Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - chatAND, Inc. | Financial_Report.xls |
| EX-31.1 - CERTIFICATION - chatAND, Inc. | chat_ex311.htm |
| EX-31.2 - CERTIFICATION - chatAND, Inc. | chat_ex312.htm |
| EX-32.2 - CERTIFICATION - chatAND, Inc. | chat_ex322.htm |
| EX-32.1 - CERTIFICATION - chatAND, Inc. | chat_ex321.htm |
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: March 31, 2013
Commission File Number: 000-54587
chatAND, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 27-2761655 | |
|
(State or Jurisdiction of Incorporation or Organization)
|
(IRS Employer ID No) |
5940 South Rainbow Blvd
Las Vegas, NV 89118
(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 þ 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 þ 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 þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The number of shares outstanding of registrant’s common stock, par value $.00001 per share, as of April 30, 2013, was 12,500,001 shares.
chatAND, Inc. and Subsidiary
(Development Stage Companies)
2
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chatAND, Inc. and Subsidiary
|
||||||||
|
(Development Stage Companies)
|
||||||||
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March 31, 2013 (Unaudited) and December 31, 2012
|
||||||||
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2013
|
2012
|
|||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 845 | $ | - | ||||
|
TOTAL CURRENT ASSETS
|
845 | - | ||||||
|
Property and equipment, net
|
7,092 | 7,610 | ||||||
|
Other intangible assets - intellectual property
|
9,841 | 9,841 | ||||||
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TOTAL ASSETS
|
$ | 17,778 | $ | 17,451 | ||||
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 134,789 | $ | 176,800 | ||||
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Accrued expenses
|
185,733 | 152,764 | ||||||
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Loans from stockholders and employees
|
91,453 | 51,495 | ||||||
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Note payable
|
75,000 | 75,000 | ||||||
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Senior convertible debentures
|
850,000 | 850,000 | ||||||
|
TOTAL LIABILITIES
|
1,336,975 | 1,306,059 | ||||||
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Commitments and contingencies (Note 7)
|
||||||||
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Stockholders' deficit:
|
||||||||
|
Preferred stock: $0.00001 par value; 100,000,000 shares
|
||||||||
|
authorized; no shares issued and outstanding
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- | - | ||||||
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Common stock: $0.00001 par value; 500,000,000 shares
|
||||||||
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authorized; 17,750,001 shares issued (Note 5) ; and
|
||||||||
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12,750,001 shares outstanding at March 31, 2013 and
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||||||||
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December 31, 2012, respectively
|
128 | 128 | ||||||
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Additional paid in capital
|
375,252 | 375,252 | ||||||
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Accumulated deficit
|
(1,694,577 | ) | (1,663,988 | ) | ||||
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TOTAL STOCKHOLDERS' DEFICIT
|
(1,319,197 | ) | (1,288,608 | ) | ||||
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 17,778 | $ | 17,451 | ||||
See accompanying notes to condensed consolidated financial statements.
|
chatAND, Inc. and Subsidiary
|
|
(Development Stage Companies)
|
|
For the Three Months Ended March 31, 2013 and 2012 and the period from
|
|
Inception (May 14, 2010) through March 31, 2013
|
|
(Unaudited)
|
|
From
|
||||||||||||
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Inception
|
||||||||||||
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Three Months Ended
|
(May 14, 2010)
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|||||||||||
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March 31,
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to March 31,
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|||||||||||
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2013
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2012
|
2013
|
||||||||||
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Revenue:
|
||||||||||||
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Total revenue
|
$ | - | $ | - | $ | - | ||||||
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Total revenue
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- | - | - | |||||||||
|
Costs and expenses:
|
||||||||||||
|
General and administrative expense
|
19,312 | 188,171 | 948,376 | |||||||||
|
Research and development expense
|
- | 75,786 | 313,586 | |||||||||
|
Non-cash compensation for officers
|
- | - | 162,177 | |||||||||
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Total expenses
|
19,312 | 263,957 | 1,424,139 | |||||||||
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Loss from operations
|
(19,312 | ) | (263,957 | ) | (1,424,139 | ) | ||||||
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Other income (expense)
|
||||||||||||
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Interest income
|
- | 155 | 1,045 | |||||||||
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Interest expense
|
(11,277 | ) | (64,966 | ) | (271,483 | ) | ||||||
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Total other income (expense)
|
(11,277 | ) | (64,811 | ) | (270,438 | ) | ||||||
|
Net loss
|
$ | (30,589 | ) | $ | (328,768 | ) | $ | (1,694,577 | ) | |||
|
Net loss per share, basic and diluted
|
$ | (0.00 | ) | $ | (0.03 | ) | ||||||
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Weighted average shares outstanding
|
12,500,001 | 12,500,001 | ||||||||||
See accompanying notes to condensed consolidated financial statements.
