Exhibit 2.4
PART II — INFORMATION REQUIRED IN OFFERING CIRCULAR
Preliminary Offering Circular dated August 30, 2021
An Offering Statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the Offering Statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the Offering Statement in which such Final Offering Circular was filed may be obtained.
CoroWare, Inc.
$10,000,000
5,000,000,000 SHARES OF COMMON STOCK
$0.002 PER SHARE
This is the public offering of securities of CoroWare, Inc., a Delaware corporation. We are offering 5,000,000,000 shares of our common stock, par value $0.0001 (“Common Stock”), at an offering price of $0.002 per share (the “Offered Shares”) by the Company. This Offering will terminate on twelve months from the day the Offering is qualified or the date on which the maximum offering amount is sold (such earlier date, the “Termination Date”). The minimum purchase requirement per investor is 2,500,000 Offered Shares ($5,000); however, we can waive the minimum purchase requirement on a case-by-case basis in our sole discretion.
These securities are speculative securities. Investment in the Company’s stock involves significant risk. You should purchase these securities only if you can afford a complete loss of your investment. See the “Risk Factors” section on page 4 of this Offering Circular.
We are a shell company pursuant to Rule 405 of the Securities Act. This will have a material impact on our ability to attract additional capital. See “Risk Factors – We are a shell company pursuant to Rule 405 of the Securities Act. This may impact our ability to attract additional capital.
No Escrow
The proceeds of this offering will not be placed into an escrow account. We will offer our Common Stock on a best efforts basis. As there is no minimum offering, upon the approval of any subscription to this Offering Circular, the Company shall immediately deposit said proceeds into the bank account of the Company and may dispose of the proceeds in accordance with the Use of Proceeds.
Subscriptions are irrevocable and the purchase price is non-refundable as expressly stated in this Offering Circular. All proceeds received by the Company from subscribers for this Offering will be available for use by the Company upon acceptance of subscriptions for the Securities by the Company.
The Company, by determination of the Board of Directors, in its sole discretion, may issue the Securities under this Offering for cash, promissory notes, services, and/or other consideration without notice to subscribers. The aggregate offering price is based on the price at which the securities are offered for cash. Any portion of the aggregate offering price or aggregate sales attributable to cash received in a foreign currency will be translated into United States currency at a currency exchange rate in effect on, or at a reasonable time before, the date of the sale of the securities. If securities are not sold for cash, the aggregate offering price or aggregate sales will be based on the value of the consideration as established by bona fide sales of that consideration made within a reasonable time, or, in the absence of sales, on the fair value as determined by an accepted standard. Valuations of non-cash consideration will be reasonable at the time made.
Sale of these shares will commence within two calendar days of the qualification date and it will be a continuous Offering pursuant to Rule 251(d)(3)(i)(F).
This Offering will be conducted on a “best-efforts” basis, which means our Officers will use their commercially reasonable best efforts in an attempt to offer and sell the Shares. Our Officers will not receive any commission or any other remuneration for these sales. In offering the securities on our behalf, the Officers will rely on the safe harbor from broker-dealer registration set out in Rule 3a4-1 under the Securities Exchange Act of 1934, as amended.
This Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sales of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful, prior to registration or qualification under the laws of any such state.
Our Common Stock is quoted on the OTC Market’s “PINK” under the stock symbol “COWI.”
Investing in our Common Stock involves a high degree of risk. See “Risk Factors” beginning on page 4 for a discussion of certain risks that you should consider in connection with an investment in our Common Stock.
Per Share | Total Maximum | |||||||
| Public Offering Price (1)(2) | $ | 0.002 | $ | 10,000,000 | ||||
| Underwriting Discounts and Commissions (3) | $ | 0.0001 | $ | 1,000,000 | ||||
| Proceeds to Company | $ | 0.0019 | $ | 9,000,000 | ||||
(1) We are offering shares on a continuous basis. See “Distribution – Continuous Offering.
(2) This is a “best efforts” offering. The proceeds of this offering will not be placed into an escrow account. We will offer our Common Stock on a best efforts basis primarily through an online platform. As there is no minimum offering, upon the approval of any subscription to this Offering Circular, the Company shall immediately deposit said proceeds into the bank account of the Company and may dispose of the proceeds in accordance with the Use of Proceeds. See “How to Subscribe.”
(3) We are offering these securities without an underwriter.
(4) Excludes estimated total offering expenses, including underwriting discount and commissions, will be approximately $1,000,000 assuming the maximum offering amount is sold.
Our Board of Directors used its business judgment in setting a value of $0.001 per share to the Company as consideration for the stock to be issued under the Offering. The sales price per share bears no relationship to our book value or any other measure of our current value or worth.
No sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or your net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
THE U.S. SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
The date of this Offering Circular is August 30, 2021.
TABLE OF CONTENTS
We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where such offers and sales are permitted. You should rely only on the information contained in this Offering Circular. We have not authorized anyone to provide you with any information other than the information contained in this Offering Circular. The information contained in this Offering Circular is accurate only as of its date, regardless of the time of its delivery or of any sale or delivery of our securities. Neither the delivery of this Offering Circular nor any sale or delivery of our securities shall, under any circumstances, imply that there has been no change in our affairs since the date of this Offering Circular. This Offering Circular will be updated and made available for delivery to the extent required by the federal securities laws.
In this Offering Circular, unless the context indicates otherwise, references to “CoroWare”, “we”, the “Company”, “our” and “us” refer to the activities of and the assets and liabilities of the business and operations of CoroWare, Inc.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under “Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Our Business” and elsewhere in this Offering Circular constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “should”, “will” and “would” or the negatives of these terms or other comparable terminology.
You should not place undue reliance on forward looking statements. The cautionary statements set forth in this Offering Circular, including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:
| ● | The speculative nature of the business we intend to develop; |
| ● | Our reliance on suppliers and customers; |
| ● | Our dependence upon external sources for the financing of our operations, particularly given that there are concerns about our ability to continue as a “going concern; |
| ● | Our ability to effectively execute our business plan; |
| ● | Our ability to manage our expansion, growth and operating expenses; |
| ● | Our ability to finance our businesses; |
| ● | Our ability to promote our businesses; |
| ● | Our ability to compete and succeed in highly competitive and evolving businesses; |
| ● | Our ability to respond and adapt to changes in technology and customer behavior; and |
| ● | Our ability to protect our intellectual property and to develop, maintain and enhance strong brands. |
Although the forward-looking statements in this Offering Circular are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as maybe be required by law, to re-issue this Offering Circular or otherwise make public statements updating our forward-looking statements.
