to obtain
reimbursement. Per the Landlord Rental Payment Guarantee, the Company is not
liable for any loss caused by or resulting from (a) constructive Eviction (b)
out of pocket costs incurred by the owner/agent, including but not limited to
reasonable attorney’s fees, administrative fees, and management fees. In
addition, the company will have no obligation to provide a defense to /or defend
the owner/agent against any claims made in connection with the lease. To date,
we have not recorded a receivable for these potential reimbursements as an
estimate cannot be established due to the limited history of attempting
collection under the recourse and, accordingly, any provision to establish
liabilities are charged to expense. Our actual losses as a percentage
of guarantees is 8% at August 31, 2009. Our expected loss rate is
higher than actual because of our recent commencement and our limited
history.
We will
assess our losses more precisely as we obtain additional information such that
our provisions for losses are more closely aligned with our actual and expected
losses.
23
Stock-Based Compensation: We
follow SFAS No. 123(R), "Share Based Payment," which establishes standards for
the accounting of all transactions in which an entity exchanges its equity
instruments for goods or services, including transactions with non-employees and
employees. SFAS No. 123(R) requires an entity to measure the cost of
non-employee and employee services received in exchange for an award of equity
instruments, including stock options, based on the grant date fair value of the
award, and to recognize it as compensation expense over the period service is
provided in exchange for the award, usually the vesting period. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in our statement of
operations.
Our
accounting policy for equity instruments issued to consultants and vendors in
exchange for goods and services follows the provisions of Emerging Issues Task
Force (“EITF”) 96-18, “Accounting for Equity Instruments That are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services”. The measurement date for the fair value of the equity
instruments issued is determined at the earlier of (i) the date at which a
commitment for performance by the consultant or vendor is reached or (ii) the
date at which the consultant or vendor's performance is complete. In the
case of equity instruments issued to consultants, the fair value of the equity
instrument is recognized over the term of the service period.
Fees Paid to Affiliates: As
of December 30, 2008, the Company began paying a $30 finder’s fee to affiliates
for each approved application they refer to the Company. In addition, the
Company pays the Affiliate 10% of each established monthly fee that is received
from the tenant. Fees paid to Affiliates amounted to approximately
$800 during the nine months ended August 31, 2009 and were expensed as Cost of
Revenue since they were deemed insignificant. However, prospectively
such costs will be capitalized and amortized over a period which is expected to
be consistent with the related tenant revenue earned.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141(R)”), which replaces FAS 141. SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141(R) is to be applied prospectively to business
combinations.
In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SECs approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of SFAS 162 is not expected to have
a material impact on the Company’s financial position.
In May
2009, the FASB issued SFAS 165, “Subsequent Events”, (“SFAS 165”), which
establishes general standards for accounting for and disclosure of events that
occur after the balance sheet date but before financial statement are issued or
available to be issued. In particular, SFAS 165 sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements; the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements’ and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. It is
effective for interim and annual periods ending after June 15, 2009. The Company
adopted SFAS 165 during the three months ended August 31, 2009. The Company
evaluated subsequent events through the issuance date of the financial
statements, November 6, 2009, noting no additional disclosures.
24
Result
of Operations
Nine
months ended August 31, 2009 compared to the nine months ended August 31,
2008
The
following tables and narrative discussion set forth key components of our
results of operations for the periods indicated, in dollars, and key components
of our revenue for the period indicated, in dollars.
For
the Nine
|
For
the Nine
|
|||||||
Months
Ended
|
Months
Ended
|
|||||||
August
31,
|
August
31,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
REVENUE
|
$
|
85,983
|
$
|
-
|
||||
COST
OF REVENUE
|
73,503
|
4,271
|
||||||
Gross
Profit (Loss)
|
12,480
|
(4,271)
|
||||||
OPERATING
EXPENSES:
|
||||||||
General
and administrative
|
432,945
|
42,641
|
||||||
Sales
and marketing
|
51,978
|
7,593
|
||||||
TOTAL
OPERATING EXPENSES
|
484,923
|
50,234
|
||||||
LOSS
FROM OPERATIONS
|
(472,443
|
)
|
(54,505)
|
|||||
OTHER
INCOME AND EXPENSE:
|
||||||||
Other
income
|
1,180
|
100
|
||||||
Interest
expense
|
(4,953
|
)
|
-
|
|||||
TOTAL
OTHER INCOME (EXPENSES)
|
(3,773
|
)
|
100
|
|||||
NET
LOSS
|
$
|
(476,216
|
)
|
$
|
(54,405
|
)
|
||
NET
LOSS PER COMMON SHARE - BASIC AND DILUTIVE
|
$
|
(0.00
|
)
|
$
|
(0.00)
|
|||
Weighted
Average Number of Shares
|
80,679,067
|
79,177,333
|
Sales
During
the nine months ended August 31, 2009, we generated $85,983 in revenues. The
increase in revenues from the comparable 2008 was directly related to the
commencement of operations subsequent to that period.
Cost
of Revenue
Our Cost
of Revenue of $73,503 during the nine months ended August 31, 2009 primarily
consisted of guarantee obligations reserves for
defaulting tenants, underwriting payroll, and facilities. This
increase is primarily attributable to the commencement of
operations.
Selling,
General and Administrative
Our
operating expense of $484,923 during the nine months ended August 31, 2009,
primarily consisted of payroll, professional fees, marketing, and rent. The
increase of $434,689, or 865%, between the nine months ended August 31, 2009 the
same period in 2008 was directly related to the increase in staffing due to the
commencement of operations and professional fees incurred in connection
with preparing the Company for their registration statement. During the nine
months ended August 31, 2009, professional fees consisted of $88,000 to Triton
Capital for investment banking services, $20,000 in cash and $25,000 in common
stock to Anslow & Jaclin, LPP for legal services rendered. Additional
professional amounts expected to be paid in future quarters include $40,000 to
Anslow & Jaclin, LPP and $31,500 to dbbmckennon for audit and review
services associated with the filing of this S-1 document.
The
following tables and narrative discussion set forth key components of our
results of operations for the periods indicated, in dollars, and key components
of our revenue for the period indicated, in dollars.
25
Fiscal Year Ended November
30, 2008 Compared to Fiscal Period Ended November 30,
2007
For
the Year
|
From
Inception
|
|||||||
Ended
|
Through
|
|||||||
November
30,
|
November
30,
|
|||||||
2008
|
2007
|
|||||||
REVENUE
|
$
|
3,538
|
$
|
-
|
||||
COST
OF REVENUE
|
16,181
|
|||||||
OPERATING
EXPENSES:
|
||||||||
General
and administrative
|
146,282
|
1,250
|
||||||
Sales
and marketing
|
21,941
|
-
|
||||||
TOTAL
OPERATING EXPENSES
|
168,223
|
1,250
|
||||||
LOSS
FROM OPERATIONS
|
(180,866
|
)
|
(1,250
|
)
|
||||
OTHER
INCOME AND EXPENSE:
|
||||||||
Other
income
|
495
|
-
|
||||||
Interest
expense
|
(194
|
)
|
-
|
|||||
TOTAL
OTHER INCOME (EXPENSES)
|
301
|
-
|
||||||
NET
LOSS
|
$
|
(180,565
|
)
|
$
|
(1,250
|
)
|
||
NET
LOSS PER COMMON SHARE - BASIC AND DILUTIVE
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
||
Weighted
Average Number of Shares
|
79,186,126
|
79,000,000
|
Sales
During
the year ended November 30, 2008, we generated $3,538 in revenues. The increase
in revenues from the comparable 2008 was directly related to the commencement of
operations subsequent to that period. The Company defers and records
revenue over the term of the lease guarantee period.
Operating
Expenses
Total
operating expenses for the year ended November 30, 2008 totaled $168,223,
an increase of $166,973 as compared to the period ended November 30, 2007.
The fiscal 2008 primarily consisted of payroll, professional
fees, marketing, and rent. The increase from the comparable 2008 was
directly related to the commencement of operations subsequent to that
period.
Liquidity
and Capital Resources
We
believe that our existing sources of liquidity, along with cash expected to be
generated from services will be sufficient to fund our operations, anticipated
capital expenditures, working capital and other financing requirements for at
least the next twelve months. In the event the Company is unable to achieve
profitable operations in the near term, it may require additional equity and/or
debt financing, or reduce expenses, including officer’s compensation, to reduce
such losses. However, we cannot assure that such financing will be available to
us on favorable terms, or at all. We will continue to monitor our expenditures
and cash flow position and we are presently debt free, and do not believe that
we shall be forced to enter into any long or short term debt
arrangements.
