UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, DC 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For Quarter Ended:

September 30, 2012

 

Commission File Number:

000-54587

 

chatAND, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada	27-2761655
(State or Jurisdiction of	(IRS Employer ID No)
Incorporation or Organization)

 

321 West 44^th Street

New York, New York 10036

(Address of principal executive office) (zip code)

 

(212) 245-1444

(Issuer’s telephone number)

 

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 periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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. See definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

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

 

The number of shares outstanding of registrant’s common stock, par value $.0001 per share, as of November 12, 2012, was 12,500,001 shares.

 

 

chatAND, Inc. and Subsidiary

(Development Stage Companies)

 

Table of Contents

 

			Page
			No.
Part I		Financial Information (unaudited)
	Item 1:	Condensed Consolidated Financial Statements
		Balance Sheets as of September 30, 2012 and December 31, 2011	3
		Statements of Operations – For the Three and Nine Months Ended September 30, 2012 and 2011 and the period from Inception (May 14, 2010) to September 30, 2012	4
		Statement of Stockholders’ Deficit for the period from Inception (May 14, 2010) through September 30, 2012	5
		Statements of Cash Flows – For the Nine Months Ended September 30, 2012 and 2011 and the period from inception (May 14, 2010) to September 30, 2012	6
		Notes to Financial Statements	7
	Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 3:	Quantitative and Qualitative Disclosure about Market Risk	19
	Item 4:	Controls and Procedures	19
Part II		Other Information	20
	Item 1:	Legal Proceedings	20
	Item 1A:	Risk Factors	20
	Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 3:	Defaults Upon Senior Securities	20
	Item 4:	Submission of Matters to a Vote of Security Holders	20
	Item 5:	Other Information	20
	Item 6:	Exhibits	20

 

 

Part I: FINANCIAL INFORMATION

 

Item 1: CONDENSED FINANCIAL StatemenTS

 

chatAND, Inc. and Subsidiary

(Development Stage Companies)

Consolidated Balance Sheets

September 30, 2012 (Unaudited) and December 31, 2011

 

		2012				2011
ASSETS
Current assets:
Cash and cash equivalents		$	-			$	391,676
Prepaid expenses			1,616				14,896
TOTAL CURRENT ASSETS			1,616				406,572
Property and equipment, net			8,128				7,257
Other intangible assets - intellectual property			9,841				9,841
TOTAL ASSETS		$	19,585			$	423,670
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable		$	147,849			$	46,030
Accrued expenses			162,916				23,021
Loans from employees			21,600				-
Note payable			75,000				-
Senior convertible debentures			850,000				780,437
TOTAL LIABILITIES			1,257,365				849,488
Commitments and contingencies (Note 7)
Stockholders' deficit:
Preferred stock:  $0.00001 par value; 100,000,000 shares authorized; no shares issued and outstanding			-				-
Common stock:  $0.00001 par value; authorized 500,000,000 shares; issued 17,750,001 shares (Note 5) ; and outstanding 12,750,001 shares at September 30, 2012 and December 31, 2011			128				128
Additional paid in capital			375,252				375,252
Accumulated deficit			(1,613,160	)			(801,198	)
TOTAL STOCKHOLDERS' DEFICIT			(1,237,780	)			(425,818	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	19,585			$	423,670

 

See accompanying notes to condensed consolidated financial statements.

 

 

chatAND, Inc. and Subsidiary

(Development Stage Companies)

Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2012 and 2011 and the period from

Inception (May 14, 2010) through September 30, 2012

(Unaudited)

 

																		From
																		Inception
		Three Months Ended								Nine Months Ened								(May 14, 2010)
		September 30,								September 30,								to September 30,
		2012				2011				2012				2011				2012
Revenue:
Total revenue		$	-			$	-			$	-			$	-			$	-
Total revenue			-				-				-				-				-
Costs and expenses:
General and administrative expense			140,238				179,607				511,643				179,607				890,683
Research and development expense			50,735				25,252				174,747				62,883				312,765
Non-cash compensation for officers			-				-				-				162,177				162,177
Total expenses			190,973				204,859				686,390				404,667				1,365,625
Earnings (loss) from operations			(190,973	)			(204,859	)			(686,390	)			(404,667	)			(1,365,625	)
Other income (expense)
Interest income			-				567				171				567				1,045
Interest expense			(11,626	)			(56,694	)			(125,743	)			(66,143	)			(248,580	)
Total other income (expense)			(11,626	)			(56,127	)			(125,572	)			(65,576	)			(247,535	)
Net earnings (loss)		$	(202,599	)		$	(260,986	)		$	(811,962	)		$	(470,243	)		$	(1,613,160	)
Net earnings (loss) per share, basic and diluted		$	(0.02	)		$	(0.02	)		$	(0.06	)		$	(0.04	)
Weighted average shares outstanding			12,500,001				12,500,001				12,500,001				11,685,137

 

See accompanying notes to condensed consolidated financial statements.