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This summary highlights selected information contained elsewhere in this Offering Circular. This summary is not complete and does not contain all the information that you should consider before deciding whether to invest in our Common Stock. You should carefully read the entire Offering Circular, including the risks associated with an investment in the company discussed in the “Risk Factors” section of this Offering Circular, before making an investment decision. Some of the statements in this Offering Circular are forward-looking statements. See the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”
Company Information
As used herein, the terms the “Company,” “CoroWare” “we,” “us,” “our” and similar refer to CoroWare, Inc., a publicly quoted shell corporation incorporated on July 15, 2002 under the laws of the State of Delaware as weComm, Ltd. On August 20, 2002, the Company filed an Amendment to its Articles of Incorporation changing the name of the corporation to SRM Networks, Inc. In connection with the acquisition of Hy-Tech Computer Systems, Inc. on January 31, 2003, the Company changed its name to Hy-Tech Technology Group, Inc. In connection with the Agreement and Plan of Merger Robotics Workspace Technology, Inc., Innova Holdings, Inc. and the Company’s wholly owned subsidiary, RWT Acquisition, Inc., dated July 21, 2004, the Company’s named changed to Innova Holdings, Inc. Subsequently, on November 20, 2006, the Company changed its name to Innova Robotics and Automation, Inc. and then on April 23, 2008, the Company changed its name to CoroWare, Inc.
The trading symbol for our Common Stock is ‘COWI.”
The Issuer’s offices are located at 13110 NE 177th Place, Woodinville, WA 98072, Phone: 833-304-7336, Email lspencer@coroware.com. We maintain a website at http://www.coroware.com. We do not incorporate the information on or accessible through our website into this Offering Circular, and you should not consider any information on, or that can be accessed through, our website a part of this Offering Circular.
Section 15(g) of the Securities Exchange Act of 1934
Our shares are covered by section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser’s written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one-page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as bid and offer quotes, a dealers spread and broker/dealer compensation; the broker/dealer compensation, the broker/dealers’ duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers’ rights and remedies in cases of fraud in penny stock transactions; and, the FINRA’s toll free telephone number and the central number of the North American Securities Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
Dividends
The Company has not declared or paid a cash dividend to stockholders since it was organized and does not intend to pay dividends in the foreseeable future. The board of directors presently intends to retain any earnings to finance our operations and does not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon the Company’s earnings, capital requirements and other factors.
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Trading Market
Our Common Stock is quoted on the OTC Markets’ “PINK” under the symbol “COWI.”
| Issuer: | CoroWare, Inc. | |
| Securities offered: | A maximum of 5,000,000,000 shares of our common stock, par value $0.0001 (“Common Stock”) at an offering price of $0.002 per share (the “Offered Shares”). (See “Distribution.”) | |
| Number of shares of Common Stock outstanding before the offering | 14,102,057,165 issued and outstanding as of August 23, 2021 | |
| Number of shares of Common Stock to be outstanding after the offering | 19,102,057,165 shares, if the maximum amount of Offered Shares are sold | |
| Price per share: | $0.002 | |
| Maximum offering amount: | 5,000,000,000 shares at $0.002 per share, or $10,000,000 (See “Distribution.”) | |
| Trading Market: | Our Common Stock is quoted on the OTC Markets “PINK” under the symbol “COWI.” |
| Use of proceeds: | If we sell all of the shares being offered, our net proceeds (after our estimated offering expenses) will be $9,000,000. We will use these net proceeds for working capital and other general corporate purposes. | |
| Risk factors: | Investing in our Common Stock involves a high degree of risk, including:
Immediate and substantial dilution.
Limited market for our stock.
Competition
Limited operational history
Doubts about our ability to continue in business
See “Risk Factors.” |
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An investment in our Common Stock involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained in this Offering Circular, before purchasing our Common Stock. Any of the following factors could harm our business, financial condition, results of operations or prospects, and could result in a partial or complete loss of your investment. Some statements in this Offering Circular, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Statement Regarding Forward-Looking Statements”.
Risks Relating to Our Financial Condition
Our independent registered accounting firm has expressed concerns about our ability to continue as a going concern.
The report of our independent registered accounting firm expresses concern about our ability to continue as a going concern based on the absence of significant revenues, our significant losses from operations and our need for additional financing to fund all of our operations. It is not possible at this time for us to predict with assurance the potential success of our business. The revenue and income potential of our proposed business and operations are unknown. If we cannot continue as a viable entity, we may be unable to continue our operations and you may lose some or all of your investment in our common stock.
We have limited operational history in an emerging industry, making it difficult to accurately predict and forecast business operation.
As we have less than ten years of corporate operational history and have yet to generate revenue under our new business model, it is extremely difficult to make accurate predictions and forecasts on our finances. This is compounded by the fact that we operate in both the carbon nanotubes and hydrogen sectors, which is a rapidly transforming technological sector. There is no guarantee that we will properly execute our business model in either sector.
As a growing company, we have yet to achieve a profit and may not achieve a profit in the near future, if at all.
We have not yet produced a net profit and may not in the near future, if at all. While we expect our revenue to grow, we have not achieved profitability and cannot be certain that we will be able to sustain our current growth rate or realize sufficient revenue to achieve profitability. Further, many of our competitors in the field of carbon nanotubes and hydrogen technology have a significantly larger user base and revenue stream, but have yet to achieve profitability. Our ability to continue as a going concern may be dependent upon raising capital from financing transactions, increasing revenue throughout the year and keeping operating expenses below our revenue levels in order to achieve positive cash flows, none of which can be assured.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features and products or enhance our existing products, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in continued equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of our common stock. Any debt financing we secure in the future, could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be impaired, and our business may be harmed.
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We expect our quarterly financial results to fluctuate.
We expect our net sales and operating results to vary significantly from quarter to quarter due to a number of factors, including changes in:
| ● | Demand for our products; and | |
| ● | Our ability to obtain and retain existing customers; and | |
| ● | Our ability to develop our carbon nanotubes and hydrogen products; and | |
| ● | General economic conditions, both domestically and in foreign markets; and | |
| ● | Advertising and other marketing costs; and | |
| ● | Costs of producing the carbon nanotubes and hydrogen; and | |
| ● | Retaining key personnel | |
| ● | Positive returns on our alternative investments. |
As a result of the variability of these and other factors, our operating results in future quarters may be below the expectations of our stockholders.
Risks Relating to Our Business and Industry
The COVID-19 pandemic may materially and adversely affect our business and operations.
The impact on our business from the outbreak of the COVID-19 coronavirus is unknown at this time and difficult to predict. While vaccines are currently being administered in the United States and other countries throughout the world, at the current time the federal government and local states have instituted restrictions which could adversely affect the Company’s operations. The impact of COVID-19 has also created global supply chain challenges. These challenges create risk in the timing of delivery of kiosks and products. As outbreaks happen in certain areas of the supply chain it will create delays. Having redundancies in these areas to minimize timeline creep is not cost effective. Additionally, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. Other potential adverse effects of COVID-19 might include, for example, our ability to meet projected goals through the continued availability of our workforce; adverse impacts from new laws and regulations affecting our business or increased cyber risks and reliance on technology infrastructure to support our business and operations, including through remote-work protocols. The specific impact that COVID-19 could have on these risks remains uncertain.
