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, 2015

 

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)

 

244 5^th Avenue, Suite C68

New York, NY 10001

(Address of principal executive office) (Zip code)

 

(212) 321-0559

(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 [  ] No [X]

 

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 $0.00001 per share, as of November 18, 2015, was 39,150,805 shares.

 

 

 

chatAND, Inc.

 

Table of Contents

 

			Page No.
Part I		Financial Information (unaudited)
	Item 1:	Condensed Consolidated Financial Statements	F-1
		Balance Sheets as of September 30, 2015 and December 31, 2014	F-1
		Statements of Operations for the Three and Nine months ended September 30, 2015 and 2014	F-2
		Statement of Stockholders’ Equity for the period ended September 30, 2015	F-3
		Statements of Cash Flows for the Nine months ended September 30, 2015 and 2014	F-4
		Notes to financial statements	F-5
	Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
	Item 3:	Quantitative and Qualitative Disclosure about Market Risk	6
	Item 4:	Controls and Procedures	6
Part II		Other Information
	Item 1:	Legal Proceedings	7
	Item 1A:	Risk Factors	7
	Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	7
	Item 3:	Defaults Upon Senior Securities	8
	Item 4:	Mine Safety Disclosure	8
	Item 5:	Other Information	8
	Item 6:	Exhibits	9

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

chatAND, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30, 2015				December 31, 2014
		(unaudited)
ASSETS
Current assets:
Cash		$	1,026			$	29,421
Total current assets			1,026				29,421
Property and equipment, net of accumulated depreciation of $10,536			-				749
Other assets:
Investments (Note 4)			1,581,468				1,600,000
Total other assets			1,581,468				1,600,000
Total assets		$	1,582,494			$	1,630,170
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	334,719			$	295,969
Accrued expenses			85,291				85,291
Advances from stockholders and employees			14,690				14,690
Notes Payable			15,000				-
Warrant liability			115,486				342,753
Total current liabilities			565,186				738,703
Stockholders’ equity:
Preferred stock: $0.00001 par value; 100,000,000 shares authorized
Series A Convertible Stock, $0.00001 par value, $48.07309 stated value, 4,807,309 shares authorized, issued and outstanding			48				-
Common stock: $0.00001 par value; 500,000,000 shares authorized; 39,150,805 shares issued and outstanding as of September 30, 2015 and 38,875,805 shares issued and outstanding as of December 31, 2014			392				389
Common stock subscription			105,970				125,970
Additional paid in capital			3,970,103				3,915,154
Accumulated deficit			(3,059,205	)			(3,150,046	)
Total stockholders’ equity			1,017,308				891,467
Total liabilities and stockholders’ equity		$	1,582,494			$	1,630,170

 

See the accompanying notes to these condensed consolidated financial statements.

 

 

chatAND, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Revenue:
Total revenue		$	-			$	-			$	-			$	-
Costs and expenses:
General and administrative			15,527				658,450				130,480				795,152
Research and development expense			-				600				(2,791	)			4,700
Asset impairment			-				-				749				9,841
Total costs and expenses			15,527				659,050				128,437				809,693
Loss from operations			(15,527	)			(659,050	)			(128,437	)			(809,693	)
Other expenses:
Interest expense			(5,820	)			(2,978	)			(7,988	)			(8,707	)
Warrant liability expense			-				-				-				(629,544	)
Gain on change in fair value of derivative liability			97,584				-				227,267				-
Loss on settlement of debt			-				-				-				(187,395	)
Total other income (expenses)			91,764				(2,978	)			219,279				(825,646	)
Net income (loss) before income taxes			76,237				(662,028	)			90,841				(1,635,339	)
Income taxes			-				-				-				-
NET (LOSS) INCOME		$	76,237			$	(662,028	)		$	90,841			$	(1,635,339	)
Net loss per share, basic and diluted		$	0.00			$	(0.02	)		$	0.00			$	(0.05	)
Weighted average number of shares outstanding, basic			39,150,805				38,561,303				39,108,314				33,011,523

 

See the accompanying notes to these condensed consolidated financial statements.