 

 

chatAND, Inc. and Subsidiary

(Development Stage Companies)

Consolidated Statement of Stockholders' Deficit

For the period from inception (May14, 2010) through September 30, 2012

 

(Unaudited)

 

																										Deficit
																										Accumulated
																						Additional				During the
						Preferred Stock								Common Stock								Paid-in				Development
		Date				Shares				Par Value				Shares				Par Value				Capital				Stage				Total
Balance at May 14, 2010							-			$	-				-			$	-			$	-			$	-			$	-
Common stock issued for:							-				-				-				-
Cash			6/11/2010				-				-				15				49,995				-				-				49,995
Intellectual property			6/11/2010				-				-				70				233,310				(221,877	)			-				11,433
Net loss							-				-				-				-				-				(45,594	)			(45,594	)
Amendment to Articles of Incorporation			6/3/2011				-				-				10,837,415				(283,197	)			283,197				-				-
Balance, December 31, 2010							-				-				10,837,500				108				61,320				(45,594	)			15,834
Common stock issued for services by officers			6/1/2011				-				-				1,912,501				20				49,975				-				49,995
Detachable warrants issued with convertible debentures			6/17/2011				-				-				-				-				151,775				-				151,775
Warrants issued for services by officers			6/17/2011				-				-				-				-				112,182				-				112,182
Net loss							-				-				-				-				-				(755,604	)			(755,604	)
Balance, December 31, 2011							-				-				12,750,001				128				375,252				(801,198	)			(425,818	)
Net loss							-				-				-				-				-				(811,962	)			(811,962	)
Balance, June 30, 2012							-			$	-				12,750,001			$	128			$	375,252			$	(1,613,160	)		$	(1,237,780	)

 

See accompanying notes to condensed consolidated financial statements.

 

 

chatAND, Inc. and Subsidiary

(Development Stage Companies)

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2012 and 2011 and the period

From Inception (May 14, 2010) to September 30, 2012

(Unaudited)

 

										From
										Inception
		Nine Months Ended								(May 14, 2010)
		September 30,								to September 30,
		2012				2011				2012
Cash flows from operating activities:
Net earnings (loss)		$	(811,962	)		$	(470,243	)		$	(1,613,160	)
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Depreciation and amortization			1,438				335				2,241
Amortization of warrant cost			69,563				44,268				151,775
Common stock and warrants issued to officers for compensation			-				162,177				162,177
Research and development cost acquired for stock			-				-				11,433
Change in assets and liabilities:
Prepaid expenses			13,280				(25,159	)			(1,616	)
Accounts payable			101,819				1,556				147,849
Accrued expenses			139,894				12,396				162,915
Net cash used by operating activities			(485,968	)			(274,670	)			(976,386	)
Cash flows from investing activities:
Purchase of intellectual property			-				(6,500	)			(9,841	)
Purchase of furniture and equipment			(2,308	)			(5,382	)			(10,368	)
Net cash used by investing activities			(2,308	)			(11,882	)			(20,209	)
Cash flows from financing activities:
Proceeds from senior convertible debentures			-				850,000				850,000
Loan proceeds			75,000				-				75,000
Loans from employees			21,600				-				21,600
Sale of common stock			-				-				49,995
Net cash provided by financing activities			96,600				850,000				996,595
Net increase in cash and cash equivalents			(391,676	)			563,448				-
Cash and cash equivalents, beginning of period			391,676				11,941				-
Cash and cash equivalents, end of period		$	-			$	575,389			$	-
Supplemental cash flow information
Cash paid for interest and income taxes
Interest		$	8,500			$	-			$	8,500
Income taxes			-				-				-
Non-cash investing and financing activities:
Common stock issued for research and development cost		$	-			$	-			$	11,433

 

See accompanying notes to condensed consolidated financial statements.

 

 

chatAND, Inc. and Subsidiary

(development stage companies)

Notes to Condensed Consolidated Financial Statements

 

NOTE 1:

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and Organization

The financial statements include the accounts of chatAND, Inc. (“chatAND”), a Nevada corporation organized on May 14, 2010 and its wholly owned subsidiary CHATAND TECH, LLC (“TECH”), a limited liability company organized in Nevada on May 13, 2011, (collectively referred to herein as “Chat&” or the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

 

Effective June 3, 2011, the Board of Directors approved a 127,500 for 1 forward split of the authorized, issued and outstanding common stock of the Company and a decrease in the par value per share from $3,333 to $0.00001. An amendment to the Company’s certificate of incorporation reflecting these changes was filed in Nevada on June 3, 2011. All share references have been restated to give effect to the forward split as if it happened prior to the periods presented.

