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, 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 5th 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 July 10, 2015, was 38,875,805 shares.
chatAND, Inc.
Table of Contents
PART I - FINANCIAL INFORMATION
chatAND, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | March 31, 2015 | | | December 31, 2014 | |
| | | (unaudited) | | | | |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash | | $ | 14,189 | | | $ | 29,421 | |
| Total current assets | | | 14,189 | | | | 29,421 | |
| | | | | | | | | |
| Property and equipment, net of accumulated depreciation of $10,452 | | | - | | | | 749 | |
| | | | | | | | | |
| Other assets: | | | | | | | | |
| Investments (Note 4) | | | 1,600,000 | | | | 1,600,000 | |
| Total other assets | | | 1,600,000 | | | | 1,600,000 | |
| | | | | | | | | |
| Total assets | | $ | 1,614,189 | | | $ | 1,630,170 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 368,679 | | | $ | 295,969 | |
| Accrued expenses | | | 85,291 | | | | 85,291 | |
| Advances from stockholders and employees | | | 14,690 | | | | 14,690 | |
| Warrant liability | | | 327,291 | | | | 342,753 | |
| Total current liabilities | | | 795,951 | | | | 738,703 | |
| | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Preferred stock: $0.00001 par value; 100,000,000 shares authorized; no shares issued and outstanding | | | | | | | | |
| Series A Convertible Stock, $0.0001 par value, $48.07309 stated value, 4,807,309 shares authorized, no shares issued and outstanding | | | - | | | | - | |
| Common stock: $0.00001 par value; 500,000,000 shares authorized; 38,875,805 shares issued and outstanding as of March 31, 2015 and December 31, 2014 | | | 389 | | | | 389 | |
| Common stock subscription | | | 160,970 | | | | 125,970 | |
| Additional paid in capital | | | 3,915,154 | | | | 3,915,154 | |
| Accumulated deficit | | | (3,258,275 | ) | | | (3,150,046 | ) |
| Total stockholders’ equity | | | 818,238 | | | | 891,467 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 1,614,189 | | | $ | 1,630,170 | |
See the accompanying notes to these unaudited condensed consolidated financial statements
chatAND, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| | | Three months ended March 31, | |
| | | 2015 | | | 2014 | |
| Revenue: | | | | | | | | |
| Total revenue | | $ | - | | | $ | - | |
| | | | | | | | | |
| Costs and expenses: | | | | | | | | |
| General and administrative | | | 122,201 | | | | 52,964 | |
| Asset impairment | | | 749 | | | | 9,841 | |
| Total costs and expenses | | | 122,950 | | | | 62,805 | |
| | | | | | | | | |
| Loss from operations | | | (122,950 | ) | | | (62,805 | ) |
| | | | | | | | | |
| Other expenses: | | | | | | | | |
| Interest, net | | | (741 | ) | | | (3,791 | ) |
| Gain (loss) on change in fair value of derivative liability | | | 15,462 | | | | (459,567 | ) |
| Loss on settlement of debt | | | - | | | | (187,395 | ) |
| Total other expenses | | | 14,721 | | | | (650,753 | ) |
| | | | | | | | | |
| Net loss before income taxes | | | (108,229 | ) | | | (713,558 | ) |
| | | | | | | | | |
| Income taxes | | | - | | | | - | |
| | | | | | | | | |
| NET LOSS | | $ | (108,229 | ) | | $ | (713,558 | ) |
| | | | | | | | | |
| Net loss per share, basic | | $ | (0.00 | ) | | $ | (0.03 | ) |
| | | | | | | | | |
| Weighted average number of shares outstanding, basic | | | 38,875,805 | | | | 25,669,134 | |
See the accompanying notes to these unaudited condensed consolidated financial statements
chatAND, Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2015
(unaudited)
| | | | | | | | | | | | | | | Common | | | Additional | | | | | | | |
| | | Preferred stock | | | Common stock | | | Stock | | | Paid-in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Subscriptions | | | Capital | | | Deficit | | | Total | |
| Balance, December 31, 2014 | | | - | | | | - | | | | 38,875,805 | | | $ | 389 | | | $ | 125,970 | | | $ | 3,915,154 | | | $ | (3,150,046 | ) | | $ | 891,467 | |
| Common stock subscriptions received | | | - | | | | - | | | | - | | | | - | | | | 35,000 | | | | - | | | | - | | | | 35,000 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (108,229 | ) | | | (108,229 | ) |
| Balance, March 31, 2015 | | | - | | | $ | - | | | | 38,875,805 | | | $ | 389 | | | $ | 160,970 | | | $ | 3,915,154 | | | $ | (3,258,275 | ) | | $ | 818,238 | |
See the accompanying notes to these unaudited condensed consolidated financial statements
chatAND, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | Three months ended March 31, | |
| | | 2015 | | | 2014 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
| Net loss | | $ | (108,229 | ) | | $ | (713,558 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | | - | | | | 5,537 | |