26
For
the Nine
|
For
the Nine
|
For
the Year
|
From
Inception
|
|||||||||||||
Months
Ended
|
Months
Ended
|
Ended
|
Through
|
|||||||||||||
August
31,
|
August
31,
|
November
|
November
|
|||||||||||||
2009
|
2008
|
30,
2008
|
30,
2007
|
|||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Net
cash used in operating activities
|
$
|
(388,481
|
)
|
$
|
(51,182
|
)
|
$
|
(67,953
|
)
|
$
|
-
|
|||||
Net
cash used in investing activities
|
(25,191
|
)
|
(6,193
|
)
|
(11,567
|
)
|
-
|
|||||||||
Net
cash provided by financing activities
|
602,615
|
58,700
|
85,700
|
-
|
||||||||||||
Net
increase in cash and equivalents
|
188,943
|
1,325
|
6,180
|
-
|
||||||||||||
Cash
and equivalents, beginning of period
|
6,180
|
-
|
-
|
-
|
||||||||||||
Cash
and equivalents, end of period
|
$
|
195,123
|
$
|
1,325
|
$
|
6,180
|
$
|
-
|
Operating
Activities
Cash used
in operating activities was $67,953 for the twelve months of fiscal 2008
compared to $0 for fiscal 2007. Operating cash flows for fiscal 2008 reflects
primarily our net loss with minimal non-cash add backs related to the fair value
of services contributed and depreciation.
Cash
used in operating activities was $388,481 for the nine months ended August 31,
2009 compared to $51,182 for the same period in 2008. Operating cash flows for
both periods reflect primarily our net loss for both periods with minimal
non-cash add backs related to the fair value of common stock issued for
services, services contributed and depreciation.
Investing
Activities
Cash used
in investing activities was $11,567 for the twelve months of fiscal 2008
compared to $0 for fiscal 2007. During the year of fiscal 2008, we paid $9,171
in cash to purchase office furniture and company vehicle.
Cash
used in investing activities was $25,191 for the nine months ended August 31,
2009 compared to $6,193 for the same period in 2008. Investing cash flows for
both periods reflect primarily purchases of capital assets, such as furniture
and fixtures, used in our operations.
Financing
Activities
Cash
provided by financing activities of $85,700 for the twelve months of fiscal
2008 compared to $0 for fiscal 2007. During the year of fiscal 2008, we
received net proceeds of $65,700 from the issuance of 262,800 shares of
common stock. Cash provided by financing activities for the twelve months of
2007 consisted of zero net proceeds.
Cash
provided by financing activities were $602,615 for the nine months ended August
31, 2009 compared to $58,700 for the same period in 2008. Cash flows provided
during the nine months ended August 31, 2009, related to proceeds received under
convertible notes payable of $253,000 and proceeds from the sale of our common
stock of $349,615. These funds were needed to fund our operations.
Off
Balance Sheet Arrangements
We have
no significant known off balance sheet arrangements.
27
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There
have been no changes in or disagreements with accountants on accounting or
financial disclosure matters.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The
following table sets forth the name and age of our officers and sole director as
of August 31, 2009. Our Executive officers are elected annually by our sole
director, Mr. Jakubaitis. Both of our current executive officers, Mr. Frank
Jakubaitis and Mr. Joseph Bennington, are full-time employees and hold their
offices until they resign, are removed by the Board, or his successor is elected
and qualified.
Board
of Directors
Frank
Jakubaitis – Chairman
Executive
Officers
NAME
|
AGE
|
POSITION
|
Frank
Jakubaitis
|
60
|
Chief
Executive Officer
|
Joseph
Bennington
|
48
|
Chief
Financial Officer
|
Frank
Jakubaitis, Age 60, Chairman and Chief Executive Officer
Mr.
Jakubaitis an entrepreneur who incorporated WECOSIGNTM in the
State of California on November 24, 2007 and since then he has been serving as
our Chairman of the board of directors. He is responsible for the overall
leadership of the Company and has been constantly determining business strategy,
leading and ensuring the effectiveness of the board of directors, and providing
timely and appropriate information to our shareholders. He has an impressive
resume and history in the professional audio field for designing-recording
studio’s and sound reinforcement equipment for live touring entertainment
acts. Prior to his employment with us, from 1995 to 2007, he developed a
speaker manufacturing company for book-shelf home entertainment speakers. He
developed the style, packaging, and developed the brochures. The company was
sold. In 1995 Mr. Jakubaitis developed what is known today as the
“Apple Pre-Paid Music Card” and filed a patent on his creation. He is proficient
with a P.C. and has written many data-base programs using; access, visual basic,
java script, and HTML.
Mr.
Jakubaitis is a fellow member of the Audio Engineering Society, Member of the
Institute of Electrical and Electronics Engineers, and Member of the United
Inventors Association of the United States. Mr. Jakubaitis attended law school
in California, and has been the subject of many published articles concerning
the early development of e-books in 1994 & 1995 along with digital rights
management for MP-3 files that applied new water mark techniques.. He also
pioneered and developed magnetic I.D. cards for the automobile insurance
industry in 1992 and received a publisher’s honorable award in the “Insurance
Journal” for that year.
Joseph
Bennington, Age 48, Chief Financial Officer
Mr.
Bennington has been our Chief Financial Officer since October 2009. He is
responsible for managing all our accounts payable and receivable, overseeing our
payment protocol, evaluating the risk exposure, adequacy and effectiveness of
SOX internal controls related to our policies, operations, and financial
reporting, preparing customized audit programs, and supervising our internal
audits.
From
January 2006 until joining us, Mr. Bennington served as Director of
Finance of Aperture Health, Inc. a Medical Service Provider. Mr.
Bennington served as Chief Financial Officer of Future Estates Land
Holding, LLC. a Real Estate Construction and Property Management Company from
May 2003 to January 2006. Prior to that time, Mr. Bennington also
held Controllership positions at Triyar Companies, and J.H.Snyder
& Co.
Mr.
Bennington also worked at Price Waterhouse LLP (now PricewaterhouseCoopers LLP)
where he directed several audits of Fortune 500 to Entrepreneur
enterprises. Mr. Bennington received his Bachelor’s degree in Business
Administration, with a concentration in Accounting, from the University of
Southern California in 1984 and is a currently licensed as an active Certified
Public Accountant in the State of California.
28
EXECUTIVE
COMPENSATION
The
following summary compensation table sets forth all compensation awarded to,
earned by, or paid to the named executive officers paid by us during the periods
ended November 30, 2008 and 2007.
SUMMARY
COMPENSATION TABLE
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Non-Qualified
Deferred Compensation Earnings
($)
|
All
Other
Compensation
($)
|
Totals
($)
|
|||||||||||||||||||||||||
Frank
Jakubaitis
|
2008
|
70,000
|
0
|
0
|
0
|
0
|
0
|
0
|
70,000
|
|||||||||||||||||||||||||
(Chief
Executive Officer)
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||||
Jeff
Padilla
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||||
(Prior
Chief Financial Officer until October 2009)
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||||
Employment
Agreements
We have
entered into employment agreement with Messrs Frank Jakubaitis and Joseph
Bennington.
Employment
Agreement with Mr. Frank Jakubaitis
Pursuant
to our employment agreement with Mr. Jakubaitis, Mr. Jakubaitis agreed to serve
as our full-time Chief Executive Officer and Chairman commencing May 1, 2009. In
considered for his services, we agreed to pay Mr. Jakubaitis a base salary at
the rate of $166,800, payable in accordance with the regular payroll practices
of the Company. In addition, we shall pay or reimburse Mr. Jakubaitis for all
necessary and reasonable expenses incurred or paid by Mr. Jakubaitis in
connection with his performance of the services under the employment
agreement.
In the
event that Mr. Jakubaitis is prevented from performing his usual duties for a
period of three consecutive months, or for shorter periods aggregating more than
four months in any 12 month period by reason of physical or mental disability,
we shall nevertheless continue to pay full salary up to and including the last
day of the third consecutive month of disability, but we may at any time on or
after such date elect to terminate this employment agreement.
Employment
Agreement with Mr. Joseph Bennington
Pursuant
to our employment agreement with Mr. Joseph Bennington, Mr. Bennington agreed to
serve as our full-time Chief Financial Officer at an annual gross starting
salary of $83,000 to be paid on the 1st and
15th
day of each month. The employment may be terminated without reason at any time
without salary adjustments or severance payment.
In
connection with employment, Mr. Bennington entered into a Non-Disclosure
Agreement with respect to the disclosure of certain proprietary and confidential
information contained in our private placement memorandum, associated affiliate
documents and certain published proprietary business architecture and/or
models.
A copy of
the Employment Agreement with Mr. Joseph Bennington is attached hereto as
Exhibit 10.10.
The
following table provides the names and addresses of each person known to us to
own more than 5% of our outstanding shares of common stock as of October 21, 2009 and by the officers and
directors, individually and as a group. Except as otherwise indicated, all
shares are owned directly and the shareholders listed possesses sole voting and
investment power with respect to the shares shown.
