NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following at March 31, 2016 and December 31, 2015:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Capefirst obligations
|
|
$
|
58,881
|
|
|
$
|
140,936
|
|
Accounts payable
|
|
|
1,465,313
|
|
|
|
1,284,800
|
|
Accrued expenses
|
|
|
30,078
|
|
|
|
30,043
|
|
Dividends payable
|
|
|
15,969
|
|
|
|
15,969
|
|
Credit cards payable
|
|
|
84,970
|
|
|
|
66,213
|
|
Accrued interest
|
|
|
2,074,249
|
|
|
|
3,754,941
|
|
Accrued payroll
|
|
|
83,820
|
|
|
|
150,866
|
|
Accrued PTO
|
|
|
110,992
|
|
|
|
100,630
|
|
Commissions payable
|
|
|
223,798
|
|
|
|
219,505
|
|
Payroll taxes payable
|
|
|
2,238,676
|
|
|
|
2,039,920
|
|
Garnishment liens payable
|
|
|
34,769
|
|
|
|
26,982
|
|
Pension plan payable
|
|
|
2,239
|
|
|
|
20,274
|
|
Flex spending payable
|
|
|
167
|
|
|
|
791
|
|
Total
|
|
$
|
6,423,921
|
|
|
$
|
7,851,870
|
|
NOTE 9 – RELATED PARTY TRANSACTIONS
As of March 31, 2016 and December 31, 2015, related party accrued expenses were $230,993 and $228,148, respectively, which consisted entirely of deferred salaries to employees. See also Note 13 for related party notes payable.
NOTE 10 – OBLIGATIONS COLLATERALIZED BY RECEIVABLES, NET
On May 27, 2015, the Company entered into an accounts receivable financing arrangement with Expansion Capital for a principal amount received in cash of $130,000. The terms of the arrangement requires the Company to repay the principal balance plus an additional $52,080 in debt discounts for total remittance of $182,080. The terms of repayment require the Company to remit to the lender between approximately 35% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $52,080 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. This borrowing was paid off in full during the year ended December 31, 2015.
On July 16, 2015, the Company entered into an accounts receivable financing arrangement with Knight Capital for a principal amount received in cash of $173,500. The terms of the arrangement requires the Company to repay the principal balance plus an additional $52,050 in debt discounts for total remittance of $225,550. The terms of repayment require the Company to remit to the lender approximately 30% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $52,050 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at March 31, 2016 was $78,517 (net of debt discount of $16,478).
On July 31, 2015, the Company entered into an accounts receivable financing arrangement with High Speed Capital for a principal amount received in cash of $85,000. The terms of the arrangement requires the Company to repay the principal balance plus an additional $39,950 in debt discounts for total remittance of $124,950. The terms of repayment require the Company to remit to the lender approximately 47% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $39,950 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. During the three months ended March 31, 2016, this outstanding balance on this borrowing was settled for a total of $26,244, of which $18,000 has been paid and the remaining $8,244 is in accounts payable on the unaudited condensed consolidated balance sheet.
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On August 17, 2015, the Company entered into an accounts receivable financing arrangement with QuickFix Capital for a principal amount received in cash of $70,000. The terms of the arrangement requires the Company to repay the principal balance plus an additional $32,200 in debt discounts for total remittance of $102,200. The terms of repayment require the Company to remit to the lender approximately 46% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $32,200 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at March 31, 2016 was $68,907 (net of debt discount of $21,426).
On August 18, 2015, the Company entered into an accounts receivable financing arrangement with PowerUp Lending Group, Ltd. for a principal amount received in cash of $150,000. The terms of the arrangement requires the Company to repay the principal balance plus an additional $45,000 in debt discounts for total remittance of $195,000. The terms of repayment require the Company to remit to the lender approximately 39% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $45,000 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. On January 8, 2016, the Company entered into an accounts receivable financing arrangement with PowerUp Lending Group, Ltd. for a principal amount received in cash of $120,000, of which the remaining balance of $46,224 on the prior arrangement was paid off. The terms of the current arrangement are similar to the prior arrangement, whereby this arrangement requires the Company to repay the principal balance plus an additional $48,000 in debt discounts for total remittance of $168,000. The ending principal balance of this current borrowing at March 31, 2016 was $87,867 (net of debt discount of $24,001).
NOTE 11 – CONVERTIBLE NOTES PAYABLE, NET
In February 2003, the Company issued $230,000 of notes payable which matured in June 2003. The notes earn simple interest at 8% per annum unless they are in default, in which case they earn default simple interest at a rate of 15%. In July 2003, the terms of the note were changed such that the notes became convertible debentures, whereby at the option of the holder, all outstanding principal and interest can be converted into shares of the Company’s common stock at $1.00 per share. As of March 31, 2016, $100,000 of principal and $203,813 of accrued interest remain outstanding from these notes. These notes are currently in default.
On July 22, 2005, the Company issued a convertible promissory note to Richard Wynns (“Wynns”) for $30,000. The note accrues simple interest at a rate of 5% per annum, and matures on December 31, 2006. At the option of the holder, all outstanding principal and interest can be converted into shares of the Company’s common stock at $0.15 per share. Through March 31, 2016, the holder converted $22,500 of principal into shares of the Company’s common stock. As of March 31, 2016, there is $7,500 of principal and $4,969 of accrued interest remaining on this note. This note is currently in default.
On October 3, 2005, the Company issued a convertible promissory note to Wynns for $30,000. The note accrues simple interest at a rate of 10% per annum, and matures on November 2, 2005. On July 26, 2010, this note was amended whereby accrued interest through this date was added to the principal balance, making the total principal balance of the note $47,509. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 75% of the average of the three lowest closing prices during the 10-day trading period prior to conversion. As of March 31, 2016, there is $47,509 of principal and $27,304 of accrued interest remaining on this note. This note is currently in default.
On October 14, 2005, the Company issued a convertible promissory note to Wynns for $30,000. The note accrues simple interest at a rate of 10% per annum, and matures on December 31, 2006. On July 26, 2010, this note was amended whereby accrued interest through this date was added to the principal balance, making the total principal balance of the note $46,489. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 75% of the average of the three lowest closing prices during the 10-day trading period prior to conversion. As of March 31, 2016, there is $46,489 of principal and $26,718 of accrued interest remaining on this note. This note is currently in default.
On July 20, 2006, the Company issued a convertible promissory note to YA Global Investments, L.P. (“YA Global”) for $1,250,000, with a maturity date of July 20, 2009. On August 22, 2006, the Company issued a convertible promissory note to YA Global for $575,000, with a maturity date of August 22, 2009. The notes accrue simple interest at a rate of 10% per annum, with a default simple interest rate of 14% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through December 31, 2015, a total of $82,630 in principal and $373,323 in accrued interest were converted into shares of the Company’s common stock. Additionally, through December 31, 2015, $1,671,742 of principal from these notes were assigned to other parties in the form of convertible promissory notes. On February 5, 2016, all outstanding principal and accrued interest on these notes were consolidated into a new convertible promissory note along with all other outstanding notes due to YA Global.