We have a history of losses, and we may not become profitable in the future.
The company has incurred losses in all the years since formation. Most of these investments were made in product development, engineering and some sales expenses. We may incur similar net losses for the foreseeable future.
We expect to continue to make significant future expenditures related to the development and expansion of our business, including:
| ● | investments in our research and development team and in the development of processing organic waste streams into higher value carbon and hydrogen products; | |
| ● | investments in sales and marketing, including expanding our sales force, increasing our customer base, increasing market awareness of our platform and development of new technologies; | |
| ● | expanding of our operations and infrastructure, including internationally; and | |
| ● | hiring additional employees. |
CoroWare is changing its industry direction and business model
It will take 12-18 months to establish a firm direction towards revenue and profitability. The company will need to build out a new corporate leadership team, identify additional acquisition opportunities, and continue to work on and evolve its long-term business plan. The company is also incurring costs associated with general administration, including legal, accounting and other expenses related to being a public company upon completion of this offering.
As a result of these increased expenses, we will have to generate and sustain increased revenue to be profitable in future periods. Further, in future periods, our revenue growth rate could decline, and we may not be able to generate sufficient revenue to offset higher costs and achieve or sustain profitability. If we fail to achieve, sustain or increase profitability, our business and operating results could be adversely affected.
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We have no operating history, which makes it difficult to predict our future results of operations.
The company has been inactive since November 2016, which limits our ability to forecast our future results of operations and subjects us to a number of uncertainties, including our ability to plan for and anticipate future growth. Our historical revenue growth should not be considered indicative of our future performance. Further, in future periods, our revenue growth could slow or our revenue could decline for a number of reasons, including slowing demand for our solutions, increasing competition, a decrease in the growth of our overall market, or our failure, for any reason, to continue to capitalize on growth opportunities. We have also encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as determining appropriate investments of our limited resources, competition from other companies, attracting and retaining customers, hiring, integrating, training and retaining skilled personnel,
Changing global economic conditions may adversely affect our industry, business and results of operations.
Our overall performance depends in part on worldwide economic conditions and trade relations with Asia, Europe and Latin America. These conditions could adversely affect our customers’ ability or willingness to purchase products and services and could adversely affect our operating results. In addition, companies that have competing products may reduce prices which could also reduce our average selling prices and harm our operating results.
If we experience significant fluctuations in our rate of anticipated growth and fail to balance our expenses with our revenue forecasts, our results could be harmed.
Due to the early stages of our business model, the unpredictability of new markets that we enter and unpredictability of future general economic and financial market conditions, we may not be able to accurately forecast our rate of growth. We plan our expense levels and investment on estimates of future revenue and future anticipated rate of growth. We may not be able to adjust our spending quickly enough if the addition of new subscriptions or the renewal rate for existing subscriptions falls short of our expectations.
As a result, we expect that our revenues, operating results and cash flows may fluctuate significantly on a quarterly basis. Our recent revenue growth rates may not be sustainable and may decline in the future. We believe that period-to-period comparisons of our revenues, operating results and cash flows may not be meaningful and should not be relied upon as an indication of future performance.
We may in the future be sued by third parties for alleged infringement of their proprietary rights.
The waste processing, carbon nanotube, and hydrogen production industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. The outcome of any litigation is inherently uncertain. Any intellectual property claims, with or without merit, could be time-consuming and expensive to resolve, could divert management attention from executing our business plan and could require us to change our technology, change our business practices and/or pay monetary damages or enter into short- or long-term royalty or licensing agreements which may not be available in the future at the same terms or at all. Any adverse determination related to intellectual property claims or litigation could be material to our net income or cash flows of a particular quarter or could otherwise adversely affect our operating results.
Our quarterly results can fluctuate and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.
We may fail to meet or exceed the expectations of securities analysts or investors, and the market price of our common stock or the trading price of the notes could decline. Moreover, our stock price may be based on expectations of our future performance that may be unrealistic or that may not be met. Some of the important factors that may cause our revenues, operating results and cash flows to fluctuate from quarter to quarter include:
| ● | our ability to retain and increase sales to existing customers, attract new customers and satisfy our customers’ requirements; | |
| ● | the number of new employees added; | |
| ● | changes in our pricing policies whether initiated by us or as a result of intense competition; | |
| ● | the rate of expansion and productivity of our sales force; |
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| ● | new product and service introductions by our competitors; | |
| ● | our success in selling our products and services to large enterprises; | |
| ● | general economic conditions could adversely affect either our customers’ ability or willingness to purchase additional subscriptions or upgrade their service, or delay a prospective customers’ purchasing decision, or reduce the value of new subscription contracts, or affect renewal rates, all of which could adversely affect our operating results; | |
| ● | the timing of customer payments and payment defaults by customers; | |
| ● | costs associated with acquisitions of companies and technologies; | |
| ● | extraordinary expenses such as litigation or other dispute-related settlement payments; | |
| ● | the impact of new accounting pronouncements; and |
Many of these factors are not within our control, and the occurrence of one or more of them might cause our operating results to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenues, operating results and cash flows may not be meaningful and should not be relied upon as an indication of future performance.
As we acquire companies or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results and the value of your investment.
As part of our business strategy, we regularly evaluate acquisitions of complementary businesses, joint ventures, services and technologies, and we expect that periodically we will continue to make such investments and acquisitions in the future. Acquisitions and investments involve numerous risks, including:
| ● | the potential failure to achieve the expected benefits of the combination or acquisition; | |
| ● | difficulties in and the cost of integrating operations, technologies, services and personnel; | |
| ● | diversion of financial and managerial resources from existing operations; | |
| ● | risk of entering new markets in which we have little or no experience; | |
| ● | potential write-offs of acquired assets or investments; | |
| ● | potential loss of key employees; | |
| ● | inability to generate sufficient revenue to offset acquisition or investment costs; | |
| ● | the inability to maintain relationships with customers and partners of the acquired business; | |
| ● | potential unknown liabilities associated with the acquired businesses; | |
| ● | unanticipated expenses related to acquired technology and its integration into existing technology; | |
| ● | negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue; | |
| ● | delays in customer purchases due to uncertainty; | |
| ● | the need to implement controls, procedures and policies appropriate for a public company at companies that prior to the acquisition lacked such controls, procedures and policies; and | |
| ● | challenges caused by distance, language and cultural differences. |
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In addition, if we finance acquisitions by issuing additional convertible debt or equity securities, our existing stockholders may be diluted which could affect the market price of our stock. Further, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be seriously harmed, and the value of your investment may decline.