| (Gain) loss on change in fair value of warrant liability | | | (15,462 | ) | | | 459,567 | |
| Loss on settlement of debt | | | - | | | | 187,395 | |
| Impairment of assets | | | 749 | | | | 9,841 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts payable | | | 72,710 | | | | (85,367 | ) |
| Accrued expenses | | | - | | | | 15,694 | |
| Net cash used in operating activities | | | (50,232 | ) | | | (120,891 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | - | | | | - | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Advances from stockholders and employees | | | - | | | | 7,220 | |
| Sale of common stock | | | 35,000 | | | | 365,000 | |
| Net cash provided by financing activities | | | 35,000 | | | | 372,220 | |
| | | | | | | | | |
| Net (decrease) increase in cash | | | (15,232 | ) | | | 251,329 | |
| | | | | | | | | |
| Cash, beginning of the year | | | 29,421 | | | | 6 | |
| Cash, end of year | | $ | 14,189 | | | $ | 251,335 | |
| | | | | | | | | |
| SUPPLEMENTAL INFORMATION | | | | | | | | |
| Cash paid for interest | | $ | 741 | | | $ | - | |
| 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 | | $ | - | | | $ | 110,358 | |
| Common stock issued for advances from stockholders | | $ | - | | | $ | 104,265 | |
| Common stock issued for note payable | | $ | - | | | $ | 15,000 | |
See the accompanying notes to these unaudited condensed consolidated financial statements
chatAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 2015 and for the three months ended March 31, 2015 and 2014. The results of operations for the three months ended March 31, 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 March 31, 2015, the Company had cash of $14,189 and working capital deficit (current liabilities exceeding current assets) of $781,762. During the three months ended March 31, 2015, the Company used net cash in operating activities of $50,232. The Company has incurred net losses since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company believes that its current cash on hand will be sufficient to fund its projected operating requirements through the May of 2015. [Is this true?]
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
MARCH 31, 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 months ended March 31, 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:
| | | March 31, 2015 | | | March 31, 2014 | |
| Options to purchase common stock | | | 5,370,000 | | | | - | |
| Warrants to purchase common stock | | | 5,000,000 | | | | 3,650,000 | |
| Totals | | | 10,370,000 | | | | 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
MARCH 31, 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 (Note 8). The acquisition was completed on July 11, 2014. The Company will engage an appraiser to value the assets acquired, at which time the value will be assigned to the specific assets. The appraisal will be completed before May 20, 2015.
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.
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.
At March 31, 2015, the fair value of the reset provision of $327,291 was determined using the Black-Scholes Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 141.90%; risk free rate: 0.56%; and expected life: 2.00 to 2.02 years. The Company recorded a gain on change in derivative liabilities of $15,462 during the three months ended March 31, 2015.
chatAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
(unaudited)
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 March 31, 2015 and December 31, 2014, there were no shares issued and outstanding. See Note 9. Subsequent Events.
On March 5, 2015, the Company’s board of directors designated 4,807,309 shares of its preferred stock as Series A Convertible Stock (“Series A”) with a $48.07309 stated value, par value of $0.00001 per share. Holders of the Series A preferred stock is not entitled to receive any dividends unless specifically declared by the Company’s board of directors; shall be entitled to the number of votes equal to the number of shares of common stock into which the Series A preferred stock is convertible at any regular, annual or special meeting of stockholders of the Company and will rank senior to all of the Common Stock; (ii) senior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms junior to any Series A Preferred Stock (“Junior Securities”); (iii) on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series A Preferred Stock (“Parity Securities”); and (iv) junior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms senior to any Series A Preferred Stock (“Senior Securities”),senior to common and all other series of capital stock of the Company and equal or junior to any preferred stock in regard to liquidation, dissolution or winding up of the Corporation, whether voluntarily or involuntarily.