On November 2, 2007, the Company issued a convertible promissory note to YA Global for $600,000, with a maturity date of November 2, 2010. On March 17, 2008, the Company issued a convertible promissory note to YA Global for $300,000, with a maturity date of March 17, 2010. The notes accrue simple interest at a rate of 14% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. On February 5, 2016, all outstanding principal and accrued interest on these notes were consolidated into a new convertible promissory note along with all other outstanding notes due to YA Global.
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On January 12, 2010, the Company issued an amended convertible promissory note to Westmount Holdings International, Ltd., with a principal balance of $567,200 and accrued interest of $317,510, which was assigned from YA Global. The note accrues simple interest at a rate of 14% per annum and is due on demand. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through March 31, 2016, the Company converted $29,883 of principal and $261,259 of accrued interest into shares of the Company’s common stock. As of March 31, 2016, there is $537,317 of principal and $460,246 of accrued interest remaining on this note. This note is currently in default.
On December 6, 2010, the Company issued a convertible promissory note to Thomas Collins for $75,000, which was assigned from a holder of a note issued on February 2003. The note accrues interest at a rate of 8% per annum and is due on demand. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of $1.00 per share. During the year ended December 31, 2015, all principal and accrued interest on this note was extinguished.
On January 28, 2011, the Company issued a convertible promissory note to Barclay Lyons, LLC for $10,750. The note accrues simple interest at a rate of 21% per annum and matures on July 28, 2011, with a default simple interest rate of 36%. Pursuant to the terms of the note, the principal balance is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lesser of (i) the closing price on the day prior to conversion, or (ii) the volume-weighted-average closing price of the five day trading period prior to conversion, though in no instance shall the conversion price be less than $0.0001. There is a ceiling on the conversion rate of $0.05 per share, but this rate is to be discounted based on forward splits. As of March 31, 2016, there is $10,750 of principal and $19,218 of accrued interest remaining on this note. This note is currently in default.
On March 21, 2011, the Company issued a convertible promissory note to Redwood Management, LLC for $284,132. The note accrues interest at a rate of 14% per annum and matures on March 18, 2013. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. As of March 31, 2016, there is $123,936 of principal and $53,501 of accrued interest remaining on this note. This note is currently in default.
On April 2, 2011, the Company issued a convertible promissory note to Martin Harvey for $67,042, which was assigned to Blackbridge Capital, LLC (“Blackbridge”). The note accrues compounded interest at a rate of 10% per annum and matures on May 2, 2011, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of the average of the five trading days prior to the applicable conversion date, with the number of conversion shares multiplied by 115%. Through March 31, 2016, a total of $42,557 in principal was converted into shares of the Company’s common stock, and a total of $17,500 in principal payments have been made. As of March 31, 2016, there is $6,985 of principal and $41,328 of accrued interest remaining on this note. This note is currently in default.
On June 2, 2011, the Company issued a convertible promissory note to Panache Capital, LLC (“Panache”) for $65,000. The note accrues simple interest at a rate of 8% per annum and matures on June 1, 2012, with a default simple interest rate of 15% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the of the average of the three lowest closing prices during the 20-day trading period prior to conversion. Through March 31, 2016, the Company converted $57,315 of principal into shares of the Company’s common stock. As of March 31, 2016, there is $7,685 of principal and $12,574 of accrued interest remaining on this note. This note is currently in default.
On June 29, 2011, the Company issued a convertible promissory note to Panache for $15,000. The note accrues simple interest at a rate of 8% per annum and matures on June 29, 2012. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the of the average of the three lowest closing prices during the 20-day trading period prior to conversion. Through March 31, 2016, the Company converted $14,798 of principal into shares of the Company’s common stock. As of March 31, 2016, there is $202 of principal and $5,454 of accrued interest remaining on this note. This note is currently in default.
On October 5, 2011, the Company issued a convertible promissory note to Premier IT Solutions for $21,962. The note accrues compounded interest at a rate of 10% per annum and matures on March 5, 2012, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of the average of the five trading days prior to the applicable conversion date, with the number of conversion shares multiplied by 115%. As of March 31, 2016, there is $21,962 of principal and $20,044 of accrued interest remaining on this note. This note is currently in default.
On February 21, 2012, the Company issued a convertible promissory note to Kelburgh, Ltd. for $13,000. The note accrues compounded interest at a rate of 10% per annum and matures on March 5, 2012, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of 85% of the average of the five trading days prior to the applicable conversion date. As of March 31, 2016, there is $13,000 of principal and $10,885 of accrued interest remaining on this note. This note is currently in default.
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On August 3, 2012, the Company issued a convertible promissory note to Raphael Cariou (“Cariou”) for $7,000. The note accrues compounded interest at a rate of 10% per annum and matures on February 3, 2013, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of the average of the five trading days prior to the applicable conversion date, with the number of conversion shares multiplied by 115%. As of March 31, 2016, there is $7,000 of principal and $4,776 of accrued interest remaining on this note. This note is currently in default.
On February 25, 2013, the Company issued two convertible promissory notes to AGS Capital Group, LLC (“AGS”) for $131,377 and $42,000. The notes accrue compounded interest at a rate of 14% per annum and mature on February 25, 2014. Pursuant to the terms of the notes, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of 35% of the lowest closing price during the 20-day trading period prior to conversion. Through March 31, 2016, $96,138 of principal has been converted into shares of the Company’s common stock. As of March 31, 2016, there is a total of $77,239 of principal and $60,226 of accrued interest remaining on these notes. These notes are currently in default.
On March 7, 2013, the Company issued a convertible promissory note to YA Global for $25,000. The note accrues simple interest at a rate of 14% per annum and matures on March 7, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 80% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. On February 5, 2016, all outstanding principal and accrued interest on this note were consolidated into a new convertible promissory note along with all other outstanding notes due to YA Global.
On April 19, 2013, the Company issued a convertible promissory note to Tangiers Investment Group, LLC (“Tangiers”) for $14,000. The note accrues simple interest at a rate of 10% per annum and matures on April 19, 2014, with a default simple interest rate of 20% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lowest closing price during the 10-day trading period prior to conversion, with the conversion rate being rounded to $0.0001 or whole share. As of March 31, 2016, there is $14,000 of principal and $6,854 of accrued interest remaining on this note. This note is currently in default.
On May 17, 2013, the Company issued a convertible promissory note to Tangiers for $20,000. The note accrues simple interest at a rate of 10% per annum and matures on May 17, 2014, with a default simple interest rate of 20% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lowest closing price during the 10-day trading period prior to conversion, with the conversion rate being rounded to $0.0001 or whole share. As of March 31, 2016, there is $20,000 of principal and $9,485 of accrued interest remaining on this note. This note is currently in default.
