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EXCEL - IDEA: XBRL DOCUMENT - Cross Click Media Inc.Financial_Report.xls

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2014
[  ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to__________
Commission File Number: 333-165692

 

Co-Signer, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 27-1963282
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

8275 S. Eastern Avenue, Suite 200-661 , Las Vegas, NV 89123
(Address of principal executive offices)

 

(855) 267-4461
(Registrant’s telephone number)

 

___________________________

(Former name, former address and former fiscal year, if changed since last report)

 

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 [X] Yes [ ] No

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

[ ] Large accelerated filer Accelerated filer [ ] Non-accelerated filer
[X] Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 150,484,189 as of May 16, 2014.

 

 

TABLE OF CONTENTS

 

Page

 

PART I - FINANCIAL INFORMATION

 

Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 9
Item 4: Controls and Procedures 9

 

PART II - OTHER INFORMATION

 

Item 1: Legal Proceedings 10
Item 1A: Risk Factors 10
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 10
Item 3: Defaults Upon Senior Securities 10
Item 4: Mine Safety Disclosures 10
Item 5: Other Information 10
Item 6: Exhibits 10

 

2

 

CO-SIGNER, INC.

 

TABLE OF CONTENTS

 

Item 1. Financial Statements

 

Consolidated Balance Sheets (unaudited) as of March 31, 2014 and December 31, 2013 4
Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013 (unaudited) 5
Consolidated Statements of Cash Flows for three months ended March 31, 2014 and 2013 (unaudited) 6
Notes to the Consolidated Financial Statements  (unaudited) 7

 

3

CO-SIGNER, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

  March 31, 2014  December 31, 2013
ASSETS     
Current Assets:         
    Cash $1,816   $1,792 
Accounts receivable  483    483 
Other receivable  46,572    322 
Prepaid expenses  68,135    23,647 
Total Current Assets  117,006    26,244 
          
    Deposits  2,150    2,150 
Property and equipment, net  23,023    25,411 
Intangible assets, net  14,926    17,746 
Total Assets $157,105   $71,551 
          
LIABILITIES AND STOCKHOLDERS’ DEFICIT         
          
LIABILITIES         
Current Liabilities:         
    Accounts payable $377,719   $279,040 
    Accrued liabilities  24,030    24,030 
    Accrued interest  64,033    24,954 
Derivative liability  283,719    121,588 
Notes payable, related party  83,817    16,360 
Notes payable  17,300    44,300 
Convertible notes payable, net of discounts of $165,595 and $60,234, respectively  1,055,354    941,515 
Total Current Liabilities  1,905,972    1,451,787 
Long Term Liabilities:         
Notes payable  51,440    51,440 
Convertible notes payable, related  party net of discounts of $0 and $37,682, respectively  —      40,078 
    Convertible notes payable, related  party net of discounts of $11,151 and $16,856, respectively  34,849    39,144 
Total Liabilities  1,992,261    1,582,449 
          
STOCKHOLDERS’ DEFICIT:         
Preferred stock, $0.001 par value, 8,500,000 authorized, no shares issued and outstanding         
Series A preferred stock; $0.001 par value, 1,500,000 shares authorized, 1,173,041 and 0 shares issued and outstanding, respectively  1,173    1,173 
Common stock; $0.001 par value, 440,000,000 shares authorized, 148,184,189 and 113,740,949 issued and outstanding, respectively  148,184    113,741 
Additional paid in capital  2,310,713    919,607 
Deferred stock compensation  (814,250)   (186,749)
Accumulated deficit  (3,480,976)   (2,358,670)
Total Stockholders’ Deficit  (1,835,156)   (1,510,898)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $157,105   $71,551 

 

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

4

CO-SIGNER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

  For the Three Months Ended March 31,
  2014  2013
Revenue $11,597   $20,568 
Cost of revenue  3,075    —   
Gross revenue  8,522    —   
          
Expenses:         
Professional fees  30,686    6,165 
Salaries and wages  39,894    21,037 
Advertising and promotion  64,638    14,240 
Stock-based compensation expense  462,427    —   
General and administrative  128,567    20,916 
Total operating expenses  726,212    62,358 
Loss from operations  (717,690)   (41,790)
          
Other income and (expense):         
Interest expense  (44,458)   —   
Amortization of debt discount  (87,227)   —   
Change in fair value of derivative liability  141,210    —   
Derivative expense  (154,141)   —   
Loss on issuance of debt  (260,000)   —   
Total other income (expense)  (404,616)     
Loss before Provision for Income Taxes  (1,122,306)   (41,790)
          
Provision for Income Taxes  —      —   
          
Net Loss $(1,122,306)  $(41,790)
Loss per share Basic $(0.01)  $(0.00)
Weighted average shares outstanding, basic  131,794,462    32,720,000 

  

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

5

CO-SIGNER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  For the Three Months Ended March 31,
  2014  2013
Cash flows from operating activities:         
Net loss for the period $(1,122,306)  $(41,790)
Adjustments to reconcile net loss to net cash used in operating activities:         
Depreciation and amortization  5,208    3,349 
Stock-based compensation  462,427    —   
  Derivative expense  154,141    —   
Loss on issuance of debt  260,000    —   
Change in fair value of derivative liability  (141,210)   —   
Amortization of debt discount  87,227    —   
Change in assets and liabilities:         
(Increase) in other receivables  (46,250)   —   
(Increase) decrease in prepaid expenses and other assets  (20,788)   875 
Increase (decrease) in accounts payable and accruals  140,375    (2,617)
 Net cash used in operating activities  (221,176)   (40,183)
          
Cash flows from investing activities:         
Purchase of property and equipment  —      (2,599)
Issuance of note receivable, related party  —      1,000 
Net cash used in investing activities  —      (1,599)
          
Cash flows from financing activities:         
Proceeds from notes payable  188,000    32,350 
Payments on notes payable  (7,000)   —   
Proceeds from notes payable, related party  60,200    —   
Payments on notes payable, related party  (20,000)   —   
Contributed capital, related party  —      10,000 
Net cash provided by financing activities  221,200    42,350 
Net increase in cash  24    568 
Cash at beginning of period  1,792    1,016 
Cash at end of period $1,816   $1,584 
          
Supplemental Cash Flow Information:         
Cash paid for interest $—     $—   
Cash paid for income taxes $—     $—   
Non-Cash Investing and Financing Information:         
Common stock issued for conversion of debt $75,622   $—   

 

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

6

CO-SIGNER, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(Unaudited)

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

Co-Signer, Inc. (“Co-Signer” or the “Company”) was incorporated in Nevada on February 23, 2010 as Southern Products, Inc. and was doing business as SIGMAC USA. On August 12, 2013, the Company acquired all of the issued and outstanding common stock of Co-Signer.com, Inc., a private Nevada corporation (“Co-Signer.com”). As a result of the acquisition, we divested our former consumer electronics business and began to focus on the business of Co-Signer.com, Inc. as our primary line of business.