|
chatAND, Inc. and Subsidiary
|
||||||||||
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(Development Stage Companies)
|
||||||||||
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For the period from inception (May14, 2010) through March 31, 2013
|
||||||||||
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(Unaudited)
|
||||||||||
|
Deficit
|
|||||||||||||||||||||||||||||
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Accumulated
|
|||||||||||||||||||||||||||||
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Additional
|
During the
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||||||||||||||||||||||||||||
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Preferred Stock
|
Common Stock
|
Paid-in
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Development
|
||||||||||||||||||||||||||
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Date
|
Shares
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Par Value
|
Shares
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Par Value
|
Capital
|
Stage
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Total
|
||||||||||||||||||||||
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Balance at May 14, 2010
|
- | $ | - | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||
|
Common stock issued for:
|
- | - | - | - | |||||||||||||||||||||||||
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Cash
|
6/11/2010
|
- | - | 15 | 49,995 | - | - | 49,995 | |||||||||||||||||||||
|
Intellectual property
|
6/11/2010
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- | - | 70 | 233,310 | (221,877 | ) | - | 11,433 | ||||||||||||||||||||
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Net loss
|
- | - | - | - | - | (45,594 | ) | (45,594 | ) | ||||||||||||||||||||
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Amendment to Articles ofIncorporation
|
6/3/2011
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- | - | 10,837,415 | (283,197 | ) | 283,197 | - | - | ||||||||||||||||||||
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Balance, December 31, 2010
|
- | - | 10,837,500 | 108 | 61,320 | (45,594 | ) | 15,834 | |||||||||||||||||||||
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Common stock issued for services by officers
|
6/1/2011
|
- | - | 1,912,501 | 20 | 49,975 | - | 49,995 | |||||||||||||||||||||
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Detachable warrants issuedwith convertible debentures
|
6/17/2011
|
- | - | - | - | 151,775 | - | 151,775 | |||||||||||||||||||||
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Warrants issued for services by officers
|
6/17/2011
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- | - | - | - | 112,182 | - | 112,182 | |||||||||||||||||||||
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Net loss
|
- | - | - | - | - | (755,604 | ) | (755,604 | ) | ||||||||||||||||||||
|
Balance, December 31, 2011
|
- | - | 12,750,001 | 128 | 375,252 | (801,198 | ) | (425,818 | ) | ||||||||||||||||||||
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Net loss
|
- | - | - | - | - | (862,790 | ) | (862,790 | ) | ||||||||||||||||||||
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Balance, December 31, 2012
|
- | - | 12,750,001 | 128 | 375,252 | (1,663,988 | ) | (1,288,608 | ) | ||||||||||||||||||||
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Net loss
|
- | - | - | - | - | (30,589 | ) | (30,589 | ) | ||||||||||||||||||||
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Balance, March 31, 2013
|
- | $ | - | 12,750,001 | $ | 128 | $ | 375,252 | $ | (1,694,577 | ) | $ | (1,319,197 | ) | |||||||||||||||
chatAND, Inc. and Subsidiary
|
(Development Stage Companies)
|
||||||
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For the Three Months Ended March 31, 2013 and 2012 and the period
|
||||||
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From Inception (May 14, 2010) through March 31, 2013
|
||||||
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(Unaudited)
|
|
From
|
||||||||||||
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Inception
|
||||||||||||
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Three Months Ended
|
(May 14, 2010)
|
|||||||||||
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March 31,
|
to March 31,
|
|||||||||||
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2013
|
2012
|
2013
|
||||||||||
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Cash flows from operating activities:
|
||||||||||||
|
Net loss
|
$ | (30,589 | ) | $ | (328,768 | ) | $ | (1,694,577 | ) | |||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||||||
|
Depreciation and amortization
|
518 | 402 | 3,277 | |||||||||
|
Amortization of warrant cost
|
- | 37,944 | 151,775 | |||||||||
|
Common stock and warrants issued to officers for compensation
|
- | - | 162,177 | |||||||||
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Impairment of capitalized Research and development cost
|
- | - | 11,433 | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Prepaid expenses
|
- | 3,279 | - | |||||||||
|
Accounts payable
|
(42,011 | ) | 22,820 | 134,789 | ||||||||
|
Accrued expenses
|
32,969 | 12,285 | 185,733 | |||||||||
|
Net cash used by operating activities
|
(39,113 | ) | (252,038 | ) | (1,045,393 | ) | ||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchase of intellectual property
|
- | - | (9,841 | ) | ||||||||
|
Purchase of furniture and equipment
|
- | (2,308 | ) | (10,369 | ) | |||||||
|
Net cash used by investing activities
|
- | (2,308 | ) | (20,210 | ) | |||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from senior convertible debentures
|
- | - | 850,000 | |||||||||
|
Proceeds from note payable
|
- | - | 75,000 | |||||||||
|
Loans from stockholders and employees
|
39,958 | - | 91,453 | |||||||||
|
Sale of common stock
|
- | - | 49,995 | |||||||||
|
Net cash provided by financing activities
|
39,958 | - | 1,066,448 | |||||||||
|
Net increase (decrease) in cash and cash equivalents
|
845 | (254,346 | ) | 845 | ||||||||
|
Cash and cash equivalents, beginning of period
|
- | 391,676 | - | |||||||||
|
Cash and cash equivalents, end of period
|
$ | 845 | $ | 137,330 | $ | 845 | ||||||
|
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)
|
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, 2012, which is included in the Company’s Form 10-K.