 

The consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These consolidated financial statements have not been audited.

 

Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report for the period ended December 31, 2011, which is included in the Company’s Form S-1 which was effective May 14, 2012.

 

Nature of business

Chat& is a technology company that intends to provide online assistance, engagement and conversion solutions that allow for real-time assistance. The technology will provide a platform that connects businesses, their sales associates and customer service representatives with website visitors and online shoppers seeking assistance with their purchases. The Chat& software is a 100% hosted no download software-as-a-service ("SaaS") application that allows the live sales and support staff of a business to connect directly with customers in a 1 to 1 real-time session. Utilizing Video-Chat and Co-Browsing, Chat& aims to redefine the online shopping experience by virtually recreating all of the benefits of a live showroom environment within a website.

 

Going Concern

The Company has not established sources of revenue sufficient to fund the development of business, projected operating expenses and commitments for the next twelve months. The Company incurred a loss of $1,613,160 during the period from inception (May 14, 2010) through September 30, 2012. The loss includes $162,177 in non-cash compensation and $151,775 in amortization of warrant cost.

 

 

The Company completed funding of $850,000 in secured convertible debentures in June 2011. The debentures were due June 17, 2012. The due date of the secured convertible debentures was extended until December 15, 2012. The Company borrowed $75,000 from an unrelated individual on June 11, 2012 with interest at 5% per annum. The note is due March 31, 2013. The Company has an effective Form S-1 Registration Statement, and hopes to raise between $3,000,000 and $8,000,000 to allow it to complete its business plan. However, there is no assurance that the Company will be successful in raising the funds or in obtaining enough customers to provide sufficient revenue to complete its business plan and achieve profitable operations or that the funds received will be sufficient to achieve the Company's goals.

 

These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying statements have been prepared assuming that the Company will continue as a going concern. These financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.

 

Recent accounting pronouncements

The Company has evaluated all recent accounting pronouncements through November 13, 2012, as issued by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASU") and find none that would have a material impact on the financial statements of the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results.

 

NOTE 2: INTELLECTUAL PROPERTY

 

The Company is currently developing software that it expects will provide online assistance, engagement and conversion solutions that allow for real-time assistance. The technology provides a platform that connects businesses, their sales associates and customer service representatives with website visitors and online shoppers seeking assistance with their purchases. The Chat& software is a 100% hosted no download software-as-a-service ("SaaS") application that allows the live sales and support staff of a business to connect directly with customers in a 1 to 1 real-time session. Utilizing Video-Chat and Co-Browsing, Chat& aims to redefine the online shopping experience by virtually recreating all of the benefits of a live showroom environment within a website. The intellectual property will be amortized over its estimated useful life when the Company commences operations.

 

The Company acquired its initial intellectual property in the form of research and development cost from its principal shareholders during 2010 for 8,925,000 shares of its common stock, which was valued at $11,443. The acquired research and development cost was expensed upon completion of the acquisition. At both September 30, 2012 and December 31, 2011, the Company had paid cash in the total amount of $9,841 for additional software development.

 

The Company has assigned all of its intellectual property rights to its wholly owned subsidiary, TECH. TECH’s sole activity and assets are the ownership of our intellectual property. The Securities Purchase Agreement with the Senior Secured Note Holders provides that in the event the holders of the Senior Secured Notes declare a default for the reasons below, Messrs. Lebor and Rosenberg shall have the right to acquire up to 60% of the interest in TECH in exchange for cancellation by the Company of the shares issued to Messrs. Lebor and Rosenberg:

 

·

The Company’s product is not functional by June 30, 2012 (the Company’s product is functional as of June 30, 2012);

·

The Company has not sold at least 150 licenses by June 30, 2012 (None have been sold as of September 30, 2012);

·

The Registration Statement was not declared effective by May 15, 2012, or as extended by a majority of the Senior Secured Note Holders (the Registration Statement was declared effective on May 14, 2012); or

·

The issuance of any securities or incurrence of any debt without the prior written consent of the Senior Secured Note Holders.

 

 

Accordingly, in the event that the Company does not meet any of these performance goals, it is possible that Messrs. Lebor and Rosenberg may disassociate themselves from the Company, but will retain a 60% interest in the technology of the Company. At such time, the Company may no longer have control of the technology.