 

 

chatAND, Inc.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2015

(unaudited)

 

																										Common				Additional
		Preferred stock								Series A								Common stock								Stock				Paid-in				Accumulated
		Shares				Amount				Shares				Amount				Shares				Amount				Subscriptions				Capital				Deficit				Total
Balance, January 1, 2014			-			$	-				-			$	-				12,750,001			$	128			$	-			$	375,252			$	(1,893,605	)		$	(1,518,225	)
Common stock issued in settlement of debt and accrued interest																			413,345				4								15,873								15,877
Common shares issued in settlement of debt and accrued interest			-				-				-				-				14,482,309				145				-				1,026,128				-				1,026,273
Common stock issued in settlement of debt and accrued interest																			1,230,150				12				-				120,131								120,143
Common shares issued to acquire intangible assets			-				-				-				-				5,000,000				50				-				1,349,950				-				1,350,000
Sale of common stock			-				-				-				-				5,000,000				50				-				499,950				-				500,000
Allocation of common stock proceeds to warrant liability			-				-				-				-				-				-				-				(200,000	)			-				(200,000	)
Loss on settlement of debt			-				-				-				-				-				-				-				187,395				-				187,395
Common stock subscriptions received			-				-				-				-				-				-				125,970				-				-				125,970
Fair value of vested options			-				-				-				-				-				-				-				540,475				-				540,475
Net loss			-				-				-				-				-				-				-				-				(1,256,441	)			(1,256,441	)
Balance, December 31, 2014			-				-				-				-				38,875,805				389				125,970				3,915,154				(3,150,046	)			891,467
Common Stock Issued																			275,000				3				(20,000	)			34,996				-				14,999
Exchange Agreement (Stanhope)			-				-				4,807,309				48				-				-				-				(48	)			-				-
Net income			-				-				-				-				-				-				-				-				90,841				90,841
Balance, September 30, 2015			-			$	-				4,807,309			$	48				39,150,805			$	392			$	105,970			$	3,950,102			$	(3,059,205	)		$	997,307

 

See the accompanying notes to these condensed consolidated financial statements.

 

 

chatAND, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		Nine months ended September 30,
		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	90,841			$	(1,635,339	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization			-				5,579
(Gain) loss on change in fair value of warrant liability			(227,267	)			629,544
Loss on settlement of debt			-				187,395
Impairment of assets			749				540,475
Changes in operating assets and liabilities:			-				9,841
Accounts payable			38,750				974
Accrued expenses			-				5,253
Net cash used in operating activities			(96,927	)			(256,278	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Freeline bankruptcy			18,532				-
Purchase of Furniture and Equipment			-				(833	)
Purchase of Freeline assets			-				(250,000	)
Net cash used by investing activities			18,532				(250,833	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from stockholders and employees			-				7,220
Proceeds from notes payable			15,000				-
Sale of common stock subscriptions			-				500,000
Sales of Common Stock			35,000				-
Net cash provided by financing activities			50,000				507,220
Net (decrease) increase in cash			(28,396	)			109
Cash, beginning of the period			29,421				6
Cash, end of period		$	1,025			$	115
SUPPLEMENTAL INFORMATION
Cash paid for interest		$	7,988			$	-
Cash paid for income taxes		$	-			$	-
Non-cash investing and financing activities:
Common stock issued for senior convertible debentures		$	-			$	850,000
Common stock issued for accrued interest		$	-			$	118,027
Common stock issued for advances from stockholders		$	-			$	104,265
Common stock issued for note payable		$	-			$	90,000
Common stock issued for intangible assets		$	-			$	1,350,000

 

See the accompanying notes to these condensed consolidated financial statements.

 

 

chatAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(unaudited)

 

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

chatAND, Inc., a Nevada corporation (the “Company”), 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”).

 

The Company 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.

 

In 2014, the Company acquired substantially all the assets of Freeline Sports, Inc., an inactive California company.

 

We do not currently have plans to develop these assets or market any products related to these assets. However, we are currently pursuing financing in order to develop these acquired assets.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial statements of the Company as of September 30, 2015 and for the Nine months ended September 30, 2015 and 2014. The results of operations for the Nine months ended September 30, 2015 are not necessarily indicative of the operating results for the full year ending December 31, 2015, or any other period. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related disclosures of the Company as of December 31, 2014 and for the year then ended, which were filed with the Securities and Exchange Commission on Form 10-K on March 31, 2015.

 

2. GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS

 

As of September 30, 2015, the Company had a cash balance of $1,026 and a working capital deficit (current liabilities exceeding current assets) of $564,160. During the nine months ended September 30, 2015, the Company used net cash in operating activities of $96,927. The Company has incurred net losses since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

During this three (3) month period, the Company received $15,000 from Notes Payable, which was sufficient cash to fund its operating requirements through September of 2015.