On August 23, 2013, the Company issued a convertible promissory note to Zoom Marketing (“Zoom”) for $140,000. The note accrues simple interest at a rate of 5% per annum and matures on January 23, 2014, with a default simple interest rate of 10% per annum. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the of the average of the three lowest closing prices during the five-day trading period prior to conversion. On March 27, 2014, Zoom assigned $75,000 of principal to Tangiers. As of March 31, 2016, there is $65,000 of principal and $18,422 of accrued interest remaining on this note. This note is currently in default.
On November 13, 2013, the Company issued a convertible promissory note to Tangiers for $17,000. The note accrues simple interest at a rate of 10% per annum and matures on November 13, 2014, with a default simple interest rate of 20% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lowest closing price during the 20-day trading period prior to conversion, with the conversion rate being rounded to $0.0001 or whole share. As of March 31, 2016, there is $17,000 of principal and $6,385 of accrued interest remaining on this note. This note is currently in default.
On February 7, 2014, the Company issued a convertible promissory note to Hanover Holdings I, LLC for $8,500. The note accrues simple interest at a rate of 10% per annum and matures on February 7, 2015, with a default simple interest rate of 22% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lowest closing price during the three-day trading period prior to conversion. On January 13, 2016, $8,500 of principal and $2,551 of interest has been converted into shares of the Company’s common stock. As a result, this note is deemed paid in full.
On February 21, 2014, the Company issued a convertible promissory note to Blackbridge for $5,000. The note accrues simple interest at a rate of 8% per annum and matures on September 21, 2014. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 30-day trading period prior to conversion. As of March 31, 2016, there is $5,000 of principal and $842 of accrued interest remaining on this note. This note is currently in default.
On March 11, 2014, the Company issued two convertible promissory notes to LG Capital Funding, LLC (“LG”) for $32,000 and $24,000. The notes accrue simple interest at a rate of 12% per annum and mature on March 11, 2015, with default simple interest rates of 24% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lowest closing price during the 10-day trading period prior to, and including the date of, conversion. As of March 31, 2016, there is a total of $56,000 of principal and $20,915 of accrued interest remaining on these notes. These notes are currently in default.
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On March 27, 2014, the Company issued a c
onvertible promissory note to
Tangiers for $75,000, which was assigned from Zoom. The note accrues simple interest at a rate of 10% per annum and is due on March 27, 2015, with a default simple interest rate of 20% per annum. On March 27, 2014, the Company issued a separate c
onvertible promissory note to
Tangiers, whereby the Company could borrow up to $600,000, of which $100,000 would be treated as an original issue discount on a pro rata basis. The note accrues simple interest at a rate of 0% per annum and is due on demand, with a default simple interest rate of 20% per annum. During the year ended December 31, 2014, the Company borrowed $72,000, of which $12,000 was original issue discount. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a 50% discount of the lowest closing price during the 20-day trading period prior to the date of conversion. As of March 31, 2016, there is a total of $147,000 of principal and $42,636 of accrued interest remaining on these notes. These notes are currently in default.
On April 1, 2014, YA Global sold $40,000 of their original note in the amount $1,250,000 to an unrelated third party (“Tuohy”). The Company then
issued a c
onvertible promissory note to Tuohy for that debt. The note calls for 14% simple interest through the maturity date of December 31, 2014.
Pursuant to the terms of the notes the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 20-day trading period prior to conversion, or $0.01, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share.
Through
March 31, 2016
, Tuohy converted $40,000 of principal into shares of the Company’s common stock. The principal balance of this note has been paid in full, yet $153 of accrued interest remains unpaid.
On April 2, 2014,
the Company issued a c
onvertible promissory note to Burrington Capital, LLC (“Burrington”) for $25,000. The note calls for 10% compounded interest through the maturity date of October 1, 2014, with a default compounded interest rate of 15% per annum.
Pursuant to the terms of the note the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 20-day trading period prior to conversion, or $0.01, whichever is lower. As of March 31, 2016, there is $25,000 of principal and $7,849 of accrued interest remaining on this note. This note is currently in default.
On April 2, 2014, the Company
entered into a Settlement Agreement with
IBC Funds (“IBC”) for $96,800 in past due payables.
The amount is due upon demand.
Pursuant to the terms of the agreement, the principal balance is convertible at the option of the note holder into shares of the Company’s common stock at a 50% discount of the lowest closing price during the 20-day trading period prior to conversion. Through December 31, 2015, IBC fully converted the $96,800 in principal into shares of the Company’s common stock.
On April 3, 2014, YA Global sold a portion of their note in the amount of $50,000 to an unrelated third party (“Ferro”). The Company then
issued a c
onvertible promissory note to Ferro for that debt. The note calls for 14% simple interest through the maturity date December 31, 2014.
Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the average of the three lowest closing prices during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through March 31, 2016, $22,175 of principal has been converted into shares of the Company’s common stock, and the Company has made $1,000 in principal payments. As of March 31, 2016, there is $26,825 of principal and $13,341 of accrued interest remaining on this note. This note is currently in default.
On April 8, 2014, a note holder, YA Global, sold a portion of their note in the amount of $200,000 to Dakota Capital Pty Ltd. (“Dakota”). The Company then
issued a c
onvertible promissory note to Dakota for that debt. The note calls for 14% simple interest through the maturity date December 31, 2014.
Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a 50% discount of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower. As of March 31, 2016, there is $200,000 of principal and $55,386 of accrued interest remaining on this note. This note is currently in default.
On April 14, 2014, YA Global assigned $100,000 of their convertible note to Barry Liben. The note accrues interest at a rate of 0% per annum and is due December 31, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the average of the three lowest closing prices during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through March 31, 2016, Liben converted $47,200 in note principal into shares of the Company’s common stock. As of March 31, 2016, there is $52,800 of principal remaining on this note. This note is currently in default.
On April 25, 2014, the Company borrowed $10,000 from Reserve CG. The note accrues interest at a rate of 8% per annum. Through December 31, 2015, the Company fully converted $10,000 of the principal balance into shares of the Company’s common stock.
On December 10, 2014, the Company issued a c
onvertible promissory note to
Jared Robert for $20,000. The note accrues compounded interest at a rate of 10% per annum and is due on June 10, 2015, with a default compounded interest rate of 15%. Pursuant to the terms of the note the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 20-day trading period prior to conversion, or $0.01, whichever is lower. As of March 31, 2016, there is $20,000 of principal and $3,703 of accrued interest remaining on this note. This note is currently in default.
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On January 7, 2015, the Company issued a c
onvertible promissory note to
LG for $20,625, of which $4,125 was an original issue discount. The note accrues simple interest at a rate of 12% per annum and is due on January 7, 2016, with a default simple interest rate of 24%. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 45% of the lowest closing price during the 20-day trading period prior to, and including the date of, conversion. As of March 31, 2016, there is $20,625 of principal and $3,614 of accrued interest remaining on this note. This note is currently in default.
