Wecosign, Inc. - FORM 10-Q - October 19, 2010

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - Wecosign, Inc.	ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - Wecosign, Inc.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to

Commission File Number 333-16057

WECOSIGN, INC.

(Exact name of registrant as specified in its charter)


California (State or other jurisdiction of incorporation or organization)		26-1476002 (I.R.S. Employer Identification No.)

3400 West MacArthur Blvd, Suite I,		92704
Santa Ana, CA 92704		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:

(714) 556-6800

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer o	Accelerated Filer o	Non-Accelerated Filer o	Smaller Reporting Company þ
	(Do not check if a smaller reporting Company)

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

The number of shares of common stock outstanding on October 19, 2010 was 94,932,600, $0.001 par value, issued and outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	15
Item 1A. Risk Factors	15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3. Defaults Upon Senior Securities	15
Item 4. Submission of Matters to a Vote of Security Holders	15
Item 5. Other Information	15
Item 6. Exhibits	16
Signatures	17
EX-31.1
EX-32.1

PART I – FINANCIAL INFORMATION


Item 1.		FINANCIAL STATEMENTS

WECOSIGN®

BALANCE SHEETS

AS OF AUGUST 31, 2010 AND NOVEMBER 30, 2009

	August 31,			November 30,
	2010			2009
	(Unaudited)			(Audited)
ASSETS

CURRENT ASSETS:
Cash	$	5,542		$	195,702
Prepaids and other current assets		15,602			12,964
Accounts receivable		35,894			102,171
Total Current Assets		57,038			310,837

Property, equipment and trademark, net of accumulated depreciation and amortization		96,515			35,117
Other assets		2,156			2,396

TOTAL ASSETS	$	155,709		$	348,350


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	24,895		$	46,928
Accrued liabilities		7,002			25,580
Stand-ready obligations (deferred revenues - Notes 1 and 4)		72,076			131,763
Guarantee liabilities (Notes 1 and 4)		9,482			20,190
Total Current Liabilities		113,455			224,461

Total Liabilities		113,455			224,461

STOCKHOLDERS’ EQUITY:
Preferred Stock; $0.001 Par Value; 25,000,000 shares authorized; 25,000,000 shares committed (Note 5)		25,000			-
Common Stock; $0.001 Par Value; 100,000,000 shares authorized; 94,932,600 at August 31, 2010 and 81,932,600 at November 30, 2009 shares issued and outstanding		94,933			81,933
Additional paid-in capital		6,294,082			966,682
Accumulated deficit		(6,371,761	)		(924,726	)

Total Stockholders’ Equity		42,254			123,889

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	155,709		$	348,350

See accompanying notes to financial statements.

WECOSIGN®

STATEMENTS OF OPERATIONS

(Unaudited)

	Quarter Ended August 31,						Nine Months Ended August 31,
	2010			2009			2010			2009
REVENUE	$	42,773		$	47,548		$	160,521		$	85,983
Cost of revenue – (Notes 1 and 4)		20,426			21,344			60,998			64,371

Gross profit		22,347			26,204			99,523			21,612

OPERATING EXPENSES:
General and administrative (including stock based compensation of $2,375,974 and $5,203,048 for the three months and nine months ended August 31, 2010, respectively)		2,433,677			123,430			5,490,017			432,945
Sales and marketing		11,618			25,257			63,324			51,978

TOTAL OPERATING EXPENSES		2,445,295			148,687			5,553,341			484,923

LOSS FROM OPERATIONS		(2,442,948	)		(122,483	)		(5,453,818	)		(463,311	)

OTHER INCOME AND EXPENSE:
Other income		2,866			287			7,341			1,180
Interest expense		(448	)		-			(558	)		(4,953	)

TOTAL OTHER INCOME (EXPENSES)		2,418			287			6,783			(3,773	)

NET LOSS	$	(2,420,530	)	$	(122,196	)	$	(5,447,035	)	$	(467,084	)
NET LOSS PER COMMON SHARE – BASIC AND DILUTIVE	$	(0.03	)	$	(0.00	)	$	(0.06	)	$	(0.00	)
Weighted Average Number of Shares Outstanding		94,932,600			81,884,018			88,432,600			80,679,067

See accompanying notes to financial statements.

