United States Securities & Exchange Commission EDGAR Filing


 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


———————

FORM 10-Q

———————


þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE OF 1934


For the quarterly period ended March 31, 2009


¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE TRANSITION PERIOD FROM ________________ TO _________________


COMMISSION FILE NUMBER: 000-33231


———————

COROWARE, INC.

 (EXACT NAME OF THE COMPANY AS SPECIFIED IN ITS CHARTER)

———————


Delaware

95-4868120

(State or Other Jurisdiction

(I.R.S. Employer

of Incorporation)

Identification No.)


4056 148th Avenue NE

Redmond, WA  98052

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


(800) 641-2676

(ISSUERREGISTRANT TELEPHONE NUMBER)


(FORMER NAME OR FORMER ADDRESS, IF CHANGED FROM LAST REPORT)

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes  ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)

Smaller reporting company þ


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes  þ No

As of May 1, 2009 there were 2,933,941shares (880,182,300 pre-reverse split shares) of the issuer's $.001 par value common stock issued and outstanding.


 

 




COROWARE, INC.

March 31, 2009 QUARTERLY REPORT ON FORM 10-Q


TABLE OF CONTENTS



Page

PART I – FINANCIAL INFORMATION

Item 1.         Consolidated Financial Statements (Unaudited)

1

Consolidated Balance Sheets March 31, 2009 and December 31, 2008

1

Consolidated Statements of Operations For The Three Months Ended March 31, 2009
and 2008

2

Consolidated Statements of Cash Flows For The Three Months Ended March 31, 2009
and 2008

3

Notes to Consolidated Financial Statements

4

Item 2.         Management's Discussion and Analysis of Financial Condition and Results of Operations

7

Item 3.         Quantitative and Qualitative Disclosures About Market Risk

9

Item 4.        Controls and Procedures

9

PART II – OTHER INFORMATION

Item 1.         Legal Proceedings

10

Item 1A.       Risk factors

10

Item 2.         Unregistered Sales of Equity Securities and Use of Funds

10

Item 3.         Defaults Upon Senior Securities

10

Item 4.         Submission of Matters to a Vote of Security Holders

10

Item 5.         Other Information

10

Item 6.         Exhibits

10

Signatures

11






PART I – FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

COROWARE, INC.

CONSOLIDATED BALANCE SHEETS
March 31, 2009 and December 31, 2008

 

 

March 31,

2009

 

 

December 31,

2008

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

29,408

 

 

$

32,142

 

Accounts receivable, net

 

 

163,113

 

 

 

52,796

 

Other current assets

 

 

7,332

 

 

 

8,821

 

Total current assets

 

 

199,853

 

 

 

93,759

 

  

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

72,481

 

 

 

65,462

 

Intangible assets, net

 

 

91,256

 

 

 

148,343

 

Other assets, net

 

 

4,815

 

 

 

4,815

 

Deferred financing costs, net

 

 

94,574

 

 

 

130,173

 

  

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

462,979

 

 

$

442,552

 

  

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Lines of credit

 

$

114,736

 

 

$

29,210

 

Accounts payable and accrued expenses

 

 

2,073,142

 

 

 

1,985,112

 

Accrued expenses, related parties

 

 

151,504

 

 

 

166,513

 

Notes payable

 

 

280,232

 

 

 

285,000

 

Notes payable, related parties

 

 

261,100

 

 

 

227,100

 

Derivative liability

 

 

1,767,820

 

 

 

284,745

 

Current maturities of convertible debt, net of discount

 

 

1,124,221

 

 

 

585,188

 

Redeemable preferred stock, Series B, $.001 par value, 10,000,000
shares authorized, 159,666 shares issued and outstanding

 

 

319,651

 

 

 

212,888

 

Total current liabilities

 

 

6,092,406

 

 

 

3,775,756

 

  

 

 

 

 

 

 

 

 

Convertible debt, net of discount

 

 

––

 

 

 

241,678

 

Long-term debt

 

 

989,100

 

 

 

989,100

 

Total liabilities

 

 

7,081,506

 

 

 

5,006,534

 

  

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Common stock, $.001 par value, 900,000,000 shares authorized,
878,752,920 shares issued and outstanding

 

 

878,753

 

 

 

878,753

 

Additional paid-in capital

 

 

13,833,206

 

 

 

13,818,537

 

Accumulated deficit

 

 

(21,290,407

)

 

 

(19,225,572

)

Cumulative effect of adjustment related to the adoption of EITF 07-05

 

 

(4,379

)

 

 

––

 

Treasury stock

 

 

(35,700

)

 

 

(35,700

)

Total stockholders’ deficit

 

 

(6,618,527

)

 

 

(4,563,982

)

  

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

462,979

 

 

$

442,552

 



The accompanying notes are an integral part of these consolidated financial statements.


