cowi_10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
þ ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER
31, 2009
o 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)
SECURITIES
REGISTERED UNDER SECTION 12(B) OF THE ACT: NONE
SECURITIES
REGISTERED UNDER SECTION 12(G) OF THE ACT:
COMMON
STOCK, PAR VALUE $.001
(TITLE OF
CLASS)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yeso No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) the Act. Yeso No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. þ Yes o No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). þ Yes o No
Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
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 |
o |
Accelerated
filer |
o |
Non-accelerated
filer
(Do not
check if a smaller reporting company)
|
o |
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 o No þ
The
aggregate market value of the of the registrant’s common stock held by
non-affiliates of the registrant, computed by reference to price at which the
common equity was sold, or the average bid and asked price of such common stock
as of March 31, 2010, was $194,397. For purposes of this computation, the
registrant has excluded the market value of all shares of its common stock
reported as being beneficially owned by executive officers and directors and
holders of more than 10% of the common stock on a fully diluted basis of the
registrant; such exclusion shall not, however, be deemed to constitute an
admission that any such person is an “affiliate” of the registrant.
As of
March 31, 2010 there were 9,245,454 shares of the issuer's $.001 par value
common stock issued and outstanding.
EXPLANATORY
NOTE
All
common share amounts and per share amounts in the accompanying financial
statements and in this Annual Report on Form 10-K for the years ended December
31, 2009 and 2008 reflect the one-for-three hundred reverse stock split of the
issued and outstanding shares of common stock of the CoroWare, Inc., effective
April 8, 2009.
INDEX
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PART I |
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Item
1. |
Business. |
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1 |
|
Item
1A.
|
Risk
factors |
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|
5 |
|
Item
1B.
|
Unresolved
Staff Comments |
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5 |
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Item
2.
|
Properties. |
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5 |
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Item
3. |
Legal Proceedings. |
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5 |
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Item
4. |
Removed and Reserved. |
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5 |
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PART
II |
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Item
5. |
Market for Registrant’s
Common Equity, Related Stockholder Matters and Registrant Purchases
of Equity Securities. |
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6 |
|
Item
6. |
Selected
Financial Data |
|
|
8 |
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Item
7. |
Managements’ Discussion and Analysis or Financial
Condition and Results of Operations |
|
|
8 |
|
Item
7A. |
Quantitative
and Qualitative Disclosures About Market Risk |
|
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14 |
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Item
8. |
Financial
Statements. |
|
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14 |
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Item
9. |
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure. |
|
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14 |
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Item
9A. |
Controls
and Procedures. |
|
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14 |
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Item
9B. |
Other
Information. |
|
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15 |
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PART III |
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Item
10. |
Directors, Executive Officers, and Corporate
Governance.
|
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|
16 |
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Item 11. |
Executive
Compensation. |
|
|
18 |
|
Item
12. |
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters. |
|
|
23 |
|
Item
13. |
Certain
Relationships and Related Transactions, and Director
Independence. |
|
|
24 |
|
Item
14. |
Principal
Accounting Fees and Services |
|
|
25 |
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PART
IV |
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Item
15. |
Exhibits. |
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26 |
|
SIGNATURES |
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30 |
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this
annual report, references to “CoroWare,” “the Company,” “we,” “us,” and
“our” refer to CoroWare, Inc.
This
Annual Report on Form 10-K contains forward-looking statements regarding our
business, financial condition, results of operations and prospects. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions or variations of such words are intended to
identify forward-looking statements, but are not deemed to represent an
all-inclusive means of identifying forward-looking statements as denoted in this
Annual Report on Form 10-K. Additionally, statements concerning
future matters are forward-looking statements.
Although
forward-looking statements in this Annual Report on Form 10-K reflect the good
faith judgment of our management, such statements can only be based
on facts and factors currently known by us. Consequently, forward-looking
statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements. Factors that could cause or
contribute to such differences in results and outcomes include, without
limitation, those specifically addressed under the heading "Risks Related to Our
Business" below, as well as those discussed elsewhere in this Annual Report on
Form 10-K. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K.
CoroWare
undertakes no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
Annual Report on Form 10-K, except as required by law. Readers are urged to
carefully review and consider the various disclosures made throughout this
Annual Report, which are designed to advise interested parties of the risk
factors that may affect our business, financial condition, results of operations
and prospects.
PART
I
ITEM
1. BUSINESS
Overview
CoroWare,
Inc is a public holding company whose principal subsidiary, CoroWare
Technologies, Inc. (“CTI”), has expertise in information technology consulting,
mobile robotics, and affordable telepresence. Through our subsidiary, the
CoroWare delivers custom engineering services, hardware and software products,
and subscription services that benefit customers in North America, Europe, Asia
and the Middle East. Our customers span multiple industry sectors and
comprise universities, software and hardware product development companies, and
non-profit organizations.
In 2007,
Robotic Workspace Technologies, Inc. (“RWT”), our other subsidiary, ceased all
operations including manufacturing, sales and service of the Universal Robot
Controller. In 2008, we sold RWT’s robotic control technology patents through a
patent auction.
CoroWare
stabilized its revenues during 2009, having worked through the most challenging
economic environment in the our history. We improved our gross with a view
towards achieving modest growth in 2010 as we diversify our business with
telepresence and customer spending continues to improve.
Employees
As of
December 31 2009, CoroWare had a total of twenty-four (24) employees (of which
15 are full time) and several independent contractors providing services. None
of our employees are covered by collective bargaining agreements. We believe
that our relations with our employees are good.
COROWARE
TECHNOLOGIES, INC.
CoroWare
Technologies comprises three separately managed lines of business:
|
CoroWare
Business Solutions
|
IT
and lab management; software architecture, design and development; content
delivery; partner and program
management.
|
|
Robotics
and Automation
|
Custom
engineering such as visualization, simulation and software development;
and mobile robot platforms for university, government and corporate
researchers.
|
|
Telepresence
|
High
definition video conferencing products, solutions and subscription
services.
|
CoroWare
Business Solutions
CTI
provides release management, software systems development, and product
integration services that help our customers deliver high quality products,
solutions and services.
Release and Project
Management
CTI's
program managers are experts in Microsoft's product and solution development
tools and processes. CTI uses that experience to create product specifications,
develop project plans, and perform security and release management audits – with
the objective of helping Microsoft deliver its solutions and products
efficiently, affordably and on schedule. CTI's senior consultants design
complex testing and demonstration environments using the latest Microsoft
virtualization technology, ensuring rapid, scalable and low-fault
deployments.
Lab
Management
CTI's
team of experienced hardware and software deployment engineers architect, deploy
and support state-of-the-art computer lab facilities that include the latest
builds of operating systems, developer tools, and servers. CTI employees
currently provide lab management and systems engineering support services in
three Microsoft data centers and labs.
Solution
Delivery
CTI’s
solutions development group has been instrumental in helping product development
companies, including MetraTech, design, prototype, develop and test new products
and solutions. CoroWare’s consulting staff comprises a wide range of
software architects with over 20 years experience, “user experience” application
developers, web service software developers, database consultants, and project
managers.
In order
to compete with outsourcing software and IT consulting companies in India and
China, CoroWare established a near shore consulting services group in 2007 as a
low cost alternative with same time zone presence. CoroWare's Latin
America partnerships offer superior cost dynamics and a near time zone
alternative to Europe / US businesses requiring Spanish language
capability. CoroWare's Near Shore Consulting Services offer a stable rate
against the dollar, as well as close proximity, and a familiarity with US
business processes.
Robotics
and Automation
CoroWare
became recognized as a mobile robotics solutions integrator in the research
community because of its expertise in robotics simulation and software
development. CoroWare’s CoroBot and Explorer product lines are being used
by over 20 corporate and academic researchers today, and the CoroBot product
line was specified in at least one Request for Proposal in 2009.
Custom
Engineering
CTI
offers its custom engineering expertise to customers who are looking for product
realization, robotics simulation, systems architecture and design, and robotic
applications development services. We believe CTI is uniquely positioned with
its knowledge of robotics simulation; Player-Stage running on Linux systems;
Concurrency and Coordination Runtime (CCR) and Decentralized Software Services
(DSS) running on Microsoft Windows systems; embedded systems software
development; and hardware and software integration services to help its
customers deliver innovative product and solutions.
Solutions and
Products
In May
2007, CTI began shipping the CoroBot, an affordable and flexible mobile robot
that was designed to minimize the complexity of robotic development. Combining a
powerful PC-class platform with a robust, object-oriented software development
system empowers researchers and robotics application developers to rapidly
deploy and develop robotic solutions. Some university customers are
deploying CoroBots for use in various lab activities, including the development
of swarm robotics applications designed to leverage groups of robots to complete
complex tasks. In June 2009, CTI began shipping the Explorer. With more
powerful motors, larger payload capacity, articulated suspension and enclosed
electronics it is suitable for indoor or outdoor usage.
Telepresence
In early
2009, CTI launched its telepresence initiative in order to address the needs of
enterprise customers with distributed business operations that are turning to
new technologies to address the cost of doing business in a world that is
increasingly dependent on suppliers, partners and customers worldwide. In
order to overcome these challenges, enterprise customers are looking for
solutions that are demonstrably effective and operationally affordable. As
a result, small, medium and large sized businesses, including consulting
companies, non-profit groups, and distance learning companies, are all giving
serious consideration to purchasing affordable high definition videoconferencing
solutions.
Through
its partnership with Vidyo (http://www.vidyo.com),
CoroWare is deploying high definition video conferencing solutions, including
telepresence room systems, and offering CoroCallTM
(http://www.corocall.com),
an affordable high definition videoconferencing subscription service that is
based on Vidyo’s technology.
In
addition to offering its personal telepresence services, CoroWare is generating
revenues with complementary video streaming and post production services.
Some customers are using our services to hold virtual sales meetings on a weekly
basis by hosting 3-4 speakers in a video conference, streaming the live session
to dozens or hundreds of attendees, and then publishing an edited recording of
the session on their Intranet. Other customers are planning to use our
services to hold interviews in a recorded video conference, perform their own
post-production, and then publish an edited version publicly.
Although
this business is in its early stages of growth, we have won and are pursuing
significant customer opportunities at financial consulting organizations,
product development/sales companies, religious organizations, and
universities.
Finally,
CoroWare has proposed acquiring LTC International to leverage its in-depth
knowledge of application services that we believe will help us more
expeditiously enter the personal telepresence marketplace. LTC
International was formed in 1992 with the goal of helping service providers and
telecommunications companies meet their growing needs for dependable systems and
software solutions. LTC International and CoroWare are still considering
the proposed acquisition at this time.
ROBOTIC
WORKSPACE TECHNOLOGIES, INC.
During
the third quarter of 2007, RWT ceased all operations including manufacturing,
sales and service of the Universal Robot Controllers (URC). In 2009, we
completed the sale of the following robotic control technology patents through a
patent auction:
First
Patent number 6,442,451 - awarded September 5, 2002 - Versatile robot control
system - Abstract - An improved, versatile robot control system comprises a
general purpose computer with a general purpose operating system in electronic
communication with a real-time computer subsystem. The general-purpose computer
includes a program execution module to selectively start and stop processing of
a program of robot instructions and to generate a plurality of robot move
commands. The real-time computer subsystem includes a move command data buffer
for storing the plurality of move commands, a robot move module linked to the
data buffer for sequentially processing the moves and calculating a required
position for a robot mechanical joint. The real-time computer subsystem also
includes a dynamic control algorithm in software communication with the move
module to repeatedly calculate a required actuator activation signal from a
robot joint position feedback signal.
Second
Patent number 6,675,070 - awarded April 5, 2004 - Automation equipment control
system Abstract - An automation equipment control system comprises a
general-purpose computer with a general-purpose operating system in electronic
communication with a real-time computer subsystem. The general-purpose computer
includes a program execution module to selectively start and stop processing of
a program of equipment instructions and to generate a plurality of move
commands. The real-time computer subsystem includes a move command data buffer
for storing the plurality of move commands, a move module linked to the data
buffer for sequentially processing the moves and calculating a required position
for a mechanical joint. The real-time computer subsystem also includes a dynamic
control algorithm in software communication with the move module to repeatedly
calculate a required actuator activation signal from a joint position feedback
signal.
Third
Patent number 6,922,611 – awarded July 26, 2005 - Reflects the company’s R&D
efforts in open-architecture PC control technology spearheaded by
RWT.
Gross
proceeds on the sale of these patents in 2009 was $100,000.
Competition
Competitors
in the IT consulting market comprise a combination of large and well established
companies, such as Avanade and Tata Consultancy Services; and smaller, privately
held consulting companies with practices in a single vertical arena such as
custom software development, telecom billing, multimedia production and many
other vertical industries. We have maintained long-term relationships and
have been successful in renewing contracts and in signing
multi-month or yearlong contracts with key customers - including Microsoft and
MetraTech, and are building similar client relationships with new
customers.
Competitors
in the mobile robotics and custom engineering marketplaces have comprised iRobot
(IRBT) and privately held companies such as Mobile Robots, K-Team Mobile
Robotics, RoboSoft, and Evolution Robotics. New entrants in this
marketplace include Aethon, neato robotics, Brock Technologies, and Contineo
Robotics.
Competitors
in the affordable telepresence market include:
·
|
Legacy
videoconferencing vendors such as Polycom, Tandberg/Cisco and
Lifesize/Logitech
|
·
|
Legacy
videoconferencing service providers, such as AT&T, that deploy and
support legacy equipment from Polycom, Tandberg/Cisco and
Lifesize/Logitech
|
·
|
New
entrants in affordable and modest quality videoconferencing services, such
as oovoo and Nefsis
|
Customers
CoroWare's
IT Consulting and custom engineering businesses are dependent on a small number
of tier 1 customers in Europe and North America, such as Microsoft, and on a
growing number of smaller, privately held software and hardware product
companies in North America. In 2009, three of our customers each
comprised more than 10% of our total revenues.
Regulation
CoroWare
and products are not uniquely subject to governmental or industry
regulations.
Research
& Development
CoroWare's
research and development activities have primarily been focused on the
development of software components, such as CoroWare Usage Reporter for Vidyo,
and mobile robot platforms such as the CoroBot Explorer. We intend to
continue developing hardware and software products that we believe will further
grow CoroWare's telepresence and mobile robotics products, solutions and
services. Research and development expenses from continuing
operations for the years ended December 31, 2009 and 2008 were $87 and $20,188,
respectively.
Products
CoroBot:
CoroBot
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 empowers users to rapidly deploy and develop robotic
solutions. The CoroBot also assists the hardware developer with additional
physical mounting space, ports, sensors and communication devices.
CoroWare
Explorer:
The
CoroWare Explorer mobile robot was created to expand on the capabilities of the
CoroBot and deliver a rugged indoor/outdoor platform that can withstand
environmental elements such as dirt, dust, leaf debris, sand, gravel and shallow
puddles. Extra ports and surface mounting space make Explorer a robust and
expandable research robot.
CoroWare
Usage Reporter for Vidyo:
CoroWare
Usage Reporter for Vidyo is a Windows-based software package that analyzes
detailed video conferencing call records, including the number of Vidyo rooms,
ports, users, and conference call minutes. This software product is
an affordable and effective way for customers to generate video conferencing
usage statistics that can be used to distribute costs and make informed
purchasing decisions.
ITEM
1A. RISK FACTORS
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
1B. UNRESOLVED STAFF COMMENTS
None
ITEM
2. PROPERTIES
On June
1, 2007, CoroWare entered into a lease with PS Business Park for 1,800 square
feet of office space for a period of three (3) years. The monthly
rent began at $1,584 with annual increases of 3%. We have subleased a
portion of this space for $1,500 a month running from September 1, 2009 through
May 31, 2010.
On July
10, 2007, CoroWare leased 1,800 square feet of space at 4056 148th
Avenue, Redmond, Washington, which serves as our primary operating facility and
office space. The lease is also with PS Business Parks, L.P. but for
a period of five (5) years. Monthly rental payments began at $2,057
and increased annually by 3%.
Rental
expense for the years ended December 31, 2009 and 2008 was $38,373 and $55,876,
respectively.
ITEM
3. LEGAL PROCEEDINGS
CoroWare
is not currently a party to, nor is any of our property currently the subject
of, any pending legal proceeding that will have a material adverse affect on our
business. 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
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Prices
of Common Stock
Beginning
in February 2002, CoroWare’s common stock was eligible for listing in the OTC
Bulletin Board. Our trading symbol was “SRMW” until such time as our
acquisition of Hy-Tech Technology Group, Inc. on January 31, 2003 when our
symbol became “HYTT”. In November 2006, our name was changed to
Innova Robotics & Automation, Inc. and the trading symbol was changed to
INRA. In April 2008, we became CoroWare, Inc. and our trading symbol was changed
to CROE. In April 2009, in conjunction with a 1-for-300 reverse stock
split, our trading symbol was changed to COWI.
The
following table sets forth, for the fiscal quarters indicated, the high and low
closing sales price of our Common Stock as reported on the OTC Bulletin Board
for each quarterly period during fiscal years ended December 31, 2009 and 2008.
These price quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
COMMON
STOCK
|
|
Year
Ended December 31, 2009
|
|
High
|
|
|
Low
|
|
First
Quarter
|
|
$ |
0.3303 |
|
|
$ |
0.0300 |
|
Second
Quarter
|
|
$ |
0.5000 |
|
|
$ |
0.0550 |
|
Third
Quarter
|
|
$ |
0.1790 |
|
|
$ |
0.0500 |
|
Fourth
Quarter
|
|
$ |
0.2400 |
|
|
$ |
0.0470 |
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
High
|
|
|
Low
|
|
First
Quarter
|
|
$ |
5.4000 |
|
|
$ |
1.3500 |
|
Second
Quarter
|
|
$ |
2.5500 |
|
|
$ |
0.4500 |
|
Third
Quarter
|
|
$ |
0.6600 |
|
|
$ |
0.0900 |
|
Fourth
Quarter
|
|
$ |
0.0900 |
|
|
$ |
0.0300 |
|
There are
approximately 189 record holders (not including beneficial owners holding shares
in street name) of our common stock as of March 31, 2010. The closing
sale price of our common stock as reported on the OTC Bulletin Board on March
31, 2010 was $0.028 per share.
Dividend
Policy
We have
never declared or paid any cash dividends on our common stock. We anticipate
that any earnings will be retained for development and expansion of our business
and do not anticipate paying any cash dividends in the foreseeable future.