The market for carbon nanotubes and hydrogen are volatile, and if it develops more slowly than we expect, our business could be harmed.
The market for producing carbon nanotubes and hydrogen is not as mature as the market for packaged enterprise software and hardware, and it is uncertain whether these services will achieve and sustain high levels of demand and market acceptance. If enterprises do not perceive the benefits of carbon nanotubes and hydrogen, then the market for these products and services may not develop at all, or it may develop more slowly than we expect, either of which would significantly adversely affect our operating results. In addition, we may make errors in predicting and reacting to relevant business trends, which could harm our business.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.
If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology, and our business might be harmed. In addition, defending our intellectual property rights might entail significant expense. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. While we plan to file patents, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our service is available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.
We might be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel.
If we fail to develop our brands cost-effectively, our business may suffer.
We believe that developing and maintaining awareness of the Carbon Source brand and our other brands in a cost-effective manner is critical to achieving widespread acceptance of our existing and future services and is an important element in attracting new customers. Furthermore, we believe that the importance of brand recognition will increase as competition in our market develops. Successful promotion of our brands will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable secure and useful services at competitive prices. In the past, our efforts to build our brands have involved significant expense. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brands. If we fail to successfully promote and maintain our brands or incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.
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We are dependent on our management team and development and operations personnel, and the loss of one or more key employees or groups could harm our business and prevent us from implementing our business plan in a timely manner.
Our success depends substantially upon the continued services of our executive officers and other key members of management, particularly our Chief Executive Officer. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives. Such changes in our executive management team may be disruptive to our business. We are also substantially dependent on the continued service of our existing development and operations personnel because of the complexity of our service and technologies. We do not have employment agreements with any of our executive officers, key management, development or operations personnel and, therefore, they could terminate their employment with us at any time. We do not maintain key person life insurance policies on any of our employees. The loss of one or more of our key employees or groups could seriously harm our business.
We may not be successful in our efforts to build a pipeline of product candidates.
A key element of our strategy is to build a pipeline of carbon and hydrogen products that are marketable. Even if we are successful in building a product pipeline, the potential product candidates that we identify may not be suitable for sale to customers for any number of reasons. If our methods of identifying potential product candidates fail to produce a pipeline of potentially viable product candidates, then our success as a business will be dependent on the success of fewer potential product candidates, which introduces risks to our business model and potential limitations to any success we may achieve.
Because competition for our target employees is intense, we may not be able to attract and retain the highly skilled employees we need to support our operations and increasing customer base.
In the technology industry, there is substantial and continuous competition for engineers with high levels of experience in designing, developing and managing software and Internet-related services, as well as competition for sales executives and operations personnel. We may not be successful in attracting and retaining qualified personnel. We expect to experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If our stock price performs poorly, it may adversely affect our ability to retain highly skilled employees. In addition, since we expense all stock-based compensation, we may periodically change our stock compensation practices, which may include reducing the number of employees eligible for options or reducing the size of equity awards granted per employee. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
We do not maintain workers’ compensation insurance to cover us for costs and expenses, that we may incur due to injuries to our employees resulting from the use of hazardous materials. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our discovery, preclinical development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
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Our business is subject to changing regulations regarding corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.
We are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded. Our efforts to comply with new and changing regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, our business may be harmed.
Natural disasters and other events beyond our control could materially adversely affect us.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers and could decrease demand for our services.
We may be unable to manage growth, which may impact our potential profitability.
Successful implementation of our business strategy requires us to manage our growth. Growth could place an increasing strain on our management and financial resources. To manage growth effectively, we will need to:
| ● | Establish definitive business strategies, goals and objectives; | |
| ● | Maintain a system of management controls; and | |
| ● | Attract and retain qualified personnel, as well as, develop, train and manage management-level and other employees. |
If we fail to manage our growth effectively, our business, financial condition or operating results could be materially harmed, and our stock price may decline.
We may not be able to compete successfully with other established companies offering the same or similar services and, as a result, we may not achieve our projected revenue and user targets.
If we are unable to compete successfully with other businesses in our existing market, we may not achieve our projected revenue and/or targets. We compete with both start-up and established financial and technology companies. Compared to our business, some of our competitors may have greater financial and other resources, have been in business longer, have greater name recognition and be better established in the carbon nanotubes and hydrogen sectors.
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Failure to manage our rapid growth effectively could increase our expenses, decrease our revenue, and prevent us from implementing our business strategy.
After funding, we expect to experience a period of rapid growth. To manage our anticipated future growth effectively, we must continue to maintain, and may need to enhance, our information technology infrastructure and financial and accounting systems and controls, as well as manage expanded operations in geographically distributed locations. We also must attract, train, and retain a significant number of qualified sales and marketing personnel, professional services personnel, software engineers, technical personnel, and management personnel. Failure to manage our rapid growth effectively could lead us to over-invest or under-invest in technology and operations; result in weaknesses in our infrastructure, systems, or controls; give rise to operational mistakes, losses, or loss of productivity or business opportunities; and result in loss of employees and reduced productivity of remaining employees. Our growth could require significant capital expenditures and may divert financial resources and management attention from other projects, such as the development of new services. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our revenue could decline or may grow more slowly than expected, and we may be unable to implement our business strategy.
We depend on key employees and face competition in hiring and retaining qualified employees.
Our employees are vital to our success, and our key management and other employees are difficult to replace. We currently do not have employment contracts with our key employees. We may not be able to retain highly qualified employees in the future which could adversely affect our business.
Our lack of adequate D&O insurance may also make it difficult for us to retain and attract talented and skilled directors and officers.
We may in the future be subject to additional litigation, including potential class action and stockholder derivative actions. Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. To date, we have not obtained directors and officers liability (“D&O”) insurance. While neither Nevada law nor our Articles of Incorporation or bylaws require us to indemnify or advance expenses to our officers and directors involved in such a legal action, we have entered into an indemnification agreement with our President and intend to enter into similar agreements with other officers and directors in the future. Without adequate D&O insurance, the amounts we would pay to indemnify our officers and directors should they be subject to legal action based on their service to the Company could have a material adverse effect on our financial condition, results of operations and liquidity. Furthermore, our lack of adequate D&O insurance may make it difficult for us to retain and attract talented and skilled directors and officers, which could adversely affect our business.
We may experience significant losses from operations.
Even if we do generate operating income in one or more quarters in the future, subsequent developments in our industry, customer base, business or cost structure or an event such as significant litigation or a significant transaction may cause us to again experience operating losses. We may not become profitable for the long-term, or even for any quarter.