1



COROWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months ended March 31, 2009 and 2008
(Unaudited)

  

 

2009

 

 

2008

 

Revenues

 

$

657,989

 

 

$

778,276

 

Cost of revenues

 

 

415,488

 

 

 

619,028

 

Gross Profit

 

 

242,501

 

 

 

159,248

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

222,776

 

 

 

606,234

 

Sales and marketing

 

 

15,685

 

 

 

20,109

 

Depreciation and amortization

 

 

62,774

 

 

 

59,665

 

Total operating expenses

 

 

301,235

 

 

 

686,008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before other income (expense)

 

 

(58,734

)

 

 

(526,760

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Derivative expense

 

 

(1,585,459

)

 

 

(57,317

)

Interest expense

 

 

(420,642

)

 

 

(172,570

)

Loss on debt redemptions

 

 

––

 

 

 

(149,486

)

Total other income (expense)

 

 

(2,006,101

)

 

 

(379,373

)

Loss from continuing operations

 

 

(2,064,835

)

 

 

(906,133

)

Loss from discontinued operations

 

 

––

 

 

 

(4,273

)

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,064,835

)

 

$

(910,406

)

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

Basic and diluted, continuing operations

 

$

(0.00

)

 

$

(0.01

)

Basic and diluted, discontinued operations

 

$

(0.00

)

 

$

(0.00

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

878,752,920

 

 

 

136,663,873

 




The accompanying notes are an integral part of these consolidated financial statements.


2



COROWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three Months ended March 31, 2009 and 2008
(Unaudited)

  

 

2009

 

 

2008

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(2,064,835

)

 

$

(910,406

)

Adjustments to reconcile net loss to net flows from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

62,774

 

 

 

59,665

 

Stock option expense

 

 

14,669

 

 

 

40,768

 

Amortization of debt discount

 

 

340,950

 

 

 

74,243

 

Amortization of deferred financing costs

 

 

35,599

 

 

 

54,286

 

Derivative loss

 

 

1,585,459

 

 

 

57,317

 

Loss on debt redemptions

 

 

––

 

 

 

149,486

 

Common stock issued for services

 

 

––

 

 

 

196,593

 

Imputed interest

 

 

––

 

 

 

900

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(110,317

)

 

 

(136,642

)

Other current assets, net

 

 

1,489

 

 

 

(6,606

)

Accounts payable and accrued expenses

 

 

29 425

 

 

 

57,203

 

NET CASH FLOWS FROM OPERATING ACTIVITIES

 

 

(104,787

)

 

 

(363,193

)

  

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to  property and equipment

 

 

(12,705

)

 

 

(4,700

)

NET CASH FLOWS FROM INVESTING ACTIVITIES

 

 

(12,705

)

 

 

(4,700

)

  

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from convertible debt financing

 

 

––

 

 

 

240,000

 

Proceeds from lines of credit, net

 

 

85,526

 

 

 

––

 

Payments on notes payable

 

 

(5,268

)

 

 

––

 

Payments on notes payable, related party

 

 

(5,000

)

 

 

(40,000

)

Proceeds from notes payable

 

 

500

 

 

 

––

 

Proceeds from notes payable, related party

 

 

39,000

 

 

 

41,000

 

NET CASH FLOWS FROM FINANCING ACTIVITIES

 

 

114,758

 

 

 

241,000

 

  

 

 

 

 

 

 

 

 

NET DECREASE IN CASH

 

 

(2,734

)

 

 

(126,893

)

Cash, beginning of period

 

 

32,142

 

 

 

205,058

 

Cash, end of period

 

$

29,408

 