Additionally, as of December 31, 2009, we have issued and outstanding 159,666
shares of Series B Preferred Stock all of which is entitled, prior to the
declaration of any dividends on common stock, to a 5% dividend, payable in
either cash or common stock. The board of directors has sole
discretion to declare dividends based on our financial condition, results of
operations, capital requirements, contractual obligations and other relevant
factors. As of December 31, 2009, $24,684 of Series B Preferred
dividends had been converted into common stock. At December 31, 2009
and 2008, there were cumulative undeclared dividends to Preferred Series B
shareholders of $15,967 and $7,983, respectively, the obligation for which is
contingent on declaration by the board of directors.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following tables set forth the information as of December 31, 2009 with respect
to compensation plans under which our equity securities are authorized for
issuance:
EQUITY
COMPENSATION PLAN INFORMATION
DECEMBER
31, 2009
|
Plan
Category
|
|
Number
of shares to be issued upon exercise of outstanding options and
warrants
|
|
Weighted
average exercise price of outstanding options and warrants
|
|
Number
of securities available for future issuance under equity compensation
plans (excluding securities reflected in column (a))
|
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity
compensation plans approved by security holders:
|
|
|
|
|
|
|
2003
Stock Option Plan
|
|
-
|
|
n/a
|
|
-
|
2004
Stock Option Plan
|
|
-
|
|
n/a
|
|
-
|
2005
Stock Option Plan
|
|
35,195
|
|
$2.97
|
|
31,472
|
Equity
Stock Compensation plan not approved by security holders:
|
|
|
|
|
|
|
2006
Employee Compensation Plan
|
|
n/a
|
|
n/a
|
|
-
|
2008
Amended Incentive Stock Plan
|
|
n/a
|
|
n/a
|
|
2,890
|
2008
SIP – SEC File #333-151258
|
|
n/a
|
|
n/a
|
|
-
|
2009
Incentive Stock Plan
|
|
n/a
|
|
n/a
|
|
374,900
|
Total
|
|
35,195
|
|
|
|
409,262
|
Stock
Plans
As of
December 31, 2009, CoroWare had four stock compensation plans which provided for
the issuance of 1,270,000 shares to employees of CoroWare or our subsidiaries as
follows:
Plan
Description
|
|
Authorized
Shares
|
|
|
Remaining
Shares
|
|
2006
Employee Compensation Plan
|
|
|
3,333 |
|
|
|
- |
|
2008
Incentive Stock Plan
|
|
|
100,000 |
|
|
|
- |
|
2008
Amended Incentive Stock Plan
|
|
|
666,667 |
|
|
|
2,890 |
|
2009
Incentive Stock Plan
|
|
|
500,000 |
|
|
|
374,900 |
|
Total
|
|
|
1,270,000 |
|
|
|
377,790 |
|
Stock
Options
As of
December 31, 2008, we had one active Stock Option Plan known as the 2005 Stock
Option Plan. The Plan was approved by our stockholders on November 3, 2006 and
authorized the issuance of 66,667 shares of common stock. The Board of Directors
on December 31, 2007 cancelled options for 26,367 shares previously granted to
current employees prior to that date which were exercisable at various prices
and issued 26,367 options to these employees at the closing price as of
December 31, 2007 or $3.00. The number of options issued
and outstanding under the 2005 plan on December 31, 2009 is 35,195.
In
addition to the options issued under the 2005 Stock Option Plan, 26,560 options
were issued outside of the Plan. For services rendered, 443 options were issued
at a purchase price of $51 per share, 3,833 options were issued at $39 per
share, 4,040 options were issued at $15 per share 14,909 options were issued at
$33 per share and 3,333 options were issued at $1.86 per
share. The only options that remain outstanding are the 3,333
options that were issued at $1.86 per share.
ITEM
6. SELECTED FINANCIAL DATA.
As a
smaller reporting company, as defined in Rule 12-b-2 of the Exchange Act, we are
not required to provide the information required by this item.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Cautionary and Forward Looking
Statements
This
section and other parts of this Form 10-K contain forward-looking statements
that involve risks and uncertainties. Forward-looking statements can also be
identified by words such as “anticipates,” “expects,” “believes,” “plans,”
“predicts,” and similar terms. Forward-looking statements are not guarantees of
future performance and CoroWare’s actual results may differ significantly from
the results discussed in the forward-looking statements. The following
discussion should be read in conjunction with the consolidated financial
statements and notes thereto included in Item 8 of this Form 10-K. We
assume no obligation to revise or update any forward-looking statements for any
reason, except as required by law.
There is
no assurance that we will be profitable, we may not be able to successfully
develop, manage or market our products and services, we may not be able to
attract or retain qualified executives and technology personnel, our products
and services may become obsolete, government regulation may hinder our business,
additional dilution in outstanding stock ownership may be incurred due to the
issuance of more shares, warrants and stock options, or the exercise of warrants
and stock options, and other risks inherent in the our businesses.
We
undertake no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the factors described in other documents we file from time to
time with the Securities and Exchange Commission, including the Quarterly
Reports on Form 10-Q and Annual Report on Form 10-KSB filed by us in 2009 and
any Current Reports on Form 8-K filed by us.
OVERVIEW
On August
25, 2004, the company completed a reverse merger into Robotic Workspace
Technologies, Inc. (“RWT”), a robotics software technology provider, in which
RWT was deemed the "accounting acquirer." On May 16, 2006, the company completed
the purchase of all of the assets of CoroWare, Inc. pursuant to a certain Asset
Purchase Agreement, dated as of May 12, 2006, we and CoroWare, Inc. entered into
with CoroWare Technologies, Inc., a wholly owned subsidiary of our company.
Under the terms of the Asset Purchase Agreement, we purchased, and CoroWare,
Inc. sold, all of its assets including, without limitation, all hardware,
software, employee relations, customer contacts in the military and homeland
security markets, contacts with Microsoft, Inc. and all other
customers.
During
2009 and 2008, our subsidiary Innova Robotics Inc. had no business
operations, no revenues, no assets, no liabilities and no expenditures; however,
it continues to be a subsidiary of CoroWare. CTI has consolidated and assumed
all of CoroWare’s and its other subsidiaries’ development and engineering
initiatives. During 2007, CoroWare also purchased, then subsequently sold, the
assets subject to its liabilities of Altronics Service, Inc. Robotic Workspace
Technologies (RWT) has ceased all operations including manufacturing, sales and
service of the Universal Robot Controllers. In 2009, we sold all of RWT’s
robotic control patents at auction for gross proceeds of $100,000.
CRITICAL
ACCOUNTING POLICIES
General
The
consolidated financial statements and notes included in our quarterly and annual
financial statements contain information that is pertinent to this management's
discussion and analysis. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the reported amounts
of our assets and liabilities, and affect the disclosure of any contingent
assets and liabilities. We believe these accounting policies involve judgment
due to the sensitivity of the methods, assumptions, and estimates necessary in
determining the related asset and liability amounts. The significant accounting
policies are described in the notes to our financial statements and notes
included elsewhere in this Form 10-K.
Revenue
Recognition
We derive
our software system integration services revenue from short-duration, time and
material contracts. Generally, such contracts provide for an hourly-rate and a
stipulated maximum fee. Revenue is recorded only on executed arrangements as
time is incurred on the project and as materials, which are insignificant to the
total contract value, are expended. Revenue is not recognized in cases where
customer acceptance of the work product is necessary, unless sufficient work has
been performed to ascertain that the performance specifications are being met
and the customer acknowledges that such performance specifications are being
met. We periodically review contractual performance and estimate future
performance requirements. Losses on contracts are recorded when estimable. No
contractual losses were identified during the periods presented.
We
recognize revenue for our software and software professional services when
persuasive evidence of an arrangement exists, delivery has occurred, the sales
price is fixed or determinable and collectability is probable. Product sales are
recognized by us generally at the time product is shipped. Shipping and handling
costs are included in cost of goods sold.
We
account for arrangements that contain multiple elements in accordance with FASB
ASC 605-25, Revenue Recognition, Multiple Element Arrangements. When elements
such as hardware, software and consulting services are contained in a single
arrangement, or in related arrangements with the same customer, we allocate
revenue to each element based on its relative fair value, provided that such
element meets the criteria for treatment as a separate unit of accounting. The
price charged when the element is sold separately generally determines fair
value. In the absence of fair value for a delivered element, we allocate revenue
first to the fair value of the underlying elements and allocate the residual
revenue to the delivered elements. In the absence of fair value for an
undelivered element, the arrangement is accounted for as a single unit of
accounting, resulting in a delay of revenue recognition for the delivered
elements until the undelivered elements are fulfilled. We limit the amount of
revenue recognition for delivered elements to the amount that is not contingent
on future delivery of products or services or subject to customer-specified
return or refund privileges.
We
recognize revenue from the sale of manufacturer’s maintenance and extended
warranty contracts in accordance with FASB ASC 605-45, Revenue Recognition,
Principal Agent Considerations net of its costs of purchasing the related
contracts.
Our
telepresence revenue is comprised of both services and products.
Telepresence service revenues are generated through the sale of CoroCallTM, a
managed telepresence service. Our contracts provide for per-minute or
unlimited usage pricing. We recognize this revenue in the period that
the services or minutes are used. Product revenues are realized
partly through the sale of Vidyo’s product line, including room systems and
back-end infrastructure, and partly through the sale of CoroWare telepresence
products, including CoroWare Usage Reporter for Vidyo, a software package that
provides usage statistics for Vidyo brand high-definition video conferencing
systems. Revenues for these products are recognized upon delivery to
the customer.
Share-based
payment
Stock
based compensation expense is recorded in accordance with FASB ASC 718,
Compensation – Stock Compensation (pre-codification: SFAS 123R, Share-Based Payment), for
stock and stock options awarded in return for services rendered. The
expense is measured at the grant-date fair value of the award and recognized as
compensation expense on a straight line basis over the service period, which is
the vesting period. We estimate forfeitures that we expect will occur
and record expense based upon the number of awards expected to
vest.
We have
estimated fair value at the date of grant using the Black-Scholes-Merton option
pricing model with the following weighted average assumptions:
|
|
2009
|
|
|
2008
|
|
Expected
Volatility
|
|
|
n/a |
|
|
|
75.10 |
% |
Dividend
yield
|
|
|
n/a |
|
|
|
-0- |
|
Expected
term (in years)
|
|
|
n/a |
|
|
|
0-5 |
|
Risk-free
interest rate
|
|
|
n/a |
|
|
|
4.41 |
% |
Forfeiture
rate
|
|
|
n/a |
|
|
|
5.00 |
% |
Derivative
Financial Instruments
Derivative
financial instruments, as defined in FASB ASC 815, Derivatives and Hedging
(pre-codification FAS 133 “Accounting for Derivative Financial Instruments and
Hedging Activities”), consist of financial instruments or other contracts that
contain a notional amount and one or more underlying variables (e.g. interest
rate, security price or other variable), require no initial net investment and
permit net settlement. The caption Derivative Liability consists of (i) the fair
values associated with derivative features embedded in the YA Global
Investments, L.P. (“Yorkville”) financings and (ii) the fair values of the
detachable warrants that were issued in connection with those financing
arrangements. In addition, this caption includes the fair values of other
pre-existing derivative financial instruments that were reclassified from
stockholders’ equity when net-share settlement was no longer within our
control.
We
generally do not use derivative financial instruments to hedge exposures to
cash-flow, market or foreign-currency risks. However, we have entered into
certain other financial instruments and contracts, such as debt financing
arrangements and freestanding warrants with features that are either (i) not
afforded equity classification, (ii) embody risks not clearly and closely
related to host contracts, or (iii) may be net-cash settled by the counterparty.
As required by FASB ASC 815, these instruments are required to be carried as
derivative liabilities, at fair value, in our financial statements.
We
estimate fair values of derivative financial instruments using various
techniques (and combinations thereof) that are considered to be consistent with
the objective of measuring fair values. In selecting the appropriate technique,
we consider, among other factors, the nature of the instrument, the market risks
that it embodies and the expected means of settlement. For less complex
derivative instruments, such as free-standing warrants, we generally use the
Black-Scholes-Merton option valuation technique because it embodies all of the
requisite assumptions (including trading volatility, estimated terms and risk
free rates) necessary to value these instruments. For complex derivative
instruments, such as embedded conversion options, we generally use the Flexible
Monte Carlo valuation technique because it embodies all of the requisite
assumptions (including credit risk, interest-rate risk and exercise/conversion
behaviors) that are necessary to value these more complex instruments.
Estimating fair values of derivative financial instruments requires the
development of significant and subjective estimates that may, and are likely to,
change over the duration of the instrument with related changes in internal and
external market factors. In addition, option-based techniques are highly
volatile and sensitive to changes in the trading market price of our common
stock, which has a high-historical volatility. Since derivative financial
instruments are initially and subsequently carried at fair values, our income
will reflect the volatility in these estimate and assumption
changes.
Plan
of Operation
CoroWare
is well positioned for managed growth in Fiscal Year 2010 through continued
growth of our CoroWare Business Solutions and Robotics & Automation business
units, and early rapid growth of our Telepresence business unit.
The
CoroWare Business Solutions business unit anticipates growing its revenues by
delivering software development, IT consulting, lab management and release
management professional services through its long term clients, including
Microsoft and MetraTech.
The
Robotics & Automation business unit expects to achieve its revenue
objectives by offering affordable mobile robotics platforms, products and custom
solutions to researchers in the university, commercial and homeland security
market segments. As well, the Robotics & Automation group is well
positioned to pursue custom engineering opportunities with clients who are
developing innovative software services, solutions and products that leverage
our expertise in simulation, visualization, mobile robotics, and product
realization.
The
Telepresence business unit plans to rapidly grow its revenues by selling a
combination of services and products. Telepresence service revenues are
generated through the sale of CoroCallTM, a
managed telepresence service that small, medium and large sized businesses -
including consulting companies, non-profit groups, and distance learning
companies – are considering as an alternative to purchasing and operating
videoconferencing equipment and infrastructure. Product revenues are being
realized partly through the sale of Vidyo’s product line – including room
systems and back-end infrastructure – and partly through the sale of CoroWare
telepresence products, including CoroWare Usage Reporter for Vidyo, a software
package that provides usage statistics for Vidyo brand high-definition video
conferencing systems.
In order
to achieve revenue and margin objectives in an increasingly global and
competitive market, all of CoroWare’s business units offer their customers the
option of using CoroWare’s near-shore resources, which comprise a team of highly
capable architects, developers and testers with experience in software
application development and integration, rich internet applications development
(including Microsoft Silverlight), partner management portal development, IT
infrastructure, and Quality Assurance.
We do not
expect to sell any of CoroWare’s fixed assets, including property or equipment
in the next twelve months, nor do we expect to purchase any real property in the
next twelve months. During the next twelve months we expect to purchase certain
equipment to support software development, testing and continued deployment of
CoroWare technologies. Additionally, we expect to purchase office equipment,
computer equipment and laboratory development and testing equipment to support
our planned personnel increase.
We have
begun to implement a modest and effective investor relations campaign to
generate greater awareness of CoroWare and our services, solutions and products,
and to communicate more effectively and actively with CoroWare
shareholders.
Recent
Financing Transactions
None
RESULTS
OF OPERATIONS
YEAR ENDED DECEMBER 31, 2009 COMPARED
TO YEAR ENDED DECEMBER 31, 2008:
During
the year ended December 31, 2009 (the "2009 Period") revenues were $1,988,710
compared to revenues of $2,392,681 during the year ended December 31, 2008 (the
"2008 Period"). Revenues in the 2009 period were lower than in the 2008
period as customers began to delay or reduce spending on software development,
multimedia production and infrastructure deployments. In response to this
growing trend, the Company made a strategic decision to enter the telepresence
marketplace as potential customers expressed an interest in reducing operational
expenses.
Cost of
goods sold was $1,389,041 and $1,906,705 for the 2009 Period and the 2008
Period, respectively. Cost of goods sold primarily represents labor and
labor-related costs in addition to overhead costs. All sales and cost
of goods sold totals for 2009 and 2008 represent the operations of
CoroWare. We were able to reduce our expenditures on cost of goods
sold in the 2009 Period by making greater use if our Near Shore consulting
practice in Latin America. We were able to deliver custom
engineering, software development and testing services at a reduced
cost.
Operating
expenses were $1,116,127 for the 2009 Period compared to $1,831,025 for the 2008
Period. General and administrative expenses amounted to $880,082
during the 2009 Period compared to $1,469,303 for the 2008 Period, and
represented mostly labor and related compensation costs, legal &
professional fees, outside services, travel expenses, rental expense and related
office expenses. General and Administrative expenses were significantly reduced
in 2009 as the Company successfully aligned expenses with
revenues. Sales and marketing expenses were $105,759 for the 2009
Period compared to $119,310 for the 2008 Period. Depreciation and
amortization costs were $130,286 for the 2009 Period compared to $242,412 for
the 2008 Period.
Loss from
continuing operations before other income (expense) was $516,458 for the 2009
Period compared to $1,345,049 for the 2008 Period. This improvement
was due to a focus on managing Cost of Goods Sold, especially in the first and
last quarters of the 2009 Period and aggressively reducing General and
Administrative expenses throughout the 2009 Period.
Other
income (expense) was ($4,682,676) during the 2009 Period compared to ($428,158)
in the 2008 Period. Other income (expense) is comprised primarily of
derivative income (expense) and amortization of debt discount and deferred
finance costs. The derivative expense for the 2009 Period was
($2,023,108) compared to the $959,970 derivative income for the 2008
Period. 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. The derivative expense in the 2009 Period is the result
of the increase in our
stock price on the measurement dates at the beginning and end of the year ($0.03
at December 31, 2008 versus $0.08 at December 31, 2009). The
derivative income in the 2008 Period is the direct result of the decrease in our stock price
on the measurement dates at the beginning and end of the year ($3.00 at December
31, 2007 versus $.03 at December 31, 2008). A decrease in the stock
price resulted in a decreased value of the embedded conversion feature (using
the Monte Carlo calculation) which resulted in derivative
income. Interest expense for the 2009 Period is $2,753,840 compared
to $870,791 for the 2008 Period. This increase in interest expense is
a direct result of the amortization of debt discount on the convertible
debt. The debt discount is being amortized using the effective
interest method. Under this method, the amount of amortization
increases exponentially as the underlying carrying value of the amortized debt
increases.
Net loss
for the 2009 Period was $5,199,134 compared to net loss of $1,805,852 for the
2008 Period. The loss during the 2009 Period was entirely from continuing
operations. The loss during 2008 consisted of $1,773,207 from
continuing operations and $32,645 from discontinued operations.
LIQUIDITY
AND CAPITAL RESOURCES
During
the year ended December 31, 2009 (the “2009 Period”) we used $440,772 of cash
for operating activities versus $542,954 for the year ended December 31, 2008
(the “2008 Period”). Decreased revenues in the 2009 Period
resulted in less cash being available for operations. The usage of
cash for operating activities has decreased from the 2008 Period as the direct
result of cost reductions, especially general and administrative expenses at the
parent company.
The
Company’s investing activities provided $63,776 in the 2009 Period and consisted
primarily of purchases of office and computer equipment and expenditures on the
internal development of software to be sold. The Company’s investing
activities in the 2008 Period used $43,552 and consisted primarily of purchases
of office and computer equipment.
In the
2009 Period, the Company generated $348,347 of cash from financing
activities. This primarily reflects borrowings from related parties
of $248,629, borrowings on lines of credit of $94,486 and borrowings from third
parties of $40,500. The Company’s financing activities generated
$413,950 of cash during the 2008 Period. This primarily reflected
borrowings under a convertible debenture that was executed in March 2008 of
$240,000 and proceeds from related party financings of $173,300.
At
December 31, 2009, we had current assets of $228,259, current liabilities of
$9,833,006, negative working capital of $9,604,747 and an accumulated deficit of
$24,429,085.
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.
During
2005, CoroWare borrowed $30,000 from a shareholder on a promissory note with the
following terms: 5% interest per annum and principal and accrued
interest convertible into CoroWare common stock at $4.50 per share. A $2,500
payment was made on this note in the fourth quarter of 2006. The
lender agreed to a repayment plan that extended the term to December 31,
2008. The note was due six months from its issuance and is currently
in default.
During
2006, CoroWare issued 10% secured convertible debentures in the aggregate
principal amount of $2,825,000, net of deferred financing costs of $263,143 to
Yorkville. By amendment dated March 20, 2008, the interest rate was
increased to 14%.
The
Debentures matured on the third anniversary of the date of issuance and are
currently in default. Yorkville continues to convert the balances outstanding
into shares of CoroWare common stock at the lower of $6.00 or 85% of the 30-day
VWAP. CoroWare’s obligations under the debentures are secured by substantially
all of CoroWare’s assets and those of our wholly owned subsidiary,
CTI.