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 $1,694,577 during the period from inception (May 14, 2010) through March 31, 2013. 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 and are now past due. (Note 3) The Company borrowed $75,000 from an unrelated individual on June 11, 2012 with interest at 5% per annum. The note was due March 31, 2013 and has been extended until October 1, 2013. (Note 8) The Company attempted to raise a minimum of $3,000,000 with a Form S-1 Registration; however, the offering terminated in January 2013 without any sales of securities. The Company is seeking alternative financing sources. There can be 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 May 6, 2013, 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 March 31, 2013 and December 31, 2012, 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 was 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 March 31, 2013);
|
|
●
|
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. The Company obtained consent for the new debt issued.
|
Accordingly, because the Company did not meet certain 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 March 31, 2013, the accrued interest of $75,714 is unpaid. The due date of the Debentures was extended to December 15, 2012 and the Debentures are currently past due.
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 received forbearance until December 15, 2012 from the investors with respect to the foregoing events of default. The debentures are currently past due.
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. The warrant expiration was extended two years until June 17, 2018. See Note 5 and 7.
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 March 31, 2013
|
$ | 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 $82,212 in the years ended December 31, 2012 and 2011 respectively. The discount is fully amortized at March 31, 2013 and December 31, 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 was payable at the maturity date of March 31, 2013. At March 31, 2013, accrued interest of $2,994 is unpaid. The note was extended until October 1, 2013. (Note 8).
|
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 March 31, 2013 and December 31, 2012 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 March 31, 2013 and December 31, 2012 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. In November 2012, the term of the warrants owned by the Investors in the Debentures was extended from five to seven years.
|
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 March 31, 2013 and December 31, 2012, $151,775 had been amortized to interest expense 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.
The 4,250,000 warrants issued to the non-employee and employee shareholders were cancelled in November 2012.
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 who are 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. In November 2012, these warrants were cancelled.
At March 31, 2013 and December 31, 2012, accrued expenses include accrued payroll for Michael Lebor of $46,093 and David Rosenberg of $22,614. Also at March 31, 2013 and December 31, 2012, loans from shareholders and employees include a loan of $4,200 from David Rosenberg, $42,790 and $32,295, respectively, from another employee and $44,463 and $15,000, respectively, from other shareholders.
At March 31, 2013 and December 31, 2012, federal and state payroll taxes in the total amount of $21,734 had not been paid to the appropriate taxing authority, the majority of which is trust fund taxes, which could become the personal responsibility of the responsible officer or employee.
Employment agreements (Accrual discontinued September 30, 2012)
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. The agreement also provides non-compete provisions, restrictive covenants and other provisions typical of executive employment agreements.
Compensation for both employment agreements has been discontinued due to a lack of funds.
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NOTE 7:
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COMMITMENTS AND CONTINGENCIES
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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 continued beyond July 31, 2012 on a month-to-month basis under the same terms until December 31, 2012 when the Company moved to temporary space which it occupied on a month-to-month basis with a rental of $600 per month through March 2013. Temporary office space for the Company’s operations is currently provided by the Company’s officers. The Company’s mailing address is 5940 South Rainbow Blvd, Las Vegas, Nevada 89118. Rent expense for the three months ended March 31, 2013 and 2012 amounted to $0 and $9,750 in 2013 and 2012, respectively.
Form S-1
The Company filed a Registration Statement on Form S-1 (“S-1”) with the which was declared effective May 14, 2012. The Company offering under Form S-1 terminated in January 2013. The Selling Shareholders (Debenture Investors) portion of the S-1 is still effective for 8,500,000 shares of common stock and warrants to acquire 4,250,000 shares of common stock.
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NOTE 8:
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SUBSEQUENT EVENT
|
On April 22, 2013, the Company and the note holder agreed to extend the due date of the $75,000 note payable until November 1, 2013.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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 $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31.
Results of Operation
Three months ended March 31, 2013 compared to three months ended March 31, 2012
Following is a summary of expenses for the three months ended March 31, 2013 and 2012.