 

The Company’s primary source of operating funds since inception has been cash proceeds from private placements of common stock and convertible debentures. The Company intends to raise additional capital through private issuances of debt and equity instruments, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully execute on its business plan or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

 

 

chatAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(unaudited)

 

Accordingly, the accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the fair value of the Company’s stock, stock-based compensation, fair values relating to warrant and other derivative liabilities, the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.

 

Net Loss per Share

 

The Company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The computation of basic and diluted loss per share for the three and nine months ended September 30, 2015 and 2014 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.

 

Potentially dilutive securities excluded from the computation of basic and diluted net loss per share are as follows:

 

		September 30, 2015				September 30, 2014
Options to purchase common stock			5,370,000				-
Series A convertible preferred stock			4,807,309				-
Warrants to purchase common stock			5,575,000				3,650,000
Totals			15,752,309				3,650,000

 

Recent Accounting Pronouncements

 

There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

 

 

chatAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(unaudited)

 

Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements except as disclosed in Note 9.

 

4. INVESTMENTS

 

On May 8, 2014, the Company entered into an Asset Purchase Agreement (the “Freeline Purchase Agreement”) with Leonard S. Ackerman, as Chapter 7 trustee (the “Trustee”) in Bankruptcy Case Number 13-06272-MM7 (the “Bankruptcy Case”) to enter a bid in bankruptcy to purchase substantially all of the assets (the “Freeline Assets”) of Freeline Sports, Inc. (“Freeline”) subject to an order of relief under Chapter 7 of Title 11 of the United States Bankruptcy Code (the “Freeline Acquisition”). The purchase of the Freeline Assets by the Company was contingent upon the Company’s becoming the successful bidder (the “Stalking Horse Bid”) of a bankruptcy auction (the “Bankruptcy Auction”). Pursuant to the terms of the Freeline Purchase Agreement, the Company was required to pay the Trustee a cash amount of $30,000 as a deposit of the Purchase Price (as defined below). The full purchase price (the “Purchase Price”) of the Freeline Assets was $250,000, subject to adjustment if the Company submits an overbid at the Bankruptcy Auction. In conjunction with the Freeline Acquisition, the Company also purchased the Freeline Notes (as defined below, and as described further in Note 8) from a stockholder of the Company which held the Freeline Notes in exchange for 5,000,000 shares of the Company’s common stock. On June 11, 2014, the United States Bankruptcy Court in the Southern District of California granted a Motion for Order Approving Settlement Agreement in the Bankruptcy Case, pursuant to which, among other things, the Company was successful in its Stalking Horse Bid for the Freeline Assets. The Company has evaluated this transaction and determined it is an asset purchase, consisting primarily of patents, copyrights and trademarks together with related applications if not completed, and inventory.

 

At March 31, 2015, the Company’s investment in the Freeline Assets and the Freeline Notes consisted of a cash payment of $250,000 and 5,000,000 shares of the Company’s common stock, par value $0.00001, valued at $1,350,000, the closing price of the stock on the date the transaction was completed. The acquisition was completed on July 11, 2014. The Company will engage an appraiser to value the assets acquired, when funding becomes available.

 

At June 22, 2015, the Company was refunded $18,532 from the bankruptcy estate for the closing of the Freeline Bankruptcy Case. This amount has been recorded as a reduction of the purchase price of the Freeline Assets.

 

5. WARRANT LIABILITY

 

In 2014, in connection with the sale of common stock, the Company issued an aggregate of 5,000,000 common stock purchase warrants to purchase the Company’s common stock with an exercise prices of $0.10 to $0.15 per share for three years with anti-dilutive (reset) provisions.

 

In August 2015, three investments totaling $15,000 were made into the Company though several 10% Convertible Promissory Notes. As part of the notes, investors were granted Warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.10 per share, subject to adjustment if the Company raises equity below such price.

 

The Company has identified embedded derivatives related to the issued warrants. These embedded derivatives included certain and anti-dilutive (reset) provisions. The accounting treatment of derivative financial instruments requires that the Company record allocated fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting date.

 

 

chatAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(unaudited)

 

At September 30, 2015, the fair value of the reset provision of $115,486 was determined using the Black-Scholes Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 126.31%; risk free rate: 0.56%; and expected life: 2.00 to over 4.00 years. The Company recorded a gain on change in derivative liabilities of $97,583.59 during the three months ended September 30, 2015.