As part
of the debenture issuance, we also issued to Yorkville five-year warrants to
purchase 3,333 and 5,000 shares of CoroWare common stock at prices equal to $150
and $300, respectively, together with three-year warrants to purchase 7,667,
6,667 and 8,333 shares of common stock at prices equal to $75, $195 and $225,
respectively. The three-year warrants expired unexercised in
2009.
Effective
October 25, 2007, CoroWare entered into another Securities Purchase Agreement
with Yorkville under which we issued our 12% secured convertible debentures in
the aggregate principal amount of $600,000, net of deferred financing costs of
$75,000. The interest rate of these debentures was also raised to 14%
under the March 20, 2008 amendment.
The
debentures mature on the third anniversary of the date of issuance. Yorkville
may, at any time, convert amounts outstanding under the Debentures into shares
of CoroWare common stock at the lower of $6.00 or 85% of the 30-day
VWAP. We may elect to pay in cash plus a conversion premium of 12%
plus accrued interest. Our obligations under the Purchase Agreement are secured
by substantially all of our assets and those of our wholly owned subsidiary,
CTI.
CoroWare
has the right to redeem a portion or all amounts outstanding under the debenture
prior to the maturity date at a 12% redemption premium provided that the closing
bid price of the common stock is less than the conversion price and there is an
effective registration statement covering the shares issuable upon conversion of
the debentures and exercise of the Warrants (as defined below). In
addition, beginning on the earlier of: (i) the first trading day following the
day which the Registration Statement is declared effective by the Commission, or
(ii) December 1, 2006, and continuing on the first trading day of each calendar
month thereafter, Yorkville may require us to redeem up to $500,000 of the
remaining principal amount of the debentures per calendar
month. However, Yorkville may not require the Company to redeem the
debentures if the closing bid price of the common stock exceeds the conversion
price for each of the five consecutive trading days immediately prior to the
redemption date, and the registration statement has been declared effective and
remains effective on the redemption date. CoroWare has the option, in our sole
discretion, to settle any requested redemptions by either paying cash or issuing
the number of shares of CoroWare common stock equal to the cash amount owed
divided by a stock price equal to 95% of the lowest daily volume weighted
average price of the CoroWare’s common stock during the thirty (30) trading days
immediately preceding the date of the redemption.
If we
elect to pay a requested redemption in cash, Yorkville will receive warrants to
purchase 35,000 shares of common stock with an exercise price of $0.025 per
share for each $100,000 redeemed.
On March
20, 2008, CoroWare entered into another Securities Purchase Agreement with
Yorkville under which we issued (i) 14% Secured Convertible Debentures in the
aggregate principal amount of $300,000due on March 20, 2010 and (ii) warrants to
purchase 10,000,000 shares of common stock.
The 2008
debentures are convertible into shares of CoroWare common stock at $6.00 per
share. They are payable in monthly installments each equal to the
lesser of (a) $13,044 and (b) the principal amount under the debenture as of
such installment date. These debentures matured on March 20, 2010 and are
currently in default. The warrants issued in connection with these
2008 debentures are to purchase 33,333 shares of common stock have an exercise
price of $6.00 per share. The warrants have a term of five (5) years and are
exercisable on a cash basis.
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, 2009:
|
|
Payments
due by Period
|
|
Contractual
Obligations
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
Convertible
debt
|
|
$ |
2,468,525 |
|
|
$ |
2,468,525 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Notes
payable
|
|
|
357,732 |
|
|
|
357,732 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Notes
payable, related parties
|
|
|
408,229 |
|
|
|
408,229 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Small
Business Administration loan
|
|
|
989,100 |
|
|
|
989,100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Operating
leases
|
|
|
68,751 |
|
|
|
27,482 |
|
|
|
41,269 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
4,292,337 |
|
|
$ |
4,251,068 |
|
|
$ |
41,269 |
|
|
$ |
- |
|
|
$ |
- |
|
ITEM
7A. 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
8. FINANCIAL STATEMENTS
All
financial information required by this Item is attached hereto at the end of
this report beginning on page F-1 and is hereby incorporated by
reference.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
ITEM
9A-(T). CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures:
As of
December 31, 2009, our principal executive officer and principal financial
officer evaluated the effectiveness of the company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended). This evaluation of the disclosure controls
and procedures included controls and procedures designed to ensure that
information required to be disclosed by us in our reports that we file or submit
under the Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms.
Such disclosure controls and procedures include controls and procedures designed
to ensure that information required to be disclosed by the company in the
reports that it files or submits under the Act is accumulated and communicated
to our management, including our principal executive and principal financial
officers, to allow timely decisions regarding required disclosure. Based on this
evaluation, the company's principal executive officer and principal financial
officer concluded that the company's disclosure controls and procedures were
effective as of December 31, 2009.
Changes
in Internal Control over Financial Reporting
No
changes in the company's internal control over financial reporting have come to
management's attention during the company's last fiscal quarter that have
materially affected, or are likely to materially affect, the company's internal
control over financial reporting, except that we were unable to timely file our
10K for the year ending December 31, 2009.
Limitations
on Controls
Management
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all error and fraud. Any
control system, no matter how well designed and operated, is based upon certain
assumptions and can provide only reasonable, not absolute, assurance that its
objectives will be met. Further, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the Company have been
detected.
Management’s
Report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company’s internal control system
was designed to provide reasonable assurance to our management and board of
directors regarding the preparation and fair presentation of published financial
statements.
The
Company’s management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2009. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework Based on its assessment our management believes
that, as of December 31, 2009, our internal control over financial reporting is
ineffective based on the fact that we were unable to timely file our 10K for the
year ending December 31, 2009.
Auditor’s
Attestation
This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management’s report in this annual report.
ITEM
9B. OTHER INFORMATION
None
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
Our
directors, principal executive officers and significant employees as of March
31, 2010 are as specified on the following table:
Name
|
|
Age
|
|
Position
|
Lloyd
Spencer
|
|
54 |
|
Chief
Executive Officer, Interim Chief Financial Officer, Director,
Treasurer
|
Jon
Mandrell
|
|
47 |
|
Vice
President, Secretary, Director
|
Charles
H. House
|
|
70 |
|
Chairman,
Director
|
Martin
Nielson
|
|
59 |
|
Director
|
John
Kroon
|
|
70 |
|
Director
|
The principal occupations for the
past five years of each of our current executive officers and directors are as
follows:
LLOYD T. SPENCER became our
Chief Executive Office on January 28 2008, interim Chief Financial Officer on
November 17, 2008 and a member of the board of directors and Vice President
since September 20, 2007. Mr. Spencer is also President and CEO of
CoroWare Technologies, Inc. Mr. Spencer has over 25 years of experience in
the computer and networking industries in engineering, product marketing,
business development, and sales management. His expertise spans a spectrum
of service provider industries and technologies, including distributed network
computing and embedded systems hardware development. Previously, Mr.
Spencer has served as Vice-President of Marketing and Sales at eQuest
Technologies; Solutions Unit Manager at Microsoft; Assistant Vice-President and
Business Unit Manager at Newbridge Networks; and Product Line Manager at Sun
Microsystems.
Community
involvement is an important part of Mr. Spencer’s life. He is an active
contributor to the robotics community in the Seattle area through his
participation in the Seattle Robotics Society. He is also instrumental in
initiating and fostering 4H robotics clubs and programs in Washington
State.
Mr.
Spencer received his Bachelors degree from Cornell University with a major in
Biology and Animal Science and with an emphasis in Immunogenetics.
JON MANDRELL has been with
CoroWare for 2 years in the position as Vice President, Corporate Secretary and
member of the board of directors. He has 16 years of management experience, from
technical lead to Director. Previously, Jon was senior firmware
architect and lead for Vixel and Emulex Corporation, a producer of Fibre-Channel
switches and hubs, where he was responsible for specifying processes and tools
to be used on development projects, as well as managing requirements and
high-level software architecture issues for products. This position involved
significant customer contact supporting the sales team and assisting in closing
sales. Prior to Vixel and Emulex, Jon was project engineer and team lead
at Medtronic Physio-Control Corporation. Designing the user interface and
printer drivers on Physio's LifePak-12 product line, as well as many internal
portions of the system, required Jon to become familiar with FDA-level
requirements specifications and validation/verification activities. Before
joining Medtronic Physio-Control Corporation, Jon worked as a consultant for
Cyber Safe Corporation and as a software engineer for Performance Dynamics,
Applied Microsystems Corporation, and Peripheral Technology Inc. Jon has
also been on the Board of Directors as Secretary to Lake Washington Human
Services, a 501(c)(3) corporation based in Kirkland, Washington.
CHARLES H. HOUSE became a
member of the board of directors in January 2007 and our Chairman in December
2007. Mr. House currently serves as the Executive Director for
Stanford University’s MediaX program, as well as a Senior Research Scholar for
Stanford’s Center for Studies in Language. Mr. House is also currently the
Chairman of TII Network Technologies, Inc., a Nasdaq-listed company. He was
instrumental in defining and creating the logic analysis instrumentation field,
and recently led the Virtual Collaboration work for Intel’s IT Innovation
Research group. Mr. House was also instrumental in establishing the Center for
Information Technologies and Society at the University of California, Santa
Barbara.
Earlier
in his career, Mr. House led start-up activities for Hewlett-Packard that
resulted in the creation of 12 business units, and also served as a start-up or
turn-around leader for companies such as Veritas, Informix and Spectron
MicroSystems. From 1982 to 1987, Mr. House served as Corporate Engineering
Director of Hewlett-Packard. In 1988, Hewlett-Packard established the “Chuck
House Productivity” annual award, CoroWare’s first-ever award named after an
employee. Mr. House holds a BS degree in Engineering Physics, California
Institute of Technology, 1962; MS EE, Stanford University, 1964; MA History of
Science, University of Colorado, 1970; and an MBA (Strategic Studies), Western
Behavioral Sciences Institute, 1985.
MARTIN NIELSON was the
Company's Chief Executive Officer and Chairman of the Board of Directors from
May 2003 until he resigned as Chairman effective June 1, 2004. Mr.
Nielson is still on our Board of Directors. Mr. Nielson is a principal of Altos
Bancorp, Inc., serving as its Chairman and Chief Executive Officer since
November 2002. He has also served as Chief Executive Officer and director of
Inclusion Inc. since September, 2000. Mr. Nielson and Altos were instrumental in
assisting the Company in the negotiations that led to the Company's settlement
of its litigation with SunTrust Bank and in securing the financing that funded
that settlement. Mr. Nielson will continue as a director of the Company. Mr.
Nielson is a senior executive with extensive experience in operations and
finance. He has been a business builder for 30 years with such companies as Gap,
Businessland, and Corporate Express.
Altos,
which is an outgrowth of Nielson's M&A practice during his ten years in
London is engaged in providing investment banking and business development
services to growth oriented, emerging companies throughout the United States and
Europe. Altos was retained by the Company to act as its business advisor, but
that contract was concluded to coincide with the acquisition of RWT. Mr. Nielson
is also a director of Advanced Communications Technologies, Inc.
JOHN C. KROON became a
Director in April 2007. Mr. Kroon was the President and Chief
Executive Officer and has recently retired as the Vice-Chairman of ImageGuide,
Inc., which is a medical assist-device start-up company, in Baltimore,
Maryland. Prior to this he worked for 6 years as the Vice-President
of Corporate Strategies and Business development for GEFanuc North America in
Charlottesville, Virginia. While at GEFanuc, he completed, amongst
other things, 5 acquisitions worth $150 million including a NASDAQ publicly
traded company.
In 1974,
Mr. Kroon began working with Reuter-Stokes Electronic Components developing
radiation sensor systems for oil-well logging, thickness gauging and in-core
sensors for boiling-water nuclear reactors. General Electric acquired
Reuter-Stokes in 1984 and Mr. Kroon became the President of Reuter-Stokes in
1986. This position led to a varied 17-year career with GE as a
Senior Executive that included a 4-year assignment as President of GEFanuc
Europe’s Industrial Automation Business in Frankfurt and
Luxembourg. He is a senior member of the IEEE, serves on several
Boards, has 5 patents and 32 technical publications
Mr. Kroon
began his career as a chemist for Eldorado Mining & Refining, engaged in
Uranium mining and processing in Canada, and later worked at Atomic Energy of
Canada Ltd., in Chalk River, Ontario as a Research Scientist in reactor
instrumentation. He received both his Bachelor of Science and PhD
degrees in Nuclear Physics from the University of Ottawa. Mr. Kroon was born in
the Netherlands and his family emigrated from Amsterdam to Ottawa, Canada in
1957.
There is
no family relationship between any of our officers or directors. There are no
orders, judgments, or decrees of any governmental agency or administrator, or of
any court of competent jurisdiction, revoking or suspending for cause any
license, permit or other authority to engage in the securities business or in
the sale of a particular security or temporarily or permanently restraining any
of its officers or directors from engaging in or continuing any conduct,
practice or employment in connection with the purchase or sale of securities, or
convicting such person of any felony or misdemeanor involving a security, or any
aspect of the securities business or of theft or of any felony or any conviction
in a criminal proceeding or being subject to a pending criminal
proceeding.
Our
directors will serve until the next annual meeting of stockholders. Our
executive officers are appointed by our Board of Directors and serve at the
discretion of the Board of Directors.
Section 16(a)
of the Securities and Exchange Act of 1934
Section
16 (a) of the Securities and Exchange Act of 1934 requires the Company’s
officers and directors and persons who beneficially own more than 10% of the
Company’s common stock (collectively, “Reporting Persons”) to file reports of
beneficial ownership and changes in beneficial ownership with the SEC. Reporting
Persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file. We believe that all Reporting Persons
complied with all applicable reporting requirements, except for the late filings
of Form 3 (Initial Statement of Beneficial Ownership of Securities), and 4
(Statement of Changes of Beneficial Ownership of Securities) filings of Charles
House, John Kroon, Lloyd Spencer, Jon Mandrell, and Martin Nielson.
CODE
OF ETHICS DISCLOSURE COMPLIANCE
CoroWare
has adopted a Code of Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer and other employees
performing similar functions. The Code of Ethics was revised and updated in 2007
and approved by the board on December 6, 2007. The Code of Ethics is in the
investor section of our website at www.coroware.com.
ITEM
11. EXECUTIVE COMPENSATION
Summary
Compensation Table
The
following table sets forth the cash compensation (including cash bonuses) paid
or accrued and equity awards granted by CoroWare for years ended December 31,
2009 and 2008 to our Chief Executive Officer and our two most highly compensated
officers other than the Chief Executive Officer at December 31, 2009 whose total
compensation exceeded $100,000.
Name
& Principal Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-equity
Incentive Plan Compensation
|
|
|
Change
in Pension Value and Non-Qualified Deferred Compensation
Earnings
|
|
|
All
other Compensation
|
|
|
Totals
|
|
Lloyd
Spencer (1)
|
|
2009
|
|
$ |
150,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
150,000 |
|
|
|
2008
|
|
$ |
150,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
150,000 |
|
Jon
Mandrell (2)
|
|
2009
|
|
$ |
110,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
110,000 |
|
|
|
2008
|
|
$ |
110,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
110,000 |
|
Walter
Weisel (3)
|
|
2009
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
2008
|
|
$ |
110,000 |
|
|
$ |
- |
|
|
$ |
4,806 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
114,806 |
|
Notes:
(1) Lloyd
Spencer has served as CEO since January 28, 2008 and interim CFO since November
17, 2008. Prior to that, he was Vice President of Business Development and
Director. Mr. Spencer is President of our subsidiary, CoroWare Technologies,
Inc. with an annual salary of $150,000. On May 16, 2006, Mr. Spencer
entered into an employment agreement which granted him 1,667 stock options to
purchase restricted shares of CoroWare’s common stock at $54 which were
cancelled on December 31, 2007 and converted into restricted common stock
one-for-one and issued in lieu thereof by action of the Board of
Directors. Mr. Spencer was granted 1,667 options to purchase
restricted shares of CoroWare common stock at $12 on May 16, 2006. These options
have a ten year term and vest ratably over three years. On December
31, 2007 the options were re-priced from $12 to $3. In February 2008,
these options were converted to 1,667 shares of CoroWare common
stock. On September 12, 2007, Mr. Spencer was granted options to
purchase restricted shares of the CoroWare common stock at $12 per
share. On December 31, 2007, the options were re-priced from $12 to
$3. As of March 31, 2010, 4,236 of these options have
vested.
(2) Jon
Mandrell was appointed Corporate Secretary of CoroWare on July 2, 2008 and was
appointed to the Board of Directors in March 2009. Mr. Mandrell has
worked for our subsidiary, CTI, as Director and Business Unit Manager for the
Robotics and Automation team for 3 years. On January 29, 2007,
CoroWare entered into a three year employment agreement with Mr. Mandrell
calling for an annual salary of $110,000. The agreement also granted
Mr. Mandrell 1,333 options to purchase restricted shares of CoroWare common
stock at $51 per share. At its September 12, 2007 meeting, our board
of directors approved a reduction in the exercise price of all outstanding
options to $12 per share. On December 31, 2007 the options were again
re-priced from $12 to $3. At March 31, 2010, all of those options are
vested. On September 12, 2007, Mr. Mandrell was granted options to
purchase 2,000 restricted shares of CoroWare’s common stock at $12 per
share. On December 31, 2007, the options were re-priced from $12 to
$3. At March 31, 2010, 1,694 of those options are
vested.
(3) Walter
K. Weisel served as our Chairman and CEO from August 25, 2004, the date of our
merger with RWT until his resignation as CEO on August 21, 2007 and from all
other positions and the board of directors in December 2007. Under
his employment agreement prior to August 21, 2007, Mr. Weisel’s salary was
increased on April 1, 2007 from $150,000 to $220,000. The difference between
$150,000 and $220,000 was accrued and included in the settlement agreement with
Mr. Weisel upon his termination. After August 21, 2007, his new salary was
$150,000. On December 13, 2007, Mr. Weisel entered into an Employment
Termination and retirement agreement whereby CoroWare agreed to pay him the
aggregate gross sum of $110,000, less applicable health insurance premiums, in
11 monthly installments beginning in January 2008. In addition,
CoroWare agreed to him a stock bonus of 2,800,000 shares in four equal quarterly
installments throughout 2008. Mr. Weisel passed away following a
brief illness in May 2008. All payments under the terms of the
Employment Termination and Retirement Agreement are being made to his surviving
spouse.
Stock
Option Plans
CoroWare’s
2005 Stock Option Plan was ratified by the Stockholders of the Corporation at a
Special Meeting of the Stockholders on November 3, 2006. The plan is presently
administered by our board of directors, which selects the eligible persons to
whom options shall be granted, determines the number of common shares subject to
each option, the exercise price therefore and the periods during which options
are exercisable, interprets the provisions of the plan and, subject to certain
limitations, may amend the plan. Each option granted under the plan shall be
evidenced by a written agreement between the company and the
optionee.
Options
may be granted to employees (including officers) and directors and certain
consultants and advisors.
Options
granted under the plan are not transferable, except by will and the laws of
descent and distribution.
