NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of CoroWare, Inc. (“CoroWare” or “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report filed with the SEC on Form 10-K for the year ended December 31, 2011. The consolidated financial statements include the accounts of the Company and its wholly-owned operating subsidiary, CoroWare Technologies, Inc. Also included in the consolidated statements are the Company’s inactive wholly-owned subsidiaries, Innova Robotics, Inc., Robotic Workspace Technologies, Inc., and Robotics Software Service, Inc. (herein referred to as the “Subsidiaries”). In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended December 31, 2011 as reported in Form 10-K have been omitted.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Subsequent Events
The Company evaluated events occurring between the end of the current period and the date these financial statements were issued for potential subsequent event disclosures.
Recent Accounting Pronouncements
Management does not expect the impact of any other recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.
Reclassifications
Certain 2011 balances have been restated to conform to current year presentation.
NOTE 3 – FINANCIAL CONDITION AND GOING CONCERN
The Company has a loss from operations for the nine months ended September 30, 2012 of $460,179. Because of this loss, the current working capital deficit, and the projection of additional losses for the remainder of 2012, the Company will require additional working capital to develop its business operations.
The Company intends to raise additional working capital through the use of public offerings and/or related party financings.
There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placements, public offerings, bank financing and/or related party financing necessary to support the Company's working capital requirements. To the extent that funds generated from operations, any private placements, public offerings, bank financing and/or related party financings are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available or, if available, will be on terms acceptable to the Company.
These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 – ACCOUNTS RECEIVABLE FACTORING
On March 21, 2010, the Company established a $200,000 factoring line with an asset-based lender, CapeFirst Funding, LLC (“Capefirst”) that is secured by accounts receivable that the Lender may accept and purchase from the Company. The agreement calls for Capefirst to advance up to 80% of the net face amount of each assigned account or up to 50% of eligible assigned purchase orders. The agreement calls for a maximum facility amount of $200,000 with a purchase fee of 2% of the net face amount of each assigned account and a collection fee of 0.1% compounded daily. In the event of a dispute or in the event of fraud, misrepresentation, willful misconduct or negligence on the part of the Company, Capefirst may require the Company to immediately repurchase the assigned accounts at a purchase price that includes the amount of the assigned account plus the discount fee, interest and collection fee and may include a processing fee of 10%. The combined balance due to factors as of September 30, 2012 and December 31, 2011 was $170,102 and $107,730. Factor expense charged to operations for the three and nine month periods ended September 30, 2012 aggregated $5,814 and $24,830.
NOTE 5 - CONVERTIBLE DEBT
The following table illustrates the carrying value of convertible debt:
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
$2,825,000 Yorkville financing
|
|
|
$
|
471,543
|
|
|
$
|
478,258
|
|
$ 600,000 Yorkville financing
|
|
|
|
600,000
|
|
|
|
600,000
|
|
$ 300,000 Yorkville financing
|
|
|
|
300,000
|
|
|
|
300,000
|
|
$ 75,000 Collins financing
|
|
|
|
39,169
|
|
|
|
34,679
|
|
$ 17,500 Asher financing
|
(a)
|
|
|
2,499
|
|
|
|
-
|
|
$ 20,000 Asher financing
|
(b)
|
|
|
18,695
|
|
|
|
-
|
|
$ 27,500 Asher financing
|
(c)
|
|
|
18,102
|
|
|
|
19,951
|
|
$ 10,750 Barclay financing
|
|
|
|
10,750
|
|
|
|
10,750
|
|
$ 9,750 Tangiers financing
|
(d)
|
|
|
3,059
|
|
|
|
8,524
|
|
$ 170,562 Ratzker financing
|
|
|
|
118,655
|
|
|
|
79,319
|
|
$ 67,042 Harvey financing
|
|
|
|
67,043
|
|
|
|
62,675
|
|
$ 89,383 Cariou financing
|
|
|
|
54,838
|
|
|
|
83,077
|
|
$ 10,000 Tangiers financing
|
|
|
|
-
|
|
|
|
7,895
|
|
$ 15,000 Tangiers financing
|
|
|
|
-
|
|
|
|
10,764
|
|
$ 65,000 Panache financing
|
(e)
|
|
|
47,388
|
|
|
|
29,602
|
|
$ 15,000 Panache financing
|
|
|
|
15,000
|
|
|
|
5,612
|
|
$ 567,200 Westmount financing
|
|
|
|
537,318
|
|
|
|
537,318
|
|
$ 170,561 Redwood financing
|
(f)
|
|
|
77,146
|
|
|
|
69,788
|
|
$ 21,962 Premier financing
|
|
|
|
21,805
|
|
|
|
17,142
|
|
$ 21,000 Tangiers financing
|
|
|
|
6,043
|
|
|
|
-
|
|
$ 5,474 Tangiers financing
|
|
|
|
2,500
|
|
|
|
-
|
|
$ 10,000 Magna financing
|
(g)
|
|
|
10,000
|
|
|
|
-
|
|
$ 54,060 Ridge Point financing
|
(h)
|
|
|
4,962
|
|
|
|
-
|
|
|
|
|
|
2,426,515
|
|
|
|
2,355,354
|
|
Less: Current portion of convertible debt
|
|
|
|
(2,204,710
|
)
|
|
|
(2,206,247
|
)
|
Long term portion of convertible debt
|
|
|
$
|
221,805
|
|
|
$
|
149,107
|
|
(a)
|
$17,500 Asher financing:
|
On August 9, 2012, the Company consummated an unsecured Securities Purchase Agreement with an unrelated third party for the sale by the Company of its 8% secured convertible debentures in the aggregate principal amount of $17,500, net of deferred financing costs of $2,500.