 

On August 12, 2013, the Company completed its merger with Co-Signer.com and its wholly-owned subsidiary, Co-Signer Acquisition Corp. Under the Merger Agreement the Company merged with and into Co-Signer Acquisition Corp. In connection with the closing of this transaction, Co-Signer, Inc., acquired all of the issued and outstanding shares of the Company, which resulted in the Company becoming a wholly-owned subsidiary of Co-Signer, Inc. In exchange for all of the issued and outstanding shares of the Company’s stock, the shareholders received a total of 1,173,041 shares of the newly-designated Series A Convertible Preferred Stock, $51,440 in newly-issued 8% Secured Notes, warrants to purchase a total of 51,440 shares of common stock an exercise price of $0.25 per share, and 23,000,000 newly-issued shares of common stock.

 

The closing of the transaction has been characterized as a reverse capitalization; therefore, the historical financial statements are the financial statements of Co-Signer.com, Inc. which have been presented to retroactively reflect the historic capitalization of the accounting acquiree.

 

Basis of Presentation

The accompanying interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, stockholders’ deficit or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the three months ended March 31, 2014 are not necessarily indicative of the results for the full fiscal year.

 

Reclassification

Certain reclassifications have been made to conform the prior year information to the 2014 classifications for comparative purposes.

 

Principles of consolidation

The consolidated financial statements include the accounts of Co-Signer, Inc. and Co-Signer.com, Inc.  All significant intercompany balances and transactions have been eliminated. Co-Signer, Inc. and Co-Signer.com, Inc., will be collectively referred herein to as the “Company”.

 

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. There were no cash equivalents as of March 31, 2014 and December 31, 2013. 

 

Basic Loss per Share

Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.

7

 

Concentrations of Credit Risk

The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

Property and Equipment

Property and equipment are stated at cost.  Depreciation and amortization are provided utilizing the straight-line method over the related asset’s estimated useful life of three years.

 

Maintenance and repairs are charged to expense as incurred; renewals and improvements that extend the useful life of the assets are capitalized.  Upon retirement or disposal, the asset cost and the related accumulated depreciation and amortization are eliminated from the respective accounts and a resulting gain or loss, if any, is included in the results of operations.

 

Intangible Assets

The Company classifies intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company’s strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, on a straight-line basis, over their useful lives of three years.

 

Revenue Recognition

The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements,” which has four basic criteria that must be met before revenue is recognized: 1) existence of persuasive evidence that an arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller’s price to the buyer is fixed and determinable; and 4) collectability is reasonably assured. Our revenue recognition policies are consistent with these criteria. For Tenant Application fees revenue is recognized at the time each application is submitted. Upon the signing of a Co-Signer.com Tenant Agreement and the corresponding Co-Signer.com, Inc. Landlord Agreement supplemented by the executed Tenant Client’s lease, the Company recognizes the revenue for each Surety Fee as indicated in the Tenant Agreement, usually on a monthly basis.

 

Default Rent Reserve Policy

The Company reviews each calendar quarter whether a default rent reserve should be established and funded. As of March 31, 2014 the Company has not considered it necessary to fund such a reserve. The Company’s pricing model provides cash flows to offset default risk when losses are below 100% of the lowest default rate per Experian Rent Bureau’s analysis of default rates of tenants that are “Unscoreable”. That number for 2013 was 9.00%. If the Company is to experience losses above 9%, it will then fund a reserve account based upon trend.

8

 

Fair Value of Financial Instruments

For certain of the Company’s non-derivative financial instruments, including cash and cash equivalents, receivables, prepaids, inventory, accounts payable, accrued liabilities, and notes payable, the carrying amount approximates fair value due to the short-term maturities of these instruments. The estimated fair value of long-term debt is based primarily on borrowing rates currently available to the Company for similar debt issues. The fair value approximates the carrying value of long-term debt.

 

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.  The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.

 

The three levels of valuation hierarchy are defined as follows:

 

·Level 1. Observable inputs such as quoted prices in active markets;
·Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;
·Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The following presents the gross value of assets and liabilities that were measured and recognized at fair value, as of March 31, 2014.

 

  Level I  Level II  Level III  Total
Derivative liability $—     $283,719   $—     $283,719 

  

Stock-Based Compensation

We account for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.

 

The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation - Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.  The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.

 

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services ,” for stock options and warrants issued to consultants and other non-employees.  In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined.

 

Advertising and Marketing costs

The Company expenses all costs of advertising as incurred.  For the three months ended March 31, 2014 and 2013, there was $64,638 of and $14,240 in advertising and marketing costs.

 

Income Taxes

Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry-forwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence; it is more likely than not such benefits will be realized. The Company’s deferred tax assets were fully reserved at March 31, 2014.

 

The Company accounts for its income taxes using the Income Tax topic of the FASB ASC 740, which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. It is the Company’s policy to classify interest and penalties on income taxes as interest expense or penalties expense. For the three months ended March 31, 2014 and 2013, there have been no interest or penalties incurred on income taxes. 

 

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect.  These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued, that might have a material impact on its financial position or results of operations.

9

 

NOTE 2 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following as of:

 

  March 31, 2014  December 31, 2013
Computer equipment $6,446   $6,446 
Property & equipment  22,600    22,600 
Less: accumulated depreciation  (6,023)   (3,635)
 Property and equipment, net $23,023   $25,411 

 

Depreciation expense for the three months ended March 31, 2014 and 2013 was $2,388 and $530, respectively. 

 

NOTE 3 - INTANGIBLE ASSETS

 

Intangible assets consisted of the following as of:

 

  March 31, 2014  December 31, 2013
Website design $34,310   $34,310 
Domain name  1,500    1,500 
Less: accumulated amortization  (20,884)   (18,064)
Intangible assets, net $14,926   $17,746 

 

Amortization expense for the three months ended March 31, 2014 and 2013 was $2,820 and $2,820, respectively.

 

NOTE 4 - NOTES PAYABLE

 

On June 29, 2012, the Company issued a $488,489 Convertible Promissory Note and Security Interest in favor of a trade creditor representing the past due invoices of the creditor for professional fees. During the year ended December 31, 2013, the creditor advanced a total of $8,006 for payment of the Company’s operating expenses whereby increasing the principal balance of the note to $491,465. On November 5, 2013, the Company executed the Second Amendment to the Convertible Promissory Note. In this amendment the creditor has agreed to waive the default in the payment of monthly installments and to waive all accrued default interest. The Note is now due in full on or before May 31, 2014. The conversion price of the Note has been amended to $0.075 per share. Additionally, certain accounts payable and accrued expenses of $278,962 due to the creditor for services provided subsequent to the issuance of the original obligation were added to the Note, making the current balance of the Note $812,249. As a result of retiring the old debt and including it in the new note the expensing of the remaining debt discount of $270,502 was accelerated which resulted in a loss on extinguishment of debt of $183,877. Interest relating to the amortization of the debt discount for the year ended December 31, 2013 amounted to $69,772. As of March 31, 2014 there is $39,255 of accrued interest on the new note.

 

On June 3, 2013, the Company executed a convertible promissory note for $10,000. The note bears interest at 8% and matures in three years. The loan is convertible at any time into shares of common stock at $0.0067 per share. As a result of the conversion feature the Company has recorded a debt discount of $4,925. On March 27, 2014 the principle amount of $10,000 and accrued interest of $622 was converted into 1,953,240 shares of commons stock. As a result of the conversion the remaining unamortized debt discount of $3,976 was accelerated and expensed to debt discount interest expense.

