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 actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Item 1A (Risk Factors) of Part I of this Annual Report on Form 10-K.
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.
Affiliates that house our applicant tenants: We intend to expand our business via establishing WECOSIGN.TM 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) months period.
To date, the number of application for our cosigning services stands at approximately 52 per month, after a running history of twelve months.
Estimates: Our discussion and analysis of our financial condition and results of operations are based on our 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 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.
Cost of Revenue: The Company's Cost of Revenue consists primarily of costs for tenant defaults, allocated salaries, allocated rent, and other expenses directly related to the production of Revenue.
Accounting for Income Taxes: We follow ASC 740-10, formerly SFAS No. 109, “Accounting for Income Taxes” 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.
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 and, accordingly, any provision to establish liabilities is charged to expense. 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.
Twelve months ended November 30, 2009 compared to the twelve months ended November 30, 2008. . The following tables and narrative discussion set forth key components of our results of operations for the periods indicated, in dollars.
Revenue: During the twelve months ended November 30, 2009, we generated $142,820 in revenues. The increase in revenues from the comparable 2008 was directly related to the commencement of operations subsequent to that period.
During the twelve months ended November 30, 2009, we have generated cash from financing activities totaling approximately $752,615 in the form of equity securities and capital contributions. Although we intend to fund our future growth with equity financing, 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. Based upon our 22% average monthly growth rate we are projecting profitable operations by second quarter 2010. In the mean time, we may require additional equity as well as reductions of expenses, including officer’s compensation, to reduce overhead. 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.
Cash used in operating activities was $528,908 for the twelve months ended November 30, 2009 compared to $67,953 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. During the first quarter of 2010 and thereafter, we expect to greatly reduce our cash used in operations.
Cash provided by financing activities were $752,615 for the twelve months ended November 30, 2009 compared to $85,700 for the same period in 2008. Cash flows provided during the twelve months ended November 30, 2009, related to proceeds received under convertible notes payable of $253,000, proceeds from the sale of our common stock of $329,615, and proceeds from the Company CEO’s capital contribution of $150,000. These funds were needed to fund our operations and retain a minimum level of liquidity.
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.