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, 2012. 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”). The Company also consolidates its 51% interest in Aricon, LLC. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements. 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, 2012 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
None.
NOTE 3 – FINANCIAL CONDITION AND GOING CONCERN
The Company has net loss from operations for the six months ended June 30, 2013 of $381,811. Because of the current working capital deficit, and the projection of losses for the remainder of 2013, 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%.
NOTE 5 - CONVERTIBLE DEBT
The following table illustrates the outstanding balances of the convertible debt, net of debt discount:
|
Financing
|
|
June 30, 2013
|
|
|
December 31,
2012
|
|
|
$2,825,000 Yorkville financing (a)
|
|
$
|
44,805
|
|
|
$
|
471,543
|
|
|
$ 600,000 Yorkville financing
|
|
|
600,000
|
|
|
|
600,000
|
|
|
$ 300,000 Yorkville financing
|
|
|
300,000
|
|
|
|
300,000
|
|
|
$ 75,000 Collins financing
|
|
|
39,170
|
|
|
|
39,170
|
|
|
$ 17,500 Asher financing (k)
|
|
|
18,750
|
|
|
|
3,547
|
|
|
$20,000 Asher financing (k)
|
|
|
37,500
|
|
|
|
18,775
|
|
|
$ 27,500 Asher financing (k)
|
|
|
33,750
|
|
|
|
18,900
|
|
|
$10,750 Barclay financing
|
|
|
10,750
|
|
|
|
10,750
|
|
|
$ 9,750 Tangiers (formerly Mackie) financing (i)
|
|
|
-
|
|
|
|
3,059
|
|
|
$170,562 Ratzker financing (b)
|
|
|
17,734
|
|
|
|
152,007
|
|
|
$ 67,042 Harvey financing
|
|
|
67,042
|
|
|
|
67,042
|
|
|
$ 89,383 Cariou financing (c)
|
|
|
22,465
|
|
|
|
54,838
|
|
|
$ 65,000 Panache financing (d)
|
|
|
24,253
|
|
|
|
41,860
|
|
|
$ 15,000 Panache financing
|
|
|
15,000
|
|
|
|
15,000
|
|
|
$567,200 Westmount financing (l)
|
|
|
534,055
|
|
|
|
537,318
|
|
|
$170,561 Redwood financing (e)
|
|
|
54,127
|
|
|
|
89,377
|
|
|
$21,962 Premier financing
|
|
|
21,962
|
|
|
|
21,962
|
|
|
$21,000 Tangiers financing (i)
|
|
|
-
|
|
|
|
11,424
|
|
|
$5,474 Tangiers financing (i)
|
|
|
-
|
|
|
|
2,500
|
|
|
$ 10,000 Magna financing (m)
|
|
|
-
|
|
|
|
10,000
|
|
|
$13,000 Kellburgh financing (n)
|
|
|
13,000
|
|
|
|
-
|
|
|
$54,060 Ridge Point financing (f)
|
|
|
17,805
|
|
|
|
9,117
|
|
|
$42,200 AGS financing (s)
|
|
|
5,238
|
|
|
|
-
|
|
|
$131,377 AGS financing (g)
|
|
|
122,036
|
|
|
|
-
|
|
|
$25,000 Yorkville financing (r)
|
|
|
25,000
|
|
|
|
-
|
|
|
$12,372.60 Tangiers financing (h)
|
|
|
-
|
|
|
|
-
|
|
|
$14,000 Tangiers financing (o)
|
|
|
14,000
|
|
|
|
-
|
|
|
$24,893.17 Tangiers financing (p)
|
|
|
24,879
|
|
|
|
-
|
|
|
$ 20,000 Tangiers financing (q)
|
|
|
20,000
|
|
|
|
-
|
|
|
$36,250 Ridge Point financing (j)
|
|
|
36,250
|
|
|
|
-
|
|
|
|
|
|
2,551,979
|
|
|
|
2,480,635
|
|
|
Less: Current portion of convertible debt
|
|
|
(2,270,651
|
)
|
|
|
(2,258,830
|
)
|
|
Long-term portion of convertible debt
|
|
$
|
221,805
|
|
|
$
|
221,805
|
|
(a) $2,825,000 Yorkville financing:
During the six month period ending June 30, 2013, Yorkville converted $31,110 of principal from Tranche 3 into 304,037,255 shares of the Company’s common stock.