Name
|
Number
of Shares Underlying Options
|
%
of Total Options Granted to Employees
|
Exercise
Price
|
Expiration
Date
|
Lloyd
Spencer
(See
Note 1)
|
5,000
|
14.2%
|
$ 3.00
|
9/12/2017
|
David
Hyams
(see
Note2)
|
5,000
|
14.2%
|
$ 3.00
|
9/12/2017
|
Jon
Mandrell
(See
Note 3)
|
3,333
|
9.5%
|
$ 3.00
|
9/12/2017
|
Walter
K. Weisel
(See
Note 4)
|
3,333
|
9.5%
|
$ 3.00
|
4/12/2015
|
Eugene
V. Gartlan
(See
Note 5)
|
3,333
|
9.5%
|
$ 3.00
|
2/28/2018
|
Notes:
(1) On
May 16, 2006, Mr. Spencer entered into an employment agreement and was granted
1,667 options to purchase restricted shares of CoroWare common stock at a
purchase price of $54, expiring in ten years, and vesting ratably over three
years. Our board of directors voted to re-price these options to $12 at
September 12, 2007 and again to $3 at December 31, 2007. On February 4, 2008
these options were converted into 1,667 share of the Company’s common stock as
per a directive from the Board of Directors. On September 12, 2007,
Mr. Spencer was granted 5,000 options to purchase restricted shares of the
Company’s common stock at $12. On December 31, 2007 the options were
re-priced to $3. As of March 31, 2010, 4,236 of these options have
vested.
(2) Mr.
Hyams entered into an employment agreement and was granted 1,667 options to
purchase restricted shares of the Company’s common stock at a purchase price of
$54, expiring in ten years, and vesting ratably over three years. The
Board of Directors voted to re-price these options to $12 at September 12, 2007
and again to $3 at December 31, 2007. On February 4, 2008 these
options were converted into 1,667 share of the Company’s common stock as per a
directive from our board of directors. On September 12, 2007 Mr.
Hyams was grated 5,000 options to purchase restricted shares of CoroWare common
stock at $12 per share. On December 31, 2007 the options were
re-priced $3. At March 31, 2010, 4,236 of those options are
vested.
(3) Mr.
Mandrell entered into an employment agreement and was granted 1,667 options to
purchase restricted shares of CoroWare common stock at a purchase price of $51,
expiring in ten years, and vesting ratably over three years. Our board of
directors voted to re-price these options to $12 at September 12, 2007 and again
to $3 at December 31, 2007. As of March 31, 2010, all of these
options have vested. On September 12, 2007 Mr. Mandrell was granted
2,000 options to purchase restricted shares of the Company’s common stock at $12
per share. On December 31, 2007 the options were re-priced to
$3. At March 31, 2010, 1,694 of those options are
vested.
(4)
Walter K. Weisel was employed as our CEO from August 25, 2004, until his
resignation August 21, 2007 and from all other positions in December
2007. Mr. Weisel was granted 5,000 options on April 12, 2005 at an
exercise price of $30, expiring in ten years and vesting ratably over three
years. Upon his termination on December 13, 2007, 3,333 of the 5,000 options had
vested and remain exercisable until their termination date.
(5) In
February 2008, Mr. Gartlan was grated 10,040 shares of restricted common stock
in exchange for 10,040 common stock options that were
outstanding. Subsequent to his passing, we fully vested, ten-year
options to Mr. Gartlan’s surviving spouse to buy up to 3,333 restricted shares
of CoroWare common stock at $3 per share.
Except as
described above no other equity awards were made in 2009 and 2008 to any of the
Executive Officers.
Outstanding
Equity Awards at Year End
The
following table sets forth information for the named executive officers
regarding the number of options and stock awards, as well as the exercise prices
and expiration dates thereof, as of December 31, 2009.
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(1)
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Market
or Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
($)
|
|
Lloyd
Spencer
|
|
|
4,236 |
|
|
|
764 |
|
|
|
- |
|
|
$ |
3 |
|
|
|
9/2017 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Jon
Mandrell
|
|
|
1,333 |
|
|
|
- |
|
|
|
- |
|
|
$ |
3 |
|
|
|
1/2017 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Jon
Mandrell
|
|
|
1,694 |
|
|
|
306 |
|
|
|
- |
|
|
$ |
3 |
|
|
|
9/2017 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
David
Hyams
|
|
|
4,236 |
|
|
|
764 |
|
|
|
- |
|
|
$ |
3 |
|
|
|
9/2017 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(1) These
awards rest ratably over three years from the date of grant and are exercisable
for ten years.
Director's
Compensation
CoroWare
has not paid and does not presently propose to pay cash compensation to any
director for acting in such capacity. For 2009 services, each
director was compensated with 15,000 restricted shares of CoroWare common
stock. In addition, the chairman was awarded 7,500
shares. No shares were awarded for committee membership.
For 2008,
board compensation was also paid in restricted shares of CoroWare common stock
under the following schedule:
Annual
fee for outside Board membership and meeting attendance -
|
restricted
common stock valued at $25,000
|
Annual
fee for audit committee chair -
|
restricted
common stock valued at $8,000
|
Annual
fee for compensation, nominating and other chairs -
|
restricted
common stock valued at $6,500
|
Annual
fee for committee membership -
|
restricted
common stock valued at $5,000
|
Options
awarded in January valued at closing price on grant date -
|
options
for shares valued at $50,000
|
Under
this plan, all restricted common stock was delivered to board members monthly as
earned by attendance, either by phone or in person and new directors received
restricted common stock valued at $130,000, which vested ratably over 24
months.
The
directors received the following common stock issuances for their service in
2009, 2008, 2007 and 2006:
Director
|
|
Restricted
Common Stock Issued in 2009 for 2009 &2008 service
|
|
|
Value
|
|
|
Restricted
Common Stock Issued in 2008 for 2007 & 2006 service
|
|
|
Value
|
|
Martin
Nielson
|
|
|
29,333 |
|
|
$ |
1,760 |
|
|
|
6,485 |
|
|
$ |
19,545 |
|
Gary
McNear
|
|
|
- |
|
|
|
- |
|
|
|
6,485 |
|
|
|
19,545 |
|
Craig
Conklin
|
|
|
- |
|
|
|
- |
|
|
|
6,485 |
|
|
|
19,545 |
|
Richard
Wynns
|
|
|
- |
|
|
|
- |
|
|
|
3,182 |
|
|
|
9,545 |
|
Charles
House
|
|
|
35,833 |
|
|
|
2,150 |
|
|
|
1,515 |
|
|
|
4,545 |
|
John
Kroon
|
|
|
25,500 |
|
|
|
1,530 |
|
|
|
1,515 |
|
|
|
4,545 |
|
Total
|
|
|
90,666 |
|
|
$ |
5,440 |
|
|
|
25,667 |
|
|
$ |
77,270 |
|
Employment
Agreements with Executive Officers
Currently
there is an employment agreement with Lloyd Spencer, CEO and interim CFO of
CoroWare, Inc., and President and CEO of CoroWare Technology, Inc. We
entered into a five year employment agreement with Mr. Spencer on May 16,
2005. Under the terms of this agreement, Mr. Spencer is to serve as
the President of CoroWare and to provide services as needed. His
salary is $150,000 per annum. An annual bonus may be awarded at the
discretion of the board of directors. At the inception of the
agreement, Mr. Spencer was awarded 16,667 stock options to purchase CoroWare
common stock at $5.40 per share. These options vest annually over
three years and terminate on the tenth anniversary of the date of
grant.
Employment
Termination and Retirement Agreement
On December 18, 2007, we entered into a Termination
and Resignation Agreement and Consulting Agreement with Walter
Weisel. Upon execution of the Termination and Retirement Agreement,
Mr. Weisel was paid cash in the amount of $10,000 as accrued but unpaid
salary. In addition, he was paid $3,200 for non reimbursed
expenses. The
aggregate gross sum of $110,000 of accrued and unpaid compensation, less
applicable health insurance premiums, was payable to Mr. Weisel as
follows:
(a)
Eleven monthly payments beginning in March 2008 of $10,000 in the Corporation’s
restricted common stock at the Volume Weighted Average Price (VWAP) of the
Corporation’s stock price for the five (5) trading days immediately preceding
the payment date; such VWAP will be the share price amount as determined by
Bloomberg. The payment amount shall be less such amount as it is required
to pay the actual premiums for Executive’s health insurance during the period
January 1, 2008 thru June 30, 2008, not to exceed the amount that would be
payable by Executive if Executive elected COBRA coverage. All such stock shall
be subject to Rule 144. All such monthly payments shall end after eleven (11)
months of payment.
(b) 2,800,000 restricted shares of CoroWare
common stock in four equal quarterly installments in 2008 beginning April 1,
2008.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2010 by each person or entity
known by us to be the beneficial owner of more than 5% of the outstanding shares
of common stock, each of our directors and named executive officers, and all of
our directors and executive officers as a group. Beneficial ownership has been
determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
as amended. Generally, a person is deemed to be the beneficial owner of a
security if he has the right to acquire voting or investment power within 60
days.
Percentage
ownership in the following table is based on 9,245,454 shares of common stock
outstanding as of March 31, 2010. A person is deemed to be the beneficial owner
of securities that can be acquired by that person within 60 days from March 31,
2010 upon the exercise of options, warrants or convertible securities, or other
rights. Each beneficial owner's percentage ownership is determined by dividing
the number of shares beneficially owned by that person by the base number of
outstanding shares, increased to reflect the shares underlying options,
warrants, convertible securities, or other rights included in that person's
holdings, but not those underlying shares held by any other
person.
Name
and Address of Beneficial Owner
|
|
Amount
and Nature of Beneficial Ownership
|
|
|
Charles
House
|
|
|
|
|
325
Sharon Park Drive, Suite 428
|
|
240,997
|
|
|
Menlo
Park, CA 94025
|
|
|
|
|
Martin
Nielsen
|
|
|
|
|
12111
Hilltop Drive
|
|
85,212
|
|
|
Los
Altos, CA 94024
|
|
|
|
|
Lloyd
Spencer
|
|
|
|
|
18529
NE 184th
Street
|
|
1,229,553
|
|
|
Woodinville,
WA 98072
|
|
|
|
|
Jon
Mandrell
|
|
|
|
|
12208
NE 162nd
St
|
|
122,633
|
|
|
Bothell,
WA 98011
|
|
|
|
|
Connie
Weisel
|
|
|
|
|
6624
Daniel Ct
|
|
595,561
|
|
|
Fort
Myers, FL 33908
|
|
|
|
|
John
Kroon
|
|
|
|
|
PO
Box 3846
|
|
28,739
|
|
|
Rancho
Santa Fe, CA 92067
|
|
|
|
|
|
|
|
|
|
Directors
and Officers as a Group (6 persons)
|
|
2,302,695
|
|
24.90% |
|
|
|
|
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
No
director, executive officer or nominee for election as a director of our
company, and no owner of five percent or more of our outstanding shares or any
member of their immediate family has entered into or proposed any transaction in
which the amount involved exceeds $60,000 except as set forth
below.
During
October 2007, several current directors and officers invested $35,000 in Series
C preferred stock, which is described in Note 12 in the notes to financial
statements. In April 2008, all of the Series C preferred shareholders
converted their investments into CoroWare common stock.
We also
entered into short-term debt obligations other than in the ordinary course of
business. The following table sets forth the pertinent information
relating to the obligations:
Lender
|
|
Interest
Rate
|
|
|
Original
Amount of Loan
|
|
|
Outstanding
Balance at December 31, 2009
|
|
Date
of Loan
|
|
Due
Date
|
Rick
Wynns
|
|
|
5 |
% |
|
$ |
27,500 |
|
|
$ |
27,500 |
|
July
22, 2005
|
|
December
31, 2007
|
Rick
Wynns
|
|
|
10 |
% |
|
$ |
10,000 |
|
|
$ |
10,000 |
|
October
3, 2005
|
|
December
31, 2007
|
Rick
Wynns
|
|
|
10 |
% |
|
$ |
30,000 |
|
|
$ |
30,000 |
|
October
17, 2005
|
|
December
31, 2007
|
Amy
Spencer
|
|
|
18 |
% |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
July
3, 2008
|
|
December
20, 2008
|
Raphael
Cariou
|
|
|
18 |
% |
|
$ |
62,900 |
|
|
$ |
62,900 |
|
July
3–December 19, 2008
|
|
Various
dates thru June 30, 2009
|
Lloyd
Spencer
|
|
|
18 |
% |
|
$ |
223,629 |
|
|
$ |
223,629 |
|
February
2–August 14, 2009
|
|
Various dates thru March 16, 2010
|
On July
22, 2005 CoroWare borrowed $30,000 from a beneficial shareholder and director,
Rick Wynns, and entered into a short term note requiring interest at the annual
rate of 5%, maturing in six months, and principal and accrued interest are
convertible into CoroWare common stock at $.15 per share. A payment of $2,500
was made during the 4th
quarter of 2006. The due date of the note was extended to December
31, 2008. To date there have been no conversions. In
addition in October 2005 we entered into a second short-term obligation with Mr.
Wynns for $30,000. The note bears interest at 10% and matured in
April 2006. A $20,000 principal payment was made on this note in May
2006. The due date of the note was extended to December 31,
2007. In October 2005, we entered into a third short-term
obligation with Mr. Wynns for $30,000. This note bears interest at
10% and also matured in April 2006. This note was also extended
through December 31, 2007. All three notes are currently in
default.
On
October 26, 2007, CTI entered into a short-term debt obligation totaling $85,000
with Amy Spencer, the spouse of a director and current Chief Executive
Officer. The entire balance of the loan plus accrued interest at 1.5%
per month was due on November 15, 2007. A late fee of 5% was payable,
if the loan was in default. The loan was paid in full within the
terms of the loan. In July 2008 CTI entered into another short-term
debt obligation totaling $50,000 with Amy Spencer. The entire balance
of the loan plus accrued interest at 1.5% per month was due on December 20,
2008. The note was not paid at maturity and is currently accruing
late fees of 0.5% per month in addition to the interest.
During
2008, CoroWare borrowed an aggregate $62,900 from Raphael Cariou, a shareholder
and employee of CoroWare. The notes bear interest at 18% and mature
on various dates beginning December 20, 2008 and running through June 30,
2009. All of the notes are currently in default and accruing late
fees of 0.5% per month in addition to the interest.
During
2009, CoroWare borrowed an aggregate $223,629 from Lloyd Spencer, our CEO and a
shareholder. The notes bear interest at 18% and mature on various
dates from July 2009 through March 2010. All of the notes are
currently in default and accruing late fees of 0.5% per month in addition to the
interest.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) Audit
Fees
The
aggregate fees billed for professional services rendered by LBB & Associates
Ltd., LLP for the audit of the Registrant's annual financial statements and
review of the financial statements included in the Registrant's Forms 10-Q or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for fiscal years 2009 and 2008,
were $65,000 and $120,000, respectively.
(2) Audit
Related Fees
The
aggregate fees billed for professional services rendered by LBB & Associates
Ltd., LLP for audit related fees for fiscal years 2009 and 2008 were $0 and $0,
respectively.
(3) Tax
Fees
The
aggregate fees billed for professional services rendered by LBB & Associates
Ltd., LLP for the preparation of the Registrant's tax returns, including tax
planning for fiscal years 2009 and 2008 were $0 and $0,
respectively.
(4) All
Other Fees
No other
fees were paid to LBB & Associates Ltd., LLP for fiscal years 2009 and
2008.
(5) Audit
Committee Policies and Procedures
The
Registrant does have an audit committee. The Board of Directors of the
Registrant approved all of the services rendered to the Registrant by LBB &
Associates Ltd., LLP for fiscal years 2009 and 2008.
(6) Audit
Work Attributed to Persons Other than LBB & Associates Ltd.,
LLP.
Not
applicable.
PART
IV
ITEM
15. EXHIBITS
|
|
Description
|
|
|
|
2.4
|
|
Agreement
and Plan of Merger among the Company, RWT Acquisition, Inc and Robotic
Workspace Technologies, Inc. dated July 21, 2004. (5)
|
|
|
|
3.1
|
|
Articles
of Incorporation (2)
|
|
|
|
3.2
|
|
Bylaws
(2)
|
|
|
|
10.17
|
|
Registration
Rights Agreement with Cornell Capital Partners, LP dated June 14, 2005
(10)
|
|
|
|
10.18
|
|
Escrow
Agreement with Cornell Capital Partners, LP and David Gonzalez, Esq. dated
June 14, 2005 (10)
|
|
|
|
10.19
|
|
Promissory
Note for $300,000 issued to Cornell Capital Partners, LP dated June 14,
2005 (10)
|
|
|
|
10.21
|
|
Securities
Purchase Agreement with Cornell Capital Partners, LP dated October 7, 2005
(11)
|
|
|
|
10.22
|
|
Registration
Rights with Cornell Capital Partners, LP dated October 7, 2005
(11)
|
|
|
|
10.23
|
|
Convertible
Debenture issued to Cornell Capital Partners, LP dated October 7, 2005
(11)
|
|
|
|
10.24
|
|
Security
Agreement with Cornell Capital Partners, LP dated October 7, 2005
(11)
|
|
|
|
10.25
|
|
Escrow
Agreement with David Gonzalez and Cornell Capital Partners, LP dated
October 7, 2005 (11)
|
10.28
|
|
Stock
Option Plan adopted on April 12, 2005 and amended on April 12, 2006
(14)
|
|
|
|
10.29
|
|
Amended
and Restated Stock Option Plan amended on July 24, 2006
(15)
|
|
|
|
10.30
|
|
Convertible
Debenture dated July 21, 2006 (16)
|
|
|
|
10.31
|
|
Form
of $0.05 Warrant (16)
|
|
|
|
10.32
|
|
Form
of $0.10 Warrant (16)
|
|
|
|
10.33
|
|
Form
of $0.025 Warrant (16)
|
|
|
|
10.34
|
|
Form
of $0.065 Warrant (16)
|
|
|
|
10.35
|
|
Form
of $0.075 Warrant (16)
|
|
|
|
10.36
|
|
Securities
Purchase Agreement dated July 21, 2006 between the Company and Cornell
(16)
|
|
|
|
10.37
|
|
Investor
Registration Rights Agreement dated July 21, 2006 between the Company and
Cornell (16)
|
10.38
|
|
Security
Agreement dated July 21, 2006 by and between the Company and Cornell
(16)
|
|
|
|
10.39
|
|
Subsidiary
Security Agreement dated July 21, 2006 by and between CoroWare
Technologies, Inc. and Cornell (16)
|
|
|
|
10.41
|
|
Asset
Purchase Agreement by and among Innova Holdings, Inc., CoroWare
Technologies Inc. and CoroWare, Inc. dated May 12, 2006.
(18)
|
|
|
|
10.42
|
|
Form
of Executive Employment Agreement.