The debenture matures on May 13, 2013, nine months from the date of issuance. The holder of the debenture may, at any time, convert amounts outstanding under the debenture into shares of common stock of the Company at a conversion rate equal to 50% of the market price, which is defined as the average of the lowest 3 trading prices for the Company’s common stock during the 30 trading days prior to conversion.
In the Company’s evaluation of this instrument in accordance with ASC 815 Derivatives and Hedging, based on the variable conversion price and lack of authorized shares, it was determined that the conversion feature was not afforded the exemption as a conventional convertible instrument and did not otherwise meet the conditions for equity classification. As such, the conversion and other features were compounded into one instrument, bifurcated from the debt instrument and carried as a derivative liability, at fair value. The Company estimated the fair value of the bifurcated derivative instruments using the Monte Carlo valuation model because this methodology provides for all of the necessary assumptions necessary for fair value determination; including assumptions for credit risk, interest risk and conversion/redemption behavior. Significant assumptions underlying this methodology were: effective term (using the remaining term of the host instrument); effective volatility (222.71% - 212.43%); and effective risk adjusted yield (12.5%). As a result of these estimates, the valuation model resulted in a compound derivative balance of $15,452 at inception. There was no derivative expense recognized at inception.
There were no conversions on this instrument during the three month period ending September 30, 2012.
(b)
|
$20,000 Asher financing:
|
On August 2, 2012, Cariou sold $20,000 of his convertible note to Asher. In connection with the sale, the Company restated the interest rate on the note from 15% to 10% and changed the conversion rate from the 5 day average closing price using the 5 trading days prior to conversion to 40%
of the Market Price (defined as the average of the (1) lowest trading price for common stock during the 30 day trading period ending one trading day prior to the date of conversion). Additionally, the beneficial ownership limit was increased from 4.99% to 9.99%.
During the three month period ending September 30, 2012, Asher converted $1,225 of the convertible debenture into 3,208,333 shares of the Company’s common stock. The Company recognized a loss on redemption of $4,141.
(c)
|
$27,500 Asher financing:
|
During the quarter, the convertible note was modified to increase the beneficial ownership limit from 4.99% to 9.99%.
During the three month period ending September 30, 2012, Asher converted $3,600 of the convertible debenture into 8,780,488 shares of the Company’s common stock. The Company recognized a gain on redemption of $87,320.
(d)
|
$9,750 Tangiers financing:
|
During the three month period ending September 30, 2012, Tangiers converted $5,245 of the convertible debenture into 13,221,424 shares of the Company’s common stock. The Company recognized a gain on redemption of $1,106.
(e)
|
$170,561 Redwood financing:
|
During the three month period ending September 30, 2012, Panache converted $5,585 of the convertible debenture into 3,212,236 shares of the Company’s common stock. The Company recognized a gain on redemption of $7,561.
(f)
|
$65,000 Panache financing:
|
During the three month period ending September 30, 2012, Panache converted $4,880 of the convertible debenture into 3,265,000 shares of the Company’s common stock. The Company recognized a gain on redemption of $14,852.
(g)
|
$10,000 Magna financing:
|
On August 20, 2012, Cariou sold $10,000 of his convertible note to Magna Group, LLC (“Magna”). In connection with the sale, the maturity date was extended from May 4, 2011 to April 20, 2013, the Company restated the interest rate on the note from 15% to 12% and changed the conversion rate from the 5 day average closing price using the 5 trading days prior to conversion to 60%
of the lowest trading price for common stock during the 3 trading days prior to the date of conversion. Additionally, if the stock is chilled by the DTC at any point in which this agreement is outstanding, the discount increases by an additional 8%.
There were no conversions on this instrument during the three month period ending September 30, 2012.
(h)
|
$54,060 Ridge Point financing:
|
On August 30, 2012, the Company entered into a $54,060 convertible note with LBB & Associates (“LBB”). The note bears interest at 10% and matures March 24, 2013. The note is convertible into common stock of the Company at a conversion rate equal to 65%
of the average of the lowest two trading price for common stock during the 5 day trading period prior to the date of conversion.
On September 21, 2012, LBB sold this note to Ridge Point Capital. During the three month period ending September 30, 2012, there were no conversions on this debenture.