29
Title
of Class
|
Name
and Address
of
Beneficial Owner
|
Amount
and Nature
of
Beneficial Owner
|
Percent
of Class (1)
|
Common
Stock
|
Frank
& Tara Jakubaitis
Tenants
in common with
Rights
of survivorship
Address:
3400
W MacArthur Blvd, Suite I
Santa
Ana, CA 92704
|
79,012,000
|
96.44%
|
On
October 9, 2009, Mr. Jeff Padilla resigned from his position as our Chief
Financial Officer, and we entered into an agreement with Mr. Joseph Bennington,
pursuant to which, we agreed to hire Mr. Bennington as our new Chief Financial
Officer, and pay him an annual salary in the amount of $83,000 in consideration
for his services to be rendered as our new Chief Financial Officer.
On May
13, 2009, we entered into an agreement with Mr. Jeff Padilla, our then Chief
Financial Officer, pursuant to which, we agreed to pay Mr. Padilla an annual
salary in the amount of $53,000 in consideration for his services to be rendered
as our Chief Financial Officer.
On May
1, 2009, we entered into an agreement with Mr. Jakubaitis, pursuant to which, we
agreed to pay Mr. Jakubaitis an annual salary in the amount of $166,800 during the
term of the employment, commencing May 1, 2009, in
consideration for his continued service to be rendered as our Chief
Executive Officer and Chairman.
In April
2009, we issued an aggregate of 1,092,000 shares of our common stock, valued at
$273,000 to Kazumi O. Devries, Carlos Padilla Jr., Julius Rizzotti, Walter J.
Skibicki, Sylvia Vasquez and Gene Kinum Trust as payment for the loan they
tendered to us in April 2009. Carlos Padilla Jr. is the father of
Carlos Padilla III. Carlos Padilla III is our employee but not an executive
officer or director. On March 5, 2008, we entered into a transaction
to purchase the 2001 PT Cruiser from Mr. Jakubaitis to be used as a company car
for outside sales executives for a sum of $5,500. The first payment in the
amount of $1,500 was paid on March 5, 2008, and the second payment in the amount
of $4,000 was paid on March 19, 2008.
On
November 30, 2007, we purchased a 25 station telephone system from Mr.
Jakubaitis for our principal executive offices in Santa Ana in consideration for
a sum $7,500 payable to Mr. Jakubaitis over a period of time.
On
November 24, 2007, we issued an aggregate of 79,000,000 shares of our common
stock to Mr. Jakubaitis, our CEO and Chairman in consideration for his
contribution consisting of (a) creating the business concept of WECOSIGN™, (b)
services in connection with incorporating the company; (c) transference of all
his right, title and interest in the website www.wecosign.com; (d)
services in connection with the application of the trademark WECOSIGN; and (e)
services of assuming the position of our Chief Executive Officer(f) services of
authoring all of the printed matter for the firms operation along with
developing the necessary credit examination system.
Item
12A. Disclosure of Commission Position on Indemnification of Securities Act
Liabilities
Our
directors and officers are indemnified as provided by the California corporate
law and our Bylaws. We have agreed to indemnify each of our directors and
certain officers against certain liabilities, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the provisions described above, or otherwise, 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. In
the event that a claim for indemnification against such liabilities (other than
our payment of expenses incurred or paid by our director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
We have
been advised that in the opinion of the SEC indemnification for liabilities
arising under the Securities Act is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities is asserted by one of our directors,
officers, or controlling persons in connection with the securities being
registered, we will, unless in the opinion of our legal counsel the matter has
been settled by controlling precedent, submit the question of whether such
indemnification is against public policy to a court of appropriate jurisdiction.
We will then be governed by the court’s decision.
30
WECOSIGN™
FINANCIAL
STATEMENTS AS OF NOVEMBER 30, 2008 AND 2007
AND
AUGUST
31, 2009
INDEX
TO FINANCIAL STATEMENTS
FINANCIAL
STATEMENTS
|
||
PAGE
|
F-2
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
PAGE
|
F-3
|
BALANCE
SHEETS AS OF AUGUST 31, 2009 (UNAUDITED), NOVEMBER 30, 2008 AND
2007
|
PAGE
|
F-4
|
STATEMENTS
OF OPERATIONS FOR THE NINE-MONTH PERIODS ENDED AUGUST 31, 2009 AND 2008
(UNAUDITED), THE YEAR ENDED NOVEMBER 30, 2008 AND THE PERIOD FROM NOVEMBER
24, 2007 (INCEPTION) TO NOVEMBER 30, 2007
|
PAGE
|
F-5
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE NINE-MONTH PERIODS ENDED
AUGUST 31, 2009 (UNAUDITED), THE YEAR ENDED NOVEMBER 30, 2008 AND THE
PERIOD FROM NOVEMBER 24, 2007 (INCEPTION) TO NOVEMBER 30,
2007
|
PAGE
|
F-6
|
STATEMENTS
OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED AUGUST 31, 2009 AND 2008
(UNAUDITED), THE YEAR ENDED NOVEMBER 30, 2008 AND THE PERIOD FROM NOVEMBER
24, 2007 (INCEPTION) TO NOVEMBER 30, 2007
|
PAGE
|
F-7
|
NOTES
TO FINANCIAL STATEMENTS
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and
Stockholders
of WeCoSign Inc.
We have
audited the accompanying balance sheets of WeCoSign, Inc. (the “Company”), as of
November 30, 2008 and 2007, and the related statements of operations,
stockholders’ deficit, and cash flows for the year ended November 30, 2008 and
the period from November 24, 2007 (Inception) to November 30, 2007. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company was not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of WeCoSign, Inc. as of November 30,
2008 and 2007, and the results of its operations and its cash flows for the year
ended November 30, 2008 and for the period from November 24, 2007 (Inception) to
November 30, 2007, in conformity with accounting principles generally accepted
in the United States of America.
/s/
dbbmckennon
Newport
Beach, California
|
|
July
13, 2009
|
F-2
WECOSIGN™
BALANCE
SHEETS
|
||||||||||
AS
OF AUGUST 31, 2009, NOVEMBER 30, 2008 AND 2007
|
||||||||||
As
of
|
As
of
|
As
of
|
||||||||
August
31,
|
November
30,
|
November
30,
|
||||||||
2009
|
2008
|
2007
|
||||||||
(unaudited)
|
||||||||||
ASSETS
|
||||||||||
CURRENT
ASSETS:
|
||||||||||
Cash
|
$
|
195,123
|
$
|
6,180
|
$
|
-
|
||||
Prepaids
and other current assets
|
5,400
|
1,000
|
-
|
|||||||
Accounts
receivable
|
125,596
|
-
|
-
|
|||||||
Total
Current Assets
|
326,119
|
7,180
|
||||||||
Property
and equipment, net of accumulated amortization
|
27,146
|
7,807
|
-
|
|||||||
Other
assets
|
2,396
|
2,396
|
-
|
|||||||
TOTAL
ASSETS
|
$
|
355,661
|
$
|
17,383
|
$
|
-
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY(DEFICIT)
|
||||||||||
CURRENT
LIABILITIES:
|
||||||||||
Accounts
payable
|
$
|
3,892
|
$
|
16,010
|
$
|
1,250
|
||||
Accrued
liabilities
|
13,696
|
6,522
|
-
|
|||||||
Advances
due to related party
|
1,200
|
20,302
|
-
|
|||||||
Guarantee
liability (Note 1,5)
|
175,289
|
4,364
|
||||||||
Total
Current Liabilities
|
194,077
|
47,198
|
1,250
|
|||||||
LONG
TERM LIABILITIES:
|
||||||||||
Convertible
notes payable
|
-
|
20,000
|
-
|
|||||||
Total
Liabilities
|
194,077
|
67,198
|
1,250
|
|||||||
STOCKHOLDERS'
EQUITY (DEFICIT):
|
||||||||||
Preferred
Stock; $0.001 Par Value; 25,000,000 shares authorized;
|
||||||||||
no
shares issued and outstanding
|
-
|
-
|
-
|
|||||||
Common
Stock; $0.001 Par Value; 100,000,000 shares authorized;
|
||||||||||
81,932,600,
79,276,000 and 79,000,000 shares issued and outstanding
|
||||||||||
at
August 31, 2009, November 30, 2008 and 2007, respectively
|
81,933
|
79,276
|
79,000
|
|||||||
Additional
paid-in capital
|
816,682
|
131,724
|
-
|
|||||||
Accumulated
deficit
|
(737,031
|
)
|
(260,815
|
)
|
(80,250
|
|||||
Total
Stockholders' Equity (Deficit)
|
161,584
|
(49,815
|
)
|
(1,250
|
||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$
|
355,661
|
$
|
17,383
|
$
|
-
|
See notes
to accompanying financial statements
F-3
WECOSIGN™
STATEMENTS
OF OPERATIONS
|
FOR