On March 12, 2015 the Company issued two c
onvertible promissory notes
to Cariou totaling $188,356 ($94,178 each) for settlement of compensation owed as well as penalties and interest. The note calls for 24% compounded interest through the maturity date of September 12, 2015, with a default compounded interest rate of 29%. The principal balance and accrued interest are convertible into the Company’s common stock at a conversion rate of the average of the five trading days prior the applicable conversion date, with the number of conversion shares multiplied by 115%. Through March 31, 2016, the Company made $12,000 in principal payments towards these notes. As of March 31, 2016, there is a total of $176,356 of principal and $58,607 of accrued interest remaining on these notes. These notes are currently in default.
On February 5, 2016, the Company issued an amended convertible promissory note to YA Global for $2,829,690, which consolidated all the outstanding principal and interest due to YA Global from various notes outstanding through January 7, 2016. The note accrues simple interest at a rate of 6% per annum and matures on April 30, 2016, with a default simple interest rate of 18%. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of the lesser of (a) $0.0003 or (b) 50% of the lowest closing price during the 20-day trading period prior to conversion, with the conversion rate being rounded to $0.0001 or whole share. In relation to the note, the Company issued warrants to purchase 2,000,000,000 shares of the Company’s common stock at an exercise price of $0.0006 per share, with an expiration date of December 31, 2020. The warrants are also subject to a cashless exercise, should there be an event of default or the warrants are not subject to an effective registration statement. The Company valued these warrants on the date of issuance at $400,000 using the Black-Scholes method. Pursuant to FASB ASC 470-50,
Debt, Modifications and Extinguishments
, this consolidation of debt and the issuance of warrants has been determined to be an extinguishment of debt, and as a result, the Company has recognized a loss on extinguishment of debt of $3,699,717. Through March 31, 2016, $22,175 of principal has been converted into shares of the Company’s common stock. As of March 31, 2016, there is $2,807,515 of principal and $522 of accrued interest remaining on this note. This note is currently in default.
In the Company’s evaluation of each convertible debt instrument in accordance with FASB ASC 815,
Derivatives and Hedging
(pre-codification FAS 133 “Accounting for Derivative Financial Instruments and Hedging Activities”) (“ASC 815”), based on the variable conversion price, it was determined that the conversion features were 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 (see Note 15). As of March 31, 2016 and December 31, 2015, debt discounts related to convertible notes payable totaled $0 and $0, respectively.
NOTE 12 – NOTES PAYABLE
On June 29, 2007, the Company issued a promissory note to Gary Sumner for $45,000. The note accrues compounded interest of 5% per annum and matures on March 31, 2008, with a default simple interest rate of 18%. As of March 31, 2016, there is $45,000 of principal and $59,553 of accrued interest remaining on this note. This note is currently in default.
On July 3, 2008, the Company issued a promissory note to LTC International Corp. for $25,000. The note accrues simple interest of 20.80% per annum and matures on December 17, 2008, with a default simple interest rate of 41.60%. Through December 31, 2015, the Company made principal payments totaling $20,268. As of March 31, 2016, there is $4,732 of principal and $17,414 of accrued interest remaining on this note. This note is currently in default.
On August 1, 2008, the Company issued a promissory note to YA Global for $12,500. On August 18, 2008, the Company issued a separate promissory note to YA Global for $25,000. The notes accrue simple interest of 18% per annum and mature on December 20, 2008, with a default simple interest rate of 24%. On February 5, 2016, all outstanding principal and accrued interest on this note were consolidated into a new convertible promissory note along with all other outstanding notes due to YA Global.
On March 17, 2010, the Company issued a promissory note to John Kroon for $10,000. The note accrues compounded interest of 18% per annum and matures on September 13, 2010, with a default compounded interest rate of 21%. As of March 31, 2016, there is $10,000 of principal and $24,650 of accrued interest remaining on this note. This note is currently in default.
On July 27, 2010, the Company issued a promissory note to Richard Wynns for $25,000. The note accrues compounded interest of 18% per annum and matures on January 23, 2011, with a default compounded interest rate of 21%. As of March 31, 2016, there is $25,000 of principal and $55,317 of accrued interest remaining on this note. This note is currently in default.
On March 15, 2011, the Company issued a promissory note to Barclay Lyons for $15,000. The note accrues simple interest of 18.99% per annum and matures on March 25, 2011, with a default simple interest rate of 28.99%. As of March 31, 2016, there is $15,000 of principal and $21,904 of accrued interest remaining on this note. This note is currently in default.
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
On March 29, 2011, the Company issued a promissory note to George Ferch for $5,000. The note accrues interest of 0% per annum and matures on June 27, 2011, with a default compounded interest rate of 21%. As of March 31, 2016, there is $5,000 of principal and $8,465 of accrued interest remaining on this note. This note is currently in default.
On April 11, 2012, the Company issued a promissory note to Blackbridge for $6,000. The note accrues simple interest of 5% per annum and matures on May 25, 2012, with a default simple interest rate of 5%. Through March 31, 2016, the Company made principal payments totaling $4,500. As of March 31, 2016, there is $1,500 of principal and $521 of accrued interest remaining on this note. This note is currently in default.
On October 18, 2013, the Company issued a promissory note to Walter Jay Bell for $10,000. The note accrues simple interest of 10% per annum and matures on November 29, 2013. As of March 31, 2016, there is $10,000 of principal and $2,449 of accrued interest remaining on this note. This note is currently in default.
In January 2015 and February 2015, the Company entered into two short-term notes with LoanMe due on February 1, 2017 and March 1, 2017, respectively, whereby the Company received $18,500 in total cash proceeds, and $1,500 went directly towards indirect expenses, totaling $20,000 in principal due. These notes were paid in full in February 2015 and July 2015, along with $828 and $6,066 of interest expense, respectively.
NOTE 13 – NOTES PAYABLE, RELATED PARTIES
As of March 31, 2016 and December 31, 2015 the Company had an aggregate total of $159,481 and $166,506, respectively, in related party notes payable. These notes bear simple interest at 18% per annum, with default simple interest of 24% per annum. As of March 31, 2016 all notes payable to related parties were in default. Accrued interest on related party notes payable totaled $215,538 and $205,885 at March 31, 2016 and December 31, 2015, respectively.
NOTE 14 – SMALL BUSINESS ADMINISTRATION LOAN
On April 17, 2002, the Company borrowed $989,100 under a note agreement with the Small Business Administration. The note bears interest at 4% and is secured by the equipment and machinery assets of the Company. The balance outstanding at March 31, 2016 and December 31, 2015 was $979,950 and $979,950, respectively. The note calls for monthly installments of principal and interest of $4,813 beginning September 17, 2002 and continuing until April 17, 2032.
The Company and the Small Business Administration reached an agreement in November 2010, whereby the Small Business Administration would accept $500 per month for 12 months with payment reverting back to $4,813 in November 2011. The Company only made four payments under the modification agreement. The Company continues to carry the loan as a current term liability because current payments are not being made, resulting in a default. Accrued interest payable on the note totaled $467,776 and $458,111 as of March 31, 2016 and December 31, 2015, respectively.
NOTE 15 – DERIVATIVE LIABILITY
Effective July 31, 2009, the Company adopted ASC 815, which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. The conversion price of certain convertible notes and exercise price of certain warrants are variable and subject to the fair value of the Company’s units on the date of conversion or exercise. As a result, the Company has determined that the conversion and exercise features are not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the conversion and exercise features of the instruments to be recorded as a derivative liability.
ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as items of other income or expense. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with convertible notes payable and warrants.
At origination and subsequent revaluations, the Company valued the derivative liabilities using the Black-Scholes options pricing model under the following assumptions as of March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.71% - 1.25
|
%
|
|
|
0.89% - 1.31
|
%
|
Expected options life
|
|
1 - 5 yrs
|
|
|
1 - 3 yrs
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected price volatility
|
|
|
298.01% - 490.10
|
%
|
|
|
295.78% - 531.45
|
%
|
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
During the three months ended March 31, 2016, the Company’s derivative liability increased from $7,396,430 to $14,106,098, and the Company recognized a loss on derivative liabilities of $3,113,117 and $762,039 for the three months ended March 31, 2016 and 2015, respectively, in conjunction with settlement of convertible notes payable, additions of new derivative liabilities and subsequent revaluations of existing derivative liabilities. In connection with certain conversions of debt, derivative liabilities of $103,166 were recognized as additional paid in capital. In connection with the debt consolidation by YA Global on February 5, 2016 (see Note 11) derivative liabilities of $3,699,717 were recognized as a loss on extinguishment of debt for the three months ended March 31, 2016.
NOTE 16 – PREFERRED STOCK
a) Series A Preferred Stock
The Company has authorized 125,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock (i) pays a dividend of 5%, payable at the discretion of the Company in cash or common stock, (ii) is convertible immediately after issuance into the Company's common stock at the lesser of $0.005 per share or 75 percent of the average closing bid prices over the 20 trading days immediately preceding the date of conversion, (iii) has a liquidation preference of $1.00 per share, (iv) may be redeemed by the Company at any time up to five years after the issuance date for $1.30 per share plus accrued and unpaid dividends, and (v) has no voting rights except when mandated by Delaware law.
There were no shares of Series A Preferred Shares outstanding at any time during the periods ended March 31, 2016 and December 31, 2015.
b) Series B Preferred Stock
The Company has authorized 525,000 shares of Series B Preferred Stock. Each share of Series B Preferred Stock (i) pays a dividend of 5 percent, payable at the discretion of the Company in cash or common stock, (ii) is convertible immediately after issuance into the Company's common stock at the lesser of $15 per share or 75 percent of the average closing bid prices over the 20 trading days immediately preceding the date of conversion, (iii) has a liquidation preference of $1.00 per share, and (iv) may be redeemed by the Company at any time up to five years.
There were no issuances, conversions or redemptions of Series B stock during the periods ended March 31, 2016 and December 31, 2015. At March 31, 2016 and December 31, 2015 the Company has 159,666 shares of series B preferred stock issued and outstanding.
Based upon the Company’s evaluation of the terms and conditions of the Series B Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price, and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series B preferred stock of $172,558 and $212,868 as of March 31, 2016 and December 31, 2015, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $40,310 and $0 were charged to derivative income (expense) for the three months ended March 31, 2016 and 2015, respectively.
c) Series C Preferred Stock
The Company has authorized 500,000 shares of Series C Preferred Stock. During 2007, the Company initiated a private offering under Regulation D of the Securities Act of 1933 (the “Private Offering”), of an aggregate 500,000 units (collectively referred to as the “Units”) at a price of $1.00 (one dollar) per unit, with each unit consisting of one share of Series C Convertible Preferred Stock at the lesser of eighty five percent (85%) of the average closing bid price of the Common Stock over the twenty (20) trading days immediately preceding the date of conversion or $0.04 and stock purchase warrants equal to the number of shares of common stock converted from the Series C Convertible Preferred Stock, exercisable at $0.06 per share and which expire five (5) years from the conversion date.
There were no shares of Series C Preferred Shares outstanding at any time during the periods ended March 31, 2016 and December 31, 2015.
d) Series D Preferred Stock
On November 10, 2011 the Board approved by unanimous written consent an amendment to the Corporation’s Certificate of Incorporation to designate the rights and preferences of Series D Preferred Stock. There are 500,000 shares of Series D Preferred Stock authorized with a par value of $0.001. Each share of Series D Preferred Stock has a stated value equal to $1.00. These preferred shares rank higher than all other securities. Each outstanding share of Series D 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 eighty five percent (85%) of the average closing bid price of the Common Stock over the twenty (20) trading days immediately preceding the date of conversion, (ii) but no less than Par Value of the Common Stock. Mandatory conversion can be demanded by the Company prior to October 1, 2013. Each one share of the Series D Preferred Stock shall have voting rights equal to 100,000 votes of Common Stock.
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
There were no issuances, conversions or redemptions of Series D stock during the periods ended March 31, 2016 and December 31, 2015. At March 31, 2016 and December 31, 2015 there were 100,000 shares of series D preferred stock issued and outstanding.
Based upon the Company’s evaluation of the terms and conditions of the Series D Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price, and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series D preferred stock of $198,965 and $99,989 as of March 31, 2016 and December 31, 2015, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $(98,976) and $0 were charged to derivative income (expense) for the three months ended March 31, 2016 and 2015, respectively.
e) Series E Preferred Stock
On March 9, 2012, the Corporation filed the Certificate of Designation of the Rights and Preferences of Series E Convertible Preferred Stock of the Company with the Delaware Secretary of the State pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 1,000,000 authorized shares of Series E Convertible Preferred Stock, par value $0.001 per share. The Series E preferred shares are convertible into common shares at 50% of the lowest closing bid price of the common stock over the twenty days immediately prior the date of conversion, but no less than the par value of the common stock ($0.0001).
In October 2015, the Company issued 10,000 shares of Series E preferred stock for services valued at $10,000 per the agreement.
In December 2015, the Company redeemed 2,692 shares of Series E preferred stock for $3,500 cash from an employee of the Company.
During the three months ended March 31, 2016, the Company issued 21,000 shares of Series E preferred stock for services valued at $27,000 per the agreement.
During the three months ended March 31, 2016, the Company redeemed 5,386 shares of Series E preferred stock for $7,000 cash from three employees of the Company.
At March 31, 2016 and December 31, 2015, the Company had 821,006 and 805,392 shares of Series E preferred stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series E Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price, and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series E preferred stock of $1,633,515 and $805,303 as of March 31, 2016 and December 31, 2015, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $(828,212) and $1 were charged to derivative income (expense) for the three months ended March 31, 2016 and 2015, respectively.
f) Series F Preferred Stock
On October 4, 2013, the Company filed the certificate of designation pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 500,000 authorized shares of Series F Convertible Preferred Stock, par value $0.001 per share.
The shares of preferred stock have a stated value of $1.00, have no voting rights, are entitled to no dividends due or payable and are 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 eighty five percent (85%) of the average closing bid price of the common stock over the five (5) trading days immediately preceding the date of conversion, but no less than par value of the common stock. At any time after the issuance date through the fifth (5
th
) anniversary of the issuance of the preferred stock, the Company shall have the option to redeem any unconverted shares at an amount equal to one hundred thirty percent (130%) of the stated value of the stock plus accrued and unpaid dividends, if any. Redemption shall be established by the Company in its sole and absolute discretion and no holder of Series F Preferred Stock may demand that the Series F Preferred Stock be redeemed.