The following tables illustrate the fair value adjustments that were recorded related to the derivative financial instruments associated with the convertible debenture financings:
|
|
Three Months ended September 30, 2012
|
|
Derivative income (expense):
|
|
Inception
|
|
|
Fair Value
Adjustments
|
|
|
Redemptions
|
|
|
Total
|
|
$2,825,000 Yorkville financing (a)
|
|
$
|
-
|
|
|
$
|
(1,596,351
|
)
|
|
$
|
-
|
|
|
$
|
(1,596,351
|
)
|
$ 600,000 Yorkville financing
|
|
|
-
|
|
|
|
(684,871
|
)
|
|
|
-
|
|
|
|
(684,871
|
)
|
$ 300,000 Yorkville financing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$ 75,000 Collins financing
|
|
|
-
|
|
|
|
(88,632
|
)
|
|
|
-
|
|
|
|
(88,632
|
)
|
$ 17,500 Asher financing
|
|
|
-
|
|
|
|
(59,471
|
)
|
|
|
-
|
|
|
|
(59,471
|
)
|
$ 20,000 Asher financing
|
|
|
(62,980
|
)
|
|
|
(32,754
|
)
|
|
|
(971
|
)
|
|
|
(96,705
|
)
|
$ 27,500 Asher financing (b)
|
|
|
-
|
|
|
|
(62,079
|
)
|
|
|
(108,311
|
)
|
|
|
(170,390
|
)
|
$ 10,750 Barclay financing (c)
|
|
|
-
|
|
|
|
(13,025
|
)
|
|
|
-
|
|
|
|
(13,025
|
)
|
$ 9,750 Tangiers financing (d)
|
|
|
-
|
|
|
|
(28,636
|
)
|
|
|
(10,462
|
)
|
|
|
(39,098
|
)
|
$ 170,562 Ratzker financing (e)
|
|
|
-
|
|
|
|
(368,772
|
)
|
|
|
-
|
|
|
|
(368,772
|
)
|
$ 67,042 Harvey financing (f)
|
|
|
-
|
|
|
|
(60,090
|
)
|
|
|
-
|
|
|
|
(60,090
|
)
|
$ 89,383 Cariou financing (g)
|
|
|
-
|
|
|
|
(24,193
|
)
|
|
|
-
|
|
|
|
(24,193
|
)
|
$ 10,000 Tangiers financing (i)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$ 15,000 Tangiers financing (j)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$ 65,000 Panache financing (k)
|
|
|
-
|
|
|
|
(167,097
|
)
|
|
|
(21,812
|
)
|
|
|
(188,909
|
)
|
$ 15,000 Panache financing (l)
|
|
|
-
|
|
|
|
(29,427
|
)
|
|
|
-
|
|
|
|
(29,427
|
)
|
$ 567,200 Westmount financing (m)
|
|
|
-
|
|
|
|
(1,756,385
|
)
|
|
|
-
|
|
|
|
(1,756,385
|
)
|
$ 170,561 Redwood financing (n)
|
|
|
-
|
|
|
|
(494,302
|
)
|
|
|
(12,857
|
)
|
|
|
(507,159
|
)
|
$ 21,962 Premier financing
|
|
|
-
|
|
|
|
(11,535
|
)
|
|
|
-
|
|
|
|
(11,535
|
)
|
$ 21,000 Tangiers financing
|
|
|
-
|
|
|
|
(78,291
|
)
|
|
|
-
|
|
|
|
(78,291
|
)
|
$ 5,000 Tangiers financing
|
|
|
-
|
|
|
|
(10,788
|
)
|
|
|
-
|
|
|
|
(10,788
|
)
|
$ 10,000 Magna financing
|
|
|
(13,267
|
)
|
|
|
(21,210
|
)
|
|
|
-
|
|
|
|
(34,477
|
)
|
$ 54,060 Ridge Point financing
|
|
|
(9,846
|
)
|
|
|
(118,893
|
)
|
|
|
-
|
|
|
|
(128,739
|
)
|
Preferred stock, Series B
|
|
|
-
|
|
|
|
(184,503
|
)
|
|
|
-
|
|
|
|
(184,503
|
)
|
Preferred stock, Series D
|
|
|
-
|
|
|
|
(105,683
|
)
|
|
|
-
|
|
|
|
(105,683
|
)
|
Preferred stock, Series E
|
|
|
-
|
|
|
|
8,600
|
|
|
|
-
|
|
|
|
8,600
|
|
|
|
$
|
(86,093
|
)
|
|
$
|
(5,988,388
|
)
|
|
$
|
(154,413
|
)
|
|
$
|
(6,228,894
|
)
|
|
|
Three Months ended September 30, 2011
|
|
Derivative income (expense):
|
|
Inception
|
|
|
Fair Value
Adjustments
|
|
|
Redemptions
|
|
|
Total
|
|
$2,825,000 Yorkville financing
|
|
$
|
-
|
|
|
$
|
(550,989
|
)
|
|
$
|
-
|
|
|
$
|
(550,989
|
)
|
$ 600,000 Yorkville financing
|
|
|
-
|
|
|
|
(797,107
|
)
|
|
|
-
|
|
|
|
(797,107
|
)
|
$ 300,000 Yorkville financing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$ 75,000 Collins financing
|
|
|
-
|
|
|
|
(40,046
|
)
|
|
|
-
|
|
|
|
(40,046
|
)
|
$ 27,500 Asher financing
|
|
|
-
|
|
|
|
(20,294
|
)
|
|
|
(2,976
|
)
|
|
|
(23,270
|
)
|
$ 10,750 Barclay financing
|
|
|
-
|
|
|
|
(2,829
|
)
|
|
|
-
|
|
|
|
(2,829
|
)
|
$ 9,750 Mackie financing
|
|
|
-
|
|
|
|
(900
|
)
|
|
|
-
|
|
|
|
(900
|
)
|