 

NOTE 3: SENIOR CONVERTIBLE DEBENTURES

 

The Company issued $850,000 in Senior Secured Debentures ("Debentures") on June 17, 2011. The Debentures: are convertible into shares of the Company's common stock at a conversion price of $0.10 per share; mature on June 17, 2012; bear interest at the rate of 5% per annum, payable quarterly in arrears (the Company has the option to pay interest in common stock at the then prevailing conversion price); are secured by a stock pledge by stockholders in the Company (other than the Investors) of all of their holdings in the Company; and limitation on additional indebtedness. At September 30, 2012, the accrued interest of $54,668 is unpaid. The due date of the Debentures has been extended to December 15, 2012.

Events of default include: 1) the product not being functional within 12 months of the issue date of the Debentures; 2) the Company has not sold at least 150 licenses within 12 months of the issue date of the Debentures; 3) the Registration Statement was not declared effective by May 15, 2012 4) the issuance of any securities or incurrence of any debt without the prior written consent of the Debenture Holders; and 5) other customary events of default. The Registration Statement was not filed within 45 days of closing and the Company obtained a waiver from the Investors. The Company has received forbearances until December 15, 2012 from the investors with respect to the foregoing events of default.

 

The Debenture Holders were also issued Warrants to acquire a total of 4,250,000 shares of the Company's common stock at an exercise price of $0.15 per share for a five year term. See Note 8.

 

The Debentures and the Warrants have standard anti-dilution protection for stock splits and other corporate matters.

 

The Debentures are convertible at $0.10 per share which exceeded the value of the stock on the date issued. Accordingly, there was no value assigned to a beneficial conversion feature. The Company utilized the Black Scholes valuation model to value the warrants sold with the Debentures. (See Note 5 for assumptions). The following summarizes the activity with the Debentures and warrants.

 

Proceeds from issue of Debentures and warrants		$	850,000
Assigned to warrants			151,775
Balance assigned to Debentures			698,225
Amortization of amount assigned to warrants (included in interest expense)			151,775
Balance of Debentures at September 30, 2012		$	850,000

 

The Company amortized the discount associated with the warrants over the life of the debentures. Interest expense includes amortization of $69,563 and $44,268 in the nine months ended September 30, 2012 and 2011 and $0 and $37,944 in the three months ended September 30, 2012 and 2011, respectively. The discount is fully amortized at September 30, 2012.

 

 

NOTE 4: NOTE PAYABLE

 

On June 11, 2012, the Company entered into and funded an unsecured loan with an unrelated individual for $75,000 with interest at 5% per annum, which is payable at the maturity date of March 31, 2013. At September 30, 2012, accrued interest of $1,137 is unpaid. Interest expense in 2012 includes $943 and $1,137 in the three and nine months ended September 30, 2012, respectively.

 

NOTE 5: STOCKHOLDERS’ EQUITY

 

Preferred Stock - The Company is authorized to issue up to 100,000,000 shares of preferred stock with a par value of $0.00001. At September 30, 2012 and December 31, 2011 there were no shares issued and outstanding.

 

Common Stock - The Company is authorized to issue up to 500,000,000 shares of common stock with a par value of $0.00001. At September 30, 2012 and December 31, 2011 there were 17,750,001 shares issued and 12,750,001 shares outstanding. (See escrow shares below).

 

Common Stock Issued for Services - On June 1, 2011, the Company issued 956,250 shares of its common stock to each of its two principal officers for services rendered. The shares were valued at $49,995.

 

Changes in Capital – Effective June 3, 2011, the Board of Directors approved a 127,500 for 1 forward split of the authorized, issued and outstanding common stock of the Company and a decrease in the par value per share from $3,333 to $0.00001. The amendment to the Company’s articles of incorporation reflecting these changes was filed in Nevada on June 3, 2011. All share references have been restated to give effect to the forward split.

 

On June 3, 2011, pursuant to shareholder approval, the Company amended its Articles of Incorporation and increased its authorized common stock, par value $0.00001, to 500,000,000 shares and authorized 100,000,000 shares of preferred stock par value $0.00001.

 

Warrants - As a part of the Debenture issuance, warrants to acquire 4,250,000 shares of common stock were issued to the Debenture Investors and warrants to acquire 4,250,000 shares of common stock were issued to the existing shareholders. All of the warrants are exercisable at $0.15 per share. The total of 8,500,000 warrants includes 3,612,500 issued to employee shareholders, 4,250,000 issued to the Debenture Investors and 637,500 issued to non-employee shareholders.