 

On June 12, 2013, the Company executed a promissory note for $10,000. The loan has no stated interest rate and was due August 12, 2013. The note does not bear interest but did include a loan fee of $5,000. During the quarter ended March 31, 2014, $3,000 was repaid on the loan and the loan was extended with no specific terms of repayment.

 

On August 12, 2013, in connection with the merger, the Company issued $51,400 of new notes. The notes are secured, bear interest at 8% and mature in five years. As of March 31, 2014 there is $2,604 of accrued interest on these notes.

10

 

On September 23, 2013, we entered into a $400,000 Promissory Note (the “Note”) with JMJ Financial (“JMJ”). The face amount of the Note includes an original issue discount of $40,000. The initial advance to be made under the Note by JMJ is $50,000. JMJ may, after making this initial advance, lend us additional sums under the terms of the Note in such amounts and at such dates as it chooses. Individual loans mature one year from the effective date of each payment. If repaid within ninety (90) days from the date of issue, the loan will not bear interest. Upon ninety (90) days after the date of issue, a one-time interest charge of twelve percent (12%) of the principal amount will be applied. JMJ may convert all or part of the Note, at its discretion, into shares of our common stock. The conversion price is sixty percent (60%) of the lowest trading price for our common stock in the twenty-five trading days immediately preceding the conversion date. For the initial advance the Company recorded a debt discount in the amount of $55,000 (payment plus 10% original discount) in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $129,184 based on the Black Scholes Merton pricing model. As of March 31, 2014; $27,123 of the debt discount has been amortized to interest expense. In addition, the Company fair valued the derivative at $69,947 resulting in a gain on the change in fair value of the derivative. As of March 31, 2014 the total accrued interest and fees is $7,222; the note is shown net of a debt discount of $27,877 at March 31, 2014.

 

On November 1, 2013, the Company executed a convertible promissory note for $30,000. The note bears interest at 9% and matures in two years. The loan is convertible at any time into shares of common stock at $0.075 per share beginning one year from the date of the note. In addition, the note required the issuance of warrants to purchase 400,000 warrants. The aggregate fair value of these warrants totaled $14,034 based on the Black Scholes Merton pricing model. This amount has been recorded as a debt discount and will be amortized utilizing the interest method of accretion over the term of the note. As of March 31, 2014, $2,884 of the discount has been amortized to interest expense and there is $1,110 of accrued interest.

 

On November 1, 2013, the Company executed a promissory note for $16,000. The note bears interest at 9% and matures in two years. As of March 31, 2014, there is $592 of accrued interest.

 

On November 4, 2013, we obtained short term financing from a Lender under a 9% Convertible Note in the amount of $70,000 (the “Short-Term Note”). The Short-Term Note features an original issue discount of $6,700. The $63,300 in funding received from the Lender was used to pay off and retire the Convertible Promissory Note issued to Asher Enterprises, Inc., dated April 9, 2013. The Short-Term Note accrues interest at a rate of nine percent (9%) per year, with all principal and interest due in full within thirty days from the date of issue. The Short-Term Note is currently in default. At any time, the Short-Term Note may be converted, in whole or in part at the option of the holder, at a price of $0.075 per share. As of March 31, 2014 there is $2,537 of accrued interest. The note was reviewed for a beneficial conversion feature and it was determined that none existed as the fair market price of the stock was in excess of the conversion price on the date of the note.

 

On November 25, 2013, the Company issued a Convertible Promissory Note to Asher Enterprises, Inc. in the amount of $42,500. The note bears interest at a rate of 8% per annum, is unsecured and matures on August 27, 2014. The Note is convertible into common stock in whole or in part 180 days after funding at a variable conversion price equal to a 42% discount to the average of the lowest three trading prices in the 10-day trading price prior to the conversion date. As of March 31, 2014, there is $1,174 of accrued interest on this note.

 

The Company received its second payment from JMJ towards the loan of $22,000 on December 9, 2013. The Company recorded a debt discount in the amount of $22,000 (payment plus 10% original discount) in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $37,173 based on the Black Scholes Merton pricing model. As of March 31, 2014; $6,137 of the debt discount has been amortized to interest expense. In addition, the Company fair valued the derivative at $25,615 resulting in a gain on the change in fair value of the derivative. The note is shown net of a debt discount of $13,863 at March 31, 2014 and has accrued interest of $2,889.

 

As of December 31, 2013 the Company owed Chiles Valley, LLC, $20,000. This loan was repaid in full during the quarter ended March 31, 2014.

 

On January 8, 2014, the Company issued a Convertible Promissory Note to Asher Enterprises, Inc. in the amount of $32,500. The note bears interest at a rate of 8% per annum, is unsecured and matures on October 10, 2014. The Note is convertible into common stock in whole or in part 180 days after funding at a variable conversion price equal to a 42% discount to the average of the lowest three trading prices in the 10-day trading price prior to the conversion date. As of March 31, 2014, there is $499 of accrued interest on this note.

 

On February 13, 2014, we entered into a $250,000 Convertible Promissory Note (the “Note”) with Black Mountain Equities, Inc. (“BME”). The face amount of the Note includes an original issue discount of $25,000. The initial advance to be made under the Note by BME is $25,000. BME may, after making this initial advance, lend us additional sums under the terms of the Note in such amounts and at such dates as it chooses. There is a one-time interest charge of ten percent (10%) and individual loans mature one year from the effective date of each payment. BME may convert all or part of the Note, at its discretion, into shares of our common stock. The conversion is equal to the lesser of a 40% discount to the lowest trading prices in the twenty-five (25) day trading price prior to the conversion date or at a fixed price if $0.025. For the initial advance the Company recorded a debt discount in the amount of $30,000 (payment plus 10% original discount and one time interest charge) in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $82,251 based on the Black Scholes Merton pricing model. As of March 31, 2014; $3,863 of the debt discount has been amortized to interest expense. In addition, the Company fair valued the derivative at $40,917 resulting in a gain on the change in fair value of the derivative. As of March 31, 2014 the note is shown net of a debt discount of $26,137.

 

On February 26, 2014, the Company issued a Convertible Promissory Note to GCEF Opportunity Fund, LLC in the amount of $72,500, includes an original issue discount of $7,500. The note bears a onetime 12% interest charge, is unsecured and matures in one year. The Note is convertible into common stock in whole or in part at any time with a conversion price equal to a 50% discount to the average bid price in the ten day trading price prior to the conversion date. The Company recorded a debt discount in the amount of $81,200 in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $179,454 based on the Black Scholes Merton pricing model. As of March 31, 2014; $7,564 of the debt discount has been amortized to interest expense. In addition, the Company fair valued the derivative at $105,617 resulting in a gain on the change in fair value of the derivative. As of March 31, 2014 the note is shown net of a debt discount of $77,636. In addition to the terms outlined above the Company issued to GCEF 5,000,000 shares of common stock. The stock was valued at $0.052, the closing price on the date of the note for non cash expense of $260,000 which was recorded as a loss on the issuance of debt.

11

 

On March 3, 2014, the Company issued a Convertible Promissory Note to Asher Enterprises, Inc. in the amount of $37,500. The note bears interest at a rate of 8% per annum, is unsecured and matures on October 10, 2014. The Note is convertible into common stock in whole or in part 180 days after funding at a variable conversion price equal to a 42% discount to the average of the lowest three trading prices in the 10-day trading price prior to the conversion date. As of March 31, 2014, there is $181 of accrued interest on this note.