$ 170,562 Ratzker financing
|
|
|
-
|
|
|
|
(97,539
|
)
|
|
|
-
|
|
|
|
(97,539
|
)
|
$ 67,042 Harvey financing
|
|
|
-
|
|
|
|
(11,839
|
)
|
|
|
-
|
|
|
|
(11,839
|
)
|
$ 89,383 Cariou financing
|
|
|
-
|
|
|
|
(7,299
|
)
|
|
|
-
|
|
|
|
(7,299
|
)
|
$ 10,000 Tangiers financing
|
|
|
-
|
|
|
|
(3,009
|
)
|
|
|
-
|
|
|
|
(3,009
|
)
|
$ 15,000 Tangiers financing
|
|
|
-
|
|
|
|
(8,292
|
)
|
|
|
-
|
|
|
|
(8,292
|
)
|
$ 25,000 Tangiers financing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$ 65,000 Panache financing
|
|
|
-
|
|
|
|
(86,638
|
)
|
|
|
-
|
|
|
|
(86,638
|
)
|
$ 15,000 Panache financing
|
|
|
-
|
|
|
|
(11,395
|
)
|
|
|
-
|
|
|
|
(11,395
|
)
|
$ 567,200 Westmount financing
|
|
|
-
|
|
|
|
(561,796
|
)
|
|
|
-
|
|
|
|
(561,796
|
)
|
$ 170,561 Redwood financing
|
|
|
-
|
|
|
|
(60,934
|
)
|
|
|
-
|
|
|
|
(60,934
|
)
|
Preferred stock, Series B
|
|
|
-
|
|
|
|
(298,043
|
)
|
|
|
-
|
|
|
|
(298,043
|
)
|
|
|
$
|
-
|
|
|
$
|
(2,558,949
|
)
|
|
$
|
(2,976
|
)
|
|
$
|
(2,561,925
|
)
|
|
|
Nine Months ended September 30, 2012
|
|
Derivative income (expense):
|
|
Inception
|
|
|
Fair Value
Adjustments
|
|
|
Redemptions
|
|
|
Total
|
|
$2,825,000 Yorkville financing
|
|
$
|
-
|
|
|
$
|
(1,665,967
|
)
|
|
$
|
(6,029
|
)
|
|
$
|
(1,671,996
|
)
|
$ 600,000 Yorkville financing
|
|
|
-
|
|
|
|
(812,222
|
)
|
|
|
-
|
|
|
|
(812,222
|
)
|
$ 300,000 Yorkville financing
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
$ 75,000 Collins financing
|
|
|
-
|
|
|
|
(96,596
|
)
|
|
|
-
|
|
|
|
(96,596
|
)
|
$ 17,500 Asher financing
|
|
|
-
|
|
|
|
(59,471
|
)
|
|
|
-
|
|
|
|
(59,471
|
)
|
$ 20,000 Asher financing
|
|
|
(62,980
|
)
|
|
|
(32,754
|
)
|
|
|
(971
|
)
|
|
|
(96,705
|
)
|
$ 27,500 Asher financing
|
|
|
-
|
|
|
|
(65,169
|
)
|
|
|
(108,311
|
)
|
|
|
(173,480
|
)
|
$ 10,750 Barclay financing
|
|
|
-
|
|
|
|
(23,290
|
)
|
|
|
-
|
|
|
|
(23,290
|
)
|
$ 9,750 Tangiers financing
|
|
|
-
|
|
|
|
(38,554
|
)
|
|
|
(10,462
|
)
|
|
|
(49,016
|
)
|
$ 170,562 Ratzker financing
|
|
|
-
|
|
|
|
(369,735
|
)
|
|
|
(2,429
|
)
|
|
|
(372,164
|
)
|
$ 67,042 Harvey financing
|
|
|
-
|
|
|
|
(71,337
|
)
|
|
|
-
|
|
|
|
(71,337
|
)
|
$ 89,383 Cariou financing
|
|
|
-
|
|
|
|
(35,572
|
)
|
|
|
-
|
|
|
|
(35,572
|
)
|
$ 10,000 Tangiers financing
|
|
|
-
|
|
|
|
18,941
|
|
|
|
(7,213
|
)
|
|
|
11,728
|
|
$ 15,000 Tangiers financing
|
|
|
-
|
|
|
|
15,820
|
|
|
|
(12,450
|
)
|
|
|
3,370
|
|
$ 65,000 Panache financing
|
|
|
-
|
|
|
|
(161,362
|
)
|
|
|
(27,693
|
)
|
|
|
(189,055
|
)
|
$ 15,000 Panache financing
|
|
|
-
|
|
|
|
(28,305
|
)
|
|
|
-
|
|
|
|
(28,305
|
)
|
$ 567,200 Westmount financing
|
|
|
-
|
|
|
|
(1,669,240
|
)
|
|
|
-
|
|
|
|
(1,669,240
|
)
|
$ 170,561 Redwood financing
|
|
|
-
|
|
|
|
(437,001
|
)
|
|
|
(81,057
|
)
|
|
|
(518,058
|
)
|
$ 21,962 Premier financing
|
|
|
-
|
|
|
|
(19,771
|
)
|
|
|
-
|
|
|
|
(19,771
|
)
|
$ 21,000 Tangiers financing
|
|
|
(18,480
|
)
|
|
|
(66,550
|
)
|
|
|
-
|
|
|
|
(85,030
|
)
|
$ 5,000 Tangiers financing
|
|
|
(9,417
|
)
|
|
|
(5,060
|
)
|
|
|
(4,708
|
)
|
|
|
(19,185
|
)
|
$ 10,000 Magna financing
|
|
|
(13,267
|
)
|
|
|
(21,210
|
)
|
|
|
-
|
|
|
|
(34,477
|
)
|
$ 54,060 Ridge Point financing
|
|
|
(9,846
|
)
|
|
|
(118,893
|
)
|
|
|
-
|
|
|
|
(128,739
|
)
|
Preferred stock, Series B
|
|
|
-
|
|
|
|
(290,947
|
)
|
|
|
-
|
|
|
|
(290,947
|
)
|
Preferred stock, Series D
|
|
|
-
|
|
|
|
(147,429
|
)
|
|
|
-
|
|
|
|
(147,429
|
)
|
Preferred stock, Series E
|
|
|
|
|
|
|
8,600
|
|
|
|
-
|
|
|
|
8,600
|
|
|
|
$
|
(113,990
|
)
|
|
$
|