Because competition for our target employees is intense, we may not be able to attract and retain the highly skilled employees we need to support our planned growth.
To continue to execute on our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for senior sales executives and engineers with high levels of experience in designing and developing software and Internet-related services. We may not be successful in attracting and retaining qualified personnel. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. In addition, in making employment decisions, particularly in the Internet and high-technology industries, job candidates often consider the value of the equity awards they are to receive in connection with their employment. Volatility in the price of our stock or failure to obtain stockholder approval for increases in the number of shares available for grant under our equity plans may, therefore, adversely affect our ability to attract or retain key employees. Furthermore, the requirements to expense equity awards may discourage us from granting the size or type of equity awards that job candidates require to join our company. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.
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We may fail to realize the anticipated benefits of any acquisition.
The success of any acquisition will depend on, among other things, our ability to combine our businesses in a manner that does not materially disrupt existing relationships and that allows us to achieve operational synergies and capitalize on the increased brand recognition and customer base of the combined company. If we are not able to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. In particular, the acquisition may not be accretive or accelerate sales in near or long term.
The integration process could result in the loss of key employees; the disruption of our ongoing businesses; or inconsistencies in standards, controls, procedures, or policies that could adversely affect our ability to maintain relationships with third parties and employees or to achieve the anticipated benefits of the acquisition. Integration efforts between the two companies will also divert management’s attention from our core business and other opportunities that could have been beneficial to our shareholders. An inability to realize the full extent of, or any of, the anticipated benefits of the acquisition, as well as any delays encountered in the integration process, could have an adverse effect on our business and results of operations, which may affect the value of the shares of our common stock after the completion of the acquisition.
Further, the actual integration may result in additional and unforeseen expenses. Operational improvements and actual cost synergies, if achieved at all, may be lower than we expect and may take longer to achieve than we anticipate. If we are not able to adequately address these challenges, we may be unable to realize the anticipated benefits of the integration of any acquisition.
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General Business Risks
Our business and operations may experience rapid growth. If we fail to manage our growth, our business and operating results could be harmed and we may have to incur significant expenditures to address the additional operational and control requirements of this growth.
We may experience rapid growth in our sales and operations, which may place significant demands on our management, operational and financial infrastructure. If we do not manage our growth, the quality of our products and services could suffer, which could negatively affect our brand and operating results. To manage this growth, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. These systems enhancements and improvements will require significant capital expenditures and allocation of valuable management resources. If the improvements are not implemented successfully, our ability to manage our growth will be impaired and we may have to make significant additional expenditures to address these issues, which could harm our financial position. The required improvements may include: Enhancing our information and communication systems to attempt to optimize proper service to our customers, and Enhancing systems of internal controls to ensure timely and accurate reporting of all of our operations
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our brand and operating results could be harmed. We may in the future discover areas of our internal controls that need improvement. We cannot be certain that any measures we implement will ensure that we achieve and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
We have no operating history under our new business model utilizing carbon nanotubes or hydrogen technology in an emerging and rapidly evolving market. This makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
We have no operating history under our new business model utilizing carbon nanotubes or hydrogen technology. You must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage company in a new and rapidly evolving market. We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.
We cannot be certain that additional financing will be available on reasonable terms when required, or at all.
From time to time, we may need additional financing. Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets, and other factors. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all. We may need to raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences, or privileges senior to the rights of our Common Stock, and our existing stockholders may experience dilution.
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Rapid technological changes.
The industries in which the Company intends to compete with are subject to rapid technological changes. No assurances can be given that the technological advantages which may be enjoyed by the Company in respect of their technologies cannot or will not be overcome by technological advances in the respective industries rendering the Company’s technologies obsolete or non-competitive.
Lack of indications of product acceptability.
The success of the Company will be dependent upon its ability to develop commercially acceptable products and to sell such products in quantities sufficient to yield profitable results. To date, the Company has received no indications of the commercial acceptability of any of its proposed products. Accordingly, the Company cannot predict whether its products can be marketed and sold in a commercial manner.
Reliance upon third parties.
The Company does not intend on maintaining a significant technical staff nor does it intend on manufacturing its products. Rather it will rely heavily on consultants, contractors, and manufacturers to design, develop and manufacture its products. Accordingly, there is no assurance that such third parties will be available when needed at affordable prices.
Protection of intellectual property.
The success of the Company will be dependent, in part, upon the protection of its various proprietary technologies from competitive use. Certain of its technologies are the subject of various patents in varying jurisdictions. In addition to the patent applications, the Company relies on a combination of trade secrets, nondisclosure agreements and other contractual provisions to protect its intellectual property rights. Nevertheless, these measures may be inadequate to safeguard the Company’s underlying technologies. If these measures do not protect the intellectual property rights, third parties could use the Company’s technologies, and its ability to compete in the market would be reduced significantly.
In the future, the Company may be required to protect or enforce its patents and patent rights through patent litigation against third parties, such as infringement suits or interference proceedings. These lawsuits could be expensive, take significant time, and could divert management’s attention from other business concerns. These actions could put the Company’s patents at risk of being invalidated or interpreted narrowly, and any patent applications at risk of not issuing. In defense of any such action, these third parties may assert claims against the Company. The Company cannot provide any assurance that it will have sufficient funds to vigorously prosecute any patent litigation, that it will prevail in any of these suits, or that the damages or other remedies awarded, if any, will be commercially valuable. During the course of these suits, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation, which could result in the negative perception by investors, which could cause the price of the Company’s common stock to decline dramatically.
Risks Related to this Offering
We are a shell company pursuant to Rule 405 of the Securities Act. This may impact our ability to attract additional capital.
We have no assets and our operations appear to have been primarily organizational since we discontinued previous operations in 2016. We are a shell company pursuant to Rule 405 of the Securities Act. The consequences of shell company status may affect our ability attract additional capital. Under SEC Rule 144 restricted and control securities may be resold in reliance on Rule 144 unless and until the company has has ceased to be a shell company, is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act, has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, during the preceding 12 months and has filed current “Form 10 information” with the SEC reflecting its status as an entity. When these conditions are satisfied, then those securities may be sold subject to the requirements Rule 144 after one year has elapsed from the date that the issuer filed “Form 10 information” with the SEC.
The unavailability of Rule 144 may affect our ability to attract additional capital as investors may not be willing to purchase restricted or control securities unless they can sell under Rule 144.
There has been a limited public market for our Common Stock prior to this Offering, and an active market in which investors can resell their shares may not develop.
Prior to this Offering, there has been a limited public market for our Common Stock. We cannot predict the extent to which an active market for our Common Stock will develop or be sustained after this Offering, or how the development of such a market might affect the market price of our Common Stock. The initial offering price of our Common Stock in this Offering will be agreed between us and the underwriters based on a number of factors, including market conditions in effect at the time of the Offering, and it may not be in any way indicative of the price at which our shares will trade following the completion of this Offering. Investors may not be able to resell their shares at or above the initial offering price.