 

On March 14, 2014, the Company issued a Convertible Promissory Note to Hanover Holdings I, LLC in the amount of $38,000. The note bears interest at a rate of 12% per annum, is unsecured and matures in eight months. The Note is convertible into common stock in whole or in part at any time with a conversion price equal to the lesser of a 45% discount to the lowest trading prices in the five day trading price prior to the conversion date or at a fixed price if $0.04. The Company recorded a debt discount in the amount of $38,000 in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $41,636 based on the Black Scholes Merton pricing model. As of March 31, 2014; $13,918 of the debt discount has been amortized to interest expense. In addition, the Company fair valued the derivative at $41,623 resulting in a loss on the change in fair value of the derivative. The note is shown net of a debt discount of $24,082 at March 31, 2014 and has accrued interest of $311.

 

The maturities of these notes and the related party notes below, net of discounts for the next five years are:

 

Year Ended December 31,   
 2014   $1,156,471 
 2015    34,849 
 2016    —   
 2017    —   
 2018    51,440 
 Total Future Maturities   $1,242,760 

 

A summary of the status of the Company’s debt discounts including original issue discounts, and derivative liabilities, and changes during the periods is presented below:

 

Debt Discount December 31, 2013  Additions  Amortization  March 31, 2014
Finiks Capital – February 1, 2013 $37,682        $(37,682)  $—   
Neal – June 3, 2013  3,975    —      (3,975)   —   
JMJ – October 2, 2013  41,439    —      (13,562)   27,877 
Kalina – November 1, 2013  12,881    —      (1,730)   11,151 
JMJ – December 9, 2013  18,795         (4,932)   13,863 
Black Mountain Equities, Inc. – February 13, 2014  —      30,000    (3,863)   26,137 
GCEF Opportunity Fund, LLC – February 26, 2014  —      81,200    (7,564)   73,636 
Hanover Holdings, LLC – March 14, 2014  —      38,000    (13,918)   24,082 
  $114,772   $149,200   $(87,226)  $176,746 

 

Derivative Liabilities December 31, 2013  Initial valuation  Revaluation on 3/31/14  (Gain) loss of fair value of derivative
JMJ – October 2, 2013 $88,314   $—     $69,948   $(18,366)
JMJ – December 9, 2013  33,274    —      25,615    (7,659)
Black Mountain Equities, Inc. – February 13, 2014  —      82,251    40,916    (41,335)
GCEF Opportunity Fund, LLC – February 26, 2014  —      179,454    105,617    (73,837)
Hanover Holdings, LLC – March 14, 2014  —      41,636    41,623    (13)
  $121,588   $303,341   $283,719   $(141,210)

 

12

 

Original Issue Discount December 31, 2013  Additions  Amortization  March 31, 2014
JMJ – October 2, 2013 $3,767   $—     $(1,233)  $2,534 
JMJ – December 9, 2013  1,879    —      (493)   1,386 
Black Mountain Equities, Inc. – February 13, 2014  —      5,000    (137)   4,863 
GCEF Opportunity Fund, LLC – February 26, 2014  —      16,200    (1,465)   14,735 
Darren Magot – January 27, 2014  —      2,500    (833)   1,667 
  $5,646   $23,700   $(4,161)  $25,185 

 

NOTE 5- RELATED PARTY TRANSACTIONS

 

Notes Payable

 

On February 1, 2013, the Company executed a convertible promissory note for $65,000 with Finiks Capital, a related party. The note bears interest at a rate of 5% per annum, is unsecured and matures in two years. The loan is convertible at any time into shares of common stock at $0.0065 per share. The Company recorded a discount in the amount of $65,000 in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the interest method of accretion over the term of the note. As a result of the conversion feature the Company has recorded a debt discount of $65,000, $27,318 of which has been amortized to interest expense. As of December 31, 2013 an additional $12,760 had been loaned to the Company with a 5% interest rate and no other specific terms.

 

On May 23, 2013, the Company executed a promissory note for $10,000 with a related party. The note bears interest at 12% and was due August 21, 2013. As of March 31, 2014, an additional $8,500 was loaned and $2,200 of forbearance fees were added to the loan. $10,900 has been repaid on the note and there is $916 of accrued interest. Subsequent to March 31, 2014 this note was paid in full.

 

On January 19, 2014, Finiks Capital transferred its rights to the $65,000 promissory note and $3,879 of accrued interest to Strategic IR, Inc.

 

On January 27, 2014, the Company executed a convertible promissory note for $37,500 with Darren Magot, a member of the Board of Directors. The note includes a $2,500 loan origination fee, accrues interest at 8% and matures in 180 days. As of March 31, 2014 $3,000 has been repaid on the note and there is $505 of accrued interest. The note was reviewed for a beneficial conversion feature and it was determined that none existed as the fair market price of the stock was in excess of the conversion price on the date of the note.

 

As of March 31, 2014, the Company owed a related party $34,657 for cash advances to assist in covering operating expenses. The loan is unsecured, due on demand, and has no stated interest rate.

 

Stock Issuances

 

On January 10, 2014, the Company issued 5,350,000 shares of common stock to various employees and consultants. The shares were issued at $0.0383 based on the market value of the common stock on the date of authorization for total non cash expense of $204,905.

 

On February 12, 2014, the Company issued 250,000 shares of common stock to a member of the Board of Directors and 1,000,000 shares of common stock to its CEO for services rendered. The shares were issued at $0.04 based on the market value of the common stock on the date of authorization for total non cash expense of $50,000.

13

 

NOTE 6 - STOCKHOLDERS’ DEFICIT

 

The Company is authorized to issue up to 10,000,000 shares of $0.001 par value preferred stock, of which 1,500,000 shares have been designated as Series “A” convertible preferred. In addition the Company is authorized to issue up to 440,000,000 shares of $0.001 par value common stock.

 

On May 15, 2013, the Company issued 446,500 shares of common stock for services. The shares were issued at $0.07 based on the market value of the common stock on the date of authorization for total non cash expense of $31,256.

 

On August 12, 2013, the Company issued 23,000,000 shares of common stock and 1,173,041 shares of preferred stock pursuant to its merger agreement with Co-Signer.com, Inc. Pursuant to the merger agreement, upon closing, 30,555,560 shares of common stock held by a former officer and director, were canceled.

 

On September 16, 2013, the Company issued 2,000,000 shares of common stock for services. The shares were issued at $0.085 based on the market value of the common stock on the date of authorization for total non cash expense of $170,000.

 

On November 1, 2013, the Company issued 2,222,222 shares of common stock for services. The shares were issued at $0.08 based on the market value of the common stock on the date of authorization for total non cash expense of $177,778, $148,148 of which has been booked to deferred stock compensation expense.

 

On November 7, 2013, the Company issued 3,000,000 shares of common stock for services. The shares were issued at $0.075 based on the market value of the common stock on the date of authorization for total non cash expense of $225,000.

 

On December 1, 2013, the Company issued 500,000 shares of common stock for services. The shares were issued at $0.03 based on the market value of the common stock on the date of authorization for total non cash expense of $15,050.

 

On December 9, 2013, the Company issued 1,000,000 shares of common stock to a Director for services. The shares were issued at $0.0398 based on the market value of the common stock on the date of authorization for total non cash expense of $39,800, $38,601 of which has been booked to deferred stock compensation expense.