THE NINE-MONTH PERIODS ENDED AUGUST 31, 2009 AND 2008, FOR THE YEAR
ENDED
NOVEMBER
30, 2008 AND FOR THE PERIOD FROM NOVEMBER 24, 2007
(INCEPTION)
THROUGH
NOVEMBER 30, 2007
|
For
the Nine
|
For
the Nine
|
For
the Year
|
From
Inception
|
|||||||||||||
Months
Ended
|
Months
Ended
|
Ended
|
Through
|
|||||||||||||
August
31,
|
August
31,
|
November
30,
|
November
30,
|
|||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
REVENUE
|
$
|
85,983
|
$
|
-
|
$
|
3,538
|
$
|
-
|
||||||||
Cost
of Revenue - (Note 1 & 5)
|
73,503
|
4,271
|
16,181
|
|||||||||||||
Gross
Profit (Loss)
|
12,480
|
(4,271
|
)
|
(12,643
|
)
|
|||||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
General
and administrative
|
432,945
|
42,641
|
146,282
|
1,250
|
||||||||||||
Sales
and marketing
|
51,978
|
7,593
|
21,941
|
-
|
||||||||||||
-
|
-
|
|||||||||||||||
TOTAL
OPERATING EXPENSES
|
484,923
|
50,234
|
168,223
|
1,250
|
||||||||||||
LOSS
FROM OPERATIONS
|
(472,443
|
)
|
(54,505
|
)
|
(180,866
|
)
|
(1,250
|
)
|
||||||||
OTHER
INCOME AND EXPENSE:
|
||||||||||||||||
Other
income
|
1,180
|
100
|
495
|
-
|
||||||||||||
Interest
expense
|
(4,953
|
)
|
-
|
(194
|
)
|
-
|
||||||||||
TOTAL
OTHER INCOME (EXPENSES)
|
(3,773
|
)
|
100
|
301
|
-
|
|||||||||||
NET
LOSS
|
$
|
(476,216
|
)
|
$
|
(54,405
|
)
|
$
|
(180,565
|
)
|
$
|
(1,250
|
)
|
||||
NET
LOSS PER COMMON SHARE - BASIC AND DILUTIVE
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
||||
Weighted
Average Number of Shares
|
80,679,067
|
79,177,333
|
79,186,126
|
79,000,000
|
See notes
to accompanying financial statements
F-4
WECOSIGN™
STATEMENT
STOCKHOLDERS' EQUITY (DEFICIT)
|
FOR
THE PERIOD FROM NOVEMBER 24, 2007 (INCEPTION) THROUGH NOVEMBER 31,
2007,
THE
YEAR ENDED NOVEMBER 31, 2008 AND THE NINE-MONTH PERIOD ENDED AUGUST 31,
2009
|
STOCKHOLDERS'
|
||||||||||||||||||||
COMMON
STOCK
|
ADDITIONAL
|
ACCUMULATED
|
EQUITY
|
|||||||||||||||||
SHARES
|
AMOUNT
|
PAID-IN-CAPITAL
|
DEFICIT
|
(DEFICIT)
|
||||||||||||||||
Balance
at November 24, 2007 (Inception)
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||||
Issuance
of founder shares
|
79,000,000
|
79,000
|
-
|
(79,000
|
)
|
-
|
||||||||||||||
Net
loss
|
-
|
-
|
-
|
(1,250
|
)
|
(1,250
|
)
|
|||||||||||||
Balance
at November 30, 2007
|
79,000,000
|
79,000
|
-
|
(80,250
|
)
|
(1,250
|
)
|
|||||||||||||
Fair
value of services contributed
|
-
|
-
|
66,300
|
-
|
66,300
|
|||||||||||||||
Common
stock issued for cash
|
276,000
|
276
|
65,424
|
-
|
65,700
|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
(180,565
|
)
|
(180,565
|
)
|
|||||||||||||
Balance
at November 30, 2008
|
79,276,000
|
79,276
|
131,724
|
(260,815
|
)
|
(49,815
|
)
|
|||||||||||||
Fair
value of services contributed
|
-
|
-
|
40,000
|
-
|
40,000
|
|||||||||||||||
Common
stock issued for cash
|
1,464,600
|
1,465
|
348,150
|
-
|
349,615
|
|||||||||||||||
Common
stock issued for conversion of convertible notes payable
|
1,092,000
|
1,092
|
271,908
|
-
|
273,000
|
|||||||||||||||
Common
stock issued for services
|
100,000
|
100
|
24,900
|
-
|
25,000
|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
(476,216
|
)
|
(476,216
|
)
|
|||||||||||||
Balance
at August 31, 2009 (unaudited)
|
81,932,600
|
$
|
81,933
|
$
|
816,682
|
$
|
(737,031
|
)
|
$
|
161,584
|
See notes
to accompanying financial statements
F-5
WECOSIGN™
STATEMENTS
OF CASH FLOWS
|
FOR
THE NINE-MONTH PERIODS ENDED AUGUST 31, 2009 AND 2008, FOR THE YEAR
ENDED
NOVEMBER
30, 2008 AND FOR THE PERIOD FROM NOVEMBER 24, 2007
(INCEPTION)
THROUGH
NOVEMBER 30, 2007
|
For
the Nine
|
For
the Nine
|
For
the Year
|
From
Inception
|
|||||||||||||
Months
Ended
|
Months
Ended
|
Ended
|
Through
|
|||||||||||||
August
31,
|
August
31,
|
November
30,
|
November
30,
|
|||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Cash
flows from operating activities
|
||||||||||||||||
Net
loss
|
$
|
(476,216
|
)
|
$
|
(54,405
|
)
|
$
|
(180,565
|
)
|
$
|
(1,250
|
)
|
||||
Adjustments
to reconcile net loss to net cash
|
||||||||||||||||
used
by operating activities:
|
||||||||||||||||
Accounts
receivable
|
(125,596
|
)
|
||||||||||||||
Depreciation
and amortization
|
5,852
|
853
|
1,364
|
-
|
||||||||||||
Fair
value of services contributed
|
40,000
|
10,000
|
66,300
|
-
|
||||||||||||
Fair
value of common stock issued for services
|
25,000
|
-
|
-
|
-
|
||||||||||||
Prepaids
and other current assets
|
(4,400)
|
(2,156)
|
(1,000
|
)
|
-
|
|||||||||||
Accounts
payable
|
(12,118
|
)
|
2,766
|
14,760
|
1,250
|
|||||||||||
Accrued
liabilities
|
7,174
|
-
|
7,314
|
-
|
||||||||||||
Guarantee
liability
|
170,925
|
3,572
|
||||||||||||||
Advances
due to related party
|
(19,102
|
)
|
(8,240)
|
20,302
|
-
|
|||||||||||
Net
cash used in operating activities
|
(388,481
|
)
|
(51,182
|
)
|
(67,953
|
)
|
-
|
|||||||||
Cash
flows from investing activities:
|
||||||||||||||||
Purchases
of property and equipment
|
(25,191
|
)
|
(6,193
|
)
|
(9,171
|
)
|
-
|
|||||||||
Other
assets
|
-
|
-
|
(2,396
|
)
|
-
|
|||||||||||
Net
cash used in investing activities
|
(25,191
|
)
|
(6,193
|
)
|
(11,567
|
)
|
-
|
|||||||||
Cash
flows from financing activities:
|
||||||||||||||||
Proceeds
from issuance of convertible notes payable
|
253,000
|
-
|
20,000
|
-
|
||||||||||||
Net
proceeds from issuance of common stock
|
349,615
|
58,700
|
65,700
|
-
|
||||||||||||
Net
cash provided by financing activities
|
602,615
|
58,700
|
85,700
|
-
|
||||||||||||
Net
increase in cash and equivalents
|
188,943
|
1,325
|
6,180
|
-
|
||||||||||||
Cash
and equivalents, beginning of period
|
6,180
|
-
|
-
|
-
|
||||||||||||
Cash
and equivalents, end of period
|
$
|
195,123
|
$
|
1,325
|
$
|
6,180
|
$
|
-
|
||||||||
Supplemental
disclosures of cash flow information:
|
||||||||||||||||
Cash
paid during the year for:
|
||||||||||||||||
Interest
expense
|
$
|
4,953
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Income
tax
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Non-cash
investing and financing activities:
|
||||||||||||||||
Issuance
of founders' shares for non-cash consideration
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
79,000
|
||||||||
Common
stock issued for convertible notes payable
|
$
|
293,000
|
$
|
-
|
$
|
-
|
$
|
-
|
See notes
to accompanying financial statements
F-6
WECOSIGN™
NOTES
TO FINANCIAL STATEMENTS
Note
1 – Organization, History and Significant Accounting Policies and
Procedures
Organization
and History
WeCoSign,
Inc. (the “Company,” “we” or “us”) incorporated on November 24, 2007 in the
state of California. The Company’s sole business purpose is to charge a monthly
service fee to applicants of rental properties in exchange for cosigning on
their apartment or rental home lease agreements. This service guarantees the
rent to the landlord each month. The service provided by the Company reduces
vacancy and risk for landlords, while helping tenants with poor credit scores
live in their desired apartment or rental house. The Company is based in Costa
Mesa, California where their proprietary underwriting techniques evaluate the
potential risk of an applicant by looking beyond typical screening methods like
FICO credit scores. Approved applicants are responsible for paying rent to their
landlord, and paying an additional monthly service fee to the Company based on a
percentage of their rent. By allowing the Company’s approved tenants to live in
their properties, landlords are guaranteed to receive the rent even if that
tenant defaults on their lease agreement. After one year, the landlord
re-evaluates the tenant's payment history to determine if a co-signer is still
required on the lease, and if the tenant is determined to be in good standing
then the Company’s monthly service fee is no longer applied. If the tenant is
marginal, the Company will stay on the lease for an increased monthly fee. This
condition alone is incentive for the tenant to make his payments timely. The
Company has presently signed 19 major apartment management firms across the
country representing almost 1 million individual apartment complexes across the
country.