Investors in this Offering will experience immediate and substantial dilution.
If all of the shares offered hereby are sold, investors in this Offering will own 26.18% of the then outstanding shares of all classes of common stock, resulting in a dilution of $0.039 per share to investors in this offering. Please see “Dilution” for further information.
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The market price of our Common Stock may fluctuate, and you could lose all or part of your investment.
The offering price for our Common Stock will be set by us based on a number of factors and may not be indicative of prices that will prevail on OTC Markets “PINK” or elsewhere following this Offering. The price of our Common Stock may decline following this Offering. The stock market in general, and the market price of our Common Stock will likely be subject to fluctuation, whether due to, or irrespective of, our operating results, financial condition and prospects.
Our financial performance, our industry’s overall performance, changing consumer preferences, technologies and advertiser requirements, government regulatory action, tax laws and market conditions in general could have a significant impact on the future market price of our Common Stock. Some of the other factors that could negatively affect our share price or result in fluctuations in our share price include:
| ● | actual or anticipated variations in our periodic operating results; |
| ● | changes in earnings estimates; |
| ● | changes in market valuations of similar companies; |
| ● | actions or announcements by our competitors; |
| ● | adverse market reaction to any increased indebtedness we may incur in the future; |
| ● | additions or departures of key personnel; |
| ● | actions by stockholders; |
| ● | speculation in the press or investment community; and |
| ● | our intentions and ability to list our Common Stock on a national securities exchange and our subsequent ability to maintain such listing. |
We do not expect to declare or pay dividends in the foreseeable future.
We do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our business. Therefore, holders of our Common Stock will not receive any return on their investment unless they sell their securities, and holders may be unable to sell their securities on favorable terms or at all.
Our financial statements are unaudited and have not been reviewed by an independent accountant.
Management has prepared the Company’s financial statements. These statements have not been audited. No independent accountant has reviewed these financial statements.
Because we do not have an audit or compensation committee, shareholders will have to rely on our directors, none of whom is not independent, to perform these functions.
We do not have an audit or compensation committee comprised of an independent director. Indeed, we do not have any audit or compensation committee. The Board of Directors performs these functions as a whole. No members of the Board of Directors are an independent director. Thus, there is a potential conflict in that board members who are also part of management will participate in discussions concerning management compensation and audit issues that may affect management decisions.
Because we lack certain internal controls over financial reporting in that we do not have an audit committee and our Board of Directors has no technical knowledge of U.S. GAAP and internal control of financial reporting and relies upon the Company’s financial personnel to advise the Board on such matters, we are subject to increased risk related to financial statement disclosures.
We lack certain internal controls over financial reporting in that we do not have an audit committee and our Board of Directors has no technical knowledge of U.S. GAAP and internal control of financial reporting and relies upon the Company’s financial personnel to advise the Board on such matters. Accordingly, we are subject to increased risk related to financial statement disclosures.
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Our control shareholder holds a significant percentage of our outstanding voting securities, which could reduce the ability of minority shareholders to effect certain corporate actions.
Our control shareholder is the beneficial owner of 60,606,335 shares of common stock, 60,000 shares of Series D preferred stock and 25,000 shares of Series G preferred stock, which controls 90.32% of the voting securities prior to the Offering and 87.31% of our outstanding voting securities after the Offering, assuming all 5,000,000,000 shares of common stock in this Offering are sold. As a result of this ownership, he possesses and can continue to possess significant influence and can elect and can continue to elect a majority of our Board of Directors and authorize or prevent proposed significant corporate transactions. His ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.
Upon completion of this offering, we will not be subject to the current and periodic reporting requirements.
As a Regulation A, Tier 1 issuer, you will not be subject to the periodic and current reporting requirements under Rule 257(b) of Regulation A.
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The preparation of our consolidated financial statements involves the use of estimates, judgments and assumptions, and our consolidated financial statements may be materially affected if such estimates, judgments or assumptions prove to be inaccurate.
Financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) typically require the use of estimates, judgments and assumptions that affect the reported amounts. Often, different estimates, judgments and assumptions could reasonably be used that would have a material effect on such financial statements, and changes in these estimates, judgments and assumptions may occur from period to period over time. Significant areas of accounting requiring the application of management’s judgment include, but are not limited to, determining the fair value of assets and the timing and amount of cash flows from assets. These estimates, judgments and assumptions are inherently uncertain and, if our estimates were to prove to be wrong, we would face the risk that charges to income or other financial statement changes or adjustments would be required. Any such charges or changes could harm our business, including our financial condition and results of operations and the price of our securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our consolidated financial statements and our business.
If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our Common Stock could be negatively affected.
Any trading market for our Common Stock will be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our Common Stock could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage or us, the market price and market trading volume of our Common Stock could be negatively affected.
Future issuances of our Common Stock or securities convertible into our Common Stock, or the expiration of lock-up agreements that restrict the issuance of new Common Stock or the trading of outstanding stock, could cause the market price of our Common Stock to decline and would result in the dilution of your shareholding.
Future issuances of our Common Stock or securities convertible into our Common Stock, and/or conversion of the Notes convertible into Common Stock, or the expiration of lock-up agreements that restrict the sale of Common Stock by selling shareholders, or the trading of outstanding stock, could cause the market price of our Common Stock to decline. We cannot predict the effect, if any, of the exercise of conversion of the Notes into Common Stock or other future issuances of our Common Stock or securities convertible into our Common Stock, or the future expirations of lock-up agreements, on the price of our Common Stock. In all events, future issuances of our Common Stock would result in the dilution of your shareholding. In addition, the perception that locked-up parties will sell their securities when the lock-ups expire, could adversely affect the market price of our Common Stock.
Our shares are subject to the penny stock rules, making it more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If the price of our Common Stock is less than $5.00, our Common Stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our Common Stock, and therefore stockholders may have difficulty selling their shares.
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Our management has broad discretion as to the use of certain of the net proceeds from this Offering.
We intend to use up to $400,000 of the net proceeds from this Offering (if we sell all of the shares being offered) for working capital and other general corporate purposes. However, we cannot specify with certainty the particular uses of such proceeds. Our management will have broad discretion in the application of the net proceeds designated for use as working capital or for other general corporate purposes. Accordingly, you will have to rely upon the judgment of our management with respect to the use of these proceeds. Our management may spend a portion or all of the net proceeds from this Offering in ways that holders of our Common Stock may not desire or that may not yield a significant return or any return at all. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may also invest the net proceeds from this Offering in a manner that does not produce income or that loses value. Please see “Use of Proceeds” below for more information.