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
There were no issuances, conversions or redemptions of Series F stock during the periods ended March 31, 2016 and December 31, 2015. At March 31, 2016 and December 31, 2015, the Company had 190,000 and 190,000 shares of Series F preferred stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series F Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price, and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series F preferred stock of $378,034 and $189,979 as of March 31, 2016 and December 31, 2015, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $(188,055) and $0 were charged to derivative income (expense) for the three months ended March 31, 2016 and 2015, respectively.
g) Series G Preferred Stock
On April 17, 2014, the Company filed the certificate of designation pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 500,000 authorized shares of Series G Convertible Preferred Stock, par value $0.001 per share.
The shares of preferred stock have a stated value of $1.00, have voting rights equal to 5,000,000 votes of common stock, are entitled to no dividends due or payable, are non-redeemable and are 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 eighty five percent (85%) of the average closing bid price of the common stock over the twenty (20) trading days immediately preceding the date of conversion, but no less than par value of the common stock.
There were no issuances, conversions or redemptions of Series G stock during the periods ended March 31, 2016 and December 31, 2015. At March 31, 2016 and December 31, 2015, the Company had 25,000 and 25,000 shares of Series F preferred stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series G Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price, and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series G preferred stock of $49,741 and $24,997 as of March 31, 2016 and December 31, 2015, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $(24,744) and $0 were charged to derivative income (expense) for the three months ended March 31, 2016 and 2015, respectively.
NOTE 17 – COMMON STOCK AND TREASURY STOCK
Common Stock
The Company is authorized to issue up to 13,000,000,000 shares of $0.0001 par value common stock, of which 10,617,330,076 and 8,888,809,250 shares were issued and outstanding as of March 31, 2016 and December 31, 2015, respectively.
During the year ended December 31, 2015, the Company issued 474,531,098 shares of common stock pursuant to conversions of various notes payable and other debts. The shares were valued at an aggregate of $84,611.
During the three months ended March 31, 2016, the Company issued 1,728,520,826 shares of common stock pursuant to conversions of various notes payable and other debts. The shares were valued at an aggregate of $92,399.
Treasury Stock
During the year ended December 31, 2015, the Company repurchased a total of 129,933,000 shares of common stock into the Company’s treasury for $12,993.
During the three months ended March 31, 2016, the Company repurchased a total of 58,248,000 shares of common stock into the Company’s treasury for $9,637.
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
As of March 31, 2016 and December 31, 2015, the Company held 189,966,000 and 131,718,000 shares of common stock in treasury, respectively.
NOTE 18 – STOCK OPTIONS AND WARRANTS
Employee Stock Options
The Company has a 2005 Stock Option Plan which is authorized to issue 66,667 options. There are currently 38,164 options outstanding under this plan. Compensation cost of $20,134 was recognized during the years prior to December 31, 2012, for grants under the 2005 Stock Option Plan. During 2016 and 2015, -0- and -0- unvested options were forfeited by employees upon termination. No options were issued during 2016 or 2015.
Stock Purchase Warrants
On February 5, 2016, the Company granted 2,000,000,000 warrants to acquire shares of common stock at $0.0006 per share. The warrants were valued at $400,000 using the Black-Scholes method and were recognized as a loss on extinguishment of debt in the unaudited condensed consolidated statement of operations. All tranches of stock purchase warrants were issued to a single note holder in connection with the issuance of convertible debt.
A summary of the status of the Company’s options and warrants as of March 31, 2016 and December 31, 2015, as well as the changes during the three months ended March 31, 2016 and the year ended December 31, 2015 is presented below:
|
|
Number of
Options and
Warrants
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
38,164
|
|
|
|
|
|
|
Options and warrants granted
|
|
|
-
|
|
Options and warrants exercised
|
|
|
-
|
|
Options and warrants forfeited or expired
|
|
|
-
|
|
Outstanding at December 31, 2015
|
|
|
38,164
|
|
Exercisable at December 31, 2015
|
|
|
38,164
|
|
|
|
|
|
|
Options and warrants granted
|
|
|
2,000,000,000
|
|
Options and warrants exercised
|
|
|
-
|
|
Options and warrants forfeited or expired
|
|
|
-
|
|
Outstanding at March 31, 2016
|
|
|
2,000,038,164
|
|
Exercisable at March 31, 2016
|
|
|
2,000,038,164
|
|
In applying the Black-Scholes options pricing model to the option and warrant grants, the fair value of our share-based awards granted for the three months ended March 31, 2016 were estimated using the following assumptions:
Risk-free interest rate
|
|
|
1.25
|
%
|
Expected options life
|
|
|
4.91
|
|
Expected dividend yield
|
|
|
-
|
|
Expected price volatility
|
|
|
484.63
|
%
|
COROWARE, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
The following table summarizes information about stock options and warrants as of March 31, 2016:
|
Options and Warrants
Outstanding
|
|
Options and Warrants
Exercisable
|
|
Range of
Exercise
Prices
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.0006
|
|
|
2,000,000,000
|
|
|
|
4.76
|
|
|
$
|
0.0006
|
|
|
|
2,000,000,000
|
|
|
$
|
0.0006
|
|
$3.60
|
|
|
38,164
|
|
|
|
0.13
|
|
|
$
|
3.60
|
|
|
|
38,164
|
|
|
$
|
3.60
|
|
The following table summarizes information about stock options and warrants as of December 31, 2015:
|
Options and Warrants
Outstanding
|
|
Options and Warrants
Exercisable
|
|
Range of
Exercise
Prices
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.60
|
|
|
38,164
|
|
|
|
0.38
|
|
|
$
|
3.60
|
|
|
|
38,164
|
|
|
$
|
3.60
|
|
NOTE 19 – SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of FASB ASC Topic 855,
Subsequent Events
, and has determined that there were no material reportable subsequent events to be disclosed, other than those listed below:
Share Issuances on Convertible Debt
Subsequent to March 31, 2016, the Company has issued a total of 1,210,340,000 shares of common stock pursuant to conversions of various notes payable, accrued interest and dividends payable. The shares were valued at an aggregate of $82,687.
Preferred Stock Activity
Subsequent to March 31, 2016, the Company redeemed 1,923 shares of Series E preferred stock for $2,500 cash from an employee of the Company.
Debt Issuances
On April 12, 2016, the Company entered into an accounts receivable financing arrangement with PowerUp Lending Group, Ltd. for a principal amount received in cash of $75,000. The terms of the arrangement requires the Company to repay the principal balance plus an additional $30,000 in debt discounts for total remittance of $105,000. The terms of repayment require the Company to remit to the lender approximately 12% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $30,000 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months.