WECOSIGN®

STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended August 31,
	2010			2009
Cash flows from operating activities
Net loss	$	(5,447,035	)	$	(467,084	)

Adjustments to reconcile net loss to net cash
used in operating activities:
Fair value of services contributed		-			40,000
Fair value of common stock issued for services		2,827,074			25,000
Fair value of preferred stock committed for services		2,375,974			-
Depreciation and amortization		6,523			5,852
Changes in operating assets and liabilities:
Accounts receivable		66,277			(125,596	)
Prepaids and other current assets		(2,398	)		(4,400	)
Accounts payable		(22,033	)		(12,118	)
Accrued liabilities		(18,578	)		7,174
Guarantee liability and unearned fees		(70,395	)		161,793

Net cash used in operating activities		(284,591	)		(388,481	)

Cash flows from investing activities:
Purchases of property and equipment; trademark costs		(67,921	)		(25,191	)
Net cash used in investing activities		(67,921	)		(25,191	)

Cash flows from financing activities:
Proceeds from advances due to related party		162,352			-
Proceeds from issuance of convertible notes payable		-			253,000
Net proceeds from issuance of common stock		-			349,615

Net cash provided by financing activities		162,352			602,615


Net increase (decrease) in cash and equivalents		(190,160	)		188,943
Cash and equivalents, beginning of period		195,702			6,180

Cash and equivalents, end of period	$	5,542		$	195,123

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense	$	558		$	4,953
Income tax	$	-		$	-

Non-cash investing and financing activities:
Common stock issued for convertible notes payable	$	-		$	293,000
Common stock issued for advances to related parties	$	38,326		$	-
Preferred stock committed for advances to related parties	$	124,026		$	-

See accompanying notes to financial statements.

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 Santa Ana, 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.

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 has incurred operating losses and used cash from operations. During the year ended November 30, 2009, the Company funded losses from proceeds from an equity offering and convertible notes totaling $620,058. In addition, the Company's former Chief Executive Officer (“CEO”) contributed additional capital of $150,000 in November 2009. 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. With the cash on hand at October 19, 2010, we have approximately $17,191 of available liquidity. Over the short term, our former CEO will arrange short-term liquidity if necessary. Over the longer term, we expect that cash flows from operations, supplemented by short-term and long-term financing, as necessary, will be adequate to fund our day-to-day operations and capital expenditure requirements. Our ability to secure short-term and long-term financing in the future will depend on several factors, including our future profitability, the quality of our accounts receivable and guarantee obligations, our relative levels of debt and equity, and the overall condition of the credit markets.

Unaudited Interim Financial Information

The accompanying unaudited condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, and pursuant to the instructions to Form 10-Q promulgated by the Securities and Exchange Commission (SEC). Accordingly, they do not include all information and disclosures required by generally accepted accounting principles for complete financial statement presentation. In the opinion of management, the accompanying condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company's financial position as of August 31, 2010 and the results of its operations and its cash flows for the three months ended August 31, 2010 and 2009. Results for the nine months ended August 31, 2010 are not necessarily indicative of the results to be expected for the year ending November 30, 2010.

While management believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes included in the Company's Annual Report on Form 10-K for the year ended November 30, 2009.

Advertising Costs

The Company expenses all costs of advertising as incurred. The Company expensed $7,905 and $9,494 of advertising costs for the three months ended August 31, 2010 and 2009, respectively.

The Company expensed $39,852 and $15,155 of advertising costs during the nine months ended August 31, 2010 and 2009, respectively.

Trademarks

The Company capitalizes costs associated with the trademark related to the cost acquiring and defending the trademark of WECOSIGN®. These capitalized costs include attorney fees and other costs associated with protecting the Company trademark.

WECOSIGN®

NOTES TO FINANCIAL STATEMENTS

Estimates

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 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.

The fair value of the 13,000,000 common shares issued to the former CEO was determined based on the closing stock price of $0.24 per share on the date of issuance. The fair value of the 25,000,000 preferred shares was determined based on the closing stock price of $0.10 per common share on the date of board approval and the commitment to issue such shares. The common stock price was used to value the preferred shares due to the terms being similar to common stock terms and thus would not be materially different in value.