(6,193,074
|
)
|
|
$
|
(261,323
|
)
|
|
$
|
(6,568,387
|
)
|
|
|
Nine Months ended September 30, 2011
|
|
Derivative income (expense):
|
|
Inception
|
|
|
Fair Value
Adjustments
|
|
|
Redemptions
|
|
|
Total
|
|
$2,825,000 Yorkville financing
|
|
$
|
-
|
|
|
$
|
(244,386
|
)
|
|
$
|
(23,917
|
)
|
|
$
|
(268,303
|
)
|
$ 600,000 Yorkville financing
|
|
|
-
|
|
|
|
(599,854
|
)
|
|
|
-
|
|
|
|
(599,854
|
)
|
$ 300,000 Yorkville financing
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
|
|
26
|
|
$ 75,000 Collins financing
|
|
|
-
|
|
|
|
(35,461
|
)
|
|
|
(22,742
|
)
|
|
|
(58,203
|
)
|
$ 27,500 Asher financing
|
|
|
(9,229
|
)
|
|
|
(24,483
|
)
|
|
|
(2,976
|
)
|
|
|
(36,688
|
)
|
$ 10,750 Barclay financing
|
|
|
(1,619
|
)
|
|
|
(1,844
|
)
|
|
|
-
|
|
|
|
(3,463
|
)
|
$ 9,750 Mackie financing
|
|
|
-
|
|
|
|
(2,288
|
)
|
|
|
-
|
|
|
|
(2,288
|
)
|
$ 170,562 Ratzker financing
|
|
|
-
|
|
|
|
(138,784
|
)
|
|
|
-
|
|
|
|
(138,784
|
)
|
$ 67,042 Harvey financing
|
|
|
-
|
|
|
|
(12,330
|
)
|
|
|
-
|
|
|
|
(12,330
|
)
|
$ 89,383 Cariou financing
|
|
|
-
|
|
|
|
(3,420
|
)
|
|
|
-
|
|
|
|
(3,420
|
)
|
$ 10,000 Tangiers financing
|
|
|
-
|
|
|
|
(12,624
|
)
|
|
|
-
|
|
|
|
(12,624
|
)
|
$ 15,000 Tangiers financing
|
|
|
-
|
|
|
|
(20,579
|
)
|
|
|
-
|
|
|
|
(20,579
|
)
|
$ 25,000 Tangiers financing
|
|
|
(1,662
|
)
|
|
|
22,462
|
|
|
|
-
|
|
|
|
20,800
|
|
$ 65,000 Panache financing
|
|
|
(35,880
|
)
|
|
|
(63,178
|
)
|
|
|
(11,342
|
)
|
|
|
(110,410
|
)
|
$ 15,000 Panache financing
|
|
|
-
|
|
|
|
(7,559
|
)
|
|
|
-
|
|
|
|
(7,559
|
)
|
$ 567,200 Westmount financing
|
|
|
-
|
|
|
|
(1,091,001
|
)
|
|
|
(42,054
|
)
|
|
|
(1,133,055
|
)
|
$ 170,561 Redwood financing
|
|
|
-
|
|
|
|
(402,840
|
)
|
|
|
(67,492
|
)
|
|
|
(470,332
|
)
|
Preferred stock, Series B
|
|
|
-
|
|
|
|
(164,817
|
)
|
|
|
-
|
|
|
|
(164,817
|
)
|
|
|
$
|
(48,390
|
)
|
|
$
|
(2,802,960
|
)
|
|
$
|
(170,533
|
)
|
|
$
|
(3,021,883
|
)
|
The following table illustrates the components of derivative liabilities:
|
|
As of September 30, 2012
|
|
|
|
Compound
Derivative
|
|
|
Warrant
Liability
|
|
|
Total
|
|
$2,825,000 Yorkville financing
|
|
$
|
2,273,980
|
|
|
$
|
-
|
|
|
$
|
2,273,980
|
|
$ 600,000 Yorkville financing
|
|
|
1,392,332
|
|
|
|
12,023
|
|
|
|
1,404,355
|
|
$ 300,000 Yorkville financing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$ 75,000 Collins financing
|
|
|
137,268
|
|
|
|
-
|
|
|
|
137,268
|
|
$ 17,500 Asher financing
|
|
|
74,923
|
|
|
|
-
|
|
|
|
74,923
|
|
$ 20,000 Asher financing
|
|
|
95,734
|
|
|
|
-
|
|
|
|
95,734
|
|
$ 27,500 Asher financing
|
|
|
98,497
|
|
|
|
-
|
|
|
|
98,497
|
|
$ 10,750 Barclay financing
|
|
|
31,232
|
|
|
|
-
|
|
|
|
31,232
|
|
$ 9,750 Tangiers financing
|
|
|
43,816
|
|
|
|
-
|
|
|
|
43,816
|
|
$ 170,562 Ratzker financing
|
|
|
573,469
|
|
|
|
-
|
|
|
|
573,469
|
|
$ 67,042 Harvey financing
|
|
|
110,134
|
|
|
|
-
|
|
|
|
110,134
|
|
$ 89,383 Cariou financing
|
|
|
87,521
|
|
|
|
-
|
|
|
|
87,521
|
|
$ 65,000 Panache financing
|
|
|
247,512
|
|
|
|
-
|
|
|
|
247,512
|
|
$ 15,000 Panache financing
|
|
|
41,148
|
|
|
|
-
|
|
|
|
41,148
|
|
$ 567,200 Westmount financing
|
|
|
2,455,140
|
|
|
|
-
|
|
|
|
2,455,140
|
|
$ 170,561 Redwood financing
|
|
|
724,328
|
|
|
|
-
|
|
|
|
724,328
|
|
$ 21,962 Premier financing
|
|
|
29,325
|
|
|
|
-
|
|
|
|
29,325
|
|
$ 21,000 Tangiers financing
|
|
|
106,030
|
|
|
|
-
|
|
|
|
106,030
|
|
$ 5,474 Tangiers financing
|
|
|
14,476
|
|
|
|
-
|
|
|
|
14,476
|
|
$ 10,000 Magna financing
|
|
|
34,477
|
|
|
|
-
|
|
|