(18)
|
10.44
|
|
Conversion
Agreement dated as of October 19, 2007, by and between Innova Robotics and
Automation, Inc. and Jerry Horne (22)
|
|
|
|
10.45
|
|
Securities
Purchase Agreement, dated October 25t,
2007 (22)
|
|
|
|
10.46
|
|
Secured
Convertible Debenture, dated October 25th,
2007 (22)
|
|
|
|
10.47
|
|
Redemption
Warrant, dated October 25th
, 2007 (22)
|
|
|
|
10.48
|
|
Registration
Rights Agreement, dated October 25th,
2007 (22)
|
|
|
|
10.49
|
|
Security
Agreement, dated October 25th,
2007 (22)
|
|
|
|
10.50
|
|
Robotic
Workspace Technologies, Inc. Patent and Trademark Agreement, dated October
25th,
2007 (22)
|
|
|
|
10.51
|
|
Form
of Series C Convertible Preferred Stock Subscription Agreement, dated
October 13, 2007 (22)
|
|
|
|
10.52
|
|
Form
of Warrant, dated October 13, 2007 (22)
|
|
|
|
10.53
|
|
Certificate
of Designation (22)
|
10.54
|
|
Employment
Termination and Retirement Agreement, dated December 18, 2007
(21)
|
|
|
|
10.55
|
|
Consulting
Agreement, dated December 18, 2007 (21)
|
|
|
|
10.56
|
|
Securities Purchase Agreement,
dated March 20th, 2008 (23)
|
|
|
|
10.57
|
|
Secured
Convertible Debenture, dated March 20th,
2008 (23)
|
|
|
|
10.58
|
|
Warrant,
dated March 20th,
2008 (23)
|
|
|
|
10.59
|
|
Registration
Rights Agreement, dated March 20th,
2008 (23)
|
|
|
|
10.60
|
|
Security
Agreement, dated November 2nd,
2007 (23)
|
|
|
|
10.61
|
|
Patent
and Trademark Security Agreement, dated October 29th,
2007 (23)
|
|
|
|
10.62
|
|
Amendment
Agreement, dated March 20th,
2008 (23)
|
|
|
|
10.63
|
|
Amendment
to Articles of Incorporation dated April 23,
2008
|
10.64
|
|
2008
Incentive Stock Plan
|
|
|
|
10.65
|
|
Amended
2008 Incentive Stock Plan
|
|
|
|
10.66
|
|
Amendment
to Articles of Incorporation dated January 23, 2009
|
|
|
|
14.1
|
|
Code
of Ethics
|
|
|
|
|
|
List
of Subsidiaries *
|
|
|
Rule
13(a) -14(a)/15d-14(a) Certification of Principal Executive Officer and
Principal Financial Officer*
|
|
|
|
|
|
Section
1350 Certification of Chief Executive Officer and Principal
Financial Officer*
|
* Filed
herewith
(1)
|
Incorporated
by reference to the Form 8-K filed on February 4,
2003.
|
(2)
|
Incorporated
by reference to the Form SB-2 filed on August 7,
2001.
|
(3)
|
Incorporated
by reference to the Form 10-KSB filed on April 24,
2003.
|
(4)
|
Incorporated
by reference to the Form 8-K filed on May 13,
2003.
|
(5)
|
Incorporated
by reference to the Form 8-K filed on August 8,
2004.
|
(6)
|
Incorporated
by reference to the Form 14C filed on June 30,
2004.
|
(7)
|
Incorporated
by reference to the Form 8-K filed on September 28,
2004.
|
(8)
|
Incorporated
by reference to the Form 8-K filed on January 11,
2005.
|
(9)
|
Incorporated
by reference to the Form 10-KSB filed on April 19,
2005.
|
(10)
|
Incorporated
by reference to the Form 8-K filed on June 16,
2005.
|
(11)
|
Incorporated
by reference to the Form 8-K filed on October 19,
2006.
|
(12)
|
Incorporated
by reference to the Form 8-K filed on July 6,
2005.
|
(13)
|
Incorporated
by reference to the Form 8-K filed on January 27,
2006.
|
(14)
|
Incorporated
by reference to the Form 10-KSB filed on April 19,
2006.
|
(15)
|
Incorporated
by reference to Amendment 1 to the Schedule 14A filed on July 31,
2006.
|
(16)
|
Incorporated
by reference to the Form 8-K filed on July 25,
2006.
|
(17)
|
Incorporated
by reference to the Form 8-K filed on June 22,
2006.
|
(18)
|
Incorporated
by reference to the Form 8-K filed on May 22,
2006.
|
(19)
|
Incorporated
by reference to the Form 8-K filed on May 3,
2006.
|
(20)
|
Incorporated
by reference to the Registration Statement on Form SB-2 filed on November
9, 2007.
|
(21)
|
Incorporated
by reference to the Form 8-K filed on December 26,
2007.
|
(22)
|
Incorporated
by reference to the Registration Statement on Form S-1 filed on February
13, 2008
|
(23)
|
Incorporated
by reference to the Form 8-K filed on March 26, 2008.
|
|
|
(24)
|
Incorporated
by reference to the Form 10-KSB filed April 15, 2008
|
|
|
(25)
|
Incorporated
by reference to the Form 8-K filed on May 14, 2008.
|
|
|
(26)
|
Incorporated
by reference to the Form 10-Q filed on May 20, 2008.
|
|
|
(27)
|
Incorporated
by reference to the Form S-8 filed on May 29, 2008.
|
|
|
(28)
|
Incorporated
by reference to the Form S-8 filed on July 30, 2008.
|
|
|
(29)
|
Incorporated
by reference to the Form 10-Q filed on August 19, 2008.
|
|
|
(30)
|
Incorporated
by reference to the Form 8-K filed on November 19,
2008.
|
|
|
(31)
|
Incorporated
by reference to the Form 10-Q filed on November 19,
2008.
|
|
|
(32)
|
Incorporated
by reference to the Form 8-K filed on March 18, 2009.
|
|
|
(33)
|
Incorporated
by reference to the Form 8-K filed on April 7, 2009.
|
|
|
(34)
|
Incorporated
by reference to the Form 8-K filed on August 7, 2009.
|
|
|
(35)
|
Incorporated
by reference to the Form 8-K filed on August 28, 2009.
|
|
|
(36)
|
Incorporated
by reference to the Form 8-K filed on October 22, 2009.
|
|
|
(37)
|
Incorporated
by reference to the Form S-8 filed on December 16,
2009.
|
|
|
(38)
|
Incorporated
by reference to the Form S-8 filed on March 29,
2010.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: May
10, 2010
|
COROWARE, INC. |
|
|
|
|
|
|
By:
|
/s/ Lloyd T.
Spencer |
|
|
|
Lloyd T.
Spencer |
|
|
|
Chief
Executive Officer and Interim Chief Financial Officer (Principal Executive
Officer and Principal Accounting and Financial Officer)
|
|
|
|
|
|
In
accordance with the Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Lloyd T. Spencer
|
|
|
|
|
Lloyd
T. Spencer
|
|
Chief
Executive Officer and Interim Chief Financial Officer (Principal Executive Officer
and Principal Accounting and Financial Officer)
|
|
May
10, 2010
|
/s/
Jon Mandrell
|
|
|
|
|
Jon
Mandrell
|
|
Vice
President and Director
|
|
May 10,
2010
|
|
|
|
|
|
/s/
Charles H. House
|
|
|
|
|
Charles
H. House
|
|
Chairman
of the Board of Directors
|
|
May
10, 2010
|
|
|
|
|
|
/s/
Martin Nielson
|
|
|
|
|
Martin
Nielson
|
|
Director
|
|
May
10, 2010
|
|
|
|
|
|
/s/
John Kroon
|
|
|
|
|
John
Kroon
|
|
Director
|
|
May
10, 2010
|
Index
to Financial Statements
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2 |
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and December 31,
2008
|
|
|
F-3 |
|
|
|
|
|
|
Consolidated
Statements of Operations for the Years Ended
December
31, 2009 and December 31, 2008
|
|
|
F-4 |
|
|
|
|
|
|
Consolidated
Statements of Stockholders' Deficit for the Years Ended December 31, 2009
and December 31, 2008
|
|
|
F-5
– F-6 |
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended
December
31, 2009 and December 31, 2008
|
|
|
F-7
– F-8 |
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
F-9
– F-32 |
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
CoroWare,
Inc.
Redmond,
WA 98052
We have
audited the accompanying consolidated balance sheets of CoroWare, Inc. (the
“Company”) as of December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CoroWare, Inc.
as of December 31, 2009 and 2008 and the consolidated results of its operations
and its cash flows for each of the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
As
discussed in Note 2 to the consolidated financial statements, the Company’s
recurring losses from operations, and its need for additional financing in order
to fund its projected loss in 2010 raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
LBB &
Associates Ltd., LLP
Houston,
Texas
April 28,
2010
COROWARE,
INC.
CONSOLIDATED
BALANCE SHEETS
December
31, 2009 and 2008
ASSETS
|
|
|
|
2009
|
|
|
2008
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
3,493 |
|
|
$ |
32,142 |
|
Accounts
receivable, net
|
|
|
189,115 |
|
|
|
52,796 |
|
Inventory
|
|
|
6,757 |
|
|
|
2,707 |
|
Other
current assets
|
|
|
28,894 |
|
|
|
6,114 |
|
Total
current assets
|
|
|
228,259 |
|
|
|
93,759 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
47,395 |
|
|
|
65,462 |
|
Intangible
assets, net
|
|
|
37,681 |
|
|
|
148,343 |
|
Other
assets, net
|
|
|
4,815 |
|
|
|
4,815 |
|
Deferred
financing costs, net
|
|
|
6,250 |
|
|
|
130,173 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
324,400 |
|
|
$ |
442,552 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Lines
of credit
|
|
$ |
123,696 |
|
|
$ |
29,210 |
|
Accounts
payable and accrued expenses
|
|
|
2,968,131 |
|
|
|
1,985,112 |
|
Accrued
expenses, related parties
|
|
|
88,438 |
|
|
|
166,513 |
|
Notes
payable
|
|
|
357,732 |
|
|
|
189,600 |
|
Notes
payable, related parties
|
|
|
408,229 |
|
|
|
322,500 |
|
Derivative
liability
|
|
|
2,249,038 |
|
|
|
284,745 |
|
Current
maturities of convertible debt, net of discount
|
|
|
2,424,391 |
|
|
|
585,188 |
|
Redeemable
preferred stock, Series B, $.001 par value, 525,000
|
|
|
|
|
|
|
|
|
shares
authorized, 159,666 shares issued and
outstanding
|
|
|
274,251 |
|
|
|
212,888 |
|
Current
maturities of long-term debt
|
|
|
989,100 |
|
|
|
- |
|
Total
current liabilities
|
|
|
9,833,006 |
|
|
|
3,775,756 |
|
|
|
|
|
|
|
|
|
|
Convertible
debt, net of discount and current maturities
|
|
|
- |
|
|
|
241,678 |
|
Long-term
debt
|
|
|
- |
|
|
|
989,100 |
|
Total
liabilities
|
|
|
9,883,006 |
|
|
|
5,006,534 |
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
|
Preferred
stock, Series C, $.001 par value, 500,000 shares
|
|
|
|
|
|
|
|
|
Authorized,
0 shares issued and outstanding
|
|
|
- |
|
|
|
- |
|
Common
stock, $.001 par value, 900,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
4,506,191
and 2,929,176 shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2009 and 2008, respectively
|
|
|
4,506 |
|
|
|
2,929 |
|
Additional
paid-in capital
|
|
|
14,901,673 |
|
|
|
14,694,361 |
|
Accumulated
deficit
|
|
|
(24,429,085 |
) |
|
|
(19,225,572 |
) |
Treasury
stock
|
|
|
(35,700 |
) |
|
|
(35,700 |
) |
Total
stockholders’ deficit
|
|
|
(9,558,606 |
) |
|
|
(4,563,982 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$ |
324,400 |
|
|
$ |
442,552 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
COROWARE,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Years Ended December 31, 2009 and 2008
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
1,988,710 |
|
|
$ |
2,392,681 |
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
1,389,041 |
|
|
|
1,906,705 |
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
599,669 |
|
|
|
485,976 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
General
and administration
|
|
|
880,082 |
|
|
|
1,469,303 |
|
Sales
and marketing
|
|
|
105,759 |
|
|
|
119,310 |
|
Depreciation
and amortization
|
|
|
130,286 |
|
|
|
242,412 |
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,116,127 |
|
|
|
1,831,025 |
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before other income
(expense)
|
|
|
(516,458 |
) |
|
|
(1,345,049 |
) |
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Gain
on sale of patents
|
|
|
100,000 |
|
|
|
- |
|
Interest
expense
|
|
|
(2,753,840 |
) |
|
|
(870,791 |
) |
Derivative
income (expense)
|
|
|
(2,023,108 |
) |
|
|
959,970 |
|
Interest
income
|
|
|
- |
|
|
|
95 |
|
Loss
on debt redemptions
|
|
|
(5,728 |
) |
|
|
(517,432 |
) |
Total
other income (expense)
|
|
|
(4,682,676 |
) |
|
|
(428,158 |
) |
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(5,199,134 |
) |
|
|
(1,773,207 |
) |
Loss
from discontinued operations
|
|
|
- |
|
|
|
(32,645 |
) |
Net
loss
|
|
$ |
(5,199,134 |
) |
|
$ |
(1,805,852 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
Basic
and diluted, continuing operations
|
|
$ |
(1.67 |
) |
|
$ |
(1.29 |
) |
Basic
and diluted, discontinued operations
|
|
$ |
(0.00 |
) |
|
$ |
(0.02 |
) |
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
3,108,873 |
|
|
|
1,369,405 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
COROWARE,
INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
For
the Year Ended December 31, 2009
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Treasury |
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2008
|
|
|
2,929,176 |
|
|
$ |
2,929 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
14,694,361 |
|
|
$ |
(19,225,572 |
) |
|
$ |
(35,700 |
) |
|
$ |
(4,563,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in satisfaction of payables
|
|
|
765,301 |
|
|
|
765 |
|
|
|
- |
|
|
|
- |
|
|
|
87,535 |
|
|
|
- |
|
|
|
- |
|
|
|
88,300 |
|
Common
stock issued for services and compensation
|
|
|
238,494 |
|
|
|
239 |
|
|
|
- |
|
|
|
- |
|
|
|
21,717 |
|
|
|
- |
|
|
|
- |
|
|
|
21,956 |
|
Common
stock issued for redemption of convertible
debenture
|
|
|
573,220 |
|
|
|
573 |
|
|
|
- |
|
|
|
- |
|
|
|
45,283 |
|
|
|
- |
|
|
|
- |
|
|
|
45,856 |
|
Stock
option expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
52,777 |
|
|
|
- |
|
|
|
- |
|
|
|
52,777 |
|
Cumulative
effect of adopting ASC 815-40
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,379 |
) |
|
|
- |
|
|
|
(4,379 |
) |
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,199,134 |
) |
|
|
- |
|
|
|
(5,199,134 |
) |
Balances,
December 31, 2009
|
|
|
4,506,191 |
|
|
$ |
4,506 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
14,901,673 |
|
|
$ |
(24,429,085 |
) |
|
$ |
(35,700 |
) |
|
$ |
(9,558,606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
COROWARE,
INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
For
the Year Ended December 31, 2008
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Treasury |
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2007
|
|
|
391,483 |
|
|
$ |
391 |
|
|
|
35,000 |
|
|
$ |
35 |
|
|
$ |
13,261,872 |
|
|
$ |
(17,419,720 |
) |
|
$ |
(35,700 |
) |
|
$ |
(4,193,122 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in satisfaction of payables
|
|
|
673,519 |
|
|
|
673 |
|
|
|
- |
|
|
|
- |
|
|
|
288,197 |
|
|
|
- |
|
|
|
- |
|
|
|
288,870 |
|
Common
stock issued for services and compensation
|
|
|
586,680 |
|
|
|
587 |
|
|
|
- |
|
|
|
- |
|
|
|
371,500 |
|
|
|
- |
|
|
|
- |
|
|
|
372,087 |
|
Common
stock issued for redemption of convertible
debenture
|
|
|
925,794 |
|
|
|
926 |
|
|
|
- |
|
|
|
- |
|
|
|
576,731 |
|
|
|
- |
|
|
|
- |
|
|
|
577,657 |
|
Common
stock issued in satisfaction of termination
and
retirement agreement
|
|
|
325,624 |
|
|
|
326 |
|
|
|
- |
|
|
|
- |
|
|
|
90,497 |
|
|
|
- |
|
|
|
- |
|
|
|
90,823 |
|
Common
stock issued for Series B preferred
dividends
|
|
|
6,270 |
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
5,604 |
|
|
|
- |
|
|
|
- |
|
|
|
5,610 |
|
Conversion
of Series C preferred stock
|
|
|
19,806 |
|
|
|
20 |
|
|
|
(35,000 |
) |
|
|
(35 |
) |
|
|
15 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Imputed
interest on related party loan
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,400 |
|
|
|
- |
|
|
|
- |
|
|
|
2,400 |
|
Stock
option expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
97,545 |
|
|
|
- |
|
|
|
- |
|
|
|
97,545 |
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,805,852 |
) |
|
|
- |
|
|
|
(1,805,852 |
) |
Balances,
December 31, 2008
|
|
|
2,929,176 |
|
|
$ |
2,929 |
|
|
|
- |
|
|
|
- |
|
|
$ |
14,694,361 |
|
|
$ |
(19,225,572 |
) |
|
$ |
(35,700 |
) |
|
$ |
(4,563,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
COROWARE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2009 and 2008
|
|
2009
|
|
|
2008
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(5,199,134 |
) |
|
$ |
(1,805,852 |
) |
Adjustments
to reconcile net loss to cash flows used by
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
130,286 |
|
|
|
242,412 |
|
Stock
issued for services and compensation
|
|
|
21,956 |
|
|
|
372,087 |
|
Imputed
interest expense
|
|
|
- |
|
|
|
2,400 |
|
Stock
option expense
|
|
|
52,777 |
|
|
|
97,545 |
|
Amortization
of debt discount
|
|
|
2,442,871 |
|
|
|
603,557 |
|
Amortization
of deferred financing costs
|
|
|
123,922 |
|
|
|
142,384 |
|
Derivative
(income) loss
|
|
|
2,023,108 |
|
|
|
(959,970 |
) |
Impairment
loss
|
|
|
- |
|
|
|
32,645 |
|
Loss
on debt redemptions
|
|
|
5,728 |
|
|
|
517,432 |
|
Write
off of software development costs
|
|
|
35,842 |
|
|
|
- |
|
Gain
on sale of patents
|
|
|
(100,000 |
) |
|
|
- |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(136,319 |
) |
|
|
44,180 |
|
Inventory
|
|
|
(4,050 |
) |
|
|
(2,707 |
) |
Other
assets, net
|
|
|
(22,780 |
) |
|
|
20,914 |
|
Accounts
payable and accrued expenses
|
|
|
185,021 |
|
|
|
150,019 |
|
NET
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
(440,772 |
) |
|
|
(542,954 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions
to property and equipment
|
|
|
(36,224 |
) |
|
|
(43,552 |
) |
Proceeds
from sale of patents
|
|
|
100,000 |
|
|
|
- |
|
NET
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
63,776 |
|
|
|
(43,552 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
proceeds from lines of credit
|
|
|
94,486 |
|
|
|
4,490 |
|
Proceeds
from convertible debt financing, net
|
|
|
- |
|
|
|
240,000 |
|
Payments
on notes payable
|
|
|
(5,268 |
) |
|
|
(15,500 |
) |
Payments
on notes payabe, related parties
|
|
|
(30,000 |
) |
|
|
(13,700 |
) |
Proceeds
from notes payable
|
|
|
40,500 |
|
|
|
25,000 |
|
Proceeds
from notes payable, related parties
|
|
|
248,629 |
|
|
|
173,300 |
|
NET
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
348,347 |
|
|
|
413,590 |
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH
|
|
|
(28,649 |
) |
|
|
(172,916 |
) |
Cash,
beginning of year
|
|
|
32,142 |
|
|
|
205,058 |
|
Cash,
end of year
|
|
$ |
3,493 |
|
|
$ |
32,142 |
|
|
|
|
|
|
|
|
|
|
Continued.
COROWARE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
For
the Years Ended December 31, 2009 and 2008
|
|
2009
|
|
|
2008
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
25,565 |
|
|
$ |
20,252 |
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
NON
CASH INVESTING AND FINANCING TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for Series B preferred stock dividends
|
|
$ |
- |
|
|
$ |
5,610 |
|
Common
stock issued in satisfaction of accounts and notes payable
|
|
$ |
88,300 |
|
|
$ |
288,870 |
|
Common
stock issued for redemption of convertible debentures
|
|
$ |
45,856 |
|
|
$ |
577,657 |
|
Common
stock issued in satisfaction of termination and retirement
agreement
|
|
$ |
- |
|
|
$ |
90,823 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
COROWARE,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009
NOTE
1 - NATURE OF THE COMPANY, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis
of presentation and consolidation policy:
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
Services, Inc. (“RSS”) (Herein are referred to as the “Subsidiaries”). All
significant inter-company balances and transactions have been eliminated in the
consolidated financial statements.