Note 2 – Property, Equipment, and Trademark

Property, equipment, and trademark as of August 31, 2010 and November 30, 2009 consisted of the following:

	August 31,			November 30,
	2010			2009

Vehicle	$	5,000		$	5,000
Office equipment		21,983			21,408
Furniture		2,909			2,909
Software		1,819			-
Website		10,421			4,121
Trademark		69,057			9,918
Total property and equipment		111,189			43,356
Accumulated depreciation and amortization		(14,674	)		(8,239	)
Net property, equipment and trademark	$	96,515		$	35,117

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/amortization are removed from the accounts and any gain or loss is reflected in the statement of operations. During the three months ended August 31, 2010 and 2009, we had depreciation expense of $2,189 and $3,283, respectively. During the nine months ended August 31, 2010 and 2009, we had depreciation expense of $6,523 and $5,852, respectively.

Management assesses the recoverability of property, equipment and trademark by determining whether the depreciation and amortization of the above described assets over its remaining life can be recovered through projected undiscounted future cash flows. The amount of property, equipment, and trademark impairment if any, is measured based on fair value and is charged to operations in the period that such impairment is determined by management. The Company capitalizes costs associated with the trademark related to the cost acquiring and defending the trademark WECOSIGN® . As of November 30, 2009 and 2008, management believes that there is no impairment of property, equipment, and trademark.

WECOSIGN®

NOTES TO FINANCIAL STATEMENTS

Note 3 – Accrued Liabilities

Accrued liabilities as of August 31, 2010 and November 30, 2009 consisted of the following:

	August 31,		November 30,
	2010		2009
Accrued payroll and taxes	$	2,583	$	25,580
Accrued vacation		2,819		-
Other		1,600		-
Total accrued liabilities	$	7,002	$	25,580

Operating Lease

The Company leases its facility under cancelable operating lease arrangements for office space to serve as its corporate office in Santa Ana, California. The lease is currently a month-to-month agreement at a rental rate of $1,200 per month. The lease agreement required a security deposit of $1,200.

Guarantee Liability

The Guarantee Liability account is made up of stand-ready obligations, unearned application fees and guarantee liability for defaults.

Note 4 – Commitments and Contingencies

Stand-ready obligations - Management records the tenant’s full contract fees owed to us as accounts receivable and or any prepayments, with a corresponding increase to the stand-ready obligation included as a guarantee liability. Additionally, all application fees are also recorded as a stand-ready obligation. The Company records these liabilities based on the estimated fair value of the tenant’s contracted fee to us. The stand-ready obligation may alternatively be viewed as deferred revenues to the extent these tenants ultimately pay. The stand-ready obligation for a tenant is reduced as revenues as the tenant complies with the terms of the agreement over time.

Unearned tenants prepaid (contract) fees and registration fees - These fees are collected in advance and amortized over the life of the contract period. At month end, a cutoff analysis is prepared, and we adjust the above Guarantee Liabilities using the individual remaining contract life.

Defaults - In accordance with FASB Accounting Standards Codification (“ASC”) 450-20-25 Loss Contingencies, formerly Statement of Financial Accounting Standards (“SFAS”) No. 5, and ASC 460-10 Guarantees, formerly FASB Interpretation No. 45, contingent liabilities are recorded when the future loss is probable (the confirming event is likely to occur) and the amount of loss can be at least reasonably estimated. The Company reviews all Tenants under contract to determine if there is a probable chance of a default, and if so, provide a reasonable estimate for losses. For agreements in effect as of August 31, 2010, management identified six tenants that had defaulted and estimated a contingent liability of $9,482 for these probable losses.

The Company immediately expenses all specific leases that have defaulted as an operating expense. For the nine-months ended August 31, 2010 and 2009, the Company expensed default losses of $21,704 and $6,165, respectively. However, $10,092 of 2010 default loss expense represents amounts paid to property managers that the Company is not legally obligated to pay under the rental payment guarantee, but such amounts were paid in good faith and fair dealings.