 

On December 10, 2013, a note for $5,000 dated June 10, 2013, plus $190 of accrued interest was converted into 750,000 shares of common stock. The shares were converted at the market price on the date of conversion of $0.0398, which resulted in a loss on conversion of $24,660.

 

During the year ended December 31, 2013, the Company issued 3,266,667 shares of common stock for total cash proceeds of $62,000.

14

 

On January 2, 2014, the Company issued 3,500,000 shares of common stock for consulting services. The shares were issued at $0.028 based on the market value of the common stock on the date of authorization for total non cash expense of $98,000, $73,500 of which has been booked to deferred stock compensation expense.

 

On January 10, 2014, the Company issued 5,350,000 shares of common stock to various employees and consultants. The shares were issued at $0.0383 based on the market value of the common stock on the date of authorization for total non cash expense of $204,905.

 

On February 12, 2014, the Company issued 250,000 shares of common stock to a member of the Board of Directors and 1,000,000 shares of common stock to its CEO for services rendered. The shares were issued at $0.04 based on the market value of the common stock on the date of authorization for total non cash expense of $50,000.

 

On February 26, 2014, the Company issued 7,000,000 shares of common stock for services. The shares were issued at $0.052 based on the market value of the common stock on the date of authorization for total non cash expense of $364,000, $301,210 of which has been booked to deferred stock compensation expense.

 

On February 26, 2014, the Company issued 5,000,000 shares of common stock to GCEF Opportunity Fund, LLC. The shares were issued in conjunction with a convertible promissory note. The stock was valued at $0.052, the closing price on the date of the note for non cash expense of $260,000 which was recorded as a loss on the issuance of debt.

 

On March 1, 2014, the Company issued 750,000 shares of common stock for services. The shares were issued at $0.058 based on the market value of the common stock on the date of authorization for total non cash expense of $43,500, $26,583 of which has been booked to deferred stock compensation expense.

 

On March 27, 2014, the Company issued 1,593,240 shares of common stock in conversion of $10,622 of principle and accrued interest. The loan was converted at $0.0067 per the terms of the agreement.

 

During the quarter ended March 31, 2014, Strategic IR, Inc. converted the $65,000 note payable it had assumed from Finiks Capital into 10,000,000 shares of common stock at $0.0065 per share per the terms of the original Note.

 

NOTE 7- WARRANTS

 

Pursuant to the terms and conditions of the merger agreement dated August 12, 2013, the Company issued 51,440 warrants. The aggregate fair value of the warrants totaled $3,975 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.25, 1.39% risk free rate, 207% volatility and expected life of the warrants of 5 years.

 

Pursuant to the terms and conditions of the convertible note dated November 2, 2013, the Company issued 400,000 warrants. The aggregate fair value of the warrants totaled $14,034 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.13, .61% risk free rate, 169% volatility and expected life of the warrants of 3 years.

 

Pursuant to the terms and conditions of the common stock purchase agreement dated November 2, 2013, the Company issued 266,667 warrants. The aggregate fair value of the warrants totaled $17,580 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.13 .61% risk free rate, 169% volatility and expected life of the warrants of 3 years.

 

Pursuant to the terms and conditions of the consulting agreement dated January 2, 2014, the Company issued 1,000,000 warrants. The aggregate fair value of the warrants totaled $24,544 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.075 .13% risk free rate, 158% volatility and expected life of the warrants of 5 years.

 

Pursuant to the terms and conditions of the consulting agreement dated January 2, 2014, the Company issued 1,000,000 warrants. The aggregate fair value of the warrants totaled $26,123 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.10 .13% risk free rate, 158% volatility and expected life of the warrants of 7 years.

 

Pursuant to the terms and conditions of the consulting agreement dated February 12, 2014, the Company issued 2,000,000 warrants. The aggregate fair value of the warrants totaled $56,586 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.05 .12% risk free rate, 178% volatility and expected life of the warrants of 5 years.

 

On February 17, 2014, the Company issued 500,000 warrants. The aggregate fair value of the warrants totaled $15,561 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.05 .12% risk free rate, 182% volatility and expected life of the warrants of 3 years.

15

 

A summary of the status of the Company’s outstanding stock warrants as of March 31, 2014 and changes during the periods is presented below:

 

   Warrant  Weighted
Average
Price
 Outstanding, December 31, 2013    718,107   $0.21 
             
 Issued    4,500,000    0.07 
 Exercised    —      —   
 Forfeited    —      —   
 Expired    —      —   
 Outstanding, March 31, 2014    5,218,107   $0.21 
 Exercisable, March 31, 2014    4,738,940   $0.08 

 

   Outstanding  Exercisable
Range of
Exercise
Prices
  Number
Outstanding
at
3/31/2014
  Weighted
Average
Remaining
Contractual
Life
  Weighted
Average
Exercise
Price
  Number
Exercisable
at
3/31/2014
  Weighted
Average
Exercise
Price
 $    0.05-0.25    5,218,107    4.7 Years   $0.08    4,738,940   $0.13 

  

NOTE 8 – STOCK OPTIONS

 

On February 13, 2014, the Company granted Kurt Kramarenko, CEO 4,000,000 stock options as additional compensation. The options allow for cashless exercise and will vest at a rate of 500,000 options per each fiscal quarter, beginning with the conclusion of the first fiscal quarter during the term of the agreement. The aggregate fair value of the options totaled $133,984 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.05 .12% risk free rate, 206% volatility and expected life of the warrants of 2 years.

 

On January 1, 2014, the Company granted Darren Magot, a Director, 1,000,000 stock options as additional compensation. The options allow for cashless exercise and will vest at a rate of 250,000 options per each fiscal quarter, beginning with the conclusion of the first fiscal quarter during the term of the agreement. The aggregate fair value of the options totaled $72,725 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.05 .12% risk free rate, 180% volatility and expected life of the warrants of 5 years.

 

A summary of the status of the Company’s outstanding stock options as of March 31, 2014 and changes during the periods is presented below:

 

   Option  Weighted
Average
Price
 Outstanding, December 31, 2013    —     $—   
             
 Issued    5,000,000    0.06 
 Exercised    —      —   
 Forfeited    —      —   
 Expired    —      —   
 Outstanding, March 31, 2014    5,000,000   $0.06 
 Exercisable, March 31, 2014    750,000   $0.06 

 

 

   Outstanding  Exercisable
Range of
Exercise
Prices
  Number
Outstanding
at
3/31/2014
  Weighted
Average
Remaining
Contractual
Life
  Weighted
Average
Exercise
Price
  Number
Exercisable
at
3/31/2014
  Weighted
Average
Exercise
Price
 $    0.05-0.08    5,000,000    2.4 Years   $0.06    750,000   $0.06 

 

16

 

NOTE 9 – COMMITMENTS

 

We rent approximately 4,100 square feet of office space in Las Vegas, Nevada on a month-to-month basis. We currently pay rent that escalates quarterly and culminates in a monthly rate of $2,500. Rent expense for the three months ended March 31, 2014 was $7,500.