Nature
of the Company:
CoroWare,
Inc ("CoroWare" or "the Company") is a public holding company whose principal
subsidiary, CoroWare Technologies, Inc. ("CTI"), has expertise in information
technology consulting, mobile robotics, and affordable telepresence.
Through its subsidiary, the Company delivers custom engineering services,
hardware and software products, and subscription services that benefit customers
in North America, Europe, Asia and the Middle East. Their customers span
multiple industry sectors and comprise universities, software and hardware
product development companies, and non-profit organizations. The
company also maintains a Near Shore practice which is comprised of multiple
subcontracting companies with whom the company maintains close working
relationships. Through these relationships, the Company is able to
provide services in South America.
COROWARE
TECHNOLOGIES, INC.
CoroWare
Technologies comprises three separately managed lines of business:
·
|
CoroWare Business
Solutions: IT and lab management; software architecture,
design and development; content delivery; partner and program
management.
|
·
|
Robotics and
Automation: Custom engineering such as
visualization, simulation and software development; and mobile robot
platforms for university, government and corporate
researchers.
|
·
|
Telepresence: High
definition video conferencing products, solutions and subscription
services.
|
CoroWare
Business Solutions:
CTI
provides release management, software systems development, and product
integration services that help our customers deliver high quality products,
solutions and services.
Release
and Project Management:
CTI's
program managers are experts in Microsoft's product and solution development
tools and processes. CTI uses that experience to create product specifications,
develop project plans, and perform security and release management audits - with
the objective of helping Microsoft deliver its solutions and products
efficiently, affordably and on schedule. CTI's senior consultants design
complex testing and demonstration environments using the latest Microsoft
virtualization technology, ensuring rapid, scalable and low-fault
deployments.
Lab
Management:
CTI's
team of experienced hardware and software deployment engineers design, deploy
and support state-of-the-art computer lab facilities that include the latest
builds of operating systems, developer tools, and servers. CTI employees
currently provide lab management and systems engineering support services in
three Microsoft data centers and labs.
Solution
Delivery:
CTI's
solutions development group has been instrumental in helping product development
companies - including MetraTech - design, prototype, develop and test new
products and solutions. CoroWare's consulting staff comprises a wide range
of software architects with over 20 years experience, "user experience"
application developers, web service software developers, database consultants,
and project managers.
In order
to compete with outsourcing software and IT consulting companies in India and
China, CoroWare established a near shore consulting services group in 2007 as a
low cost alternative with same time zone presence. CoroWare's Latin
America partnerships offer superior cost dynamics and a near time zone
alternative to Europe / US businesses requiring Spanish language
capability. CoroWare's Near Shore Consulting Services offer a stable rate
against the dollar, as well as close proximity, and a familiarity with US
business processes.
Robotics
and Automation:
CoroWare
became recognized as a mobile robotics solutions integrator in the research
community because of its expertise in robotics simulation and software
development. CoroWare's CoroBot and Explorer product lines are being used
by over 20 corporate and academic researchers today, and the CoroBot product
line was specified in at least one Request for Proposal in 2009.
Custom
Engineering:
CTI
offers its custom engineering expertise to customers who are looking for product
realization, robotics simulation, systems architecture and design, and robotic
applications development services. The Company believes CTI is uniquely
positioned with its knowledge of robotics simulation; Player-Stage running on
Linux systems; Concurrency and Coordination Runtime (CCR) and Decentralized
Software Services (DSS) running on Microsoft Windows systems; embedded systems
software development; and hardware and software integration services to help its
customers deliver innovative product and solutions.
Solutions
and Products:
In May
2007, CTI began shipping the CoroBot, an affordable and flexible mobile robot
that was designed to minimize the complexity of robotic development. Combining a
powerful PC-class platform with a robust, object-oriented software development
system empowers researchers and robotics application developers to rapidly
deploy and develop robotic solutions. Some university customers are
deploying CoroBots for use in various lab activities, including the development
of swarm robotics applications designed to leverage groups of robots to complete
complex tasks. In June 2009, CTI began shipping the Explorer. With more
powerful motors, larger payload capacity, articulated suspension and enclosed
electronics it is suitable for indoor or outdoor usage.
Telepresence:
In early
2009, CTI launched its telepresence initiative in order to address the needs of
enterprise customers with distributed business operations that and are turning
to new technologies to address the cost of doing business in a world that is
increasing dependent on suppliers and partners and customers worldwide. In
order to overcome these challenges, enterprise customers are looking for
solutions that are demonstrably effective and operationally affordable. As
a result, small, medium and large sized businesses, including consulting
companies, non-profit groups, and distance learning companies, are all giving
serious consideration to purchasing affordable high definition videoconferencing
solutions.
Through
its partnership with Vidyo (http://www.vidyo.com),
CoroWare is deploying high definition video conferencing solutions, including
telepresence room systems, and offering CoroCallTM
(http://www.corocall.com),
an affordable high definition videoconferencing subscription service that
is based on Vidyo's technology.
In
addition to offerings its personal telepresence services, CoroWare is generating
revenues with complementary video streaming and post production services.
Some customers are using our services to hold virtual sales meetings on a weekly
basis by hosting 3-4 speakers in a video conference, streaming the live session
to dozens or hundreds of attendees, and then publishing an edited recording of
the session on their Intranet. Other customers are planning to use our
services to hold interviews in a recorded video conference, perform their own
post-production, and then publish an edited version publicly.
Although
this business is in its early stages of growth, we have won and are pursuing
significant customer opportunities at financial consulting organizations,
product development/sales companies, religious organizations, and
universities.
ROBOTIC
WORKSPACE TECHNOLOGIES, INC.
During
the third quarter of 2007, RWT ceased all operations including manufacturing,
sales and service of the Universal Robot Controllers (URC). In 2009, the
Company completed the sale of the following robotic control technology patents
through a patent auction.
Summary
of significant accounting policies:
Cash
and cash equivalents:
Cash and
cash equivalents include cash and all highly liquid financial instruments with
original purchased maturities of three months or less.
Accounts
receivable:
The
Company’s accounts receivable are exposed to credit risk. During the normal
course of business, the Company extends unsecured credit to its customers with
normal and traditional trade terms. Typically credit terms require payments to
be made by the thirtieth day following the sale. The Company regularly
evaluates and monitors the creditworthiness of each customer. The Company
provides an allowance for doubtful accounts based on our continuing evaluation
of its customers’ credit risk and its overall collection history. At December
31, 2009 and December 31, 2008, no allowance was deemed necessary.
Property
and equipment:
Property
and equipment are stated at cost less accumulated depreciation. Major
renovations, renewals and improvements are capitalized; minor replacements,
maintenance and repairs are charged to current operations. Depreciation is
computed by applying the straight-line method over the estimated useful lives
which are generally five to ten years.
Intangible
assets:
The
Company’s intangible assets, which are recorded at cost, consist primarily of
the unamortized cost basis of customer lists and employment contracts.
These assets are being amortized on a straight line basis over estimated
useful lives, which range from three to five years.
Impairment
of long-lived assets:
The
Company evaluates the carrying value and recoverability of its long-lived assets
when circumstances warrant such evaluation by applying the provisions of FASB
ASC 360-35, Property, Plant and Equipment, Subsequent Measurement. FASB ASC
360-35 requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable through the estimated undiscounted cash flows expected to
result from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value.
Deferred
finance costs:
Deferred
finance costs are associated with the convertible debenture financings (see Note
9) and are being amortized on a straight line basis over the term of the
underlying debt instrument. Upon conversion, the deferred finance
cost associated with the converted amount is amortized.
Income
taxes:
Income
taxes are computed using the asset and liability method. Under the asset and
liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized. Additionally,
taxes are calculated and expensed in accordance with applicable tax
code.
Financial
instruments:
Financial
instruments, as defined in FASB ASC 825, Financial Instruments, consist of cash,
accounts receivable, accounts payable, accrued expenses, notes payable,
derivative financial instruments, and debt.
The
Company carries cash, accounts receivable, accounts payable and accrued expenses
at historical costs; their respective estimated fair values approximate carrying
values due to their current nature. The Company also carries notes
payable and convertible debt. The fair values of these notes payable
and convertible debt instruments approximate carrying values based on the
comparable market interest rates applicable to similar instruments.
Derivative
financial instruments, as defined in FASB ASC 815, Derivatives and Hedging,
consist of financial instruments or other contracts that contain a notional
amount and one or more underlying variables (e.g. interest rate, security price
or other variable), require no initial net investment and permit net settlement.
The caption Derivative Liability consists of (i) the fair values associated with
derivative features embedded in the convertible debt financings and (ii) the
fair values of the detachable warrants that were issued in connection with those
financing arrangements.
The
Company generally does not use derivative financial instruments to hedge
exposures to cash-flow, market or foreign-currency risks. However, the Company
has entered into certain other financial instruments and contracts, such as debt
financing arrangements and freestanding warrants with features that are either
(i) not afforded equity classification, (ii) embody risks not clearly and
closely related to host contracts, or (iii) may be net-cash settled by the
counterparty. As required by FASB ASC 815, these instruments are required to be
carried as derivative liabilities, at fair value, in its financial
statements.
Share-based
payments:
Stock
based compensation expense is recorded in accordance with FASB ASC 718,
Compensation – Stock Compensation, for stock and stock options awarded in return
for services rendered. The expense is measured at the grant-date fair
value of the award and recognized as compensation expense on a straight line
basis over the service period, which is the vesting period. The
Company estimates forfeitures that it expects will occur and records expense
based upon the number of awards expected to vest.
The
Company has estimated fair value at the date of grant using the
Black-Scholes-Merton option-pricing-model with the following weighted average
assumptions:
|
|
2009
|
|
|
2008
|
|
Expected
Volatility
|
|
|
n/a |
|
|
|
75.10 |
% |
Dividend
yield
|
|
|
n/a |
|
|
|
-0- |
|
Expected
term (in years)
|
|
|
n/a |
|
|
|
0-10 |
|
Risk-free
interest rate
|
|
|
n/a |
|
|
|
4.41 |
% |
Forfeiture
rate
|
|
|
n/a |
|
|
|
5.00 |
% |
Revenue
recognition:
We derive
our software system integration services revenue from short-duration, time and
material contracts. Generally, such contracts provide for an hourly-rate and a
stipulated maximum fee. Revenue is recorded only on executed arrangements as
time is incurred on the project and as materials, which are insignificant to the
total contract value, are expended. Revenue is not recognized in cases where
customer acceptance of the work product is necessary, unless sufficient work has
been performed to ascertain that the performance specifications are being met
and the customer acknowledges that such performance specifications are being
met. We periodically review contractual performance and estimate future
performance requirements. Losses on contracts are recorded when estimable. No
contractual losses were identified during the periods presented.
We
recognize revenue for our software and software professional services when
persuasive evidence of an arrangement exists, delivery has occurred, the sales
price is fixed or determinable and collectability is probable. Product sales are
recognized by us generally at the time product is shipped. Shipping and handling
costs are included in cost of goods sold.
We
account for arrangements that contain multiple elements in accordance with FASB
ASC 605-25, Revenue Recognition, Multiple Element Arrangements. When elements
such as hardware, software and consulting services are contained in a single
arrangement, or in related arrangements with the same customer, we allocate
revenue to each element based on its relative fair value, provided that such
element meets the criteria for treatment as a separate unit of accounting. The
price charged when the element is sold separately generally determines fair
value. In the absence of fair value for a delivered element, we allocate revenue
first to the fair value of the underlying elements and allocate the residual
revenue to the delivered elements. In the absence of fair value for an
undelivered element, the arrangement is accounted for as a single unit of
accounting, resulting in a delay of revenue recognition for the delivered
elements until the undelivered elements are fulfilled. We limit the amount of
revenue recognition for delivered elements to the amount that is not contingent
on future delivery of products or services or subject to customer-specified
return of refund privileges.
We
recognize revenue from the sale of manufacturer’s maintenance and extended
warranty contracts in accordance with FASB ASC 605-45, Revenue Recognition,
Principal Agent Considerations, net of its costs of purchasing the related
contracts.
Our
telepresence revenue is comprised of both services and products.
Telepresence service revenues are generated through the sale of CoroCallTM, a
managed telepresence service. Our contracts provide for per-minute or
unlimited usage pricing. We recognize this revenue in the period that
the services or minutes are used. Product revenues are realized
partly through the sale of Vidyo’s product line, including room systems and
back-end infrastructure, and partly through the sale of CoroWare telepresence
products, including CoroWare Usage Reporter for Vidyo, a software package that
provides usage statistics for Vidyo brand high-definition video conferencing
systems. Revenues for these products are recognized when the product
is delivered to the customer.
Research
and development:
Research
and development costs relate to the development of new products, including
significant improvements and refinements to existing products, and are expensed
as incurred. Research and development expenses from continuing operations for
the years ended December 31, 2009 and 2008 were $87 and $20,188,
respectively.
Advertising
expense:
The
Company expenses advertising costs as they are incurred. Advertising expense for
the years ending December 31, 2009 and 2008 were $3,377 and $8,695,
respectively.
Concentration
of Credit Risk:
Financial
instruments which potentially expose the Company to concentrations of credit
risk are cash and cash equivalents and trade accounts
receivable.
The
Company maintains its cash and cash equivalents in deposit accounts with high
quality, credit-worthy financial institutions.
At
December 31, 2009 and 2008, the Company’s revenues and receivables were
comprised of the following customer concentrations:
|
|
2009
|
|
|
2008
|
|
|
|
%
of Revenues
|
|
|
%
of Receivables
|
|
|
%
of Revenues
|
|
|
%
of Receivables
|
|
Customer
1
|
|
|
50% |
|
|
|
5% |
|
|
|
72% |
|
|
|
28% |
|
Customer
2
|
|
|
17% |
|
|
|
61% |
|
|
|
18% |
|
|
|
63% |
|
Customer
3
|
|
|
17% |
|
|
|
17% |
|
|
|
5% |
|
|
|
0% |
|
Basic
and diluted loss per share:
The
Company is required to provide basic and dilutive earnings (loss) per common
share information. The basic net loss per common share is computed by dividing
the net loss applicable to common stockholders by the weighted average number of
common shares outstanding.
Diluted
net loss per common share is computed by dividing the net loss applicable to
common stockholders, adjusted on an "as if converted" basis, by the weighted
average number of common shares outstanding plus potential dilutive securities.
For the years ended December 2009 and 2008, potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
Dividend
Policy
The
Company has never declared or paid any cash dividends on its common stock. The
Company anticipates that any earnings will be retained for development and
expansion of its business and does not anticipate paying any cash dividends in
the foreseeable future. Additionally, as of December 31, 2009 and 2008 the
Company has issued and has outstanding shares of Series B Preferred Stock which
are entitled, prior to the declaration of any dividends on common stock, to earn
a 5% dividend, payable in either cash or common stock of the
Company. The Board of Directors has sole discretion to declare
dividends based on the Company's financial condition, results of operations,
capital requirements, contractual obligations and other relevant
factors. At December 31, 2009 and 2008, there were cumulative
undeclared dividends to Preferred Series B shareholders of $15,967 and $7,983,
respectively, the obligation for which is contingent on declaration by the board
of directors.
Recent
Accounting Pronouncements:
Effective
July 1, 2009, we adopted Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 105-10, “Generally Accepted Accounting
Principles.” ASC 105-10 establishes the FASB Accounting Standards
CodificationTM
(“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP for SEC registrants. All
guidance contained in the Codification carries an equal level of
authority. The Codification supersedes all existing non-SEC
accounting and reporting standards. The FASB will now issue new
standards in the form of Accounting Standards Updates (“ASUs”). The
FASB will not consider ASUs as authoritative in their own right. ASUs
will serve only to update the Codification, provide background information about
the guidance and provide the bases for conclusions on the changes in the
Codification. References made to FASB guidance have been updated for
the Codification throughout this document.
On
January 1, 2009, the Company adopted FASB ASC 815-40. This
section of the Codification 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 FASB ASC 815-40 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. FASB ASC 815-40 requires the Company
to recognize the cumulative effect of the change in accounting principle as an
adjustment to the opening balance of retained earnings.
Management
does not expect the impact of any other recently issued accounting
pronouncements to have a material impact on its financial condition or results
of operations.
Use
of estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Among the more significant estimates
included in the Company’s financial statements are the following:
·
|
estimating
future bad debts on accounts receivable that are carried at net realizable
values;
|
·
|
estimating
the fair value of its financial instruments that are required to be
carried at fair value; and
|
·
|
estimating
the recoverability of its long-lived
assets.
|
The
Company uses all available information and appropriate techniques to develop its
estimates. However, actual results could differ from its estimates.
Reclassifications:
Certain
2008 balances have been reclassified to conform to current year
presentation.
NOTE
2 - FINANCIAL CONDITION AND GOING CONCERN
The
Company has incurred losses for the years ended December 31, 2009 and 2008 of
$5,199,134 and $1,805,852, respectively. Because of these losses and the
Company’s working capital deficit, 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 and/or bank financing.
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
and/or bank financing necessary to support the Company's working capital
requirements. To the extent that funds generated from operations, any private
placements, public offerings and/or bank financing 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.
NOTE
3 – DISCONTINUED OPERATIONS
Robotic
Workspace Technologies:
During
the third quarter of 2007, the Company made the decision to discontinue
operations including manufacturing, sales, service, and production of the
Universal Robot Controller due to a change in focus of the core business of the
Company. In accordance with FASB ASC 360-35, Property, Plant and
Equipment, Subsequent Measurement, the assets associated with this discontinued
operation were reclassified to assets held for sale on the face of the
accompanying consolidated 2007 balance sheet. The assets consisted of machinery
and equipment of $22,645 and inventory of $10,000. During the fourth
quarter of 2008 management wrote off those assets as they were unable to sell
them.
Discontinued
operations include the following:
|
|
For
the Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Impairment
loss
|
|
$ |
- |
|
|
$ |
(32,645 |
) |
Loss
on operations
|
|
|
- |
|
|
|
- |
|
Loss
from discontinued operations
|
|
$ |
- |
|
|
$ |
(32,645 |
) |
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment consists of the following at December 31, 2009 and
2008:
|
|
2009
|
|
|
2008
|
|
Computer
equipment
|
|
$ |
79,500 |
|
|
$ |
54,932 |
|
Furniture
and fixtures
|
|
|
7,862 |
|
|
|
7,862 |
|
Software
development costs
|
|
|
- |
|
|
|
32,246 |
|
|
|
|
87,362 |
|
|
|
95,040 |
|
Less:
accumulated depreciation
|
|
|
(39,967 |
) |
|
|
(29,578 |
) |
|
|
$ |
47,395 |
|
|
$ |
65,462 |
|
Depreciation
expense from continuing operations for the years ended December 31, 2009 and
2008 was $19,624 and $14,075, respectively. During the year ended
December 31, 2009, the Company capitalized an additional $11,656 in software
development costs. In the third quarter of 2009, the decision was
made to discontinue the software development projects and write off the costs
capitalized to date. As such, the Company wrote off capitalized
software development costs of $43,903 net of accumulated amortization of $8,061
resulting in a net write off of $35,842.