Fiscal
Year
Management
has selected November 30 as its fiscal year end.
Basis
of Presentation
During
the year ended November 30, 2008, the Company exited the development-stage as it
has generated revenues from its intended operations.
The
accompanying unaudited interim financial statements for the nine-month periods
ended August 31, 2009 and 2008 have been prepared by the Company pursuant to the
rules and regulations of the United States Securities and Exchange Commission.
Certain information and disclosures normally included in the annual financial
statements prepared in accordance with the accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to such rules and regulations. In the opinion of management, all adjustments and
disclosures necessary for a fair presentation of these financial statements have
been included. Such adjustments consist of normal recurring adjustments. These
interim financials statements should be read in conjunction with the audited
financial statements of the Company for the year ended November 30,
2008.
The
results of operations for the nine-month period ended August 31, 2009, are not
necessarily indicative of the results that may be expected for the full
year.
Managements’
Plans
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As shown in the accompanying financial
statements, the Company during the period has incurred operating losses and used
cash from operations. From December 1, 2008 through August 31, 2009, the
Company funded losses from proceeds from an equity offering, with additional
capital raised in June and July 2009 totaling $56,500. The future of the
Company is dependent upon its ability to achieve profitable operations and cash
flows. In the event the Company is unable to achieve profitable operations
in the near term, it may require additional equity and/or debt financing, or
reduce expenses, including officer’s compensation, to reduce such losses. Based
on the management’s estimates of cash flows through November 30, 2009, they
believe the Company will continue as a going concern.
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles 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 financial statements and
the reported amounts of revenue and expenses during the reporting
period.
F-7
WECOSIGN™
NOTES
TO FINANCIAL STATEMENTS
Contributed
Services
The
Company records the estimated fair value of contributed services by a
shareholder in accordance with SEC Staff Accounting Bulletin No. 79 (“SAB 79”).
Under SAB 79, if a principal stockholder's intention is to enhance or maintain
the value of his investment by entering into such an arrangement, the
corporation is implicitly benefiting from the plan by retention of, and possibly
improved performance by, the employee. In this case, the benefits to a principal
stockholder and to the corporation are generally impossible to separate.
Similarly, it is virtually impossible to separate a principal stockholder's
personal satisfaction from the benefit to the corporation." As a result, the
Company records these transactions to operations with an offset to additional
paid-in capital.
Fair
Value of Financial Instruments
The
Company adopted SFAS 157, except as it applies to the nonfinancial assets and
nonfinancial liabilities subject to FSP SFAS 157-2. SFAS 157 clarifies that fair
value is an exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or a liability.
Fair-value
estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of August 31, 2009, November
30, 2008 and 2007. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair values. These
financial instruments include cash, prepaids, accounts payable, accrued
liabilities and convertible notes payable. Fair values were assumed to
approximate carrying values for these items because they are short term in
nature and their carrying amounts approximate fair values or they are payable on
demand.
Concentrations
of Credit Risk - Cash
The
Company maintains its cash accounts in a commercial bank. The total cash
balances held in a commercial bank are secured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $250,000 until December 31, 2009. At
times, the Company could potentially have cash deposits in excess of federally
and institutional insured limits.
Cash
Equivalents
For the
purpose of the accompanying financial statements, all highly-liquid investments
with an original maturity of three (3) months or less are considered to be cash
equivalents.
Guarantees
The
Company provides guarantees of monthly rental payments to landlords on behalf of
their tenants. The Company’s exposure to credit loss, in the event of
nonperformance by the tenant, is represented by the amounts stipulated in the
rental contract, which have fixed expiration dates that mirror the tenant’s
lease term ranging from nine months to one year. Commitments made
by the Company to guarantee lease agreements are first approved through an
underwriting process to mitigate the risk of nonpayment by a tenant. Since many
of the guarantees are expected to expire without being drawn upon, the total
guarantee amounts do not necessarily represent future cash requirements. The
Company evaluates each customer’s credit and payment worthiness on a
case-by-case basis. The landlord does not pay the Company a fee for
the guarantee. Fees paid by tenants to the Company consist of an up-front $100
application fee and a recurring monthly fee over the guarantee period which is
based on 10% of the monthly lease cost to the tenant. Application
fees paid are fully refunded by the Company in the event an application is
denied.
Tenants
are required to provide the Company authorization to charge their credit card or
bank account through an ACH debit on the first of each month. In the event
tenant stops payment or has non-sufficient funds in their account, the Company
remains obligated under the guarantee with the landlord. To date, such payment
deficiencies were not material. In the event of a default by a tenant, the
landlord is required to file an eviction notice to trigger the guarantee. The
landlord must also take all necessary actions to mitigate the Company’s damages
and seek a judgment against the tenant. The Company obtains full recourse for
its damages against the tenant under its assigned judgment agreement with the
landlord. Recourse amounts include rental payments, processing fees and the
Company’s legal fees incurred to obtain reimbursement.
Under
generally accepted accounting principles, management is required to estimate the
fair value of the liability for a guarantee provided a landlord at the inception
of the contract. Upon inception of the contract, management records the full
amount of the contractual fee in accounts receivable, with a corresponding
increase to the guarantee liability. This initial liability is considered the
Company’s stand-ready obligation. When an account defaults, management
records an additional estimate for its contingent loss, with the excess expected
loss recorded as a charge to expense. Some of the factors to determine the
contingent liability include the estimated default rate, average re-lease terms
of rental units, average monthly rents, settlement rates, and to a lesser extent
recovery rates from tenants. To date, losses and related reimbursements have
been minimal. Management will continuously monitor its assumptions as more
historical data are collected by them. See Note 5 for further discussion on SFAS
5. Any re-measurement of the guaranty liability will recorded as an operating
expense. In the event the Company has a gain, the re-measurement would be
recorded as other income. Also, see revenue recognition footnote
below.
Website
Development Costs
Under
Emerging Issues TaskForce Statement 00-2, Accounting for Web Site Development
Costs (“EITF 00-2”), costs and expenses incurred during the planning and
operating stages of the Company’s web site are expensed as incurred. Under EITF
00-2, costs incurred in the web site application and infrastructure development
stages are capitalized by the Company and amortized to expense over the web
site’s estimated useful life or period of benefit.
F-8
WECOSIGN™
NOTES
TO FINANCIAL STATEMENTS
Impairment
of Long-Lived and Purchased Intangible Assets
The
Company has adopted Statement of Financial Accounting Standards (“SFAS”) No. 144
(“SFAS 144”). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should impairment in value be indicated, the
carrying value of the assets will be adjusted, based on estimates of future
discounted cash flows resulting from the use and ultimate disposition of the
asset. SFAS 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to
sell.
Revenue
Recognition
The
Company generates revenue through subscriptions and recognizes revenue in
accordance with Staff Accounting Bulletin No. 104, Revenue Recognition
(“SAB104”), which superseded Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (“SAB101”). SAB 101 requires that
four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectability is reasonably
assured. Determination of criteria (3) and (4) are based are based on
management's judgments regarding the fixed nature of the selling prices of the
guarantees provided and the collectability of those
amounts. Application fees received from customers during the
underwriting process are fully refundable if the application is denied; such
fees are included in the guarantee liability. Also upon closing, the Company
records a receivable for the required payments due under the contract with a
corresponding increase in the guarantee liability, which represents our
stand-ready obligation. Revenues are recorded when the
four conditions are met, which is based on the period the guarantee lapses. When
a tenant ceases to pay its monthly fees, revenue recognition is ceased and
provision for loss is recorded. When an actual loss is expected to exceed the
remaining amount recorded upon the initial stand ready obligation, an additional
liability estimate is made and is charged to
expense.
Provisions
for discounts are not granted; however, if provided for in the future, the
adjustment would reduce amounts due and the initial stand-ready guarantee
liability. To date, no discounts have been granted.
Fees
Paid to Affiliates
As of
December 30, 2008, the Company began paying a $30 finder’s fee to Affiliates for
each approved application they refer to the Company. In addition, the
Company pays the Affiliate 10% of each established monthly fee that is received
from the tenant. Fees paid to Affiliates amounted to approximately
$800 during the nine months ended August 31, 2009 and were expensed as Cost of
Revenue since they were deemed insignificant. However, prospectively
such costs will be capitalized and amortized over a period which is expected to
be consistent with the related tenant revenue earned.