|
34,477
|
|
$ 54,060 Ridge Point financing
|
|
|
182,799
|
|
|
|
-
|
|
|
|
182,799
|
|
|
|
$
|
8,754,141
|
|
|
$
|
12,023
|
|
|
$
|
8,766,164
|
|
The following table illustrates the components of derivative liabilities at December 31, 2011:
|
|
Compound
derivative
|
|
|
Warrant
liability
|
|
|
Total
|
|
$2,825,000 Yorkville financing
|
|
|
608,013
|
|
|
|
-
|
|
|
|
608,013
|
|
$ 600,000 Yorkville financing
|
|
|
586,883
|
|
|
|
5,250
|
|
|
|
592,133
|
|
$ 300,000 Yorkville financing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$ 75,000 Collins financing
|
|
|
40,672
|
|
|
|
-
|
|
|
|
40,672
|
|
$ 27,500 Asher financing
|
|
|
33,328
|
|
|
|
-
|
|
|
|
33,328
|
|
$ 10,750 Barclay financing
|
|
|
7,942
|
|
|
|
-
|
|
|
|
7,942
|
|
$ 9,750 Mackie financing
|
|
|
5,262
|
|
|
|
-
|
|
|
|
5,262
|
|
$ 170,562 Ratzker financing
|
|
|
203,734
|
|
|
|
-
|
|
|
|
203,734
|
|
$ 67,042 Harvey financing
|
|
|
38,797
|
|
|
|
-
|
|
|
|
38,797
|
|
$ 89,383 Cariou financing
|
|
|
51,949
|
|
|
|
-
|
|
|
|
51,949
|
|
$ 10,000 Tangiers financing
|
|
|
18,941
|
|
|
|
-
|
|
|
|
18,941
|
|
$ 15,000 Tangiers financing
|
|
|
15,821
|
|
|
|
-
|
|
|
|
15,821
|
|
$ 65,000 Panache financing
|
|
|
86,149
|
|
|
|
-
|
|
|
|
86,149
|
|
$ 15,000 Panache financing
|
|
|
12,843
|
|
|
|
-
|
|
|
|
12,843
|
|
$ 567,200 Westmount financing
|
|
|
785,900
|
|
|
|
-
|
|
|
|
785,900
|
|
$ 170,561 Redwood financing
|
|
|
287,328
|
|
|
|
-
|
|
|
|
287,328
|
|
$ 21,962 Premier financing
|
|
|
9,554
|
|
|
|
-
|
|
|
|
9,554
|
|
|
|
|
2,793,116
|
|
|
|
5,250
|
|
|
|
2,798,366
|
|
The following table summarizes the number of common shares indexed to the derivative financial instruments as of September 30, 2012:
Financing or other contractual arrangement:
|
|
Conversion
Features
|
|
|
Warrants
|
|
|
Total
|
|
$2,825,000 Yorkville financing
|
|
|
1,120,213,254
|
|
|
|
-
|
|
|
|
1,120,213,254
|
|
$ 600,000 Yorkville financing
|
|
|
736,294,371
|
|
|
|
5,250,000
|
|
|
|
741,544,371
|
|
$ 300,000 Yorkville financing
|
|
|
406
|
|
|
|
33,333
|
|
|
|
33,739
|
|
$ 75,000 Collins financing
|
|
|
67,321,440
|
|
|
|
-
|
|
|
|
67,321,440
|
|
$ 17,500 Asher financing
|
|
|
35,391,233
|
|
|
|
-
|
|
|
|
35,391,233
|
|
$ 20,000 Asher financing
|
|
|
47,700,137
|
|
|
|
-
|
|
|
|
47,700,137
|
|
$ 27,500 Asher financing
|
|
|
46,548,973
|
|
|
|
-
|
|
|
|
46,548,973
|
|
$ 10,750 Barclay financing
|
|
|
15,569,370
|
|
|
|
-
|
|
|
|
15,569,370
|
|
$ 9,750 Tangiers financing
|
|
|
13,370,706
|
|
|
|
-
|
|
|
|
13,370,706
|
|
$ 170,562 Ratzker financing
|
|
|
293,334,441
|
|
|
|
-
|
|
|
|
293,334,441
|
|
$ 67,042 Harvey financing
|
|
|
62,293,012
|
|
|
|
-
|
|
|
|
62,293,012
|
|
$ 89,383 Cariou financing
|
|
|
46,529,127
|
|
|
|
-
|
|
|
|
46,529,127
|
|
$ 65,000 Panache financing
|
|
|
116,971,485
|
|
|
|
-
|
|
|
|
116,971,485
|
|
$ 15,000 Panache financing
|
|
|
19,391,459
|
|
|
|
-
|
|
|
|
19,391,459
|
|
$ 567,200 Westmount financing
|
|
|
1,156,993,485
|
|
|
|
-
|
|
|
|
1,156,993,485
|
|
$ 170,561 Redwood financing
|
|
|
325,883,788
|
|
|
|
-
|
|
|
|
325,883,788
|
|
$ 21,962 Premier financing
|
|
|
15,590,426
|
|
|
|
-
|
|
|
|
15,590,426
|
|
$ 21,000 Tangiers financing
|
|
|
43,651,628
|
|
|
|
-
|
|
|
|
43,651,628
|
|
$ 5,474 Tangiers financing
|
|
|
5,959,912
|
|
|
|
-
|
|
|
|
5,959,912
|
|
$ 10,000 Magna financing
|
|
|
14,899,275
|
|
|
|
-
|
|
|
|
14,899,275
|
|
$ 54,060 Ridge Point financing
|
|
|
83,852,813
|
|
|
|
-
|
|
|
|
83,852,813
|
|
Preferred Stock, Series B
|
|
|
141,925,333
|
|
|
|
-
|
|
|
|
141,925,333
|
|