NOTE
5 - INTANGIBLE ASSETS
Intangible
assets, which arose during the Company’s business acquisitions activities,
consisted of the following at December 31, 2009 and 2008:
|
|
2009
|
|
|
2008
|
|
Life
|
Employment
contracts
|
|
$ |
132,977 |
|
|
$ |
132,977 |
|
5
Years
|
Customer
lists
|
|
|
605,242 |
|
|
|
605,242 |
|
3
Years
|
|
|
|
738,219 |
|
|
|
738,219 |
|
|
Less:
accumulated amortization
|
|
|
(700,538 |
) |
|
|
(589,876 |
) |
|
|
|
$ |
37,681 |
|
|
$ |
148,343 |
|
|
Amortization
expense amounting to $110,662 and $228,337 during the years ended December 31,
2009 and 2008, respectively is reflected as a component of operating expenses in
the accompanying consolidated financial statements.
NOTE
6 - NOTES PAYABLE
Notes
payable consist of the following at December 31, 2009 and 2008:
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Related
Party
|
|
|
Other
|
|
|
Related
Party
|
|
|
Other
|
|
Notes
payable – Merger
|
|
7(a) |
|
|
$ |
- |
|
|
$ |
230,000 |
|
|
$ |
- |
|
|
$ |
230,000 |
|
Notes
payable – Shareholders
|
|
7(b) |
|
|
|
376,529 |
|
|
|
- |
|
|
|
157,900 |
|
|
|
- |
|
Note
payable – Third party
|
|
7(c) |
|
|
|
- |
|
|
|
45,000 |
|
|
|
- |
|
|
|
44,500 |
|
Notes
payable – Yorkville
|
|
7(d) |
|
|
|
- |
|
|
|
37,500 |
|
|
|
- |
|
|
|
37,500 |
|
Other
notes payable
|
|
7(e) |
|
|
|
31,700 |
|
|
|
45,232 |
|
|
|
31,700 |
|
|
|
10,500 |
|
|
|
|
|
|
$ |
408,229 |
|
|
$ |
357,732 |
|
|
$ |
189,600 |
|
|
$ |
322,500 |
|
(a) Notes
payable - Merger:
In
February 2003, the Company issued $230,000 of notes payable which matured in
June 2003. The notes earn interest at 8% per annum unless they are in default,
in which case they earn default interest at a rate of 15%; the notes are
currently in default. Additionally, the notes had warrants attached to purchase
11,500 shares of common stock at $15.00 per share and were exercisable through
February 12, 2005. None of these warrants were exercised prior to
their expiration. This instrument is in default.
(b)
Notes payable - Shareholders:
During
September through December 2005, the Company entered into short-term debt
obligations totaling $257,000. These notes bear interest at rates ranging from 5
to 10% per annum and are due between ninety and one hundred twenty days. All of
the lenders are shareholders of the Company. One note with a balance of $1,000
plus accrued interest was converted into common stock during the quarter ended
March 31, 2008. At December 31, 2009, two notes aggregating $40,000
remain outstanding.
Additionally,
during 2009 and 2008, the Company entered into various unsecured notes with
shareholders aggregating $248,629 and $122,900, respectively. The
notes bear interest at 18% and mature at various dates through
2010. Repayments of $30,000 and $5,000 were made during 2009 and
2008, respectively. As additional consideration for entering into
these notes, the Company offered each note holder, except one $5,000 note holder
who was already re-paid, common stock in the Company equivalent to 10% of the
principal balance of their note. This was recorded as an inducement
expense of $15,423 and $11,790 in 2009 and 2008, respectively.
(c)
Notes payable – Third party:
Note
payable to a third party bearing interest at 5%; payable in 9 monthly
installments of $5,000; matured March 2008. The note is currently in default and
is accruing default interest at 18% ($18,750 through December 31,
2009).
(d) Notes
payable – Yorkville:
During
August 2008, the Company entered into 2 short-term notes with Yorkville bearing
interest at 18% and matured in December 2008. This was recorded as an inducement
expense of $3,750 during the year ended December 31, 2008. This instrument is in
default.
(e)
Other notes payable
Other
notes payable consist of three notes to third parties and two notes to related
parties. The third party notes bear interest at rates ranging from 0%
to 20% and mature through February 11, 2010. All three notes are in
default. One of the notes calls for a late fee of .4% to accrue
weekly. Another of the notes calls for default interest at 18%
and is secured by a UCC filing on the purchase orders with two of the company’s
largest customers. The related party notes bear interest at rates
ranging from 0% to 10% and matured through December 31, 2008. These
instruments are in default.
NOTE
7 – LINES OF CREDIT
The
Company has numerous unsecured lines of credit with various financial
institutions bearing annual interest at rates ranging from 4.75% to
27.24%. At December 31, 2009 and 2008 the company had aggregate
outstanding balances on these lines of $123,696 and $29,210,
respectively.
NOTE
8 - LONG-TERM DEBT
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 and by the personal residence and
other assets of the Company's former chairman and CEO’s estate and spouse. The
balance outstanding at December 31, 2009 was $989,100. 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 is in default on this note
and the entire balance is classified as current. Interest paid during
the years ended December 31, 2009 and 2008 was $26,565 and $20,252,
respectively.
Contractual
maturities of long term debt are as follows:
For
the year ending December 31,
|
|
Long-term
debt
|
|
|
Convertible debt
(1)
|
|
|
Combined
|
|
2010
|
|
$ |
989,100 |
|
|
$ |
2,424,391 |
|
|
$ |
3,413,491 |
|
2011
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
2012
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
2013
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Thereafter
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
989,100 |
|
|
$ |
2,424,391 |
|
|
$ |
3,413,491 |
|
(1)
Carried at face value, net of discount. See Note 9.
NOTE
9 - CONVERTIBLE DEBT
The
following table illustrates the components of convertible debt at December
31, 2009 and 2008:
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
Principal |
|
|
Discount |
|
|
Carry
Value |
|
|
Principal |
|
|
Discount |
|
|
Carry
Value |
|
$2,825,000
financing |
|
|
9 |
(a) |
|
|
1,564,949 |
|
|
|
(8,277 |
) |
|
|
1,556,672 |
|
|
|
1,594,949 |
|
|
$ |
(1,009,761 |
) |
|
$ |
585,188 |
|
$ 600,000
financing
|
|
|
9 |
(b) |
|
|
600,000 |
|
|
|
(17,888 |
) |
|
|
582,112 |
|
|
|
600,000 |
|
|
|
(514,398 |
) |
|
|
85,602 |
|
$ 300,000
financing
|
|
|
9 |
(c) |
|
|
300,000 |
|
|
|
(14,393 |
) |
|
|
285,607 |
|
|
|
300,000 |
|
|
|
(143,924 |
) |
|
|
156,076 |
|
|
|
|
|
|
|
|
2,464,949 |
|
|
|
(40,558 |
) |
|
|
2,424,391 |
|
|
|
2,494,949 |
|
|
$ |
(1,668,083 |
) |
|
$ |
826,866 |
|
(a)
$2,825,000 Convertible debenture financing:
The
Company is party to a convertible debenture with Yorkville which provided for
the sale of its 14% secured convertible debentures in the aggregate principal
amount of $2,825,000, net of deferred financing costs of $263,143.
The
Debenture matures on the third anniversary of the date of issuance (see Note 9
for debt maturity schedule). The holder of the Debenture may, at any time,
convert amounts outstanding under the Debentures into shares of common stock of
the Company at the lesser of $6.00 or 85% of the 30-day VWAP. The
Company's obligations under the Purchase Agreement are secured by substantially
all of the assets of the Company and those of its wholly owned subsidiary,
CoroWare Technologies, Inc.
Under the
Purchase Agreement, the Company also issued to Yorkville five-year warrants to
purchase 3,300 and 4,950 shares of Common Stock at prices equal to $150 and
$300, respectively, together with three-year warrants to purchase 7,667, 6,667
and 8,333 shares of Common Stock at prices equal to $75, $195 and $225,
respectively.
The
Company has the right to redeem a portion or all amounts outstanding under the
Debenture prior to the Maturity Date at a 10% redemption premium plus accrued
interest provided that the closing bid price of the Common Stock is less than
the Conversion Price and there is an effective Registration Statement covering
the shares of Common Stock issuable upon conversion of the Debentures and
exercise of the Warrants (as defined below). In addition, beginning on the
earlier of: (i) the first trading day following the day which the Registration
Statement is declared effective by the Commission, or (ii) December 1, 2006, and
continuing on the first trading day of each calendar month thereafter, Yorkville
may require the Company to redeem up to $500,000 of the remaining principal
amount of the Debentures per calendar month. However, Yorkville may not
require the Company to redeem the Debentures if the closing bid price of the
Common Stock exceeds the Conversion Price for each of the five consecutive
trading days immediately prior to the redemption date, and the Registration
Statement has been declared effective and remains effective on the redemption
date. The Company has the option, in its sole discretion, to settle any
requested redemptions by either paying cash and a 10% redemption premium plus
accrued interest or issuing the number of shares of the Company’s common stock
equal to the cash amount owed divided by a stock price equal to 95% of the 30
day VWAP (lowest daily volume weighted average price of the Company’s common
stock during the thirty (30) trading days immediately preceding the date of the
redemption).
The
following redemptions have occurred in conjunction with this debenture
financing:
Date
of Redemption
|
|
Principal
Redeemed
|
|
|
Number
of shares issued
|
|
2006
|
|
$ |
25,000 |
|
|
|
629 |
|
2007
|
|
$ |
930,000 |
|
|
|
59,946 |
|
2008
|
|
$ |
280,051 |
|
|
|
925,794 |
|
2009
|
|
$ |
30,000 |
|
|
|
573,220 |
|
During
the years ended December 31, 2009 and 2008, the company incurred losses in
conjunction with the applicable redemptions of the convertible debt of $5,728
and $517,432, respectively. The loss on redemption was recorded by
the Company as the difference between the fair value of the shares issued
($45,858 and $577,657 during 2009 and 2008, respectively) and the carrying value
of the debt redeemed ($40,130 and $60,225 for 2009 and 2008,
respectively.)
In the
Company’s evaluation of this instrument in accordance with FASB ASC 815,
Derivatives and Hedging (pre-codification FAS 133 “Accounting for Derivative
Financial Instruments and Hedging Activities”), based on the variable conversion
price and lack of authorized shares, it was determined that the conversion
feature was not afforded the exemption as a conventional convertible instrument
and did not otherwise meet the conditions for equity classification. As
such, the conversion and other features were compounded into one instrument,
bifurcated from the debt instrument and carried as a derivative liability, at
fair value. The Company estimated the fair value of the bifurcated
derivative instruments using the Monte Carlo valuation model because this
methodology provides for all of the assumptions necessary for fair value
determination; including assumptions for credit risk, interest risk and
conversion/redemption behavior. Significant assumptions underlying this
methodology were: Effective Term (using the remaining term of the host
instrument); Effective Volatility (89.08% - 123.72%); and Effective Risk
Adjusted Yield (15.97% - 33.59%). As a result of these estimates, the
valuation model resulted in a compound derivative balance of $1,798,350 at
inception. The Company also determined that the warrants did not meet the
conditions for equity classification because share settlement and maintenance of
an effective registration statement are not within its control. The fair
value allocated to the warrants instruments was $637,700 at inception. The
remaining $388,950 was allocated to the carrying value of the
debenture.
This
convertible debenture matured in 2009 and is currently in
default. Management is working with Yorkville to develop a plan for
repayment of this debt. In order to estimate a value for the embedded
conversion feature for financial statement presentation at December 31, 2009,
management needed to make certain assumptions about the estimated maturity date
of this debt. It was estimated that this debt would not be called
prior to November 1, 2010.
(b)
$600,000 Convertible debenture financing:
The
Company is party to a convertible debenture with Yorkville which provided for
the sale of its 14% secured convertible debentures in the aggregate principal
amount of $600,000, net of deferred financing costs of $75,000.
The
Debentures mature on the second anniversary of the date of issuance (October
2009). The holder of the Debentures may, at any time, convert amounts
outstanding under the Debentures into shares of common stock of the Company at
the lesser of $6.00 or 85% of the 30-day VWAP. The Company's
obligations under the Purchase Agreement are secured by substantially all of the
assets of the Company and those of its wholly owned subsidiary, CoroWare
Technologies, Inc.
The
Company has the right to redeem a portion or all amounts outstanding under the
Debenture prior to the Maturity Date at a 12% redemption premium plus accrued
interest provided that the closing bid price of the Common Stock is less than
the Conversion Price and there is an effective Registration Statement covering
the shares of Common Stock issuable upon conversion of the Debentures and
exercise of the Warrants (as defined below). In addition, beginning on the
issuance date, Yorkville may require the Company to convert any amounts
owed. However, Yorkville may not require the Company to redeem the
Debentures if the closing bid price of the Common Stock exceeds the Conversion
Price for each of the five consecutive trading days immediately prior to the
redemption date, and the Registration Statement has been declared effective and
remains effective on the redemption date. The Company has the option, in its
sole discretion, to settle any requested conversions by either paying cash and a
12% redemption premium plus accrued interest or issuing the number of shares of
the Company’s common stock equal to the cash amount owed divided by a stock
price equal to 85% of the 30 day VWAP.
In the
Company’s evaluation of this instrument in accordance with ASC 815 Derivatives
and Hedging, based on the variable conversion price and lack of authorized
shares, it was determined that the conversion feature was not afforded the
exemption as a conventional convertible instrument and did not otherwise meet
the conditions for equity classification. As such, the conversion and
other features were compounded into one instrument, bifurcated from the debt
instrument and carried as a derivative liability, at fair value. The
Company estimated the fair value of the bifurcated derivative instruments using
the Monte Carlo valuation model because this methodology provides for all of the
necessary assumptions necessary for fair value determination; including
assumptions for credit risk, interest risk and conversion/redemption behavior.
Significant assumptions underlying this methodology were: Effective Term (using
the remaining term of the host instrument); Effective Volatility (89.08% -
123.72%); and Effective Risk Adjusted Yield (15.97% - 33.59%). As a result
of these estimates, the valuation model resulted in a compound derivative
balance of $706,800 at inception.
This
convertible debenture matured in 2009 and is currently in
default. Management is working with Yorkville to develop a plan for
repayment of this debt. In order to estimate a value for the embedded
conversion feature for financial statement presentation at December 31, 2009,
management needed to make certain assumptions about the estimated maturity date
of this debt. It was estimated that this debt would not be called
prior to November 1, 2010.
(c)
$300,000 Convertible debenture financing:
On March
19, 2008, the Company consummated a Securities Purchase Agreement dated March
19, 2008 with Y.A. Global Investments (“Yorkville”) for the sale by the Company
to Yorkville of its 14% secured convertible debentures in the aggregate
principal amount of $300,000, net of deferred financing costs of $60,000 which
was advanced immediately in March 2008.
The
Debentures mature on the third anniversary of the date of issuance. The holder
of the Debentures may, at any time, convert amounts outstanding under the
Debentures into shares of common stock of the Company at a fixed conversion
price per share equal to $6.00. The Company's obligations under the
Purchase Agreement are secured by substantially all of the assets of the Company
and those of its wholly owned subsidiary, CoroWare Technologies,
Inc. Under the Purchase Agreement, the Company also issued to
Yorkville five-year warrants to purchase 33,300 shares of Common Stock at a
price equal to $6.
The
Company has the right to redeem a portion or all amounts outstanding under the
Debenture prior to the Maturity Date at a 14% redemption premium plus accrued
interest provided that the closing bid price of the Common Stock is less than
the Conversion Price and there is an effective Registration Statement covering
the shares of Common Stock issuable upon conversion of the Debentures and
exercise of the Warrants (as defined below). In addition, beginning on the
issuance date, Yorkville may require the Company to convert any amounts
owed. However, Yorkville may not require the Company to redeem the
Debentures if the closing bid price of the Common Stock exceeds the Conversion
Price for each of the five consecutive trading days immediately prior to the
redemption date, and the Registration Statement has been declared effective and
remains effective on the redemption date. The Company has the option, in its
sole discretion, to settle any requested conversions by either paying cash and a
14% redemption premium plus accrued interest or issuing the number of shares of
the Company’s common stock equal to the cash amount owed divided by a stock
price equal to 85% of the 30 day VWAP.
In the
Company’s evaluation of this instrument in accordance with ASC 815 Derivatives
and Hedging, based on the variable conversion price and lack of authorized
shares, it was determined that the conversion feature was not afforded the
exemption as a conventional convertible instrument and did not otherwise meet
the conditions for equity classification. As such, the conversion and
other features were compounded into one instrument, bifurcated from the debt
instrument and carried as a derivative liability, at fair value. The
Company estimated the fair value of the bifurcated derivative instruments using
the Monte Carlo valuation model because this methodology provides for all of the
necessary assumptions necessary for fair value determination; including
assumptions for credit risk, interest risk and conversion/redemption behavior.
Significant assumptions underlying this methodology were: Effective Term (using
the remaining term of the host instrument); Effective Volatility (89.08% -
123.72%); and Effective Risk Adjusted Yield (15.97% - 33.59%). As a result
of these estimates, the valuation model resulted in a compound derivative
balance of $150,000 at inception. The Company also determined that the
warrants did not meet the conditions for equity classification because share
settlement and maintenance of an effective registration statement are not within
its control. The fair value allocated to the warrants instruments was
$50,000 at inception. The remaining $100,000 was allocated to the carrying value
of the debenture.
Convertible
debt summary:
The
following table illustrates the components of derivative liabilities at December
31, 2009:
|
|
Note
|
|
|
Compound
derivative
|
|
|
Warrant
liability
|
|
|
Total
|
|
$2,825,000
financing
|
|
|
9(a) |
|
|
$ |
1,636,133 |
|
|
$ |
657 |
|
|
$ |
1,636,790 |
|
$ 600,000
financing
|
|
|
9(b) |
|
|
|
605,639 |
|
|
|
5,079 |
|
|
|
610,718 |
|
$ 300,000
financing
|
|
|
9(c) |
|
|
|
- |
|
|
|
1,530 |
|
|
|
1,530 |
|
|
|
|
|
|
|
$ |
2,241,772 |
|
|
$ |
7,266 |
|
|
$ |
2,249,038 |
|
The
following table illustrates the components of derivative liabilities at December
31, 2008:
|
|
Note
|
|
|
Compound
derivative
|
|
|
Warrant
liability
|
|
|
Total
|
|
$2,825,000
financing
|
|
|
9(a) |
|
|
$ |
211,349 |
|
|
$ |
930 |
|
|
$ |
212,279 |
|
$ 600,000
financing
|
|
|
9(b) |
|
|
|
69,804 |
|
|
|
- |
|
|
|
69,804 |
|
$ 300,000
financing
|
|
|
9(c) |
|
|
|
1,662 |
|
|
|
1,000 |
|
|
|
2,662 |
|
|
|
|
|
|
|
$ |
282,815 |
|
|
$ |
1,930 |
|
|
$ |
284,745 |
|
The
Company estimates fair values of derivative financial instruments using various
techniques (and combinations thereof) that are considered to be consistent with
the objective of measuring fair values. In selecting the appropriate technique,
the Company considers, among other factors, the nature of the instrument, the
market risks that it embodies and the expected means of
settlement. For less complex derivative instruments, such as
free-standing warrants, the Company generally uses the Black-Scholes-Merton
option valuation technique because it embodies all of the requisite assumptions
(including trading volatility, estimated terms and risk free rates) necessary to
fair value these instruments. For complex derivative instruments,
such as embedded conversion options, the Company generally use the Flexible
Monte Carlo valuation technique because it embodies all of the requisite
assumptions (including credit risk, interest-rate risk and exercise/conversion
behaviors) that are necessary to fair value these more complex
instruments. Estimating fair values of derivative financial
instruments requires the development of significant and subjective estimates
that may, and are likely to, change over the duration of the instrument with
related changes in internal and external market factors. In addition,
option-based techniques are highly volatile and sensitive to changes in the
trading market price of its common stock, which has a high-historical
volatility. Since derivative financial instruments are initially and
subsequently carried at fair values, our income will reflect the volatility in
these estimate and assumption changes.