On April 27, 2016, the Company issued a promissory note to YA Global for $80,000, of which $5,000 is original issue discount. The note accrues no interest per annum and matures on June 1, 2016, with a default simple interest rate of 18%. Effective May 6, 2016, the Company is to make weekly payments of $18,750 for four consecutive weeks, with a final payment of $5,000 due on June 3, 2016.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may" "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms, or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors. Although we believe that the expectations reflected in the forward-looking statements are reasonable, they should not be regarded as a representation by CoroWare, Inc., or any other person, that such expectations will be achieved. The business and operations of CoroWare, Inc. are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report.
Overview
CoroWare, Inc. (“CWI” or, collectively with its subsidiaries, the “Company”) is a public holding company whose principal subsidiary, CoroWare Technologies, Inc. (“CTI”), has expertise in information technology consulting, mobile robotics, and Internet of Things (“IOT”). Through our subsidiary, the Company delivers custom engineering services, hardware and software products.
Employees
As of December 31, 2015, we had forty-four (44) employees comprised of one (1) full-time Officer and CEO, two (2) full-time finance administration persons, one (1) full-time human resources person, thirty-two (32) full-time employees delivering services, and eight (8) part-time employees delivering services. Our employees are not represented by a union. We consider relations with our employees to be positive and productive.
COROWARE TECHNOLOGIES, INC.
CTI is a software professional services company with a strong focus on information technology integration and robotics integration, business automation solutions, and unmanned systems solutions to its customers in North America and Europe.
CTI’s consulting staff members uses their experience to develop product specifications, project plans, marketing plans, workflow checklists, and perform their work with the objective of helping enterprise customers - such as Microsoft - deliver their solutions and products efficiently, affordably and on schedule.
CTI service model includes R&D engineering services; business process workflow; software architecture, design and development; content management; and marketing coordination and management. CTI’s revenues are principally derived from standing contracts with customers whose product development groups require custom software development and consulting companies. Existing contract revenues vary month by month based on the demands of the clients.
CTI’s enhanced collaboration and conferencing subscription services were discontinued in fiscal year 2015 as the Company focused its resources on its growing software professional services business.
COROWARE ROBOTICS SOLUTIONS, INC.
In fiscal year 2015, the Company created a new subsidiary, CoroWare Robotics Solutions, Inc. (“CRS”). CRS is a technology incubation company whose focus is on the delivery of mobile robotics and IOT products, solutions and services for university, government and corporate researchers, and enterprise customers.
In December 2015, we reorganized CRS by establishing operations in Bellevue, Washington and Phoenix, Arizona, and focused our efforts on developing and delivering solutions based on the CoroBot Spark platform.
Regulation
Our services and products are not uniquely subject to governmental or industry regulations.
Research & Development
Our research and development activities have primarily been focused on the development of software components, mobile robot platforms and IOT solutions.
Products
CoroBot Classic:
CoroBot Classic was created to minimize the complexity of robot development. By combining a powerful PC-class platform with a robust, object-oriented software development system, the CoroBot Classic empowers users to rapidly deploy and develop robotic solutions. The CoroBot Classic also assists the hardware developer with additional physical mounting space, ports, sensors and communication devices.
CoroBot Spark:
CoroBot Spark is an open and state-of-the-art mobile robotics platform that is based on the Raspberry Pi™ 2 Model B embedded computer and the CoroBot Pi Hat™ embedded controller card, and will support the development of mobile applications that run on both Linux and Windows 10 operating systems. The CoroBot Spark platform will include open and cross-platform application programming interfaces that support the development of mobile robot applications.
PLAN OF OPERATION
We believe that CoroWare is well positioned for stable growth in Fiscal Year 2016, principally through continued growth of our CoroWare Business Solutions group.
The Business Consulting Services group anticipates growing its revenues by delivering consulting services to its long-term clients – including Microsoft – such as R&D engineering; business process workflow; software architecture, design and development; content management; and marketing coordination and management.
The Robotics & Automation group is in the process of reestablishing its market presence by providing custom engineering solutions and services to clients who are developing innovative software services, solutions and products that leverage our expertise in “Internet of Things”.
We shall continue to grow an investor relations program that has already helped the Company communicate more effectively and actively with CoroWare shareholders, and generate greater awareness of CoroWare and our services, solutions and products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2016 COMPARED TO THREE MONTHS ENDED MARCH 31, 2015
During the three months ended March 31, 2016 (the "2016 Period"), revenues were $1,646,187 compared to revenues of $798,541 during the three months ended March 31, 2015 (the "2015 Period”), an increase of $847,646 or 106.1%. Revenues in the 2016 Period were higher compared to the 2015 Period as the Company intensified its focus on selling R&D support, operations support, and marketing support services in the 2016 Period.
Cost of goods sold was $1,171,603 and $572,062 for the 2016 Period and the 2015 Period, respectively, and increase of $599,541 or 104.8%. Cost of goods sold primarily represents labor and labor-related costs in addition to overhead costs. The Company reorganized its Robotics & Automation team at the end of the 2015 Period in order to improve profitability during the three months ended March 31, 2016, and further improve its gross profits in fiscal year 2016.
Gross profits increased to $474,584 during the 2016 Period compared to $226,479 during the 2015 Period, an increase of $248,105 or 109.5%. Gross profits increased during the 2016 Period as a result of gross revenues increased. The gross profit percentage in the 2016 Period was 28.8% compared to 28.4% in the 2015 Period.
Operating expenses were $776,305 for the 2016 Period compared to $415,171 for the 2015 Period, an increase of $361,134 or 87.0%. General and administrative expenses amounted to $724,667 during the 2016 Period compared to $371,805 for the 2015 period, and represented mostly labor and related compensation costs, legal and professional fees, outside services, travel expenses, rental expense and related office expenses. Sales and marketing expenses were $27,516 for the 2016 Period compared to $20,018 for the 2015 Period. Research and developments costs totaled $21,378 for the 2016 Period compared to $20,328 during the 2015 Period. Depreciation and amortization costs were $2,744 for the 2016 period compared to $3,020 for the 2015 Period. The overall increase in operating expenses was due to the Company increasing its travel expenses in support of its marketing specialist services, and increasing investor relations expenses.
Loss from operations was $301,721 for the 2016 Period compared to $188,692 for the 2015 period, an increase of $113,029 or 59.9%. The increase in loss from operations in the 2016 Period was due primarily to a significant increase in general and administrative expenses.
Other expenses was $7,020,186 during the 2016 Period compared to other expense of $1,125,999 in the 2015 Period, an increase of $5,894,187 or 523.5%. Other expenses is comprised primarily of gain/loss on derivative, amortization of debt discount, deferred finance costs, accrued interest on notes payable, and loss on extinguishment of debt. The change in derivative liabilities for the 2016 Period was $3,113,117 compared to $762,039 for the 2015 Period, an increase of $2,351,078 or 308.5%. 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. Derivative income (expense) displays the inverse relationship. Interest expense, net for the 2016 Period was $217,479 compared to $147,354 for the 2015 Period, an increase of $70,125 or 223.2%. The increase in interest expense is principally a result of an increase in accrued interest on debt. The Company also recognized a $3,689,590 loss on extinguishment of debt during the 2016 Period compared to $216,606 in the 2015 Period, an increase of $3,472,984 or 1603.4%. The increase in loss on extinguishment of debt is primarily a result of the consolidation of debt with YA Global on February 5, 2016.