 

The fair value of each group of warrants on the date issued was estimated using the Black-Scholes valuation model. The following assumptions were used for the warrants granted in June 2011. See Note 8.

 

Expected term			5 years
Expected average volatility			75	%
Expected dividend yield			0	%
Risk-free interest rate			3.50	%

  

 

The following table summarizes the valuation of the warrants.

 

		Warrants				Value
Warrants issued with Debentures to Investors			4,250,000			$	131,978
Warrants issued to non-employee shareholders			637,500				19,797
Total attributed to warrants issued with debt			4,887,500				151,775
Warrants issued to employee shareholders			3,612,500				112,182
			8,500,000			$	263,957

 

The $151,775 was initially recorded as a credit to additional paid in capital and a reduction (discount) of the Debentures. As of September 30, 2012, $151,775 had been amortized to interest expense ($69,563in 2012) and credited back to the Debenture account. The $112,182 was recorded as a credit to additional paid in capital and expensed in non-cash compensation for officers in June 2011.

 

Escrow shares – In connection with the Debenture issuance, the Company issued 5,000,000 shares of its common stock to the principal shareholders of the Company in escrow. The shares may be released from escrow to the principal shareholders (or their designees) in accordance with a release schedule. The schedule provides that 3,300,000 shares will be released upon the Company reaching $1,000,000 in audited revenues over any consecutive 12 month period with the remaining shares released when the Company reaches $3,000,000 in audited revenues over any consecutive 12 month period. If either of the revenue goals has not been reached by June 30, 2016, the remaining shares will be cancelled. The escrow shares were issued solely in connection with the Debenture issuance, and accordingly, while disclosed as issued they are not considered outstanding and no accounting has yet been made. The accounting for the escrow shares will be completed when the shares are released from escrow.

 

NOTE 6: RELATED PARTY TRANSACTIONS

 

During the period from inception (May 14, 2010) to December 31, 2010, the Company issued 4,462,500 shares to two of its directors and its principal shareholders in exchange for the intellectual property described in Note 2. The intellectual property was valued at the cost of the research and development costs expended by the shareholders.

 

On June 1, 2011, the Company issued 956,250 shares of its common stock to each of its two principal officers for services rendered. The shares were valued at $49,995.

 

On June 17, 2011, the Company issued warrants to acquire 3,825,000 shares of the Company's common stock for a five year term at $0.15 per share to its two principal officers and shareholders. The warrants were valued at $112,182 and recorded as officers’ compensation. See Note 8.

 

At September 30, 2012, accrued expenses include accrued payroll for Michael Lebor of $46,093 and David Rosenberg of $22,614. Also at September 30, 2012, loans from employees includes a loan of $4,200 from David Rosenberg and $17,400 from another employee.

 

Employment agreements

On June 17, 2011, the Company and Michael Lebor entered into an employment agreement with an initial term ending June 30, 2014. Mr. Lebor was employed as Chief Executive Officer and Secretary for the Company. The agreement provides for a base salary of $150,000 per annum, eligibility for an annual incentive bonus of 15% of base salary and discretionary bonuses as approved by the board of directors, health and life insurance and telephone and car allowances. The agreement also provides non-compete provisions, restrictive covenants and other provisions typical of executive employment agreements. 

 

On June 17, 2011, the Company and David Rosenberg entered into an employment agreement with an initial term ending June 30, 2014. Mr. Rosenberg was employed as President for the Company. The agreement provides for a base salary of $150,000 per annum, eligibility for an annual incentive bonus of 15% of base salary and discretionary bonuses as approved by the board of directors, health and life insurance and telephone and car allowances. Mr. Rosenberg has agreed to a reduced salary of $75,000 per annum pending the effectiveness of the Registration Statement. The agreement also provides non-compete provisions, restrictive covenants and other provisions typical of executive employment agreements.

 

 

NOTE 7: COMMITMENTS AND CONTINGENCIES

 

Office lease

The Company executed a lease agreement for office space with the term commencing July 15, 2011 and ending July 31, 2012 at a monthly rate of $3,250, including utilities and other occupancy costs. The office lease will continue beyond July 31, 2012 on a month-to-month basis under the same terms.

 

Form S-1

The Company filed a Registration Statement on Form S-1 (“S-1”) with the SEC and subsequently filed pre-effective amendments. The Registration Statement was declared effective May 14, 2012.