Preferred Stock, Series D
|
|
|
79,760,718
|
|
|
|
-
|
|
|
|
79,760,718
|
|
Preferred Stock, Series E
|
|
|
500,000
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
|
4,489,896,792
|
|
|
|
5,283,333
|
|
|
|
4,495,180,125
|
|
The embedded conversion features associated with our convertible debentures are valued based on the number of shares that are indexed to that liability. Keeping the number of shares constant, the liability associated with the embedded conversion features increases as our share price increases and, likewise, decreases when our share price decreases. In the same manner, derivative expense is created when our share price increases and derivative income is created when our share price decreases.
During the nine months ended September 30, 2012, conversions were as follows:
Financing or other contractual arrangement:
|
|
Principal
converted
|
|
|
Shares
Issued
|
|
|
Gain (Loss)
Recorded
|
|
|
|
|
|
|
|
|
|
|
|
$2,825,000 Yorkville convertible note financing
|
|
$
|
6,715
|
|
|
|
395,000
|
|
|
$
|
4,844
|
|
$ 65,000 Panache convertible note financing
|
|
|
8,980
|
|
|
|
3,675,000
|
|
|
|
7,536
|
|
$ 170,562 Ratzker convertible note financing
|
|
|
3,900
|
|
|
|
300,000
|
|
|
|
(2,531
|
)
|
$ 10,000 Tangiers convertible note financing
|
|
|
10,000
|
|
|
|
500,000
|
|
|
|
2,033
|
|
$ 15,000 Tangiers convertible note financing
|
|
|
15,000
|
|
|
|
750,000
|
|
|
|
7,715
|
|
$ 170,561 Redwood convertible note financing
|
|
|
44,485
|
|
|
|
6,208,390
|
|
|
|
(19,547
|
)
|
$ 5,474 Tangiers convertible note financing
|
|
|
2,500
|
|
|
|
500,000
|
|
|
|
(13,267
|
)
|
$ 20,000 Asher convertible note financing
|
|
|
1,225
|
|
|
|
3,208,333
|
|
|
|
(4,140
|
)
|
$ 27,500 Asher convertible note financing
|
|
|
3,600
|
|
|
|
8,780,488
|
|
|
|
87,320
|
|
$ 9,750 Tangiers convertible note financing
|
|
|
5,245
|
|
|
|
13,221,424
|
|
|
|
1,106
|
|
|
|
$
|
101,650
|
|
|
|
37,538,635
|
|
|
$
|
71,070
|
|
As noted above, the following notes are in default: the remaining balance of the $2,825,000 financing, the $600,000 and $300,000 Yorkville financings, the $75,000 Collins financing, the $27,500 Asher financing, the $10,750 Barclay financing, the $567,200 Westmount financing, the $67,042 Harvey financing, the $65,000 and $15,000 Panache financings, the Tangiers $9,750 financing, the $21,962 Premier financing and the $89,383 Cariou financing. However, the terms of the agreements allow conversion of the debt during periods of default. In computing the derivative liability associated with the conversion, one of the inputs is maturity of the instruments which, in this case, is technically in the past. Accordingly, management has estimated a debt maturity date of ten months from the period-end date for purposes of the derivative liability calculations.
NOTE 6 – INVESTMENT IN JOINT VENTURE
On September 27, 2012, CoroWare announced that it has partnered with a private investor to launch a joint venture - ARICON, LLC - that is headquartered in Charlotte, North Carolina, and that will develop and market mobile robot platforms, applications, and solutions for the construction industry.
The joint venture is currently comprised of CoroWare (51% ownership), who agreed to contribute 38,000,000 shares of restricted CoroWare common stock, (1) mobile robot for prototype development, $10,000 cash, and mobile robotics development expertise; and Lucas Snyder (49% ownership), a private investor who agreed to contribute $50,000 cash, construction industry expertise, and customer relationships.