During the nine months ended August 31, 2010, the Company was involved in litigation that has resulted in a decision by an international panel of the World Intellectual Property Organization (WIPO) ordering the prompt transfer of the domain name wecosignusa.com to the Company. In reaching the conclusion that the domain registrant had registered and used the wecosignusa.com domain in bad faith, the WIPO panel held that the registrant's use of the Disputed Domain Name is likely to cause consumer confusion, mistake and deception as to the source or sponsorship of the Disputed Domain Name, and that it is likely that a consumer could well believe that the Disputed Domain Name or content on it has been approved, sponsored, or affiliated with the Company.

WECOSIGN®

NOTES TO FINANCIAL STATEMENTS

At August 31, 2010, if every tenant under our program defaulted for their remaining lease agreement period, in aggregate, assuming no recoveries or replacement renters to mitigate losses, the total financial exposure would be approximately $653,943. We currently have 90 approved customer accounts that we collect a service fee from each month as of August 31, 2010 compared to 128 at August 31, 2009.

Note 5 – Stockholders' Equity

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.

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 Chief Financial Officer. The investment was made prior to the commencement of the 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.

On April 16, 2010, the Company issued 13,000,000 shares of common stock for services rendered by the former CEO. The Company recorded stock-based compensation amounting to $2,827,074 in general and administrative expense, and the forgiveness of $38,326 in advances made to the Company in connection with the issuance. The fair value of the shares was determined based on the closing stock price of $0.24 per share on the date of issuance and the shares were earned on the date of issuance.

Preferred Stock Committed to be Issued for Services

On July 15, 2010, the board of directors approved the issuance of 25,000,000 shares of preferred stock for services rendered by the former CEO. The Company recorded stock-based compensation amounting to $2,375,974 in general and administrative expense, and the forgiveness of $124,026 in advances made to the Company in connection with the issuance. The terms and designations of the preferred shares to be issued have not been determined nor filed with the California Secretary of State. However, management will provide for terms that will cause classification in stockholders’ equity. The fair value of the shares was determined based on the closing stock price of $0.10 per common share on the date of board approval and the commitment to issue such shares. The common stock price was used for preferred stock valuation because the terms are similar to common stock and would not be materially different in value.

Contributed Services

The Company’s former CEO was providing services to the Company on a full-time basis. The Company determined that the fair value of these services was approximately $13,900 per month based upon his previous employment agreement. The former CEO had elected to contribute his salaries to the Company, and thus, they are accounted for as a contribution within additional paid-in capital.

WECOSIGN®

NOTES TO FINANCIAL STATEMENTS

Note 6 – Provision for Income Taxes

There was no provision for income taxes in fiscal quarter ending August 31, 2010, or 2009, except for minimum state taxes, since the Company incurred taxable losses during such years.

Note 7 – Related Party Transactions

From time to time, the former CEO paid expenses on behalf of the Company. The advances were deemed satisfied through the issuance of common stock or the commitment to issue preferred stock (Note 5). As of August 31, 2010, no amounts are due to the former CEO.

Note 8 – Subsequent Events

On August 13, 2010, the Company entered into an agreement with a major online apartment service company. The terms of the agreement are similar to the Company’s affiliate program where 30% of the initial application fee, and

10% of each established monthly fee from the client, not to exceed a twelve (12) month period.

As of October 19, 2010, the former CEO has advanced the Company an additional $46,883 to cover operating expenses.

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

FORWARD LOOKING STATEMENTS

Statements contained in this Report that are not statements of historical fact should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). In addition, certain statements in our future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other statements concerning future financial performance; (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services; (iii) statements of assumptions underlying such statements; (iv) statements regarding business relationships with vendors, customers or collaborators; and (v) statements regarding products, their characteristics, performance, sales potential or effect in the hands of customers. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “should,” “potential,” “goals,” “strategy,” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in Part II, Item 1A “Risk Factors”, below. The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Such forward-looking statements speak only as of the date on which statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including our reports on Forms 10-Q and 8-K to be filed by the Company in fiscal 2010.