 

Through the Form S-1, the Company proposes to raise a minimum of $3,000,000 (7,500,000 common shares and warrants to acquire 3,750,000 common shares) up to a maximum of $8,000,000 (20,000,000 common shares and warrants to acquire 10,000,000 common shares) through sales of Units. Each Unit consists of one share of common stock and a warrant to acquire ½ share of common stock. The Unit is expected to be priced at $0.40.

 

The Company has an obligation to maintain the effectiveness of the registration statement until the warrants are either exercised or expire. Since it is considered to be outside the Company’s control to guarantee we can maintain effectiveness of the registration statement, the portion of the proceeds allocated to the warrants will be recorded as a liability when funding occurs. Based on preliminary pricing, the warrant liability would be $632,339 and $1,686,237 for the minimum and maximum sales, respectively. The actual amount will be determined when the transaction is completed and may vary from the preliminary amount. Subsequently, the liability will be revalued at the end of each quarter until the warrants are either exercised or expire.

 

NOTE 8: SUBSEQUENT EVENT

 

The Company’s Senior Secured Debentures originally matured on June 17, 2012. Effective June 16, 2012, the holders of the Company’s Senior Secured Debentures (“Buyers”) agreed to forebear from enforcing any of their rights under the agreement prior to August 31, 2012.

 

On November 14, 2012, the Company, the Buyers and the principal shareholders of the Company (“Existing Shareholders”) entered into another Forbearance Agreement (“Agreement”). The terms of the agreement provide: a. the Agreement is not a waiver of existing defaults, but a forbearance of their rights by the Buyers until December 15, 2012; b. the 3,612,500 warrants held by the Existing Shareholders are cancelled and reissued to the Buyers pro-rata; c. the current members of the Company’s Board of Directors will resign and cause the election of 3 representatives of Buyer to constitute the full Board of Directors; d. the Board of Directors of TECH will add 2 representatives of Buyer and fix the size of TECH’s Board of Directors at four members; and e. the term of the warrants will be extended from five years to seven years.

 

The Company is currently working with the Buyers to complete documentation of the Agreement.

 

 

ITEM 2:

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

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Form 10-Q. This discussion and analysis may contain forward-looking statements based on assumptions about our future business. 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 set forth elsewhere in this Form 10-Q.

 

Management's Analysis of Business

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. These estimates and assumptions relate to estimates of the carrying amount of intangibles, stock based-compensation, valuation allowances for deferred income taxes, accounts receivable, the expected term of a client relationship, accruals and other factors. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material.

 

Chat& is a technology company that expects to provide online assistance, engagement and conversion solutions that allow for real-time assistance. The technology provides a platform that connects a business, its sales associates and customer service representatives with website visitors and online shoppers seeking assistance with their purchases.

 

On June 17, 2011, the Company issued $850,000 in Senior Secured Debentures to provide the initial funding needed to market and develop the business.

 

The Company is considered a development stage company because it has limited resources and has not established operations to generate sufficient capital to complete its business plan.

 

JOBS Act

 

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies. Additionally, we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act to Emerging Growth Companies.

 

 

Subject to certain conditions set forth in the JOBS Act, as an emerging growth company, we intend to rely on certain of these exemptions, including without limitation, not providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and not complying with any requirement that may be adopted regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply for a period of five years following the completion of our initial public offering although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31.

  

Results of Operation

 

Three months ended September 30, 2012 compared to three months ended September 30, 2011

 

Following is a summary of expenses for the three months ended September 30, 2012 and 2011.

 

		2012				2011
General and administrative expense		$	140,238			$	179,607
Research and development expense			50,735				25,252
		$	190,973			$	204,859

 

The Company did not receive any appreciable funding until June 2011; accordingly the majority of the expenses incurred for general and administrative expense did not commence until that time.

 

General and administrative expenses are summarized as follows:

 

		2012				2011
Payroll		$	71,597			$	72,111
Professional fees			45,614				63,338
Rent			9,750				9,852
Insurance			8,276				5,101
Other			5,001				29,205
		$	140,238			$	179,607

 

These costs are expected to increase in the future as additional funding becomes available and additional employees are hired. The Company has had reduced funding available in the 2012 quarter, resulting in payroll not being paid since July 2012 and a reduction in other costs until funding becomes available.

 

Research and development cost primarily consists of payroll, technology costs, and other software development costs.

 

Other income (expense) consists of the following for three months ended September 30, 2012 and 2011.

 

		2012				2011
Interest expense		$	(11,626	)		$	(56,694	)
Interest income			-				567
		$	(11,626	)		$	(56,127	)

 

 

 

 

Interest expense for the three months ended September 30, 2012 includes an accrual of $10,683 for the accrued interest on the Debentures and $943 in accrued interest on the new loan. Interest expense in 2011 includes $37,944 in amortization of the discount of the Debentures, $8,125 in amortization of prepaid loan fees and $10,625 for the accrued interest on the Debentures.