Cautionary Statement Regarding Forward-Looking Statements
This Offering Circular contains various “forward-looking statements.” You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “would,” “could,” “should,” “seeks,” “approximately,” “intends,” “plans,” “projects,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. These statements may be impacted by a number of risks and uncertainties.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our Securities. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Risk Factors.”
If we sell all of the shares being offered, our net proceeds (after our estimated offering expenses of $1,000,000) will be $9,000,000. We will use these net proceeds for:
| If 5,000,000,000 Shares (100%) are sold: | ||||
| Planned Actions | Estimated Cost to Complete | |||
| Licensing and Patent Fees | 300,000 | |||
| Facility Payments | 500,000 | |||
| Organic Waste Process Development | 380,000 | |||
| Carbon Nanotube Process Development | 380,000 | |||
| Hydrogen Process Development | 500,000 | |||
| Salaries, Admin, Acct, Legal, SEC, Regulatory | 600,000 | |||
| Marketing and Sales | 300,000 | |||
| Acquire Assets | 2,880,000 | |||
| Working capital | 3,160,000 | |||
| Commissions and Underwriting Fees | 1,000,000 | |||
| TOTAL | $ | 10,000,000 | ||
| If 3,750,000,000 Shares (75%) are sold: | ||||
| Planned Actions | Estimated Cost to Complete | |||
| Licensing and Patent Fees | 260,000 | |||
| Facility Payments | 430,000 | |||
| Organic Waste Process Development | 360,000 | |||
| Carbon Nanotube Process Development | 360,000 | |||
| Hydrogen Process Development | 450,000 | |||
| Salaries, Admin, Acct, Legal, SEC, Regulatory | 550,000 | |||
| Marketing and Sales | 250,000 | |||
| Acquire Assets | 1,680,000 | |||
| Working capital | 2,410,000 | |||
| Commissions and Underwriting Fees | 750,000 | |||
| TOTAL | $ | 7,500,000 | ||
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| If 2,500,000,000 Shares (50%) are sold: | ||||
| Planned Actions | Estimated Cost to Complete | |||
| Licensing and Patent Fees | 220,000 | |||
| Facility Payments | 360,000 | |||
| Organic Waste Process Development | 340,000 | |||
| Carbon Nanotube Process Development | 340,000 | |||
| Hydrogen Process Development | 400,000 | |||
| Salaries, Admin, Acct, Legal, SEC, Regulatory | 500,000 | |||
| Marketing and Sales | 200,000 | |||
| Acquire Assets | 1,200,000 | |||
| Working capital | 940,000 | |||
| Commissions and Underwriting Fees | 500,000 | |||
| TOTAL | $ | 5,000,000 | ||
| If 1,250,000,000 Shares (25%) are sold: | ||||
| Planned Actions | Estimated Cost to Complete | |||
| Licensing and Patent Fees | 100,000 | |||
| Facility Payments | 180,000 | |||
| Organic Waste Process Development | 300,000 | |||
| Carbon Nanotube Process Development | 300,000 | |||
| Hydrogen Process Development | 100,000 | |||
| Salaries, Admin, Acct, Legal, SEC, Regulatory | 300,000 | |||
| Marketing and Sales | 120,000 | |||
| Acquire Assets | 600,000 | |||
| Working capital | 250,000 | |||
| Commissions and Underwriting Fees | 250,000 | |||
| TOTAL | $ | 2,500,000 | ||
The precise amounts that we will devote to each of the foregoing items, and the timing of expenditures, will vary depending on numerous factors.
As indicated in the table above, if we sell only 25% or 50% of the shares offered for sale in this Offering, we would expect to use the resulting net proceeds for the same purposes as we would use the net proceeds from a sale of 100% of the shares, and in approximately the same proportions, until such time as such use of proceeds would leave us without working capital reserve. At that point we would expect to modify our use of proceeds by limiting our expansion, leaving us with the working capital reserve indicated.
The expected use of net proceeds from this Offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve and change. The amounts and timing of our actual expenditures, specifically with respect to working capital, may vary significantly depending on numerous factors. The precise amounts that we will devote to each of the foregoing items, and the timing of expenditures, will vary depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this Offering.
In the event we do not sell all of the shares being offered, we may seek additional financing from other sources in order to support the intended use of proceeds indicated above. If we secure additional equity funding, investors in this Offering would be diluted. In all events, there can be no assurance that additional financing would be available to us when wanted or needed and, if available, on terms acceptable to us.
If you purchase shares in this Offering, your ownership interest in our Common Stock will be diluted immediately, to the extent of the difference between the price to the public charged for each share in this Offering and the net tangible book value per share of our Common Stock after this Offering.
Our historical net tangible book value as of June 30, 2021 was $(93,793,312) or $(0.0067) per then-outstanding share of our Common Stock. Historical net tangible book value per share equals the amount of our total tangible assets less total liabilities, divided by the total number of shares of our Common Stock outstanding, all as of the date specified.
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The following table illustrates the per share dilution to new investors discussed above, assuming the sale of, respectively, 100%, 50% and 25% of the shares offered for sale in this Offering (after deducting estimated offering expenses of $1,000,000, $500,000 and $250,000, respectively):
| Percentage of shares offered that are sold | 100% | 50% | 25% | |||||||||
| Price to the public charged for each share in this Offering | $ | 0.002 | $ | 0.002 | 0.002 | |||||||
| Historical net tangible book value per share as of June 30, 2021 (1) | (0.0067 | ) | (0.0067 | ) | (0.0067 | ) | ||||||
| Increase in net tangible book value per share attributable to new investors in this Offering (2) | $ | 0.0023 | $ | 0.0013 | $ | 0.0007 | ||||||
| Net tangible book value per share, after this Offering | $ | (0.0044 | ) | $ | (0.0054 | ) | $ | (0.0060 | ) | |||
| Dilution per share to new investors | $ | 0.0064 | $ | 0.0074 | $ | 0.0080 |
| (1) | Based on net tangible book value as of June 30, 2021 of $(93,793,312) and 14,102,057,165 outstanding shares of Common stock. |
| (2) | After deducting estimated offering expenses of $1,000,000, $500,000 and $250,000, respectively. |
Future Dilution
Dilution may also result from future actions by our Company, and specifically from any increase in the number of shares of the Company’s capital stock outstanding resulting from a stock offering (such as a public offering, a crowdfunding round, a venture capital round or an angel investment), employees exercising stock options, or conversion of certain instruments (such as convertible bonds, preferred shares or warrants) into stock.
If we decide to issue more shares, an investor could experience value dilution, with each share being worth less than before, and control dilution, with the total percentage an investor owns being less than before. There may also be earnings dilution, with a reduction in the amount earned per share (though this typically occurs only if we offer dividends, and most early-stage companies are unlikely to offer dividends, preferring to invest any earnings into the Company).