 

$

78,165

 


SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

Interest paid

 

$

14,439

 

 

$

21,378

 

Income taxes paid

 

$

––

 

 

$

––

 

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING TRANSACTIONS

 

 

 

 

 

 

 

 

Common stock issued for Series B preferred stock dividends

 

$

––

 

 

$

28,750

 

Common stock  issued in satisfaction of note payable

 

$

––

 

 

$

1,500

 

Common stock issued for redemption of convertible debentures

 

$

––

 

 

$

155,443

 

Common stock issued in satisfaction of accrued liabilities

 

$

––

 

 

$

85,641

 




The accompanying notes are an integral part of these consolidated financial statements.


3



COROWARE, INC.

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 and prior reports for 2008.  The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, CoroWare Technologies, Inc. (“CTI”), Innova Robotics, Inc. (“IR”), Robotic Workspace Technologies, Inc. (“RWT”), and Robotics Software Service, Inc. (“RSS”) (Herein are referred to as the “Subsidiaries”).  In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended December 31, 2008 as reported in Form 10-K have been omitted.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Adopted Accounting Pronouncements:

On January 1, 2009, the Company adopted EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The adoption of this pronouncement required the Company to perform additional analyses on both its freestanding equity derivatives and embedded equity derivative features. The adoption of EITF 07-05 affected the Company’s accounting for the warrants associated with the $600,000 convertible debenture resulting in the Company recording a derivative liability of $4,379 representing the fair value of the warrants as of January 1, 2009.  EITF 07-5 requires the Company to recognize the cumulative effect of the change in accounting principle as an adjustment to the opening balance of retained earnings.

Reclassifications:

Certain 2008 balances have been reclassified to conform to current year presentation.

NOTE 3 – FINANCIAL CONDITION AND GOING CONCERN

The Company has incurred losses for the three months ended March 31, 2009 and 2008 of $2,064,835 and $910,406, respectively. Because of these losses, the Company will require additional working capital to develop its business operations.

The Company intends to raise additional working capital through the use of private placements, public offerings, bank financing 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 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.



4



NOTE 4 - CONVERTIBLE DEBT

The following table illustrates the carrying value of convertible debt at March 31, 2009 and December 31, 2008:

  

 

March 31,

2009

 

 

December 31,

2008

 

$2,825,000 financing

 

$

787,694

 

 

$

585,188

 

$   600,000 financing

 

 

151,867

 

 

 

85,602

 

$   300,000 financing

 

 

184,660

 

 

 

156,076

 

  

 

$

1,124,221

 

 

$

826,866

 

The following tables illustrate the fair value adjustments that were recorded related to the derivative financial instruments associated with the convertible debenture financings:   

  

 

Three Months ended March 31, 2009

 

Derivative income (expense)

 

Inception

 

 

Fair Value

Adjustments

 

 

Redemptions

 

 

Total

 

$2,825,000 financing

 

$

––

 

 

$

(1,094,881

)

 

$

––

 

 

$

(1,094,881

)

$  600,000 financing

 

 

––

 

 

 

(370,193

)

 

 

––

 

 

 

(370,193

)

$  300,000 financing

 

 

––

 

 

 

(13,622

)

 

 

––

 

 

 

(13,622

)

Preferred stock, Series B

 

 

––

 

 

 

(106,763

)

 

 

––

 

 

 

(106,763

)

  

 

$

––

 

 

$

(1,585,459

)

 

$

––

 

 

$

(1,585,459

)

The following table illustrates the components of derivative liabilities at March 31, 2009:

  

 

Compound

Derivative

 

 

Warrant

liability

 

 

Other

warrants

 

 

Total

 

$2,825,000 financing

 

$

1,301,581

 

 

$

5,580

 

 

$

––

 

 

$

1,307,161

 

$   600,000 financing

 

 

431,250

 

 

 

13,125

 

 

 

––

 

 

 

444,375

 

$   300,000 financing

 

 

10,284

 

 

 

6,000

 

 

 

––

 

 

 

16,284

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,767,820

 

The following table summarizes the number of common shares indexed to the derivative financial instruments as of March 31, 2009:

Financing or other contractual arrangement:

 

Conversion

Features

 

 