 

Interest income includes the interest earned on cash deposits.

 

Nine months ended September 30, 2012 compared to nine months ended September 30, 2011

 

Following is a summary of expenses for the nine months ended September 30, 2012 and 2011.

 

		2012				2011
General and administrative expense		$	511,643			$	179,607
Research and development expense			174,747				62,883
Non-cash compensation for officers			-				162,177
		$	686,390			$	404,667

 

The Company did not receive any appreciable funding until June 2011; accordingly the majority of the expenses incurred for general and administrative expense did not commence until that time.

 

General and administrative expenses are summarized as follows:

 

		2012				2011
Payroll		$	244,193			$	72,111
Professional fees			147,134				63,338
Rent			29,250				9,852
Insurance			30,556				5,101
Other			60,510				29,205
		$	511,643			$	179,607

 

These costs are expected to increase in the future as additional funding becomes available and additional employees are hired. The Company has had reduced funding available in the 2012 quarter, resulting in payroll not being paid since July 2012 and a reduction in other costs until funding becomes available.

 

Research and development cost primarily consists of payroll, technology costs, and other software development costs.

 

 

Other income (expense) consists of the following for nine months ended September 30, 2012 and 2011. 

 

		2012				2011
Interest expense		$	(125,743	)		$	(66,143	)
Interest income			171				567
		$	(125,572	)		$	(65,576	)

 

Interest expense includes an accrual of $31,647 for the accrued interest on the Debentures for the nine months ended September 30, 2012, $14,896 which represents the balance of the amortization of the prepaid loan cost, $69,563 which represents the balance of the amortization of the discount of the Debentures, $1,137 in accrued interest on the new loan and $8,500 which represents the amount paid to the Debenture holders to extend the required effectiveness date of the Registration Statement to May 15, 2012. Interest expense in 2011 includes $44,268 in amortization of the discount of the Debentures, $9,479 for amortization of prepaid loan fees and $12,396 for the accrued interest on the Debentures.

 

Interest income includes the interest earned on cash deposits.

 

Liquidity and Capital Resources and Going Concern

 

Historical information:

 

At September 30, 2012 and December 31, 2011, the Company had current assets of $1,616 and $406,572; current liabilities of $1,257,365 and $849,488; and a working capital deficit of $1,255,749 and $442,916, respectively.

 

During June 2011, the Company issued its 5% Senior Secured Notes with a face value of $850,000 and received proceeds of $817,500, net of legal fees of $32,500. On June 11, 2012, the Company entered into interim financing and funded an unsecured loan with an unrelated individual for $75,000 with interest at 5% per annum, payable at the maturity date of March 31, 2013. By September 30, 2012, the Company had made only nominal expenditures for capital assets.

 

Evaluation of the amounts and certainty of cash flows:

 

On June 11, 2012, the Company received $75,000 in an unsecured loan from an unrelated individual with interest at 5% per annum which is due at maturity on March 31, 2013. The Company has completed initial development of its base software within the confines of the currently available cash and expects sales to commence when they have received additional funding. Pursuant to the terms of the Registration Rights Agreement, the Company was required to have the registration effective not later than May 15, 2012. The Form S-1 Registration was declared effective May 14, 2012.

 

Assuming a minimum funding of $3,000,000 is completed; the Company expects total costs of $4,852,000 (including technology development cost of $1,160,000) during the following twelve months. This cost projection assumes that revenues will develop during the period to support the increased employment level of $757,000, the increased sales and marketing costs of $936,000 and the increased legal and professional cost of $424,000.

 

If revenues do not develop during the following year, we estimate that total costs would exceed available cash by $1,852,000, assuming no reduction in projected expenses. However, if revenues do not develop, the Company would require fewer employees, could reduce sales and marketing expenses, could reduce technology development costs and also could reduce legal and professional costs. These reductions should allow the Company to meet its reduced obligations within the $3,000,000 minimum funding. If the Company is unable to reduce expenses sufficiently, it may require additional financing to complete its business plan. The Company borrowed $75,000 in June 2012, borrowed an additional $21,600 from employees during the quarter ended September 30, 2012 and will probably require additional short term loans until the minimum funding from the Form S-1 Registration can be available.

 

 

Cash requirements and capital expenditures:

 

We are currently budgeting $58,000 per month for operating costs and $5,000 per month for software development costs for the period, until sales commence. Based on the current cash balances and interim financing plans, the Company is attempting to maintain its current level of operations until the minimum funding is received. At that time, the Company expects to increase this funding to $40,000 - $114,000 per month until development is completed.