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, 2015 and December 31, 2014, there were 38,875,805 shares issued and outstanding.
In February 2015, the Company entered into a Securities Purchase Agreement in which we received proceeds of $10,000 for the sale of 50,000 shares of our common stock and warrants to acquire 50,000 shares of our common stock at an exercise price of $0.24 for five years from the date of issuance.
In March 2015, the Company entered into a Securities Purchase Agreement in which we received proceeds of $25,000 for the sale of 125,000 shares of our common stock and warrants to acquire 125,000 shares of our common stock at an exercise price of $0.24 for five years from the date of issuance.
7. RELATED PARTY TRANSACTIONS
At March 31, 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 March 31, 2015 and December 31, 2014.
| | | March 31, 2015 | | | December 31, 2014 | |
| Michael Lebor, Chief Executive Officer | | $ | 11,180 | | | $ | 11,180 | |
| Former employees | | | 3,510 | | | | 3,510 | |
| | | $ | 14,690 | | | $ | 14,690 | |
chatAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
(unaudited)
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.
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 March 31, 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 March 31, 2015 and December 31, 2014, the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of March 31, 2015, in the amount of $327,291 has a level 3 classification.
chatAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
(unaudited)
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of March 31, 2015:
| | | Warrant
Liability | |
| Balance, December 31, 2014 | | $ | 342,753 | |
| Total (gains) losses | | | | |
| Mark-to-market at March 31, 2015: | | | (15,462 | ) |
| Balance, March 31, 2015 | | $ | 327,291 | |
| Net Gain for the period included in earnings relating to the liabilities held at March 31, 2015 | | $ | 15,462 | |
9. SUBSEQUENT EVENTS
Preferred stock:
On April 2, 2015, the Company issued 4,807,309 shares of its Series A Convertible Stock in exchange for 4,807,309 shares of its common stock.
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 $14,189 and $29,421 at March 31, 2015 and December 31, 2014, respectively. We suspended active development activities in July 2012.
Chat& aims to use its products to redefine the online shopping experience by recreating virtually all of the benefits of a live showroom environment. The Company uses Co-Browsing (“Co-Browsing”), the joint navigation through the Internet by two or more people accessing the same web pages at the same time, to streamline the online shopping experience.
Utilizing the tools of Video-Chat and Co-Browsing, Chat& aims to redefine the online shopping experience by recreating virtually all of the benefits of a live showroom environment. This Virtual e-showroom will allow both customers and sales support staff to navigate the website together in real time while in a video conference. The Company’s technology, when fully developed, will allow the Company’s clients and their websites to offer a more personalized sales environment. The face-to-face component of Video-Chat alone is an incredibly powerful conversion tool; with the addition of Co-Browsing, Chat& aims to change the landscape of e-commerce. Chat&’s proposed video technology, online Co-Browsing and collaboration tools, together with our e-commerce knowledge and our management team’s internet marketing expertise will help our clients by increasing sales, as well as customer satisfaction.
Bridging the gap between visitor traffic and desired sales conversion goals, our proposed technology aims to deliver precise and measurable returns by empowering our clients to:
| | ● | Reduce shopping abandonment and increase sales conversion rates by intelligently interacting and engaging customers based upon their specific behavior |
| | | |
| | ● | Increase average order values |
| | | |
| | ● | Increase customer satisfaction |
| | | |
| | ● | Reduce attrition rates of existing customers |
| | | |
| | ● | Increase quantity of line items per order |
| | | |
| | ● | Increase average total shopping cart value |
With the emergence of Apple’s facetime, Skype Video-Chat and other similar Video-Chat applications into the mainstream, and the increase in internet bandwidth (Wimax, 4G) sales and support has moved from a two-dimensional experience. Simple text chat, which currently dominates the support market, will no longer be enough to satisfy the marketplace. Chat& intends for its application to be at the forefront of this new method of commerce, communication and collaboration.
ChatAND headquarters are at 244 5th Avenue, Suite C68, New York, NY 10001. Our telephone number is 212-321-0559and 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
Although our current plans continue to focus on our online assistance, engagement and conversion solutions and the potential development of the assets acquired from Freeline Sports, Inc., we also may consider additional or alternative opportunities, including a change in the primary focus of our efforts. For example, we could determine to acquire, through a merger, share exchange, asset acquisition, plan of arrangement, recapitalization, reorganization or similar business combination, one or more operating businesses, or control of such operating businesses through contractual arrangements, or additional assets. We currently do not have any arrangement, agreement or understanding with respect to any such transaction and there can be no assurance that we will evaluate or conclude one.