Overview

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. 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. 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: 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 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. 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. 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. We currently have 90 approved customer accounts that we collect a service fee from each month. The three month average of new monthly applications exceeded 30 at $100 each as of the date hereof.

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 2010. There are currently 3 Affiliates and 99 Associates that are working to bring in new applicants around the country, and we plan to add an additional 100 Associates through the end of 2010. This expansion, increased online traffic, and referrals from current customers and property owners are likely to help us reach our projected goals of 100 applications per month, and a total of 200 approved applicants living in rental properties by the end of 2010. 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.

Competition: We believe we are the first to market 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: WECOSIGN® 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 servicemark 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.

Affiliates that House our Applicant Tenants: We intend to expand our business via establishing WECOSIGN® Affiliates across the country, and a portion of our future growth is dependent upon new affiliates which promote our concept and reputation. 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) month period.

Results of Operations

Three Months Ended August 31, 2010 Compared to the Three Months Ended August 31, 2009.

The following tables and narrative discussion set forth key components of our results of operations for the periods indicated, in dollars.

							Period-to-Period			Period-to-Period
	Quarter Ended August 31						Dollar			Percentage
	2010			2009			Change			Change

Revenue	$	42,773		$	47,548		$	(4,775	)		(10	%)

Cost of Revenue		20,426			21,344			(918	)		(4	%)
Gross Profit		22,347			26,204			(3,857	)		(15	%)
Operating Expenses:
General and Administrative Professional Fees		18,360			9,055			9,305			103	%
General and Administrative Salaries		2,398,808			64,803			2,334,005			3,602	%
General and Administrative Other		16,509			49,572			(33,063	)		(67	%)
General and Administrative Subtotal		2,433,677			123,430			2,310,247			1,872	%
Sales and Marketing		11,618			25,257			(13,639	)		(54	%)
Total Operating Expenses		2,445,295			148,687			2,296,608			1,545	%
Loss from Operations		(2,422,948	)		(122,483	)		(2,300,465	)		(1,878	%)
Other Income and Expense:
Other Income		2,866			287			2,579			899	%
Interest Expense		(448	)		-			(448	)		100	%
Total Other Income and (Expense)		2,418			287			2,131			743	%

Net Loss	$	(2,420,530	)	$	(122,196	)	$	(2,298,334	)		1,881	%
Net Loss Per Common Share – Basic and Dilutive	$	(0.03	)	$	(0.00	)	$	(0.00	)		0	%
Weighted Average Number of Common Shares		94,932,600			81,884,018			13,048,582			16	%

Employees at fiscal quarter-end		5			4

Executive Summary

The Company reported a net loss of $2,420,530 for the three months ended August 31, 2010, which included gross profit of $22,347. As of August 31, 2010, the Company’s accumulated deficit totaled $6,371,761. During the quarter ended August 31, 2010, the Company used $132,574 of cash for operations.

Revenue: During the three months ended August 31, 2010, we generated $42,773 in revenues. The increase in revenues from the comparable 2009 period was directly related to the commencement of operations subsequent to that period.

Cost of Revenue: Our cost of revenue was $20,426 during the three months ended August 31, 2010, which primarily

consisted of guarantee obligations reserves for defaulting tenants, underwriting payroll, and facilities. This decrease is primarily attributable to the reduction in the number of customers in the current period.

General and Administrative: Our general and administrative fees of $2,433,677 during the three months ended August 31, 2010, consisted of the fair value of $2,375,974 for preferred stock committed. The former CEO agreed to take preferred stock in exchange for compensation in lieu of cash payments and forgiveness of monies advanced. Additional amounts primarily consisted of supplies, depreciation, allocated rent and utilities. The total general and administrative increase of $2,310,247 or 1,872%, is between the three months ended August 31, 2010 and the same period in 2009.

Sales and Marketing: Our sales and marketing expense of $11,618 during the three months ended August 31, 2010, primarily consisted of allocated payroll, marketing, supplies, and allocated rent. The decrease of $13,639, or 54%, is between the three months ended August 31, 2010 and the same period in 2009.

Nine Months Ended August 31, 2010 Compared to the Nine Months Ended August 31, 2009.