 

Discussion and analysis of known trends and uncertainties:

 

The Company expects that it can only develop a very limited business with the debt funding already received, although it will significantly slow revenue growth and the Company's ability to capture a sizeable piece of the potential market. The additional capital from the offering would allow the Company to more quickly expand the advertising and marketing efforts and build out the technology and thus grow revenues.

 

In July 2012, the officers of the Company have discontinued payment of all salaries, and the Company will either reduce or defer software development costs and professional services to assure that it can maintain some level of operations until the minimum funding can occur.

 

The Company has assigned all of its intellectual property rights to its wholly owned subsidiary, TECH. TECH’s sole activity and asset are the ownership of the Company’s intellectual property. The Securities Purchase Agreement with the Senior Secured Note Holders provides that in the event the holders of the Senior Secured Notes declare a default for any of the reasons below, Messrs. Lebor and Rosenberg shall have the right to acquire up to 60% of the interest in TECH in exchange for cancellation by the Company of the shares issued to Messrs. Lebor and Rosenberg:

 

·

The Company’s product is not functional by June 30, 2012 (the product is functional at June 30, 2012);

·

The Company has not sold at least 150 licenses by June 30, 2012 (no sales at June 30, 2012);

·

The Registration Statement is not declared effective by May 15, 2012, or as extended by a majority of the Senior Secured Note Holders (the Registration Statement was declared effective on May 14, 2012); or

·

The issuance of any securities or incurrence of any debt without the prior written consent of the Senior Secured Note Holders.

 

Accordingly, in the event that the Company does not meet any of these performance goals, it is possible that Messrs. Lebor and Rosenberg may disassociate themselves from the Company and retain a 60% interest in the technology of the Company. In such event, it is unclear as to whether the Company will be able to continue its operations.

 

The holders of the Company’s Senior Secured Debentures have agreed to forbear from enforcing any of their rights under the Debenture agreements prior to December 15, 2012.

Expected changes in the mix and relative cost of capital resources:

 

If the Company Offering is unsuccessful, the Company expects it probably cannot develop its business plan at a slower pace and in a smaller size to develop sufficient revenue to become profitable. The Company would need to seek other forms of financing to meet its objectives. This would include convincing the debt holders to convert their debt to allow full use of funds that become available.

 

What balance sheet, income or cash flow items should be considered in assessing liquidity:

 

 

At September 30, 2012, we had no cash and no liquidity. The Company will require additional interim financing before it will be able to complete the minimum funding

 

Other prospective sources for and uses of cash:

 

The Company was unable to obtain the minimum funding from its Offering before June 1, 2012, and obtained an unsecured loan in the amount of $75,000 of interim funding to maintain its initial operations. In addition, employees loaned the Company $21,600 during the third quarter of 2012. The Company has reduced its current operating costs to approximately $50,000 per month, including $5,000 per month in initial software development cost, until sales start, at which time initial marketing and professional costs are expected to increase the monthly cash requirement to $83,000 per month on a minimum basis. The Company will require additional interim funding to meet minimum requirements until the minimum funding from the Form S-1 Registration can be obtained.

 

If the above events do not occur or the Company is unable to develop its business model, substantial doubt about the Company's ability to continue as a going concern exists.

 

 

Item 3:

QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

Item 4:

Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company's financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of September 30, 2012. Our management has determined that, as of September 30, 2012, the Company's disclosure controls and procedures are effective.

 

Changes in internal control over financial reporting

 

There have been no significant changes in internal controls or in other factors that could significantly affect these controls during the quarter ended September 30, 2012, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

PART II – OTHER INFORMATION

 

ITEM 1:

LEGAL PROCEEDINGS

 

Not applicable.

 

ITEM 1A:

RISK FACTORS

 

Not applicable.

 

ITEM 2:

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3:

DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4:

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable.

 

ITEM 5:

OTHER INFORMATION

 

Not applicable.

 

ITEM 6:

EXHIBITS

 

The following exhibits are filed with this report on Form 10-Q.

 

Exhibit 31.1		Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer
Exhibit 31.2		Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer
Exhibit 32.1		Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer
Exhibit 32.2		Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer

 

 

SIGNATURE

 

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.

 

			chatAND, Inc.
Date:	November 14, 2012	By:	/s/ Michael Lebor
			Michael Lebor
			Chief Executive Officer
Date:	November 14, 2012	By:	/s/ Steven Berger
			Steven Berger
			Chief Financial Officer