Results of Operation
Three months ended March 31, 2015 compared to three months ended March 31, 2014
Following is a summary of expenses for the three months ended March 31, 2015 and 2014:
| | | 2015 | | | 2014 | |
| | | | | | | | | |
| General and administrative expense | | $ | 122,201 | | | $ | 52,964 | |
| Asset impairment | | | 749 | | | | 9,841 | |
| | | | | | | | | |
| | | $ | 122,950 | | | $ | 62,805 | |
General and administrative expenses are summarized as follows:
| | | 2015 | | | 2014 | |
| | | | | | | |
| Professional fees | | $ | 110,519 | | | $ | 34,687 | |
| Consultant | | | 7,500 | | | | 5,000 | |
| Insurance | | | - | | | | 7,096 | |
| Other | | | 4,182 | | | | 6,181 | |
| | | | | | | | | |
| | | $ | 122,201 | | | $ | 52,964 | |
General and administrative expense increased by $69,237 for the three months ended March 31, 2015, as compared to the three months ended March 31, 2014. Professional fees increased $75,832, consisting primarily of an increase in marketing development.
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, 2014 and 2013.
| | | 2015 | | | 2014 | |
| Interest expense | | | (741 | ) | | | (3,791 | ) |
| Warrant liability expense | | | 15,462 | | | | (459,567 | ) |
| Loss on settlement of debt | | | - | | | | (187,395 | ) |
| | | $ | 14,721 | | | $ | (650,753 | ) |
Interest expense for the three months ended March 31, 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. The warrant expense is related to the private placement of 50,000 Units, of which 36,500 closed in the quarter ended March 31, 2014 and the remaining 13,500 in April 2014.
The Company recorded a loss of $187,395 in the quarter ended March 31, 2014 from settlement of liabilities in the amount of $120,143 with common stock with a fair value of $307,538.
The Company recorded an impairment charge of $749 for write off of remaining office equipment during the three months ended March 31, 2015 and $9,841 for its old software development cost at March 31, 2014.
Liquidity and Capital Resources and Going Concern
At March 31, 2015 and December 31, 2014, the Company had current assets of $14,189 and $29,421; current liabilities of $795,951 and $738,703; and a working capital deficit of $781,762 and $709,282, respectively.
In February 2015, we entered into a Securities Purchase Agreement in which we received proceeds of $10,000 for the sale of 50,000 shares of our common stock and warrants to acquire 50,000 shares of our common stock at an exercise price of $0.24 for five years from the date of issuance.
In March 2015, we entered into a Securities Purchase Agreement in which we received proceeds of $25,000 for the sale of 125,000 shares of our common stock and warrants to acquire 125,000 shares of our common stock at an exercise price of $0.24 for five years from the date of issuance.
We have not generated any revenues to date and have suspended active development activities. If funds become available, we are currently budgeting $58,000 per month for operating costs and $5,000 per month for software development costs for the period, until sales commence, assuming cash availability, until the minimum funding is received. At that time, the Company expects to increase this funding from $40,000 - $114,000 per month until development is completed. 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 March 31, 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 March 31, 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 March 31, 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 March 31, 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 March 31, 2015 are fairly stated, in all material respects, in accordance with US GAAP.
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, 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
In February 2015, we entered into a Securities Purchase Agreement in which we received proceeds of $10,000 for the sale of 50,000 shares of our common stock and warrants to acquire 50,000 shares of our common stock at an exercise price of $0.24 for five years from the date of issuance.
In March 2015, we entered into a Securities Purchase Agreement in which we received proceeds of $25,000 for the sale of 125,000 shares of our common stock and warrants to acquire 125,000 shares of our common stock at an exercise price of $0.24 for five years from the date of issuance.
The Securities were offered and sold in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 (the “Securities Act”).
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.
| 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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| 101.INS | | XBRL Instance Document** |
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| 101.SCH | | XBRL Taxonomy Extension Schema Document** |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document** |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document** |
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| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document** |
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| 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: July 10, 2015 | By: | /s/ Michael Lebor |
| | | Michael Lebor |
| | | Chief Executive Officer |
| | | |
| Date: July 10, 2015 | By: | /s/ Victoria Rudman |
| | | Victoria Rudman |
| | | Chief Financial Officer |