 

NOTE 10 - GOING CONCERN

 

As of March 31, 2014, the Company has a working capital deficit of $1,788,966, limited revenue and an accumulated deficit of $3,480,976. The financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The Company’s management plans on raising cash from public or private debt or equity financing, on an as needed basis and in the longer term, upon achieving profitable operations through its business activities.

 

NOTE 11 - SUBSEQUENT EVENTS

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to March 31, 2014 through the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described below.

 

On April 2, 2014, the Company’s Board of Directors approved and authorized through a Unanimous Consent Resolution a Posting Agreement with YouFunding, Inc. to conduct a crowd funding capital raise with a minimum funding target of $250,000 raised to a maximum of $1,250,000.

 

On April 16, 2014, the Company’s Board of Directors approved issuance of an 8% Convertible Promissory Note for additional funding from KBM Worldwide for $42,500 in principal for the same terms as the pervious promissory notes.

 

On April 16, 2014, the Company’s Board of Directors approved issuance of a Convertible Promissory Note for additional funding from JMJ Enterprises for $40,000 in principal for the same terms as the promissory note dated September 23, 2013.

17

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

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Company Overview

 

On August 12, 2013, we acquired all of the issued and outstanding common stock of Co-Signer.com, Inc., a private Nevada corporation (“Co-Signer.com”). As a result of the acquisition, we divested our former consumer electronics business and began to focus on the business of Co-Signer.com, Inc. as our primary line of business. The Company reserves the right to explore and pursue other opportunities that may be presented to its management and provide additional revenues, market share or value for the Company and its shareholders. Co-Signer.com was incorporated on December 16, 2011 as a closely held Nevada corporation for the purpose of providing real estate financial services to tenants that were required to have a cosigner for their residential lease due to either no, poor or bad credit. The service is marketed as an added-value proposition for tenant screening services, property management associations or as a direct service to property management companies and landlords willing to accept commercialized cosigning services for “good people with less than perfect” credit.”

 

We are based in the Greater Las Vegas area in Nevada.

 

Services

 

Co-Signer.com provides credit-challenged tenants with a cosigner while providing residential landlords a contracted rent payment guarantee for a specified number of months within the 12 month lease period for their specified properties, one lease at a time. This lease payment assurance program remains flexible with defaulted rent paid for either a 3-month or 6-month period of time within the 12-month contract period, depending upon the requirement or election of the landlord.

 

Co-Signer.com was established as a result of the 2008 financial and housing crises. Since the summer of 2007 to today, a large number of Americans have lost their jobs, their homes and/or their businesses resulting in having their personal wealth and credit scores severely reduced and damaging their credit history. Over this same time period, circumstances and events have occurred leaving more and more people unable to qualify for a residential lease. A survey by the Associated Press (July 2013) states that 80% of all adult Americans will experience near poverty or unemployment in their lifetime while a recent report by Experian stated that America is becoming more of a renter nation out of choice, and as such, the need for residential cosigning of leases will only grow. As a result of these circumstances, the need to have someone cosign for a residential lease has increased. In the case of many tenants, the family and friends who would have cosigned for them a few years ago are now unable to do so.

18

 

Co-Signer.com seeks to meet the increased need for lease cosigners with the concept of commercializing residential rent guarantees (cosigning) as a professional financial service on a tenant-fee paid basis. Our service replaces the traditional need to rely on family and friends to cosign on a lease with an affordable and professional service that benefits both tenant and landlord; similar to the very same type of service that has been a mainstay in Australia’s residential leasing industry for over the past twenty years. This surety service product directly benefits the landlord and those responsible for the collection of residential rents while being paid for by an independent second party, the tenant. Instead of looking for an individual to be their guarantor or co-signer, or having to pay a significantly larger security deposit or prepaid rent, a renter may qualify to purchase a lease guarantee from Co-Signer.com to satisfy the landlord's financial and credit requirements. Additional benefits are available to the paying tenant, including a credit reporting option on the tenant’s rent payments during the contract period.

 

Over the past thirty three (33) months, Co-Signer.com has continued to develop, refine and field-test its business model and rent guarantee programs in targeted markets across the United States. Co-Signer.com’s management believes that the Company has a unique service ready to be distributed in the top twenty-five U.S. rental markets.

 

Co-Signer.com utilizes special underwriting parameters through its proprietary online application and processing service, and provides a friendly and easy online landlord relations platform. Co-Signer.com seeks to be the premiere solution for residential cosigning services and provides this service line under Co-Signer.com brand name.

 

Based upon the acceptance by the real estate industry it has experienced to date, the management of Co-Signer.com believes its business model is sustainable whether the contracted service is for a residential lease for a single family home or an apartment lease in a multiple unit complex. Co-Signer.com’s growth strategy is based on the expansion of its residential lease payment program and on bundling this program with tenant screening and residential placement services online. The Company’s goal is to make the use of commercial rent assurance the U.S. industry standard and to focus its resources and market awareness efforts on landlords and property managers, educating them on the simplicity and value of the Company’s service that facilitates housing for tenants and maximizes occupancy rates and cash flow for landlords. With almost 39,000,000 rental units in the United States and 1 out of every 4 adults having poor, bad, or no credit, the demand for commercialized cosigning services provides a real growth opportunity.

 

Suppliers and Service Providers

 

In an exclusive website, database and IT services contract, Co-Signer.com retained Imagine Media Group, LLC, a high-level security approved U.S. military and government IT services provider, to develop and maintain its online presence, including database development, application processing and evaluation and an integrated tenant screening, sales and marketing program with all proprietary rights retained by Co-Signer.com. Imagine Media Group has been an experienced web site, database, and process developer for the banking, military and financial services industries for over the past 15 years. The agreement with Imagine Media Group was executed by LetUsCosign.com, Inc., a company previously acquired by Co-Signer.com. A renewed agreement was executed on July 1, 2013 for three years.

 

In an affiliate agreement dated February 14, 2012, Co-Signer.com contracted with National Tenant Network, Inc. (“NTN”) to provide tenant screening information and services through NTN’s online portal, www.NTNOnline.com and to exclusively market each other’s services to their clients and to the public. This annual agreement provides that Co-Signer.com will be the only rent guarantee service to be promoted by NTN through all of its marketing channels, including all online affiliates nationwide, while providing daily online tenant screening ratings to assist in the evaluation of tenants applying for Co-Signer.com’s services. This agreement is cancelable with a 30 day written notice. NTN is recognized as a leading tenant screening service for the single-family residential leasing business throughout the United States, and it has been awarded for its marketing campaigns at industry events and for its presence online within the property management industry. Co-Signer.com’s written agreement with NTN has formally expired. Co-Signer.com entered an agreement on January 6, 2014 with Contemporary Information Corporation (CIC), the nation's highest rated credit information service bureau, which provides comprehensive tenant screening services to over 10,000 property managers.

 

In April of 2013, Co-Signer.com signed a consulting agreement with a marketing architect to lead the final development and deployment of its sales and marketing strategy and expand its brand recognition in the top twenty-five U.S. rental markets. The marketing consultant has over 15 years of experience helping private investors and business owners audit, develop and manage their portfolio of business brands.