Warrants

 

 

Total

 

$2,825,000 Convertible note financing

 

 

2,169,301,577

 

 

 

9,300,000

 

 

 

2,178,601,577

 

$   600,000 Convertible note financing

 

 

718,750,685

 

 

 

21,875,000

 

 

 

740,625,685

 

$   300,000 Convertible note financing

 

 

17,140,274

 

 

 

10,000,000

 

 

 

27,140,274

 

  

 

 

 

 

 

 

 

 

 

 

2,946,367,536

 

The Company’s determination of the number of shares indexed to the $2,825,000 and the $600,000 financings as of December 31, 2008 are materially impacted by the use of par value as a conversion rate “floor”. The actual terms of the financings call for a conversion rate of the lower of $.02 or 85% of the 30-day VWAP. However, 85% of the 30-day VWAP at December 31, 2008 is less than par and, consistent with redemptions which took place during 2008, par was used as the floor conversion rate due to the impact of state securities law which may not allow for issuance of shares at less than par value. Had the indexed share been calculated using the 30 day VWAP, the number of indexed shares would be materially higher and, as a result, so would the associated derivative liability.


Warrants issued in connection with the $600,000 financing have an embedded derivative feature (full-ratchet anti-dilution provision).   Emerging Issues Task Force EITF 07-5 requires reclassification of the warrants to liabilities at fair value on January 1, 2009 and subsequent reporting of the change in fair value.   The valuation for 21,875,000 warrants with embedded features was $4,379 on January 1, 2009 and $13,125 on March 31, 2009.   $4,379 was reclassified from the accumulated deficit account to the derivative liabilities account on January 1, 2009.  For the quarter ended March 31, 2009, the change in fair value of this component of the derivative instruments was $8,746 and recorded as an increase in the derivative liability account and as an expense.



5



NOTE 5 - STOCK BASED COMPENSATION

Stock Options:

The following table summarizes stock option activity:   

  

 

Total

options

 

 

Weighted

Average Price

 

Outstanding, December 31, 2008

 

 

13,278,151

 

 

$

0.02

 

Granted

 

 

––

 

 

 

––

 

Cancelled

 

 

(1,719,667

)

 

$

(0.10

)

Exercised

 

 

––

 

 

 

––

 

Outstanding, March 31, 2009

 

 

11,558,484

 

 

$

0.01

 


NOTE 6 – OTHER STOCKHOLDERS’ EQUITY


a)

Outstanding warrants:


At March 31, 2009, the Company had the following warrants outstanding:


  

Grant Date

 

Expiration Date

 

Warrants

Granted

 

 

Exercise Price

 

$2,800,000 financing

07/21/06

 

07/21/09 & 07/21/11

 

 

9,300,000

 

 

$.25- $1

 

$ 300,000 financing

03/19/08

 

03/19/13

 

 

10,000,000

 

 

$.02

 

  

  

 

  

 

 

19,300,000

 

 

 

 

 


NOTE 7 – SUBSEQUENT EVENT


The Board of Directors authorized a reverse split of our issued and outstanding shares at a ratio of one-for-three hundred.  The reverse split was effectuated on April 8, 2009, the effect of which has not been reflected in these financial statements.  



6



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," "will," "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, such should not be regarded as a representation by Coroware, Inc., or any other person, that such forward-looking statements 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.

BACKGROUND

CoroWare, Inc (“CoroWare” or “the Company”) is a professional services, software development and managed services company that develops and delivers telepresence products and services, collaborative web applications, and mobile robotics solutions to its customers in North America and Europe. The Company has historically focused its efforts in the software products, education and automotive industry sectors. The Company has one operational subsidiary: CoroWare Technologies, Inc. (“CTI”).

COROWARE TECHNOLOGIES, INC.

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 expertise includes the deployment and integration of computing platforms and applications, as well as the development of unmanned vehicle software and solutions for customers in the research, commercial, and homeland security market segments.  CTI shall continue to offer its high value software systems development and integration services that complement the growing trend in outsourced software development services in Asia, Latin America and Eastern Europe.