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2013
|
2012
|
|||||||
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General and administrative expense
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$ | 19,312 | $ | 188,171 | ||||
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Research and development expense
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- | 75,786 | ||||||
| $ | 19,312 | $ | 263,957 | |||||
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. In July 2012, the Company had exhausted the majority of its funds and has incurred only minimal expenses since that date.
General and administrative expenses are summarized as follows:
|
2013
|
2012
|
|||||||
|
Payroll
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$ | - | $ | 79,298 | ||||
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Professional fees
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12,415 | 67,819 | ||||||
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Rent
|
- | 9,750 | ||||||
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Insurance
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6,187 | 9,801 | ||||||
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Other
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710 | 21,503 | ||||||
| $ | 19,312 | $ | 188,171 | |||||
These costs are expected to increase in the future if additional funding becomes available and additional employees are hired. The Company has had reduced funding since July 2012, 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. Additional development has been suspended since July 2012, pending additional funding.
Other income (expense) consists of the following for three months ended March 31, 2013 and 2012
|
2013
|
2012
|
|||||||
|
Interest expense
|
$ | (11,277 | ) | $ | (64,966 | ) | ||
|
Interest income
|
- | 155 | ||||||
| $ | (11,277 | ) | $ | (64,811 | ) | |||
Interest expense for the three months ended March 31, 2013 includes an accrual of $10,363 for the accrued interest on the Debentures and $914 in accrued interest on the new loan. Interest expense in 2012 includes $37,944 in amortization of the discount of the Debentures, $8,125 in amortization of prepaid loan fees, $10,397 for the accrued interest on the Debentures 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 income includes the interest earned on cash deposits.
Liquidity and Capital Resources and Going Concern
Historical information:
At March 31, 2013 and December 31, 2012, the Company had current assets of $845 and $0; current liabilities of $1,336,975 and $1,306,059; and a working capital deficit of $1,336,130 and $1,306,059, 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. (Note 3) 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. This note was extended until October 1, 2013. (Note 4) By March 31, 2013, the Company had made only nominal expenditures for capital assets and has suspended additional development costs until funds become available.
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 was due at maturity on March 31, 2013. This note was extended until October 1, 2013. (Note 4) The Company has completed initial development of its base software within the confines of the available cash.
The Company borrowed $75,000 in June 2012, borrowed $51,495 from stockholders and employees during the six months ended December 31, 2012 and borrowed an additional $39,958 during the three months ended March 31, 2013. The Company’s continued existence is dependent upon its stockholders and employee’s ability to continue funding minimum requirements until additional financing can be found.
Cash requirements and capital expenditures:
We originally budgeted $58,000 per month for operating costs and $5,000 per month for software development costs until sales commenced. The Company has suspended development costs until funding is available.
Discussion and analysis of known trends and uncertainties:
The Company does not expect that it can develop any limited business with the debt funding already received. The additional capital of a minimum of $3,000,000 would allow the Company to more quickly expand its advertising and marketing efforts and build out the technology and thus develop revenues.
In July 2012, the officers of the Company discontinued payment of all salaries, and the Company has deferred software development costs and limited professional services to attempt to maintain some level of operations until a 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:
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●
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The Company’s product is not functional by June 30, 2012 (the product is functional at June 30, 2012);
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|
●
|
The Company has not sold at least 150 licenses by June 30, 2012 (no sales at June 30, 2012);
|
|
●
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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
|
|
●
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The issuance of any securities or incurrence of any debt without the prior written consent of the Senior Secured Note Holders. Consent was obtained for the $75,000 note payable.
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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. The Debentures are currently past due.
Expected changes in the mix and relative cost of capital resources:
The Company’s anticipated public Offering was unsuccessful. The Company believes 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 will continue 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 March 31, 2013, we had very limited 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 in interim funding. In addition, stockholders and employees loaned the Company $51,495 during the last six months of 2012 and $39,958 during the first three months of 2013. The Company has substantially eliminated its current operating costs and discontinued development costs until some funding is available.
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.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not applicable.
| 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 March 31, 2013. Our management has determined that, as of March 31, 2013, 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 March 31, 2013, including any corrective actions with regard to significant deficiencies and material weaknesses.
|
LEGAL PROCEEDINGS
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Not applicable.
|
RISK FACTORS
|
Not applicable.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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None.
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DEFAULTS UPON SENIOR SECURITIES
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Not applicable.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
Not applicable.
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OTHER INFORMATION
|
Not applicable.
|
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
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|
| Exhibit 31.2 |
Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer
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|
| Exhibit 32.1 |
Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer
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|
| Exhibit 32.2 |
Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer
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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: May 13, 2013 | By: | /s/ Michael Lebor | |
| Michael Lebor | |||
| Chief Executive Officer | |||
| Date: May 13, 2013 | By: | /s/ Steven Berger | |
|
Steven Berger
|
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|
Chief Financial Officer
|
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20