19

 

Expansion and Development

 

Co-Signer.com currently has provided services to over sixty tenant clients and approximately three dozen landlords and property management companies in targeted U.S. metropolitan markets. Co-Signer.com has developed a multi-level marketing plan to promote, sell and distribute its services to the following marketplaces and audiences:

 

· Real estate brokers and realtors in the top 25 U.S. rental markets;
· All realtors who service specialize in single-family and multi-residential short sales;
· The top 500 property management companies in the U.S.;
· The apartment association for each of the 50 U.S. states and the local chapters in the top 25 U.S. rental markets; and
· The members of the National Association of Realtors, the National Apartment Association, and the National Association of Real Property Managers, an association specializing in the single-family home leasing industry.

 

Results of Operations

 

The closing of our acquisition of Co-Signer.com, Inc. has been characterized as a reverse capitalization; therefore, the results of operations presented are those of Co-Signer.com, Inc. The historical financial statements are the financial statements of Co-Signer.com, Inc. which have been presented to retroactively reflect the historic capitalization of the accounting acquiree.

 

Results of Operations for the Three Months ended March 31, 2014 and 2013.

 

Revenue

For the three months ended March 31, 2014, revenue was $11,597 compared to $20,568 for the three months ended March 31, 2013; a decrease of $8,971 or 43%.

 

Cost of Revenue

During the three months ended March 31, 2014 we had one client default their lease obligation for which we were liable. This resulted in a cost of revenue expense of $3,075.

 

Operating Expenses

Professional fees for the three months ended March 31, 2014 were $30,686, as compared to $6,165 for the three months ended March 31, 2013, an increase of $24,521 or 398%.  Professional fees mainly consist of legal, auditor and other fees associated with the Company’s quarterly filings and year end audit. The increase in the current period can be attributed to an increase in these fees associated with our new reporting status.

 

Salaries and wage expense for the three months ended March 31, 2014 was $39,894, as compared to $21,037 for the three months ended March 31, 2013, an increase of $18,857 or 89%.   The increase in the current period is attributed to changes within management personnel.

 

Advertising and promotion expense for the three months ended March 31, 2014 was $64,638, as compared to $14,240 for the three months ended March 31, 2013. The increase is due to increased efforts to promote the business.

 

Stock based compensation is a non cash expense incurred from the issuance of shares of the Company’s common stock, warrants and options which have been issued for services to both employees and other service providers. During the three months ended March 31, 2014, we incurred $53,896 of expense as a result of fair valuing options and warrants that were issued. We recorded $40,000 for the issuance of 1,000,000 shares of common stock to our CEO and $368,531 for issuance of shares to various service providers.

 

General and administrative expense for the three months ended March 31, 2014 was $128,567, as compared to $20,916 for the three months ended March 31, 2013, an increase of $107,651. The increase can be attributed to an increase in the expense incurred for outside services, travel and increases in other general business expenses in conjunction with increased operations.

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Other income and expense

 

During the three months ended March 31, 2014 we incurred $87,227 of expense for amortization of debt discount, derivative expense of $154,141 and had a gain on the change in fair value of our derivative liability of $141,210, none of which we had in the prior year. These new gains and losses are a result of the derivative accounting required for the issuance of convertible debt. There was also a loss on the issuance of debt of $260,000 and an increase in interest expense of $44,458, both of which were $0 in the prior period.

 

Net Loss

Overall we recorded a net loss of $1,122,306 for the three months ended March 31, 2014, as compared to a net loss of $41,790 for the three months ended March 31, 2013, an increase of $1,080,516.   As discussed above the increase in net loss can in part be attributed to stock issued for services, an increase in the amortization of debt discount, derivative and interest expense and the loss on extinguishment of debt.

 

Liquidity and Capital Resources

 

As of March 31, 2014, we had an accumulated deficit of $3,480,976 and a working capital deficit of $1,788,966. For the three months ended March 31, 2014, net cash used in operating activities was $221,176 and we netted $221,200 from financing activities.

 

On June 29, 2012, we issued a $488,489 Convertible Promissory Note and Security Interest in favor of a trade creditor representing the past due invoices of the creditor for professional fees. During the year ended December 31, 2013, the creditor advanced a total of $8,006 for payment of our operating expenses whereby increasing the principal balance of the note to $491,465. The note is collateralized through the granting of a Security Interest in all the current and future assets of the Company until such time the note is fully satisfied. The Security Interest was subsequently perfected by the holder through filing. As amended, the Convertible Promissory Note is now due in full on or before May 31, 2014. The conversion price of the Note, amended, is $0.075 per share. Additionally, certain accounts payable and accrued expenses of $278,962 due to the creditor for services provided subsequent to the issuance of the original obligation were added to the Note, making the current balance of the Note $812,249.

 

In connection with our recent acquisition of Co-Signer.com., Inc, we also issued a total of $51,440 in 8% Secured Notes to a total of ten former shareholders of Co-Signer.com. The 8% Secured Notes are due in five years and accrue interest at an annual rate of eight percent (8%). Interest accrued under the 8% Secured Notes is due in semi-annual payments. All payments of interest due under the 8% Secured Notes may, at our option, be paid in shares of our common stock valued at a price per share equal to the average of the closing market prices for our common stock during five trading days immediately preceding the due date for such payment. Our obligations under the 8% Secured Notes are secured by a lien on all of our assets granted under Article 9 of the Uniform Commercial Code.

 

On June 12, 2013, the Company executed a promissory note with Robert and Suzanne Roysden for $10,000. The loan has no stated interest rate and was due August 12, 2013. The note does not bear interest but did include a loan fee of $5,000. During the quarter ended March 31, 2014, $3,000 was repaid on the loan and the loan was extended with no specific terms of repayment.

 

On September 23, 2013, we entered into a $400,000 Promissory Note (the “Note”) with JMJ Financial (“JMJ”). The face amount of the Note includes an original issue discount of $40,000. The initial advance to be made under the Note by JMJ is $50,000. JMJ may, after making this initial advance, lend us additional sums under the terms of the Note in such amounts and at such dates as it chooses. The Note matures in one year from the date of issue. If repaid within ninety (90) days from the date of issue, the Note will not bear interest. Upon ninety days after the date of issue, a one time interest charge of twelve percent (12%) of the principal amount will be applied. JMJ may convert all or part of the Note, at its discretion, into shares of our common stock. The conversion price is sixty percent (60%) of the lowest trading price for our common stock in the twenty-five trading days immediately preceding the conversion date. The Company received its second payment from JMJ towards the loan of $22,000 on December 9, 2013. On April 16, 2014, we received an additional $40,000 advance under Note, as documented by an Amendment to the Note dated April 16, 2014.

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On November 1, 2013, we entered into a $30,000, 9% Convertible Promissory Note with Charles J. Kalina III. The note bears interest at 9% and matures in two years. The loan is convertible at any time into shares of common stock at $0.075 per share beginning one year from the date of the note. In addition, the note requires the issuance of warrants to purchase 400,000 shares of common stock at a price of $1.25, exercisable for three years.

 

On November 1, 2013, we entered into a 9% Convertible Promissory Note with Stephen J. Smith for $16,000. The note bears interest at 9% and matures in two years. In addition, the note requires the issuance of warrants to purchase 266,667 shares of common stock at a price of $1.25, exercisable for three years.