Advertising
Costs
The
Company expenses all costs of advertising as incurred. The Company
expensed $15,155, $1,005 and $7,636 of advertising costs during the nine-month
periods ended August 31, 2009 and 2008 and the year ended November 30, 2008,
respectively.
Stock-Based
Compensation
The
Company follows SFAS No. 123(R), "Share Based Payment," which establishes
standards for the accounting of all transactions in which an entity exchanges
its equity instruments for goods or services, including transactions with
non-employees and employees. SFAS No. 123(R) requires an entity to measure the
cost of non-employee and employee services received in exchange for an award of
equity instruments, including stock options, based on the grant date fair value
of the award, and to recognize it as compensation expense over the period
service is provided in exchange for the award, usually the vesting period. The
value of the portion of the award that is ultimately expected to vest is
recognized as expense over the requisite service periods in the Company's
statement of operations.
The
Company's accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of Emerging
Issues Task Force (“EITF”) 96-18, “Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services”. The measurement date for the fair value of the equity
instruments issued is determined at the earlier of (i) the date at which a
commitment for performance by the consultant or vendor is reached or (ii) the
date at which the consultant or vendor's performance is complete. In the
case of equity instruments issued to consultants, the fair value of the equity
instrument is recognized over the term of the service period.
F-9
WECOSIGN™
NOTES
TO FINANCIAL STATEMENTS
Income
Taxes
The
Company follows SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”) for
recording the provision for income taxes. Deferred tax assets and
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are
based on the changes in the asset or liability each period. If
available evidence suggests that it is more likely than not that some portion or
all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of
change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.
Upon
incorporation, the Company adopted FASB Interpretation No. 48 (FIN 48),
“Accounting for Uncertainty in Income Taxes,” which prescribes a comprehensive
model for the financial statement recognition, measurement, classification and
disclosure of uncertain tax positions. The adoption and continued application
did not have an impact on the Company’s financial statements.
Loss
Per Share
Basic
earnings per share are calculated by dividing income or loss available to common
stockholders by the weighted-average number of common shares outstanding.
Diluted earnings per share are calculated by adjusting the weighted-average
number of common shares outstanding to reflect the effect of potentially
dilutive securities including convertible debt. In addition, adjustments are
made to income available to common stockholders in these computations to reflect
any changes in income or loss that would result from the issuance of the
dilutive common shares. For the year ended November 30, 2008, the Company
excluded 80,000 shares which relate to the conversion of convertible notes
payable from the calculation of diluted net loss per share because the effect
would have been anti-dilutive.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141(R)”), which replaces FAS 141. SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141(R) is to be applied prospectively to business
combinations.
F-10
WECOSIGN™
NOTES
TO FINANCIAL STATEMENTS
In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SECs approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of SFAS 162 is not expected to have
a material impact on the Company’s financial position.
In May
2009, the FASB issued SFAS 165, “Subsequent Events”, (“SFAS 165”), which
establishes general standards for accounting for and disclosure of events that
occur after the balance sheet date but before financial statement are issued or
available to be issued. In particular, SFAS 165 sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements; the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements’ and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. It is
effective for interim and annual periods ending after June 15, 2009. The Company
adopted SFAS 165 during the three months ended August 31, 2009. The Company
evaluated subsequent events through the issuance date of the financial
statements, November 6, 2009, noting no additional disclosures.
On
July 1, 2009, FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles”, also known as FASB
Accounting Standards Codification (“ASC”) 105, “Generally Accepted Accounting
Principles” (“ASC 105”) (the Codification”). ASC 105 establishes the exclusive
authoritative reference for U.S. GAAP for use in financial statements, except
for SEC rules and interpretive releases, which are also authoritative GAAP for
SEC registrants. The Codification will supersede all existing non-SEC accounting
and reporting standards. Management is currently working on its transition to
incorporate this codification within its financial statements and
footnotes.
In
April 2008, the FASB issued Staff Position No. FAS 142-3, Determination of the Useful Life of
Intangible Assets ("FSP 142-3"). FSP 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and
Other Intangible Assets . The intent of FSP 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141(R) and other applicable accounting
literature. FSP 142-3 is effective for fiscal years beginning after
December 15, 2008. The Company does not expect the adoption of
FSP 142-3 will have a material impact on its results of operations and
financial position.
Note 2 – Property and
Equipment
Property
and equipment are recorded at cost and depreciation is provided over the
estimated useful lives of the related assets using the straight-line method for
financial statement purposes. The estimated lives of property and equipment are
as follows:
Vehicle
|
three
years
|
Equipment
|
five
years
|
Furniture
and fixtures
|
ten
years
|
Website
|
three
years
|
Property
and equipment as of August 31, 2009 and November 30, 2008 consisted of the
following:
August
31,
|
November
30,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
Vehicle
|
$
|
5,000
|
$
|
5,000
|
||||
Office
equipment
|
22,032
|
-
|
||||||
Furniture
and fixtures
|
3,209
|
1,172
|
||||||
Website
|
4,121
|
2,998
|
||||||
Total
property and equipment
|
34,362
|
9,170
|
||||||
Accumulated
depreciation
|
(7,216
|
)
|
(1,363
|
)
|
||||
Net
property and equipment
|
$
|
27,146
|
$
|
7,807
|
The cost
of maintenance and repairs is charged to expense as incurred. When
depreciable property is retired or otherwise disposed of, the related cost and
accumulated depreciation and amortization are removed from the accounts and any
gain or loss is reflected in the statement of operations.
F-11
WECOSIGN™
NOTES
TO FINANCIAL STATEMENTS
Management
assesses the recoverability of property and equipment by determining whether the
depreciation and amortization of property and equipment over its remaining life
can be recovered through projected undiscounted future cash
flows. The amount of property and equipment impairment if any, is
measured based on fair value and is charged to operations in the period that
such impairment is determined by management. As of August 31, 2009
and November 30, 2008, management believes that there is no impairment of
property and equipment.
Note
3 – Accrued Liabilities
Accrued
Liabilities as of August 31, 2009 and November 30, 2008 consisted of the
following:
August
31,
|
November
30,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
Accrued
Salaries
|
800
|
1,665
|
||||||
Interest
Payable
|
2,610
|
194
|
||||||
Payroll
Liabilities
|
10,286
|
4,663
|
||||||
Total
Accrued Liabilities
|
$
|
13,696
|
$
|
6,522
|
Note
4 – Convertible Notes Payable
During
the year ended November 30, 2008, the Company entered into convertible notes
payable agreements (the “Notes”) with two individuals for proceeds totaling
$20,000. The Notes were due one year from issuance and incurred
interest at a rate of 10% per annum. In addition, the holder had the option to
convert into common stock at a rate of $0.25 per share until redemption. At the
time of issuance, the Company determined there was no beneficial conversion
feature as the conversion price was the same as the price in which the Company
was selling its common stock under a private placement.
See Note
8 for additional proceeds received from the issuance of additional Notes and the
conversion of the notes into common stock.
Note
5 – Commitments and Contingencies
Operating
Lease
In May
2008, the Company entered into a lease agreement for office space to serve as
its corporate office inSanta Ana, California. The lease term was for a period of
12 months commencing on June 1, 2008, at a rental rate of approximately $1,200
per month. The lease agreement required a security deposit of
$1,200.
Guarantee
The
Guarantee Liability account is made up of stand-ready obligations, guarantee
liability for defaults, unearned registration fees, and unearned tenant’s
prepaid fees.
Stand-ready
obligations - As discussed in Note 1, management records the tenant’s full
contract fees owed to us as accounts receivable, with a corresponding increase
to the stand-ready obligation included as a guarantee
liability. The Company records this liability based
on the estimated fair value of the tenant’s contracted fee to
us. Such amounts were not significant at November 30, 2008 since the
Company had recently commenced business with five customers. At August 31, 2009,
we had 128 customers.
Defaults
- Factors and assumptions used to estimate the fair value of the Company’s
default liabilities through August 31, 2009, were based on limited history.
Management believes most defaults will result in payments from two (2) to three
(3) months of rental payments in the event the landlord files necessary eviction
notice. Per Statement of Financial Standards (“SFAS”) 5 a contingent
liability is recorded when the loss is probable (the confirming event is likely
to occur) and the amount of loss can be at least reasonably
estimated. As of August 31, 2009, the Company has expensed the actual
default losses of $6,165 and booked an additional accrual of $18,223 to
reasonably estimate future probable default losses. As of August 31,
2009, this estimated future default liability of $18,223, computes our
liability based on two to three month exposure at an estimated 8% default
rate. As of November 30, 2008, if every tenant under our program defaulted
for their entire 12 month lease agreement period, in aggregate, the total
financial exposure would be approximately $67,000. However, the actual default
pay out for this period was zero. As of August 31, 2009, if every tenant
under our program defaulted for their remaining lease agreement period, in
aggregate, the total financial exposure would be approximately $1,048,000 . In
subsequent periods, management will evaluate the actual default losses as a
percentage of the total financial exposure in order to reasonably estimate
future default liabilities.