The following tables and narrative discussion set forth key components of our results of operations for the periods indicated, in dollars.

							Period-to-Period			Period-to-Period
	Nine Months Ended August 31						Dollar			Percentage
	2010			2009			Change			Change

Revenue	$	160,521		$	85,983		$	74,538			87	%

Cost of Revenue		60,998			64,371			(3,373	)		(5	%)
Gross Profit (Loss)		99,523			21,612			77,911			360	%
Operating Expenses:
General and Administrative Professional Fees		114,172			161,073			(46,901	)		(29	%)
General and Administrative Salaries		5,309,730			193,282			5,116,448			2,647	%
General and Administrative Other		66,115			78,590			(12,475	)		(16	%)
General and Administrative Subtotal		5,490,017			432,945			5,057,072			1,168	%
Sales and Marketing		63,324			51,978			11,346			22	%
Total Operating Expenses		5,553,341			484,923			5,068,418			1,045	%
Loss from Operations		(5,453,818	)		(463,311	)		(4,990,507	)		(1,077	%)
Other Income and Expense:
Other Income		7,341			1,180			6,161			522	%
Interest Expense		(558	)		(4,953	)		4,395			(89	)%
Total Other Income and (Expense)		6,783			(3,773	)		10,556			280	%

Net Loss	$	(5,447,035	)	$	(467,084	)	$	(4,979,951	)		(1,066	%)
Net Loss Per Common Share – Basic and Dilutive	$	(0.06	)	$	(0.00	)	$	(0.06	)		0	%
Weighted Average Number of Common Shares		88,432,600			80,679,067			7,753,533			10	%

Employees at fiscal quarter-end		5			4

	August 31,		November 30,
Summary of Balance Sheet Data	2010		2009

Current Assets	$	57,038	$	310,837
Total Assets		155,709		348,350
Total Liabilities		113,455		224,461
Total Stockholders’ Equity		42,254		123,889
Total Liabilities Stockholders’ Equity	$	155,709	$	348,350

Executive Summary

The Company reported a net loss of $5,447,035 for the nine months ended August 31, 2010, largely due to stock-based compensation of $3,375,974 to our former CEO. As of August 31, 2010, the Company’s accumulated deficit totaled $6,371,671. During the nine months ended August 31, 2010, the Company used $284,591 of cash for operations. At October 19, 2010, we had cash and cash equivalents of approximately $17,191 and accounts payables of approximately $68,384. We will continue to review and evaluate various marketing strategies to increase sales and other alternatives to streamline our operations, improve efficiencies and reduce costs.

Revenue: During the nine months ended August 31, 2010, we generated $160,521 in revenues. The increase in revenues from the comparable 2009 period was directly related to the commencement of operations subsequent to that period.

Cost of Revenue: Our cost of revenue was $60,998 during the nine months ended August 31, 2010, which primarily consisted of guarantee obligations reserves for defaulting tenants, underwriting payroll, and facilities. This decrease is primarily attributable to the reduction in the number of customers in the current period.

General and Administrative: Our general and administrative fees of $5,490,017 during the nine months ended August 31, 2010, primarily consisted of the fair value of $2,827,074 for common stock issued, and the fair value of $2,375,974 for preferred stock committed. The former CEO agreed to take common stock and preferred stock in exchange for compensation in lieu of cash payments and forgiveness of monies advanced. Additional amounts primarily consisted of supplies, depreciation, allocated rent and utilities. The total general and administrative increase of $5,057,072 or 1,168%, is between the nine months ended August 31, 2010 and the same period in 2009.

Sales and Marketing: Our sales and marketing expense of $63,324 during the nine months ended August 31, 2010, primarily consisted of allocated payroll, marketing, supplies, and allocated rent. The increase of $11,346, or 22%, between the nine months ended August 31, 2010 and the same period in 2009 was attributable to the company’s decision to streamline its advertising costs and match the company’s current goals and objectives.