 

On November 4, 2013, we obtained short term financing from a Lender under a 9% Convertible Note in the amount of $70,000 (the “Short-Term Note”). The Short-Term Note features an original issue discount of $6,700. The $63,300 in funding received from the Lender was used to pay off and retire a prior Convertible Promissory Note issued to Asher Enterprises, Inc., dated April 9, 2013. The Short-Term Note accrues interest at a rate of nine percent (9%) per year, with all principal and interest due in full within thirty days from the date of issue. The Short-Term Note is currently in default. At any time, the Short-Term Note may be converted, in whole or in part at the option of the holder, at a price of $0.075 per share.

 

We have also received short term financing from Asher Enterprises, Inc. (“Asher”) under a series of Securities Purchase Agreements (the “SPAs”) and a Convertible Promissory Notes (the “Notes”). The Notes bear interest at an annual rate of 8%, with principal and interest coming due approximately nine (9) months from issue. The Note may be converted in whole or in part, at the option of the holder, to shares of our common stock, par value $0.001, at any time following 180 days after the issuance dates of the Notes. The conversion price under the Notes is a 42% discount to the Market Price of our common stock on the conversion date.

 

Our financings to date with Asher are as follows:

 

Date  Due Date  Principal Amount
 November 25, 2013   August 27, 2014  $42,500 
 January 9, 2014   October 10, 2014  $32,500 
 March 3, 2014   December 5, 2014  $32,500 
     Total  $107,500 

 

On January 27, 2014, the Company executed a convertible promissory note for $37,500 with Darren Magot, a member of the Board of Directors. The note includes a $2,500 loan origination fee, accrues interest at 8% and matures in 180 days. As of March 31, 2014 $3,000 has been repaid. The Note is convertible into common shares of our common stock at $.04 per share. In addition, we issued Mr. Magot warrants to purchase 1,000,000 shares of our common stock at $.05 per share, exercisable for three years.

 

On February 13, 2014, we entered into a $250,000 Convertible Promissory Note (the “Note”) with Black Mountain Equities, Inc. (“BME”). The face amount of the Note includes an original issue discount of $25,000. The initial advance to be made under the Note by BME is $25,000. BME may, after making this initial advance, lend us additional sums under the terms of the Note in such amounts and at such dates as it chooses. There is a one-time interest charge of ten percent (10%) and individual loans mature one year from the effective date of each payment. BME may convert all or part of the Note, at its discretion, into shares of our common stock. The conversion is equal to the lesser of a 40% discount to the lowest trading prices in the twenty-five (25) day trading price prior to the conversion date or at a fixed price if $0.025.

 

On February 26, 2014, the Company issued a Convertible Promissory Note to GCEF Opportunity Fund, LLC in the amount of $72,500, includes an original issue discount of $7,500. The note bears a onetime 12% interest charge, is unsecured and matures in one year. The Note is convertible into common stock in whole or in part at any time with a conversion price equal to a 50% discount to the average bid price in the ten day trading price prior to the conversion date. In addition to the terms outlined above the Company issued to GCEF 5,000,000 shares of common stock. The stock was valued at $0.052, the closing price on the date of the note for non cash expense of $260,000 which was recorded as a loss on the issuance of debt.

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On March 14, 2014, the Company issued a Convertible Promissory Note to Hanover Holdings I, LLC in the amount of $38,000. The note bears interest at a rate of 12% per annum, is unsecured and matures in eight months. The Note is convertible into common stock in whole or in part at any time with a conversion price equal to the lesser of a 45% discount to the lowest trading prices in the five day trading price prior to the conversion date or at a fixed price if $0.04.

 

On April 16, 2014, we received additional funding under an 8% Convertible Promissory Note dated March 20, 2014 from KBM Worldwide, Inc. The principal amount of the Note is for $42,500. The Note bears interest at an annual rate of 8%, with principal and interest coming due on December 31, 2014. The Note may be converted in whole or in part, at the option of the holder, to shares of our common stock, par value $0.001, at any time following 180 days after the issuance dates of the Note. The conversion price under the Note is a 42% discount to the Market Price of our common stock on the conversion date.

 

We currently have little operating capital and will dependent on fundraising in order to expand our operations and market our services to a wider group of potential customers. We can offer no assurance that we will obtain financing in the near future or on terms that are acceptable to us. Additional financing through public or private equity financings or other financing sources may not be available on acceptable terms, or at all.

 

Off Balance Sheet Arrangements

 

As of March 31, 2014, there were no off balance sheet arrangements.

 

Going Concern

 

We have negative working capital and have incurred losses since inception. These factors create substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

 

Our ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to include this item.

 

Item 4. Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2014. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2014, our disclosure controls and procedures were not effective. There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2014. Management determined that the material weaknesses that resulted in controls being ineffective are primarily due to lack of resources and number of employees. Material weaknesses exist in the segregation of duties required for effective controls and various reconciliation and control procedures not regularly performed due to the lack of staff and resources.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues 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 individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any other pending legal proceeding. We are not aware of any other pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A. Risk Factors

 

A smaller reporting company is not required to include this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On January 2, 2014, the Company issued 3,500,000 shares of common stock for consulting services. The shares were issued at $0.028 based on the market value of the common stock on the date of authorization for total non cash expense of $98,000, $73,500 of which has been booked to deferred stock compensation expense.

 

On January 10, 2014, the Company issued 5,350,000 shares of common stock to various employees and consultants. The shares were issued at $0.0383 based on the market value of the common stock on the date of authorization for total non cash expense of $204,905.

 

On February 12, 2014, the Company issued 250,000 shares of common stock to a member of the Board of Directors and 1,000,000 shares of common stock to its CEO for services rendered. The shares were issued at $0.04 based on the market value of the common stock on the date of authorization for total non cash expense of $50,000.

 

On February 26, 2014, the Company issued 7,000,000 shares of common stock for services. The shares were issued at $0.052 based on the market value of the common stock on the date of authorization for total non cash expense of $364,000, $301,210 of which has been booked to deferred stock compensation expense.

 

On February 26, 2014, the Company issued 5,000,000 shares of common stock to GCEF Opportunity Fund, LLC. The shares were issued in conjunction with a convertible promissory note. The stock was valued at $0.052, the closing price on the date of the note for non cash expense of $260,000 which was recorded as a loss on the issuance of debt.

 

On March 1, 2014, the Company issued 750,000 shares of common stock for services. The shares were issued at $0.058 based on the market value of the common stock on the date of authorization for total non cash expense of $43,500, $26,583 of which has been booked to deferred stock compensation expense.

 

On March 27, 2014, the Company issued 1,593,240 shares of common stock in conversion of $10,622 of principle and accrued interest. The loan was converted at $0.0067 per the terms of the agreement.

During the quarter ended March 31, 2014, Strategic IR, Inc. converted the $65,000 note payable it had assumed from Finiks Capital into 10,000,000 shares of common stock at $0.0065 per share per the terms of the original Note.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit Number Description of Exhibit
10.1 Posting Agreement with You Funding, Inc.
10.2 KBM Worldwide, Inc. Convertible Promissory Note dated March 20, 2014
10.3 KBM Worldwide, Inc. Securities Purchase Agreement dated March 20, 2014
10.4 Amendment dated April 4, 2014 to Promissory Note with JMJ Financial
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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.

 

Co-Signer, Inc.
Date: May 20, 2014
/s/ Kurtis A. Kamarenk
By: Kurtis A. Kamarenko
Title: President, Chief Executive Officer, and Chief Financial Officer

 

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