Unearned
registration (application) fees and unearned tenants prepaid (contract) fees are
amortized over the life of rental agreement. At month end, a cutoff
analysis is prepared and we amortize the above unearned fees using the
individual useful life discussed above.
Guarantee
Liabilities as of August 31, 2009 and November 30, 2008 consisted of the
following:
August
31,
|
November
30,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
Unpaid
tenant revenue / stand-ready obligations
|
$
|
125,597
|
$
|
-
|
||||
Guarantee
liability for defaults
|
18,223
|
1,272
|
||||||
Unearned
registration fees
|
11,909
|
2,300
|
||||||
Unearned
tenant’s prepaid fees
|
19,560
|
792
|
||||||
Total
Guarantee Liabilities
|
$
|
175,289
|
$
|
4,364
|
F-12
WECOSIGN™
NOTES
TO FINANCIAL STATEMENTS
Note
6 – Stockholders' Equity (Deficit)
Authorized
Shares
The
Company is authorized to issue 100,000,000 shares of $0.001 par value common
stock and 25,000,000 shares of $0.001 par value preferred stock.
Founder
Shares
On
November 24, 2007, the Company issued 79,000,000 shares of common stock to the
founder of the Company. In connection with this issuance, the founder
contributed the rights to trademark applications and the website domain. The
common stock was recorded at its par value with the corresponding offset
recorded to retained earnings as the founder did not have a material basis in
the assets contributed.
Private
Placement
During
the year ended November 30, 2008, the Company issued 276,000 shares of common
stock to 23 non-accredited investors as part of a private placement of the
Company’s common stock at a price of $0.25 per share for total gross proceeds of
$69,000. In connection with the private placement, the Company incurred
placement costs of $3,300, which were offset against the proceeds. Included
within the private placement, were proceeds received of $25,000 resulting in
issuance of 100,000 shares to the former Chief Financial Officer, Jeff Padilla.
The investment was made prior to the commencement of this officer’s employment.
See Note 8 for subsequent issuances under the private placement.
Contributed
Services
Effective
May 1, 2008, the Company’s Chairman and Chief Executive Officer was providing
services to the Company on a full-time basis. The Company determined that the
fair value of these services was approximately $10,000 per month. The Chief
Executive Officer elected to contribute his salaries to the Company, and thus,
they are accounted for as a contribution within additional paid-in capital.
During the nine-month period ended August 31, 2009 and the year ended November
30, 2008, the fair value of contributed services were $40,000 and $66,300, which
were net of amounts paid to the Chief Executive Officer.
Note
7 – Provision for Income Taxes
As of
November 30, 2008, the Company’s deferred tax asset consists of tax effected net
operating loss carry forwards of $41,402 and accrued liabilities of $1,846, of
which a valuation allowance has been placed upon 100%. During the year ended
November 30, 2008, the Company’s valuation allowance increased by $43,248. As of
November 30, 2008, the Company’s net operating loss carry forwards begin to
expire in 2027 for federal purposes and 2012 for state purposes. During the year
ended the reconciliation of the estimated federal statutory rate of 34% to the
reconciliation for the provision for income taxes was primarily due to a full
valuation the deferred tax assets, and thus, a table has not been
provided.
F-13
WECOSIGN™
NOTES
TO FINANCIAL STATEMENTS
Note
8 – Related Party Transactions
During
the year ended November 30, 2008, the Company purchased a vehicle from the
Company’s Chief Executive Officer for $5,000 which represented its fair market
time at the time of purchase, which was similar to the Chief Executive Officers
basis.
From time
to time, the Chief Executive Officer paid expenses on behalf of the Company. The
advances are due on demand and do not bear interest. As of August 31, 2009 and
November 30, 2008, amounts due to the Chief Executive Officer were $1,200 and
$20,302, respectively.
From time
to time, the Company receives services related to general bookkeeping, payroll,
corporate secretary, and professional organizing from a company owned by the
spouse of the Chief Executive Officer. Total amounts paid during the nine month
periods August 31, 2009 and 2008, and the year ended November 30, 2008,
totaled $0, $4,089 and $1,346.
See Note
5 for additional related party item.
Note
9 – Subsequent Events
Related
Party Transactions
Subsequent
to year end and during the nine-month period ended August 31, 2009, the Company
purchased a phone and computer system from the Chief Executive Officer for
$11,595, which represented its fair market time at the time of purchase, which
was similar to the Chief Executive Officers basis.
Convertible
Debentures
During
the nine-month period ended August 31, 2009, the Company entered into Notes with
six individuals for proceeds totaling $253,000. The Notes had the
same terms as discussed in Note 3. In April 2009, the holders of the Notes
converted the principal balance of $273,000 into 1,092,000 shares of common
stock based on the terms of the Notes.
Common
Stock Issued For Cash
From
December 2008 to June 2009, the Company issued 1,436,000 shares of common stock
to non-accredited investors as part of a private placement at a price of $0.25
per share for total gross proceeds of $359,000. In connection with these
issuances, the Company incurred cash placement costs of $10,585 and issued
28,600 shares of common stock, which were offset against the proceeds. Included
within the private placement, were proceeds received of $20,000 resulting in
issuance of 80,000 shares to the former Chief Financial Officer. The investment
was made prior to the commencement of the former officer’s
employment.
Common
Stock Issued For Services
In April
2009, the Company issued 100,000 shares of common stock for legal services
rendered. The Company valued the shares on the date of issuance as there were no
future performance conditions. The shares were valued at $25,000 based on the
estimated fair value of the Company’s common stock which was deemed to be $0.25
per share based on the recent private placement. The Company recorded the charge
to general and administrative expenses.
F-14
PART
II INFORMATION NOT REQUIRED IN THE PROSPECTUS
Securities
and Exchange Commission Registration Fee
|
$
|
53
|
||
Transfer
Agent Fees
|
$
|
2,000
|
||
Accounting
fees (dbbmckennon)
|
$
|
4,000
|
||
Legal
fees and expense
|
$
|
65,000
|
||
Blue
Sky fees and expenses
|
$
|
300
|
||
Miscellaneous
|
$
|
0
|
||
Total
|
$
|
71,353
|
All
amounts are estimates other than the Commission’s registration fee. We are
paying all expenses of the offering listed above. No portion of these expenses
will be borne by the selling shareholders. The selling shareholders, however,
will pay any other expenses incurred in selling their common stock, including
any brokerage commissions or costs of sale.
Item
14. Indemnification of Directors and Officers
Our
directors and officers are indemnified as provided by the California corporation
law and our Bylaws. We have agreed to indemnify each of our directors and
certain officers against certain liabilities, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the provisions described above, or otherwise, 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. In
the event that a claim for indemnification against such liabilities (other than
our payment of expenses incurred or paid by our director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
We have
been advised that in the opinion of the SEC indemnification for liabilities
arising under the Securities Act is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities is asserted by one of our directors,
officers, or controlling persons in connection with the securities being
registered, we will, unless in the opinion of our legal counsel the matter
has been settled by controlling precedent, submit the question of whether such
indemnification is against public policy to a court of appropriate jurisdiction.
We will then be governed by the court’s decision.
Item
15. Recent Sales of Unregistered Securities
Stock
Issued for Services
On
November 24, 2007, we issued an aggregate of 79,000,000 shares of our common
stock to Mr. Jakubaitis our Chief Executive Officer and Chairman, for an
aggregate consideration of $79,000 in consideration for his contribution
consisting of (a) creating the business concept of WECOSIGN™, (b) services in
connection with incorporating the company; (c) transference of all his right,
title and interest in the website www.wecosign.com; (d)
services in connection with the application of the trademark WECOSIGN™; and (e)
services on the position of our chief executive officer until s salary can be
paid (f) services in connection with the authoring of the advertising and or
booklets, applications and or fee structure created for the company to
operate.
31
On April
14, 2009, we issued an aggregate of 100,000 shares of our common stock to Anslow
& Jaclin, LLP, and Joseph M Lucosky and Joy Z Hui, attorneys at Anslow &
Jaclin, LLP, as compensation for legal services rendered valued at
$25,000.
On May 5,
2009, we issued 11,800 shares of our common stock, valued at $2,950, to Steven
Serio as compensation for services he rendered in connection with our private
placement completed in July 2009.
On June
15, 2009, we issued 800 shares of our common stock, valued at $200, to Lorena A.
Alvarez as compensation for services she rendered in connection with our private
placement completed in July 2009.
These
securities were issued pursuant to the exemption provided under Section 4(2) of
the Securities Act. These shares of our common stock qualified for exemption
since the issuance shares by us did not involve a public offering. The offering
was not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of shares offered. We did not undertake an offering in which
we sold a high number of shares to a high number of investors. In addition,
the shareholder had the necessary investment intent as required by Section 4(2)
since she agreed to and received share certificates bearing a legend stating
that such shares are restricted pursuant to Rule 144 of the Securities Act. This
restriction ensures that these shares would not be immediately redistributed
into the market and therefore not be part of a “public offering.” Based on an
analysis of the above factors, we have met the requirements to qualify for
exemption under Section 4(2) of the Securities Act for this
transaction.