 

6. 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, 2015 the Company’s authorized 4,807,309 shares of Series A Convertible Preferred Stock with a par value of $0.00001 and $48 stated value, of which were all 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, 2015 and December 31, 2014, there were 39,150,805 and 38,875,805 shares issued and outstanding, respectively

 

7. RELATED PARTY TRANSACTIONS

 

At September 30, 2015 and December 31, 2014, accrued expenses include accrued payroll in the total amount of $85,291 which includes $46,093 for Michael Lebor, Chief Executive Officer, $22,614 for David Rosenberg, former president, and $16,584 for another former employee. Advances from shareholders and employees consist of the following at September 30, 2015 and December 31, 2014.

 

		September 30, 2015				December 31, 2014
Michael Lebor, Chief Executive Officer		$	11,180			$	11,180
Former employees			3,510				3,510
		$	14,690			$	14,690

 

8. FAIR VALUE MEASUREMENT

 

The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

 

chatAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(unaudited)

 

All items required to be recorded or measured on a recurring basis are based upon level 3 inputs.

 

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

 

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.

 

The carrying value of the Company’s cash, accounts payable, short-term borrowings and other current assets and liabilities approximate fair value because of their short-term maturity.

 

As of September 30, 2015 and December 31, 2014, the Company did not have any items that would be classified as level 1 or 2 disclosures.

 

The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed in Note 5. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Note 5 are that of volatility and market price of the underlying common stock of the Company.

 

As of September 30, 2015 and December 31, 2014, the Company did not have any derivative instruments that were designated as hedges.

 

The derivative liability as of September 30, 2015, in the amount of $115,486 has a level 3 classification.

 

		Level 1				Level 2				Level 3
Derivative Liability			-				-				115,486

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2015:

 

		Warrant
		Liability
Balance, December 31, 2014		$	342,753
Unrealized decrease in fair market value			(227,267	)
Balance, September 30, 2015		$	115,486
Net Gain for the quarter included in earnings relating to the liabilities held at September 30, 2015		$	(97,584	)

 

 

chatAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(unaudited)

 

9. SUBSEQUENT EVENTS

 

On October 23, 2015, Richard Rosenblum, a member of the Company’s Board of Directors, invested $5,000 into the Company though a 10% Convertible Promissory Note due on January 23, 2016 (the “Rosenblum Due Date”). In the event the Company does not repay the note by the Rosenblum Due Date, Mr. Rosenblum, at his option, may elect to convert the amounts due under the note into a future equity raise of the Company at a value of $50,000 based on the terms and conditions of such equity raise. The note contains customary events of default.

 

On November 2, 2015, the Stacy Group LLC (the “Stacy Group”) invested $15,000 into the Company though a 10% Convertible Promissory Note due on February 2, 2016 (the “Stacy Group Due Date”). In the event the Company does not repay the note by the Stacy Group Due Date, the Stacy Group, at its option, may elect to convert the amounts due under the note into a future equity raise of the Company at a value of $150,000 based on the terms and conditions of such equity raise. The note contains customary events of default.

 

 

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, 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.

 

We have not generated any revenues to date and had cash balances of $1,026 and $29,421 at September 30, 2015 and December 31, 2014, respectively. We suspended active development activities in July 2012.

 

ChatAND headquarters are at 244 5^th Avenue, Suite C68, New York, NY 10001. Our telephone number is 212-321-0559 and our web address is www.chatand.com.

 

Recent Business Developments

 

In 2014, we acquired substantially all the assets of Freeline Sports, Inc., an inactive California company in Chapter 7 bankruptcy proceeds for cash payment of $250,000 and 5,000,000 shares of the our common stock, valued in aggregate of $1,350,000. The assets acquired were primarily patents, copyrights and trademarks relating to sports equipment. Specifically, we acquired patents 7,059,613, 8,308,171 and D567,318 for supporting a user’s foot with a personal transportation device.

 

We do not currently have plans to develop these assets or market any products related to these assets. However, we are currently pursuing financing in order to develop these acquired assets.

 

 

Results of Operation

 

Three months ended September 30, 2015 compared to three months ended September 30, 2014

 

Following is a summary of expenses for the three months ended September 30, 2015 and 2014.

 

		2015				2014
General and administrative expense		$	15,527			$	658,450
Research and development expense			-				600
Asset impairment			-				-
		$	15,527			$	659,050

 

General and administrative expenses are summarized as follows:

 

		2015				2014
Professional fees		$	6,091			$	77,578
Reseller fees			-				30,600
Option expense			-				540.475
Consultant			9,100				-
Insurance			-				5,924
Other			336				3,873
		$	15,527			$	658,450

 

General and administrative expense decreased by $643,523 for the three months ended September 30, 2015, as compared to the three months ended September 30, 2014. This decrease is primarily due to a decrease of $540,475 in option expense.