The
following table summarizes the number of common shares indexed to the derivative
financial instruments as of December 31, 2009:
Financing
or other contractual arrangement:
|
|
Note
|
|
|
Conversion
Features
|
|
|
Warrants
|
|
|
Total
|
|
$2,825,000
Convertible Note Financing
|
|
|
9(a) |
|
|
|
37,351,956 |
|
|
|
31,000 |
|
|
|
37,382,956 |
|
$ 600,000
Convertible Note Financing
|
|
|
9(a) |
|
|
|
12,885,935 |
|
|
|
114,130 |
|
|
|
13,000,065 |
|
$ 300,000
Convertible Note Financing
|
|
|
9(c) |
|
|
|
62,312 |
|
|
|
33,300 |
|
|
|
95,612 |
|
|
|
|
|
|
|
|
50,300,203 |
|
|
|
178,430 |
|
|
|
50,478,633 |
|
The
following table summarizes the number of common shares indexed to the derivative
financial instruments as of December 31, 2008:
Financing
or other contractual arrangement:
|
|
Note
|
|
|
Conversion
Features
|
|
|
Warrants
|
|
|
Total
|
|
$2,825,000
Convertible Note Financing
|
|
|
9(a) |
|
|
|
7,044,928 |
|
|
|
31,000 |
|
|
|
7,075,928 |
|
$ 600,000
Convertible Note Financing
|
|
|
9(b) |
|
|
|
2,326,795 |
|
|
|
- |
|
|
|
2,326,795 |
|
$ 300,000
Convertible Note Financing
|
|
|
9(c) |
|
|
|
55,408 |
|
|
|
33,300 |
|
|
|
88,708 |
|
|
|
|
|
|
|
|
9,427,131 |
|
|
|
64,300 |
|
|
|
9,491,431 |
|
The
following tables illustrate the fair value adjustments that were recorded
related to the derivative financial instruments associated with the convertible
debenture financings:
|
|
Year
ended December 31, 2009
|
|
Derivative
income (expense)
|
|
Inception
|
|
|
Fair
Value Adjustments
|
|
|
Redemptions
|
|
|
Total
|
|
$2,825,000
financing
|
|
$ |
- |
|
|
$ |
(1,424,512 |
) |
|
$ |
(1,830 |
) |
|
$ |
(1,426,342 |
) |
$
600,000 financing
|
|
|
- |
|
|
|
(536,535 |
) |
|
|
- |
|
|
|
(536,535 |
) |
$ 300,000
financing
|
|
|
- |
|
|
|
1,132 |
|
|
|
- |
|
|
|
1,132 |
|
Preferred
stock, Series B
|
|
|
- |
|
|
|
(61,363 |
) |
|
|
- |
|
|
|
(61,363 |
) |
|
|
$ |
- |
|
|
$ |
(2,021,278 |
) |
|
$ |
(1,830 |
) |
|
$ |
(2,023,108 |
) |
|
|
Year
ended December 31, 2008
|
|
Derivative
income (expense)
|
|
Inception
|
|
|
Fair
Value Adjustments
|
|
|
Redemptions
|
|
|
Total
|
|
$2,825,000
financing
|
|
$ |
- |
|
|
$ |
102,521 |
|
|
$ |
(2,597 |
) |
|
$ |
99,924 |
|
$
600,000 financing
|
|
|
- |
|
|
|
625,596 |
|
|
|
- |
|
|
|
625,596 |
|
$ 300,000
financing
|
|
|
- |
|
|
|
197,338 |
|
|
|
- |
|
|
|
197,338 |
|
Preferred
stock, Series B
|
|
|
- |
|
|
|
37,112 |
|
|
|
- |
|
|
|
37,112 |
|
|
|
$ |
- |
|
|
$ |
962,567 |
|
|
$ |
(2,597 |
) |
|
$ |
959,970 |
|
Changes
in the fair value of the compound derivative and, therefore, derivative income
(expense) related to the compound derivative is significantly affected by
changes in the Company’s trading stock price and the credit risk associated with
its financial instruments. The fair value of the warrant derivative is
significantly affected by changes in the Company’s trading stock
prices.
The
aforementioned allocations to the compound and warrant derivatives resulted in
the discount in the carrying value of the note to zero. The discount, related
deferred finance costs and future interest payments are amortized through
periodic charges to interest expense using the effective interest
method.
NOTE
10 - INCOME TAXES
The
Company follows ASC 740, “Income Taxes”. Deferred income taxes reflect the net
effect of (a) temporary difference between carrying amounts of assets and
liabilities for financial purposes and the amounts used for income tax reporting
purposes, and (b) net operating loss carry forwards. No net provision for
refundable Federal income tax has been made in the accompanying statements of
operations because no recoverable taxes were paid previously. Similarly, no
deferred tax asset attributable to the net operating loss carry forward has been
recognized, as it is not deemed likely to be realized.
The
current year provision for refundable Federal income tax consists of the
following at December 31, 2009 and 2008:
|
|
2009
|
|
|
2008
|
|
Refundable
income tax attributable to:
|
|
|
|
|
|
|
Current
operations
|
|
$ |
1,800,000 |
|
|
$ |
614,000 |
|
Less,
change in valuation allowance
|
|
|
(1,800,000 |
) |
|
|
(614,000 |
) |
Net
refundable amount
|
|
$ |
- |
|
|
$ |
- |
|
The
cumulative tax effect at the expected rate of 34% of significant items
comprising the Company’s net deferred tax amount is as follows at December 31,
2009 and 2008:
|
|
2009
|
|
|
2008
|
|
Deferred
tax asset attributable to:
|
|
|
|
|
|
|
Net
operating loss carryover
|
|
$ |
8,300,000 |
|
|
$ |
6,500,000 |
|
Less,
valuation allowance
|
|
|
(8,300,000 |
) |
|
|
(6,500,000 |
) |
Net
deferred tax asset
|
|
$ |
- |
|
|
$ |
- |
|
At
December 31, 2009, the Company had an unused net operating loss carryover
approximating $24,400,000 that, subject to certain utilization limitations, is
available to offset future taxable income, if any. The net operating losses
expire from 2022 through 2029.
NOTE
11 - STOCK BASED COMPENSATION
Employee
stock options:
As of
December 31, 2006 the Company had three stock option plans; the 2003 Stock
Option Plan, the 2004 Stock Option Plan, and the 2005 Stock Option Plan. The
authorized options under the 2003, 2004, and 2005 Stock Option Plans are 1,667
shares, 1,050 shares, and 66,667 shares respectively. There are
currently no options outstanding under either of the 2003 or 2004 Stock Option
Plans.
Compensation
cost of $52,777 and $97,545 was recognized during the years ended December 31,
2009 and 2008, respectively, for grants under the 2005 Stock Option
Plan.
During
2009, 5,732 unvested options were forfeited by employees upon
termination.
During
2008 there were 5,667 options granted to employees to purchase shares of the
Company’s common stock at purchase prices ranging from $1.80 to $2.40, expiring
in ten years and vesting ratably over three years. During 2008,
41,556 unvested options were forfeited by employees upon
termination.
During
2008, the Company has estimated fair value at the date of grant using the
Black-Scholes-Merton Model, which includes a volatility assumption of 75.10%,
risk-free rate of 4.41% and the related term of the share-based payments of ten
years. In determining fair value of share-based payments as of
December 31, 2009, management has estimated a forfeiture rate of
5%. No options were issued in 2009.
Nonemployee
stock options:
During
2008 there were 3,333 options granted to nonemployees to purchase shares of the
Company’s common stock at $3. These options expire in ten years and
vest immediately.
The
following table summarizes stock option activity for the years ending December
31, 2009 and 2008:
|
|
Number
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Life (years)
|
|
Outstanding,
January 1, 2008
|
|
|
76,816 |
|
|
$ |
33.00 |
|
|
|
|
Granted
|
|
|
9,000 |
|
|
$ |
15.00 |
|
|
|
|
Forfeited
|
|
|
(41,556 |
) |
|
$ |
33.00 |
|
|
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2008
|
|
|
44,260 |
|
|
$ |
12.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,732 |
) |
|
$ |
66.31 |
|
|
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2009
|
|
|
38,528 |
|
|
$ |
2.97 |
|
|
|
7.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
33,028 |
|
|
$ |
2.97 |
|
|
|
7.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2009, there was approximately $21,000 of total unrecognized
compensation cost related to non-vested share-based compensation arrangements
granted under the Plans. That cost is expected to be recognized over the next
year.
Directors’
compensation:
The
Company has not paid and does not presently propose to pay cash compensation to
any director for acting in such capacity. For 2009 services, each
director was compensated with 15,000 shares of the Company’s restricted common
stock. In addition, the chairman was awarded 7,500
shares. There were no shares awarded for committee
membership.
For 2008,
Board compensation was also paid in restricted shares of the common stock of the
Company, but under the following schedule:
Annual
fee for outside Board membership and meeting attendance -
|
restricted
common stock valued at $25,000
|
Annual
fee for audit committee chair -
|
restricted
common stock valued at $8,000
|
Annual
fee for compensation, nominating and other chairs -
|
restricted
common stock valued at $6,500
|
Annual
fee for committee membership -
|
restricted
common stock valued at $5,000
|
Options
awarded in January valued at closing price on grant date -
|
options
for shares valued at $50,000
|
Under
this plan, all restricted common stock was delivered to board members monthly as
earned by attendance, either by phone or in person and new directors received
restricted common stock valued at $130,000, which vested ratably over 24
months.
The
directors received the following common stock issuances for their service in
2009, 2008, 2007 and 2006:
Director
|
|
Restricted
Common Stock Issued in 2009 for 2009 &2008 service
|
|
|
Value
|
|
|
Restricted
Common Stock Issued in 2008 for 2007 & 2006 service
|
|
|
Value
|
|
Martin
Nielson
|
|
|
29,333 |
|
|
$ |
1,760 |
|
|
|
6,485 |
|
|
$ |
19,545 |
|
Gary
McNear
|
|
|
- |
|
|
|
- |
|
|
|
6,485 |
|
|
|
19,545 |
|
Craig
Conklin
|
|
|
- |
|
|
|
- |
|
|
|
6,485 |
|
|
|
19,545 |
|
Richard
Wynns
|
|
|
- |
|
|
|
- |
|
|
|
3,182 |
|
|
|
9,545 |
|
Charles
House
|
|
|
35,833 |
|
|
|
2,150 |
|
|
|
1,515 |
|
|
|
4,545 |
|
John
Kroon
|
|
|
25,500 |
|
|
|
1,530 |
|
|
|
1,515 |
|
|
|
4,545 |
|
Total
|
|
|
90,666 |
|
|
$ |
5,440 |
|
|
|
25,667 |
|
|
$ |
77,270 |
|
The
following table summarizes stock based compensation for services during the
years ended December 31, 2009 and 2008:
|
|
2009
|
|
|
2008
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
Employee
salaries
|
|
|
78,564 |
|
|
|
951 |
|
|
|
473,339 |
|
|
$ |
282,960 |
|
Professional
fees
|
|
|
159,930 |
|
|
|
21,005 |
|
|
|
113,340 |
|
|
|
89,127 |
|
|
|
|
238,494 |
|
|
$ |
21,956 |
|
|
|
586,679 |
|
|
$ |
372,087 |
|
NOTE
12 - OTHER STOCKHOLDERS’ EQUITY
a)
Preferred stock Series A:
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 $.005 per share or 75% 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, (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
years ended December 31, 2009 and 2008.
b) Preferred
stock Series B:
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%, 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%
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, (v) ranks
junior to the Series A Preferred Stock upon liquidation of the Company and (vi)
has no voting rights except when mandated by Delaware law.
During
the years ended December 31, 2009 and 2008, -0- and 35,000 shares of the
Company’s Series B preferred stock converted into -0- and 6,199 shares of the
Company’s common stock at the conversion price of $-0- and $18.00, and an
additional -0- and 71 shares of common stock were issued for accrued
dividends converted at $-0- and $52.50 per share in accordance with the terms of
the Series B preferred shares certificate of designation.
Based
upon the Company’s evaluation of the terms and conditions of the Series B
Preferred Stock, the Company concluded that their features are more akin to a
debt instrument than an equity instrument, which means that the Company’s
accounting conclusions are generally based upon standards related to a
traditional debt security. The Company’s evaluation concluded that the embedded
conversion feature was not afforded the exemption as a conventional convertible
instrument due to certain variability in the conversion price, and it further
did not meet the conditions for equity classification. Therefore, the Company is
required to bifurcate the embedded conversion feature and carry it as a
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 $274,251 and $212,888 as of December 31, 2009 and 2008,
respectively. This amount is included in mandatorily redeemable
preferred stock as a liability on the Company’s balance sheet. Fair
value adjustments of ($61,363) and $37,112 were charged to derivative income
(expense) for the years ended December 31, 2009 and 2008,
respectively.
c)
Preferred stock Series C:
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 of 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 $.06 per share and
which expire five (5) years from the conversion date. The Company
raised $35,000 under this financing during 2007.
All
shares of Series C Preferred stock were converted into 19,806 shares of common
stock during the second quarter of 2008 at a conversion price of $1.80 per
share.
d) Outstanding
warrants:
At
December 31, 2009, the Company had the following warrants
outstanding:
|
|
|
|
Grant
Date
|
Expiration
Date
|
|
Warrants
Granted
|
|
|
Exercise
Price
|
|
$2,825,000
financing
|
|
|
9(a) |
|
07/21/06
|
7/21/09
& 7/21/11
|
|
|
31,000 |
|
|
$ |
75
- $300 |
|
$ 300,000
financing
|
|
|
9(b) |
|
03/19/08
|
3/19/13
|
|
|
33,333 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
64,333 |
|
|
|
|
|
The
following table summarizes warrant activity for the years ending December 31,
2009 and 2008:
|
|
Number
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Life (years)
|
|
Outstanding,
January 1, 2008
|
|
|
31,000 |
|
|
$ |
18.00 |
|
|
|
|
Granted
|
|
|
33,333 |
|
|
$ |
6.00 |
|
|
|
|
Forfeited
|
|
|
- |
|
|
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2008
|
|
|
64,333 |
|
|
$ |
11.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
|
|
|
|
|
Forfeited
|
|
|
- |
|
|
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2009
|
|
|
64,333 |
|
|
$ |
11.78 |
|
|
|
1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
64,333 |
|
|
$ |
11.78 |
|
|
|
1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
common share amounts and per share amounts in the accompanying financial
statements reflect the one-for-three hundred reverse stock split of the issued
and outstanding shares of common stock of the Company, effective April 8,
2009.
NOTE
13 - COMMITMENTS
Lease
Agreements:
On June
1, 2007, the Company entered into a lease with PS Business Park for a period of
three (3) years. The monthly rent began at $1,584 with annual
increases of 3%. The Company has subleased a portion of this space
for $1,500 a month running from September 1, 2009 through May 31,
2010.
On July
10, 2007, the Company leased 1,800 square feed of space at 4056 148th
Avenue, Redmond, Washington, which serves as the Company’s primary operating
facility. The lease is with PS Business Parks, L.P. for a period of
five (5) years. Monthly rental payments began at $2,057 and increased
annually by 3%.
Rental
expense for the years ended December 31, 2009 and 2008 was $38,373 and $55,876,
respectively.
Future
minimum rentals on non-cancelable leases are as follows:
For
the year ending December 31,
|
|
|
|
2010
|
|
$ |
27,482 |
|
2011
|
|
|
27,377 |
|
2012
|
|
|
13,891 |
|
2013
|
|
|
- |
|
|
|
$ |
68,750 |
|
Employment
Agreements:
Lloyd
Spencer is the President, Chief Executive Officer and Interim Chief Financial
Officer of the Company. On May 15, 2006 the Company and Mr. Spencer entered into
an employment agreement. The term of the employment agreement is five (5) years.
The agreement is automatically extended for one year periods unless terminated
on not less than thirty days notice by either party prior to any termination
date. Mr. Spencer’s compensation is $150,000 per annum plus a bonus at the
discretion of the Board of Directors. Mr. Spencer has agreed not to compete with
the Company or solicit its customers or employees for a period of two years
following the termination of his employment.
David
Hyams is the Chief Technology Officer of CoroWare. On May 15, 2006
the Company and Mr. Hyams entered into an employment agreement. The term of the
employment agreement is five (5) years. The agreement is automatically extended
for one year periods unless terminated on not less than thirty days notice by
either party prior to any termination date. Mr. Hyams’ compensation is $150,000
per annum plus a bonus at the discretion of the Board of Directors. Mr. Hyams
has agreed not to compete with the Company or solicit its customers or employees
for a period of two years following the termination of his
employment.
Jon
Mandrell is the Business Unit Manager and a Director of the
Company. On January 29, 2007 the Company and Mr. Mandrell entered
into an employment agreement. The term of the employment agreement is three (3)
years. The agreement is automatically extended for one year periods unless
terminated on not less than thirty days notice by either party prior to any
termination date. Mr. Mandrell’s compensation is $110,000 per annum plus a bonus
at the discretion of the Board of Directors. Mr. Mandrell has agreed not to
compete with the Company or solicit its customers or employees for a period of
one year following the termination of his employment.
Walter
Weisel was Chairman and Chief Executive Officer of the Company. He
resigned from all positions and the Board of Directors in December
2007. In connection with his resignation, the Company entered into a
Termination and Retirement Agreement which provides for a lump sum payment of
$25,220 and eleven monthly payments of $10,000. During 2009, the
remaining liability of $22,613 was satisfied through the issuance of 314,100
shares of the company’s restricted common stock.
Eugene V.
Gartlan passed away in January 2008 following a brief illness prior to
completion of a new employment agreement reflecting the terms of his employment
as Chief Executive Officer and Chief Financial Officer. The
compensation committee had agreed to a salary of $200,000 per year, with $42,000
payable as cash and the balance in stock at the current price. At December 31,
2009 and 2008, $60,758 remains in accrued liabilities. Of that
amount, $16,841 is to be paid in cash and $43,917 is to be paid in stock. Mr.
Gartlan was also to be awarded 6,667 shares of restricted common stock and 3,333
fully vested options at a purchase price of $3.00. The stock and
options were issued to his surviving spouse in 2008.
Robert G.
Smith, Jr. was Interim Chief Financial Officer from February 8, 2008 through May
22, 2008. The Company did not enter into an employment agreement;
however, CoroWare entered into an agreement for Mr. Smith to work as CoroWare’s
part-time controller. Mr. Smith’s compensation was $92,690 plus
quarterly bonuses of $3,750 to be paid in common stock of the Company based upon
meeting certain performance measures. Mr. Smith was granted 3,333
options to purchase stock at $3.00 per share with a three year vesting and
agreed not to compete with the Company or solicit its customers for a period of
one year following the termination of his employment. Upon Mr.
Smith’s departure from the Company in May 2008, 463 of his options had
vested.
NOTE
14- SUBSEQUENT EVENTS
The
Company issued the following shares subsequent to December 31,
2009:
Shares
issued for employee compensation |
|
|
3,326,530 |
|
Shares
issued for services and to settle outstanding accounts payable with
vendors |
|
|
1,054,718 |
|
Shares
issued in connection with Yorkville redemptions |
|
|
2,287,146 |
|
Shares
issued for interest on notes payable |
|
|
520,400 |
|
|
|
|
7,188,794 |
|