Liquidity and Capital Resources

During the nine months ended August 31, 2010, we have generated $162,352 from financing activities. Although we intend to fund our future growth through cash flows from operations in the future, we may have to curtail our operating plans and rely on funds to be generated from operations if we are unable to raise such capital. We fully expect to significantly improve upon our prior 2009 performance with an increased penetration of the large national rental market, further penetrate their existing property management customer base, develop streamlined screening processes, and taking steps to identify and eliminate all other non-essential operating costs. We may require additional equity as well as reductions of expenses, including officer’s compensation, to reduce overhead. Our former CEO will arrange for additional liquidity, if necessary. We will continue to monitor our expenditures and cash flow position, and we are presently long-term debt free. We do not believe that we shall be forced to enter into any long or short term debt arrangements. We believe our cash on hand and anticipated cash flows from operations may not enable us to meet our obligations for the next year. However, the former CEO will provide additional monies to the Company to fund operations.

	For the Nine Months Ended August31, 2010			For the Nine Months Ended August 31, 2009

Net cash used in operating activities	$	(284,591	)	$	(388,481	)
Net cash used in investing activities		(67,921	)		(25,191	)
Net cash provided by financing activities		162,352			602,615
Net increase in cash and equivalents		(190,160	)		188,943
Cash and equivalents, beginning of period		195,702			6,180
Cash and equivalents, end of period	$	5,542		$	195,123

Operating Activities:

Cash used in operating activities was $284,591 for the nine months ended August 31, 2010, compared to $388,481 for the same period in 2009. Operating cash flows for both periods reflect primarily our net loss for both periods.

Investing Activities:

Cash used in investing activities was $67,921 for the nine months ended August 31, 2010, compared to $25,191 for the same period in 2009. Investing cash flows for both periods relates primarily to the defense of the company trademark.

Financing Activities:

Cash provided by financing activities were $162,352 for the nine months ended August 31, 2010, compared to $602,615 for the same period in 2009. These funds were needed to fund our operations and retain a minimum level of liquidity.

Contractual Obligations and Contingent Liabilities and Commitments: The Company leases its facility under cancelable operating lease arrangements for office space to serve as its corporate office in Santa Ana, California. The lease is currently a month-to-month agreement at a rental rate of $1,200 per month. The lease agreement required a security deposit of $1,200.

Off-Balance Sheet Arrangements: We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the small business issuer’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Disclosures

We do not enter into derivative financial instruments for trading, speculation or other purposes that would expose the Company to market risk.

Item 4. Controls And Procedures

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404 A. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

As of August 31, 2010, we are in the process of assessing the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in SEC guidance on conducting such assessments.

We are committed to improving our financial organization. As part of this commitment, we will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support the Company if personnel turn over issues within the department occur. Appointing one or more outside directors to our board of directors who shall be appointed to the audit committee of the Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures, and preparing and implementing sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Changes in Internal Control: There have been no changes in our internal control over financial reporting identified

in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls: The Company’s management, including its Chief Financial Officer, does not expect that its disclosure controls and procedures or its system of internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system of internal control are met. The design of the Company’s control system reflects the fact that there are resource constraints, and that the benefits of such control system must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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.

No director, officer, or affiliate of the issuer and no owner of record or beneficiary of more than 5% of the securities of the issuer, or any security holder is a party adverse to the Company or has a material interest adverse to the Company.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended November 30, 2009 contains a full discussion of the risks associated with our business. There have been no material changes to the risks described in our Annual Report on Form 10-K.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of unregistered Equity Securities during the third quarter ended August 31, 2010.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the third quarter of the fiscal year ended August 31, 2010.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

EXHIBIT INDEX

WECOSIGN®

Report On Form 10-Q For The Quarter Ended August 31, 2010.

EXHIBIT NUMBER	DESCRIPTION

3.1	Articles of Incorporation *

3.2	By-Laws*

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*

31.1	Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).**

32.1	Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350.**

* Filed as Exhibits to the Form S-1/A filed on December 2, 2009 and incorporated herein by reference.

** Filed Electronically as Exhibits attached to this Form 10-Q.

SIGNATURES

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

	WECOSIGN, INC.

Dated: October 19, 2010	By:	/s/Jeff Padilla
		Jeff Padilla,
		Chief Financial Officer (Principal Financial Officer)

Attached files

Wecosign, Inc. Reports

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