Stock
Issued for Debt
In April
2009, we issued an aggregate of 1,092,000 shares of our common stock, valued at
$273,000 to Kazumi O. Devries, Carlos Padilla Jr., Julius Rizzotti, Walter J.
Skibicki, Sylvia Vasquez and Gene Kinum Trust as payment for the loan they
tendered to us in April 2009.
These
securities were issued pursuant to the exemption provided under Section 4(2) of
the Securities Act. These shares of our common stock qualified for exemption
since the issuance shares by us did not involve a public offering. The offering
was not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of shares offered. We did not undertake an offering in which
we sold a high number of shares to a high number of investors. In addition,
the shareholder had the necessary investment intent as required by Section 4(2)
since she agreed to and received share certificates bearing a legend stating
that such shares are restricted pursuant to Rule 144 of the Securities Act. This
restriction ensures that these shares would not be immediately redistributed
into the market and therefore not be part of a “public offering.” Based on an
analysis of the above factors, we have met the requirements to qualify for
exemption under Section 4(2) of the Securities Act for this
transaction.
Stock Issued for
Cash
In
connection with our private placement completed in June 2009, we issued
2,788,000 shares of our common stock to 54 investors at $0.25 per share for an
aggregate purchase price of $697,000 to the investors listed below.
Name
|
Shares
Beneficially Owned
|
Frank
Watson & Connie Watson
|
8,000
|
Robert
Watson & Julie Watson
|
8,000
|
Richard
Bond & Virginia Bond
|
4,000
|
32
Christine
Bond
|
4,000
|
Jennifer
Bond
|
4,000
|
Michael
Shebanek
|
6,000
|
Carole
Shebanek
|
6,000
|
Michael
S. House
|
4,000
|
Maud
Anne Serio
|
8,000
|
Elaine
Thobe
|
12,000
|
John
W. Thobe & Lidwina M. Thobe
|
8,000
|
Robert
& Maryann Cerami
|
4,000
|
Elizabeth
Marrero
|
4,000
|
Lavonne
Beacom
|
4,000
|
John
Cary
|
10,000
|
Myra
Castro & Matthew Kuntz
|
20,000
|
Tina
St. Germain
|
10,000
|
Michael
Pecken
|
40,000
|
Patricia
Byrne
|
48,000
|
Randolph
E. Aguilera & Kitty Aguilera
|
4,000
|
Jerome
Padilla & Margie Padilla
|
60,000
|
Steve
Reese
|
20,000
|
Penny
Adams
|
4,000
|
Thomas
Doyle
|
120,000
|
Lee
Glass Jr.
|
40,000
|
Ami
Kim
|
450,000
|
33
Julius
Rizzotti
|
20,000
|
Frank
Laurente
|
28,000
|
Walter
J. Skibicki
|
200,000
|
Sylvia
Vasquez
|
360,000
|
Gene
Kinum Trust
|
600,000
|
Rosemary
F. Padilla
|
40,000
|
Frank
C. Childs Trust
|
10,000
|
Jeff
Padilla & Jocelyn Padilla
|
180,000
|
Russ
C. Reyes
|
18,000
|
Susanne
M. Richardson
|
40,000
|
The
Sargeant Living Trust
|
40,000
|
Michelle
T. Torres
|
8,000
|
Ashley
Holt Living Trust
|
20,000
|
Raymond
Gall
|
20,000
|
Ronald
Donahue
|
40,000
|
Denise
S Wynters
|
16,000
|
Robert
Broussard
|
100,000
|
Justin
Beere
|
30,000
|
Joshua
Collier
|
30,000
|
April
Marie Wood
|
4,000
|
Lorena
A. Alvarez
|
16,000
|
Rhett
Alexander, LLC
|
8,000
|
Dagmy
A Boch
|
8,000
|
34
Elizabeth
Marrero
|
4,000
|
Russ
C. Reyes
|
14,000
|
Michelle
T. Torres
|
8,000
|
Arshag
Kevorkian & Manuela Kevorkian
|
4,000
|
TBN
Corporation (1)
|
12,000
|
TBN Corporation
sold the 12,000 shares to Mr. Jakubaitis at $3,300 on October 1,
2008.
We
issued these shares in reliance on the safe harbor provided by Regulation D Rule
506 promulgated under Section 4(2) of the Securities Act of 1933, as amended.
These stockholders who received the securities representations that (a)
the stockholder is acquiring the securities for his, her or its own account for
investment and not for the account of any other person and not with a view to or
for distribution, assignment or resale in connection with any distribution
within the meaning of the Securities Act, (b) the stockholder agrees not to sell
or otherwise transfer the purchased shares unless they are registered under the
Securities Act and any applicable state securities laws, or an exemption or
exemptions from such registration are available, (c) the stockholder has
knowledge and experience in financial and business matters such that he, she or
it is capable of evaluating the merits and risks of an investment in us, (d) the
stockholder had access to all of our documents, records, and books pertaining to
the investment and was provided the opportunity to ask questions and receive
answers regarding the terms and conditions of the offering and to obtain any
additional information which we possessed or were able to acquire without
unreasonable effort and expense, and (e) the stockholder has no need for the
liquidity in its investment in us and could afford the complete loss of such
investment. Our management made the determination that the investors in
instances where we relied on Regulation D are accredited investors (as defined
in Regulation D) based upon our management’s inquiry into their sophistication
and net worth. In addition, there was no general solicitation or advertising for
securities issued in reliance upon Regulation D.
EXHIBIT
NUMBER
|
DESCRIPTION
|
3.1
|
Articles
of Incorporation *
|
3.2
|
By-Laws*
|
5.1
|
Opinion
of Anslow & Jaclin, LLP
|
10.1
|
Lease
Agreement between WECOSIGN, INC. and Adams Properties dated May 29, 2008
*
|
10.2
|
Lease
Renewal Agreement WECOSIGN, INC. and Adams Properties dated May 29,
2009*
|
10.3
|
Sample
Application Form**
|
10.4
|
Contract
with Applicant**
|
10.5
|
Standard
Tenant Agreement**
|
10.6
|
Standard
Rental Payment Guarantee Agreement with Associates**
|
10.7
|
Standard
Rental Payment Guarantee Certificate**
|
10.8
|
Employment
Agreement with Mr. Frank
Jakubaitis**
|
35
10.9
|
Employment
Agreement with Mr. Jeff Padilla**
|
10.10
|
Employment
Agreement with Mr. Joseph Bennington
|
10.11
|
Sample
Agreement with Affiliates**
|
23.1
|
Consent
of Auditor
|
23.2
|
Consent
of Anslow & Jaclin, LLP, included on Exhibit 5.1
|
24.1
|
Power
of Attorney (included on the signature page of this registration
statement).
|
*Filed as
Exhibits 3.1, 3.2, 10.1 and 10.2 to the Form S-1 filed on July 14 and
incorporated herein by reference.
** Filed
as Exhibits to the Form S-1/A filed on September 15, 2009 and incorporated
herein by reference.
Item
17. Undertakings.
(A) The
undersigned Registrant hereby undertakes:
(1)
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement
to:
|
(i)
|
To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
|
|
(ii)
|
Reflect
in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement; and
|
|
(iii)
|
Include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration
statement.
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
|
(3)
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
(B) The
issuer is subject to Rule 430C (ss. 230. 430C of this chapter): Each prospectus
filed pursuant to Rule 424(b)(ss. 230. 424(b) of this chapter) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A (ss. 230. 430A of this chapter), shall be deemed to be part of
and included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made
in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
36
SIGNATURES
In
accordance with the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-1 and authorized this registration statement to be signed
on its behalf by the undersigned, in Santa Ana, California on November 2,
2009 .
WECOSIGN,
INC.
/s/ Frank
Jakubaitis
|
||||
Name:
Frank Jakubaitis
Position:
Chief Executive Officer
|
/s/
Joseph
Bennington
|
||||
Name:
Joseph Bennington
Position:
Chief Financial Officer (Principal Accounting Officer)
|
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Frank Jakubaitis and Joseph Bennington, and each of
them individually, his their
true and lawful attorneys-in-fact and agents, with full power of substitution
and re-substitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of WECOSIGN,
Inc.) to sign any or all amendments (including post-effective amendments) to
this registration statement and any and all additional registration statements
pursuant to rule 462(b) of the Securities Act, as amended, and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the SEC, granting unto each said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. In accordance with the requirements of the Securities Act of 1933, ex,
this registration statement was signed below by the following persons in the
capacities and on the dates stated.
/s/ Frank
Jakubaitis
|
|||
Name:
Frank Jakubaitis
Position:
Chief Executive Officer
|
/s/ Joseph
Bennington
|
||||
Name:
Joseph Bennington
Position:
Chief Financial Officer (Principal Accounting Officer)
|
37