(b) $170,562 Ratzker financing:
During the six month period ending June 30, 2013, Ratzker converted $17,550 of interest into 220,000,000 shares of the Company’s common stock.
(c) $89,383 Cariou financing:
On May 1, Cariou sold a $20,000 portion of his convertible note plus 4,893.17 of interest to an unrelated third party (“Tangiers.”).
(d) $65,000 Panache financing:
During the six month period ending June 30, 2013, Panache converted $17,607 of principal into 262,490,000 shares of the Company’s common stock.
(e) $170,561 Redwood financing:
During the six month period ending June 30, 2013, Redwood converted $35,250 of principal into 279,048,581 shares of the Company’s common stock.
(f) $54,060 Ridge Point financing:
During the six month period ending June 30, 2013, Ridge Point converted $27,925 of principal into 405,000,076 shares of the Company’s common stock.
(g) $131,377 AGS financing:
During the six month period ending June 30, 2013, AGS converted $9,341 of principal into 514,805,551 shares of the Company’s common stock.
(h) $12,372.60 Tangiers financing:
During the six month period ending June 30, 2013, Tangiers converted $12,509 of principal and interest into 57,528,200 shares of the Company’s common stock extinguishing the debt.
(i) Tangiers financing:
During the six month period ending June 30, 2013, Tangiers converted $55,966 of principal into 700,347,145 shares of the Company’s common stock.
(j) $36,250 Ridge Point financing
On June 6, 2013, a note holder, Interface Group, sold their note in the amount of $36,250 to an unrelated third party (“Ridge Point”). CoroWare then entered into a Convertible Note Agreement with Ridge Point for that debt. The note calls for 20% interest through the maturity date of June 7, 2014, with a late payment fee of $500 per week for any week in which a payment is missed.
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 35% of the low two of five closing bid prices for the sixty (60) days immediately prior to a conversion.
(k) $Asher $25,000, $22,500, $17,500 financings
As of June 30, 2013, we are in default on our Unsecured Convertible Debentures presently held by Asher Enterprises in the agregate face amount of $90,000. The debenture accrues interest at 22% (the default rate) and is convertible at the option of the holder into shares of CoroWare, Inc. common stock. The default penalty increased the outstanding principal balance by 150%. During the six months ended June 30, 2013 Asher converted $15,700 into 242,222,222 shares of the Company’s common stock.
(l) Westmount financing:
During the six month period ending June 30, 2013, Westmount converted $3,263 of principal into 19,196,530 shares of the Company’s common stock.
(m) Magna financing:
During the six month period ending June 30, 2013, Magna converted $10,000 of principal into 94,000,000 shares of the Company’s common stock extinguishing the debt.
$13,000 Kellburgh financing (n)
On May 14, 2013, CoroWare entered into a Convertible Note Agreement with an unrelated third party. The note calls for 10% interest through the maturity date of June 30, 2013.
(o) $14,000 Tangiers financing:
On April 19, 2013, the Company entered into a $14,000 Convertible Note Agreement with an unrelated third party (“Tangiers”). The note calls for interest at 10% through the maturity date of April 19, 2014.
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 lowest closing bid in the 10 days prior to the conversion date.
(p) $24,893.17 Tangiers financing:
On May 1, 2013, Raphael Cariou sold a $24,893.17 of his convertible debenture to an unrelated third party (“Tangiers”). The Company entered into a $24,893.17 Convertible Note Agreement with Tangiers. The note calls for interest at 10% through the maturity date of May 1, 2014.
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 lowest closing bid in the 10 days prior to the conversion date.
(q) $20,000 Tangiers financing:
On May 17, 2013, the Company entered into a $20,000 Convertible Note Agreement with an unrelated third party (“Tangiers”). The note calls for interest at 10% through the maturity date of May 17, 2014.
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 lowest closing bid in the 10 days prior to the conversion date.
(r) $25,000 Yorkville financing:
On March 7, 2013, the Company entered into a $25,000 Convertible Note Agreement with an unrelated third party. The note calls for interest at 14% through the maturity date of March 7, 2014.