CTI is comprised of three principal solutions delivery groups:

·

Business Solutions

·

Robotics and Automation

·

Telepresence

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THREE MONTHS ENDED MARCH 31, 2008:

During the three-month period ended March 31, 2009 (the "2009 Period") revenues were $657,989 compared to revenues of $778,276 during the three-month period ended March 31, 2008 (the "2008 Period"). Our revenues decreased as we continue to see customers delay or reduce spending on software development, multimedia production and infrastructure deployments.  

Cost of revenues was $415,488 and $619,028 for the 2009 Period compared to the 2008 Period, respectively. Cost of revenues sold represents primarily labor and labor-related costs in addition to overhead costs.  Management made a concerted effort during the second half of 2008 and the first quarter of 2009 to reduce staffing levels that helped to reduce our cost of sales and increase our gross profit.  Gross profit on these 2009 revenues amounted to $242,501 compared to $159,248 for the 2008 Period revenues.

Operating expenses were $301,235 during the 2009 Period compared to $686,008 during the 2008 Period.  Selling, general and administrative operating expenses were significantly lower in the 2009 Period due to the substantial reduction in costs related to officers’ salaries, rent and related expenses, travel and entertainment.



7



Loss from continuing operations before other income was $58,734 during the 2009 Period compared to $526,760 in the 2008 Period.  We believe the reduction in this loss to be a direct result of our cost cutting measures.  

Loss from continuing operations was $2,064,835 during the 2009 Period compared to loss of $906,133 in the 2008 Period.  Included in this loss is other income (expense) of $2,006,101 for the 2009 Period and $379,373 for the 2008 Period.  This other income (expense) is comprised primarily of derivative expense and amortization of debt discount and deferred finance costs.  The increase in the derivative expense is a direct result of the increase in our stock price ($0.0001 at December 31, 2008 versus $0.0006 at March 31, 2009).  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.   Even through the share prices are sub-penny, the effect on the derivative liability is significant as the liability increases six times with an increase in the share price from $0.0001 at December 31, 2008 versus $0.0006 at March 31, 2009.

Loss from discontinued operations was $0 during the 2009 period compared to a loss of $4,273 in the 2008 period.

Weighted average shares outstanding were 878,752,920 during the 2009 Period compared to 136,663,873 in the 2008 Period.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2009, we had current assets of $199,853, current liabilities of $6,092,406, negative working capital of $5,892,553 and an accumulated deficit of $21,294,786.

We presently do not have any available credit, 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 December 31, 2008:

 

 

Payments due by Period

 

Contractual Obligations

 

Total

 

Less than
1 year

 

1-3 years

 

3-5 years

 

More than
5 years

 

Convertible debt

     

$

826,866

     

$

585,188

     

$

241,678

     

$

     

$

 

Notes payable

 

 

285,000

 

 

285,000

 

 

 

 

 

 

 

Notes payable, related parties

 

 

227,100

 

 

227,100

 

 

 

 

 

 

 

Operating leases

 

 

110,829

 

 

36,800

 

 

74,029

 

 

 

 

 

 Total

 

$

1,449,795

 

$

1,134,088

 

$

315,707

 

$

 

$

 




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EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Form 10-K for the year ended December 31, 2008.  Also refer to Note 1 of the accompanying Notes to Consolidated Financial Statements.  

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (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 the Chief Executive Officer (the principal executive officer) and 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 Securities Exchange Act of 1934, as amended (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 chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our 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 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 financial statements for the current reporting period. We lack segregation of duties in the period-end financial reporting process. The Company has historically had limited accounting and 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. In addition, the lack of additional staff with significant knowledge of generally accepted accounting principles has resulted in ineffective oversight and monitoring. 

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 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 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 Controls over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to material affect, our internal control over financial reporting.



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Part II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

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

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

(a)

No material default in the payment of principal, interest, a sinking fund or purchase fund installment, or any other material default not cured within 30 days exists as of the balance sheet date.

(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.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.

OTHER INFORMATION

ITEM 6.

EXHIBITS

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




10



SIGNATURES


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.



 

Coroware, Inc.

 

 

 

/s/ LLOYD T. SPENCER

Dated:  May 20, 2009

Lloyd T. Spencer, Chief Executive Officer and

Interim Chief Financial Officer

(Principal Executive Officer and Principal
Accounting and Financial Officer)




11