 

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.

 

Other income (expense) consists of the following for the three months ended September 30, 2015 and 2014.

 

		2015				2014
Interest expense			5,820				2,978
Gain on change in fair value of derivative liability			97,583				-
		$	103,403			$	825,646

 

Nine months ended September 30, 2015 compared to nine months ended September 30, 2014

 

Following is a summary of expenses for the nine months ended September 30, 2015 and 2014:

 

		2015				2014
General and administrative expense		$	130,480			$	795,152
Research and development expense			(2,791	)			4,700
Asset impairment			749				9,841
		$	128,438			$	809,693

 

 

General and administrative expenses are summarized as follows:

 

		2015				2014
Professional fees		$	108,867			$	162,099
Reseller fees			-				60,600
Option expense			-				540.475
Consultant			18,800				0
Insurance			-				19,470
Other			2,813				12,508
		$	130,480			$	795,152

 

General and administrative expense decreased by $664,672 for the nine months ended September 30, 2015, as compared to the nine months ended September 30, 2014. This is directly attributable to the halt in operating activities.

 

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.

 

Other income (expense) consists of the following for the nine months ended September 30, 2015 and 2014.

 

		2015				2014
Interest expense			7,988				8,707
Warrant liability expense			-				629,544
Gain on change in fair value of derivative liability			227,266				-
Loss on settlement of debt			-				187,395
		$	235,254			$	825,646

 

Interest expense for the three months ended September 30, 2014 is primarily an accrual of the interest on certain accounts payable, notes and debentures. Interest expense in 2015 includes interest on certain accounts payable.

 

Warrant liability expense was calculated using the Black Scholes valuation method as described in Note 5 to the financial statements.

 

Liquidity and Capital Resources and Going Concern

 

At September 30, 2015 and December 31, 2014, the Company had current assets of $1,026 and $29,421; current liabilities of $565,186 and $738,703; and a working capital deficit of $564,160 and $709,282, respectively.

 

We have not generated any revenues to date and have suspended active development activities. The Company has not had any cash available other than nominal loans from employees and shareholders and has discontinued accruing payroll. The Company’s continuing existence depends upon its ability to find alternative sources of financing.

 

At September 30, 2015 and December 31, 2014, we had no liquidity. The Company will require additional financing before it can implement its business plan.

 

 

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our historical operating losses, our operations have not been a source of liquidity. We may seek additional capital in order to develop operations and become profitable. In order to obtain capital, we may need to sell additional shares of common or preferred stock or borrow funds from private lenders pursuant to instruments, which are junior to our outstanding secured debt instruments. There can be no assurance that we will be successful in obtaining additional funding.

 

If the above events do not occur or the Company is unable to implement its business plan, 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

 

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were ineffective as of December 31, 2014.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the financial statements of the Company in accordance with U.S. generally accepted accounting principles, or GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

 

With the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2015 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

Based on our evaluation and the material weaknesses described below, management concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2015 based on the COSO framework criteria. Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff and support personnel. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.

 

 

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

 

These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis. Accordingly, we have determined that these control deficiencies as described above together constitute a material weakness.

 

In light of this material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the three months ended September 30, 2015 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our financial statements for the three months ended September 30, 2015 are fairly stated, in all material respects, in accordance with US GAAP.

 

During this additional analysis it was determined that Accounts Payable needed to be reduced by $28,608.

 

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, 2015, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

PART II - OTHER INFORMATION

 

ITEM 1: LEGAL PROCEEDINGS

 

None.

 

ITEM 1A: RISK FACTORS

 

Not applicable.

 

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Not applicable.

 

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4: MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 5: OTHER INFORMATION

 

Not applicable.

 

 

ITEM 6: EXHIBITS

 

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

 

Exhibits		Description.
10.1		10% Convertible Promissory Note entered into with Richard Rosenblum
10.2		10% Convertible Promissory Note entered into with the Stacy Group, LLC
31.1		Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer*
31.2		Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer*
32.1		Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer*
32.2		Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer*
101.INS		XBRL Instance Document**
101.SCH		XBRL Taxonomy Extension Schema Document**
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB		XBRL Taxonomy Extension Label Linkbase Document**
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document**

 

* Filed Herewith.

** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

 

 

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 23, 2015	By:	/s/ Michael Lebor
		Michael Lebor
		Chief Executive Officer
Date: November 23, 2015	By:	/s/ Victoria Rudman
		Victoria Rudman
		Chief Financial Officer