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 80% of the lowest volume weighted average closing price in the 30 days prior to the conversion date.
(g) $42,000 AGS financing:
On February 25, 2013, the Company entered into a $42,000 Convertible Note Agreement with an unrelated third party. The note calls for interest at 18% through the maturity date of February 25, 2014. The default interest rate is 22%.
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 65% of the lowest closing price in the 20 days prior to the conversion date.
Add the other new notes that were entered into during the period.
As noted above, the following notes are in default: the remaining balances of the $2,825,000 , $600,000 and $300,000 Yorkville financings, the $75,000 Collins 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 $21,962 Premier financings, the $25,000, $22,500, and $17,500, Asher 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 - OTHER STOCKHOLDERS’ EQUITY
The following table summarizes stock option activity:
|
|
|
Total
Options
|
|
|
Weighted
Average Price
|
|
|
Outstanding, December 31, 2012
|
|
|
38,164
|
|
|
$
|
2.97
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, June 30, 2013
|
|
|
38,164-
|
|
|
$
|
2.97
|
|
|
Exercisable at June 30, 2013
|
|
|
38,164
|
|
|
$
|
2.97
|
|
The following table summarizes warrant activity:
|
|
|
Total
Options
|
|
|
Weighted
Average Price
|
|
|
Outstanding, December 31, 2012
|
|
|
167
|
|
|
$
|
2.97
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
(167)
|
|
|
|
-
|
|
|
Outstanding, June 30, 2013
|
|
|
-
|
|
|
$
|
2.97
|
|
|
Exercisable at June 30, 2013
|
|
|
-
|
|
|
$
|
2.97
|
|
|
c)
|
Issuance of common stock:
|
|
c)
|
Issuance of common stock:
|
The following table summarizes common stock issued for services during the six month period ended June 30:
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Stock issued for services
|
|
|
119,429,987
|
|
|
$
|
30,478
|
|
|
|
468,000,000
|
|
|
$
|
46,000
|
|
|
Legal services
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
8,000
|
|
|
|
|
|
119,429,987
|
|
|
$
|
28,659
|
|
|
|
400,000
|
|
|
$
|
8,000
|
|
The following table summarizes other common stock issued during the six month period ended June 30:
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Satisfaction of payables
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
$
|
6,000
|
|
|
Redemption of convertible debenture
|
|
|
3,430,305,547
|
|
|
|
280,134
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
$
|
6,000
|
|
As a result of the issuances noted above, substantial dilution of existing stockholders’ interests has occurred.
|
d)
|
Dividends on preferred stock:
|
At June 30, 2013 and December 31, 2012, there were cumulative undeclared dividends to Preferred Series B shareholders of $43,908 and $47,900, respectively, the obligation for which is contingent on declaration by the board of directors.
|
e)
|
Preferred Stock, Series E:
|
On March 9, 2013 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. Each outstanding share of Series E Preferred Stock shall be convertible into the number of shares of the Corporation’s common stock determined by dividing the Stated Value by the Conversion Price which is defined as $0.0001. 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.
|
f)
|
Increase in Authorized Shares:
|
On February 22, 2013, the Majority Stockholders authorized an increase in the number of authorized shares of common stock from three billion (3,000,000,000) shares of common stock to thirteen billion (13,000,000,000) shares of common stock. This change was effective March 25, 2013.
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
7 – 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,
|
|
|
|
|
2013
|
|
|
52,041
|
|
|
2014
|
|
|
55,029
|
|
|
2015
|
|
|
33,117
|
|
|
|
|
$
|
140,187
|
|
NOTE 8 – INVESTMENT IN JOINT VENTURE
On September 27, 2012, the Company partnered with a private investor to launch a joint venture – Aricon,LLC to 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. The Company received $20,000 from the private investor during the six months ended June 30, 2013.
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 9 – SUBSEQUENT EVENTS
Stock Issuances:
The Company issued the following shares subsequent to June 30, 2013:
a) On July 16, the company issued 200,967,415 shares of Common Stock to AGS for a net conversion of $1,266.09
b) On July 16, the company issued 85,714,285shares of Common Stock to BlackBridge for a net conversion of $3,000 which extinguished the debt.
c) On July 9, the company issued 172,500,000 shares of Common Stock to Harvey for a net of $15,000.