Through its combined expertise in construction and robotics, ARiCON intends to address the growing need for Computer Aided Production (CAP) solutions, with its initial focus on the development of robotic layout systems.
NOTE 7 - OTHER STOCKHOLDERS’ EQUITY
The following table summarizes stock option activity:
|
|
Total
Options
|
|
|
Weighted
Average Price
|
|
Outstanding, December 31, 2011
|
|
|
38,164
|
|
|
$
|
2.97
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding, September 30, 2012
|
|
|
38,164
|
|
|
$
|
2.97
|
|
Exercisable at September 30, 2012
|
|
|
38,164
|
|
|
$
|
2.97
|
|
At September 30, 2012, the Company had the following warrants outstanding:
|
Grant Date
|
Expiration Date
|
|
Warrants Granted
|
|
|
Exercise Price
|
|
$ 300,000 financing
|
03/19/08
|
03/19/13
|
|
|
167
|
|
|
$
|
1,200
|
|
c)
|
Issuance of common stock:
|
The following table summarizes common stock issued for services during the nine month period ended September 30:
|
|
2012
|
|
|
2011
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
Employee compensation
|
|
|
-
|
|
|
$
|
-
|
|
|
|
5,000
|
|
|
$
|
3,300
|
|
Investor relations
|
|
|
14,258,949
|
|
|
|
18,281
|
|
|
|
|
|
|
|
|
|
Legal services
|
|
|
400,000
|
|
|
|
6,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
14,658,949
|
|
|
$
|
25,081
|
|
|
|
5,000
|
|
|
$
|
3,300
|
|
The following table summarizes other common stock issued during the nine month period ended September 30:
|
|
2012
|
|
|
2011
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
Satisfaction of payables
|
|
|
7,634,882
|
|
|
$
|
34,540
|
|
|
|
983,946
|
|
|
$
|
280,851
|
|
Redemption of convertible debentures
|
|
|
37,539,530
|
|
|
|
278,705
|
|
|
|
2,548,690
|
|
|
|
330,669
|
|
Contribution into joint venture
|
|
|
38,000,000
|
|
|
|
49,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
83,174,412
|
|
|
$
|
362,645
|
|
|
|
3,532,636
|
|
|
$
|
611,520
|
|
As a result of the issuances noted above, substantial dilution of existing stockholders’ interests has occurred.
d)
|
Dividends on preferred stock:
|
At September 30, 2012 and December 31, 2011, there were cumulative undeclared dividends to Preferred Series B shareholders of $45,904 and $39,917, respectively. Additionally, there were cumulative undeclared dividends to Preferred Series B shareholders of $250 and $0, respectively at September 30, 2012 and December 31, 2011. These obligations are contingent on declaration by the board of directors.
e)
|
Preferred Stock, Series E:
|
On March 9, 2012 the Board approved by unanimous written consent an amendment to the Corporation’s Certificate of Incorporation to designate the rights and preferences of Series E Preferred Stock. There are 1,000,000 shares of Series E Preferred Stock authorized with a par value of $0.001. Each share of Series E Preferred Stock has a stated value equal to $1.00 and shall be entitled to receive dividends at the rate of 5% per annum on the stated value before dividends are declared on any other outstanding shares of stock of the Company. These preferred shares rank higher than the common shares and pari passu with all other classes of preferred stock.
The Conversion Price for each share of Series E Preferred Stock in effect on any Conversion Date shall be 50% of the lowest closing bid price of the Common Stock on the principal trading exchange or market for the Common Stock for the twenty (20) trading days prior to but not including the Conversion Date, but in no case lower than the par value of the Common Stock
. Mandatory conversion can be demanded by the Company prior to October 1, 2013. The holders of the Series E Preferred Stock shall have no voting power.
During the quarter ending September 30, 2012, there were no sales of Series E preferred shares.
f)
|
Increase in Authorized Shares and Change in Par Value:
|
On November 11, 2011, the Majority Stockholders authorized an increase in the number of authorized shares of common stock from nine hundred million (900,000,000) shares of common stock to three billion (3,000,000,000) shares of common stock. In addition, the par value of common stock changed from a par value $0.001 per share to a par value $0.0001 per share. This change was effective January 3, 2012. All common share amounts within this document have been adjusted to reflect this change.
On July 6, 2012, the Company effected a one-for-two hundred (1:200) reverse split of the Company’s Common Stock. All common share amounts within this document have been adjusted to reflect this change.
NOTE
8 – COMMITMENTS
The Company leases its principal operating facilitates in Kirkland, Washington under a 5 year operating lease which runs through July 31, 2015 and provides for monthly payments of $3,735 with a built in annual escalation clause increasing monthly rent by $249 at each anniversary date.
Future non-cancelable minimum lease payments are as follows:
Years Ending December 31,
|
|
|
|
2012
|
|
|
37,101
|
|
2013
|
|
|
52,041
|
|
2014
|
|
|
55,029
|
|
2015
|
|
|
33,117
|
|
|
|
$
|
177,288
|
|
NOTE 9 – SUBSEQUENT EVENTS
Stock Issuances:
As of November 16, 2012, the Company issued 33,541,219 shares subsequent to September 30, 2012 in connection with redemptions of convertible debentures and 75,747,019 shares for services.