Net loss for the 2016 Period was $7,321,907
compared to net loss of $1,314,691 for the 2015 Period, an increase of $6,007,216 or 456.9%. The increase in net loss is primarily a result of an increase in loss on the change in derivative liabilities and an increase in loss on extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
During the 2016 Period net cash provided by operating activities was $6,901 compared to $19,704 for the 2015 Period. This decrease for the 2016 Period was primarily due to an increase in net loss, an increase in derivative expense, an increase in loss on extinguishment of debt, and a decrease in accounts receivable.
During the 2016 Period, we used $2,772 net cash from investing activities compared to $5,977 for the 2015 Period, exclusively for purchases of property and equipment.
During the 2016 Period, the Company had used $100,704 in cash from financing activities compared to net cash provided by financing activities of $15,766 for the 2015 Period. This increased use of cash for financing activities was primarily due to payments made towards debt financings in the 2016 Period.
At March 31, 2016, we had current assets of $164,184, current liabilities of $26,866,083, a working capital deficit of $26,701,899 and an accumulated deficit of $59,272,582.
At December 31, 2015, we had current assets of $284,936, current liabilities of $19,873,447, a working capital deficit of $19,588,511 and an accumulated deficit of $51,950,675.
We presently have limited and expensive available credit, and do not have bank financing or other external sources of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding. We will still need additional capital in order to continue operations until we are able to achieve positive operating cash flow. Additional capital is being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity, or capital expenditures.
CONTRACTUAL OBLIGATIONS
The following table sets forth the contractual obligations of the Company as of March 31, 2016 (debt discounts are not included):
|
|
Payments due by Period
|
|
Contractual Obligations
|
|
Total
|
|
|
Less than 1
year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations collateralized by receivables
|
|
$
|
235,290
|
|
|
$
|
235,290
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Convertible debt
|
|
|
4,660,693
|
|
|
|
4,660,693
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Notes payable
|
|
|
116,232
|
|
|
|
116,232
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Notes payable, related parties
|
|
|
159,481
|
|
|
|
159,481
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Small Business Administration loan
|
|
|
979,950
|
|
|
|
979,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
6,148,646
|
|
|
$
|
6,148,646
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Form 10-K for the year ended December 31, 2015 and Note 3 in the unaudited condensed consolidated financials as of March 31, 2016.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
With the participation of Lloyd T. Spencer, who serves as the Chief Executive Officer (the principal executive officer) and Interim Chief Financial Officer (the principal financial officer); the Company’s management has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. As of the end of the period covered by this Report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and interim chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and interim chief financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. The ineffectiveness of our disclosure controls and procedures is the result of certain deficiencies in internal controls constituting material weaknesses as discussed below.
The Company has historically had limited operating revenue and, as such, all accounting and financial reporting operations have been and are currently performed by a limited number of individuals. The parties that perform the accounting and financial reporting operations are the only parties with any significant knowledge of generally accepted accounting principles. Thus, we lack segregation of duties in the period-end financial reporting process. This lack of additional accounting/auditing staff with significant knowledge of generally accepted accounting principles in order to properly segregate duties could result in ineffective oversight and monitoring and the possibility of a misstatement within the unaudited condensed consolidated financial statements. However, the material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of the Company's unaudited condensed consolidated financial statements for the current reporting period.
The Company is currently reviewing its policies and is evaluating its disclosure controls and procedures so that it will be able to determine the changes it can and should make to make such controls more effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
We are party to two pending legal proceedings that arose in the normal course of business. While the results of proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings should not have a material adverse effect on our unaudited condensed consolidated financial statements, and should not adversely affect our cash flows. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
ITEM 1A. RISK FACTORS
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF FUNDS
|
(a)
|
On January 11, 2016, the Company issued 443,500,000 shares of common stock to a note holder for $22,175 at a price of $0.0005 per share. The shares were issued as a conversion of $22,175 in principal on an outstanding convertible promissory note.
|
On January 13, 2016, the Company issued 221,018,600 shares of common stock to a note holder for $11,051 at a price of $0.0005 per share. The shares were issued as a conversion of $8,500 in principal and $2,551 in accrued interest on an outstanding convertible promissory note.
On January 13, 2016, the Company issued 176,452,226 shares of common stock to a note holder for $14,798 at a price of $0.0008 per share. The shares were issued as a conversion of $14,798 in principal on an outstanding convertible promissory note.
On February 18, 2016, the Company issued 444,000,000 shares of common stock to a note holder for $22,200 at a price of $0.0005 per share. The shares were issued as a conversion of $22,175 in principal on an outstanding convertible promissory note.
On March 15, 2016, the Company issued 443,550,000 shares of common stock to a note holder for $22,175 at a price of $0.0005 per share. The shares were issued as a conversion of $22,175 in principal on an outstanding convertible promissory note.
The above said sales relied on the exemption from registration afforded by Section 4(a)(2) of the Securities Act; adequate information was provided to offerees; and no general solicitation or advertising was made in connection with the offer or sale of the above said securities.
|
(c)
|
On November 2, 2015, the Board of Directors authorized the repurchase of up to $500,000 of its common stock, par value $0.0001 per share at a price of up to $0.01 per share, with no expiration date.
|
On January 12, 2016, the Company repurchased 20,800,000 shares of common stock into the Company’s treasury for $4,320 at a price of $0.0002 per share.
On January 15, 2016, the Company repurchased 16,648,000 shares of common stock into the Company’s treasury for $2,076 at a price of $0.00012 per share.
On January 15, 2016, the Company repurchased 20,800,000 shares of common stock into the Company’s treasury for $3,241 at a price of $0.00015 per share.
As of the March 31, 2016, the Company has repurchased a total of 189,966,000 shares of common stock at an aggregate value of $22,630. Of the $500,000 of common stock authorized to repurchase, there remains $477,370 of common stock to be repurchased.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
|
(a)
|
At March 31, 2016, we were in default in payment of interest and/or principal on indebtedness amounting to $6,851,174.
|
|
(b)
|
As of the balance sheet date the Company is in arrears in the payment of dividends related to its Series B preferred stock in the amount of $15,969.
|
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit
|
|
Description
|
|
|
|
31
|
|
Certification of Periodic Financial Reports by Lloyd Spencer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32
|
|
Certification of Periodic Financial Reports by Lloyd Spencer in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350
|
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.
Dated: June 10, 2016
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COROWARE, INC.
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|
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By:
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/s/ Lloyd T. Spencer
|
|
|
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Lloyd T. Spencer
|
|
|
|
Chief Executive Officer and
Interim Chief Financial Officer
(Principal Executive Officer and Principal
Accounting and Financial Officer)
|
|