Dilution might also happen upon conversion of convertible notes into shares. Typically, the terms of convertible notes issued by early-stage companies provide that in the event of another round of financing, the holders of the convertible notes get to convert their notes into equity at a “discount” to the price paid by the new investors, i.e., they get more shares than the new investors would for the same price. Additionally, convertible notes may have a “price cap” on the conversion price, which effectively acts as a share price ceiling. Either way, the holders of the convertible notes get more shares for their money than new investors. In the event that the financing is a “down round” the holders of the convertible notes will dilute existing equity holders, and even more than the new investors do, because they get more shares for their money. Investors should pay careful attention to the amount of convertible notes that the company has issued (and may issue in the future), and the terms of those notes.
If you are making an investment expecting to own a certain percentage of our Company or expecting each share to hold a certain amount of value, it’s important to realize how the value of those shares can decrease by actions taken by us. Dilution can make drastic changes to the value of each share, ownership percentage, voting control, and earnings per share.
Percentage Ownership Including All Shares Issued and Outstanding
| Share Structure | Number of Shares Beneficially Owned | Percent of Class Before Offering | Percent of Class After Offering | |||||||||
| Shares outstanding prior to offering | 14,102,057,165 | 100.00 | % | 73.82 | % | |||||||
| Shares offered in offering | 5,000,000,000 | 0 | % | 26.18 | % | |||||||
| Total shares (a) | 19,102,057,165 | 100.00 | % | 100.00 | % | |||||||
| (a) | Total shares outstanding after the offering equals 19,102,057,165 and assumes that all shares in the offering are sold. |
This Offering Circular is part of an Offering Statement that we filed with the SEC, using a continuous offering process. Periodically, as we have material developments, we will provide an Offering Circular supplement that may add, update or change information contained in this Offering Circular. Any statement that we make in this Offering Circular will be modified or superseded by any inconsistent statement made by us in a subsequent Offering Circular supplement. The Offering Statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this Offering Circular. You should read this Offering Circular and the related exhibits filed with the SEC and any Offering Circular supplement, together with additional information contained in our annual reports, semi-annual reports and other reports and information statements that we will file periodically with the SEC. See the section entitled “Additional Information” below for more details.
Exchange Listing
Our Common Stock is quoted on the OTC Markets’ “PINK” under the symbol “COWI.”
Pricing of the Offering
Prior to the Offering, there has been a limited public market for the Offered Shares. The initial public offering price was determined by us. The principal factors considered in determining the initial public offering price include:
| ● | the information set forth in this Offering Circular and otherwise available; |
| ● | our history and prospects and the history of and prospects for the industry in which we compete; |
| ● | our past and present financial performance; |
| ● | our prospects for future earnings and the present state of our development; |
| ● | the general condition of the securities markets at the time of this Offering; |
| ● | the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
| ● | other factors deemed relevant by us. |
Offering Period and Expiration Date
This Offering will start on or after the Qualification Date and will terminate if the Maximum Offering is reached or, if it is not reached, on the Termination Date.
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Procedures for Subscribing
When you decide to subscribe for Offered Shares in this Offering, you should:
Go to www.minivest.com, click on the “Invest Now” button and follow the procedures as described.
| 1. | Electronically receive, review, execute and deliver to us a subscription agreement; and |
| 2. | Deliver funds directly by wire or electronic funds transfer via ACH to the specified account maintained by us. |
Any potential investor will have ample time to review the subscription agreement, along with their counsel, prior to making any final investment decision. We shall only deliver such subscription agreement upon request after a potential investor has had ample opportunity to review this Offering Circular.
Right to Reject Subscriptions. After we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been transferred to the escrow account, we have the right to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest or deduction.
Acceptance of Subscriptions. Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares subscribed at closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted subscription agreements are irrevocable.
Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).
NOTE: For the purposes of calculating your net worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase of the Offered Shares.
In order to purchase offered Shares and prior to the acceptance of any funds from an investor, an investor will be required to represent, to the Company’s satisfaction, that he is either an accredited investor or is in compliance with the 10% of net worth or annual income limitation on investment in this Offering.
No Selling Security holders
There are no selling security holders in this Offering.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and the notes thereto appearing elsewhere in this Offering Circular. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors”, “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere in this Offering Circular. Please see the notes to our Financial Statements for information about our Critical Accounting Policies and Recently Issued Accounting Pronouncements.
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Management’s Discussion and Analysis
As used herein, the terms the “Company,” “CoroWare” “we,” “us,” “our” and similar refer to CoroWare, Inc., a publicly quoted shell corporation incorporated on July 15, 2002 under the laws of the State of Delaware as weComm, Ltd. On August 20, 2002, the Company filed an Amendment to its Articles of Incorporation changing the name of the corporation to SRM Networks, Inc. In connection with the acquisition of Hy-Tech Computer Systems, Inc. on January 31, 2003, the Company changed its name to Hy-Tech Technology Group, Inc. In connection with the Agreement and Plan of Merger Robotics Workspace Technology, Inc., Innova Holdings, Inc. and the Company’s wholly owned subsidiary, RWT Acquisition, Inc., dated July 21, 2004, the Company’s named changed to Innova Holdings, Inc. Subsequently, on November 20, 2006, the Company changed its name to Innova Robotics and Automation, Inc. and then on April 23, 2008, the Company changed its name to CoroWare, Inc.
The Company has six wholly-owned subsidiaries: CoroWare Technologies, Inc. (“CTI”), CoroWare Robotics Solutions, Inc. (“CRS”), RWT Acquisition, Inc. (“RWT”), Carbon Sources, Inc. (“CS”), CoroWare Treasury, Inc. (“CWT”), CarbonMeta Research, Ltd. (“CM”) and a 51% interest in AriCon, LLC (“AriCon).
CoroWare Technologies (“CTI”) was incorporated in the State of Florida on May 16, 2006 and its principal business was a software professional services company with a strong focus on information technology integration and robotics integration, business automation solutions, and unmanned systems solutions to its customers in North America and Europe.
CoroWare Robotics Solutions, Inc. (“CRS”) was incorporated in the State of Texas on February 27, 2015, and its principal business was as a technology incubation company whose focus was on the delivery of mobile robotics and IOT products, solutions and services for university, government and corporate researchers, and enterprise customers. CRS’s business operations were discontinued in October 2016 when the Company’s gross margins and financing costs became unsustainable.
Robotic Workspace Technologies, Inc. (“RWT”) was incorporated in the State of Florida on July 1, 1994, and its principal business was developing and marketing open-architecture PC controls and related products that could improve the performance, applicability, and productivity of robots and other automated equipment. RWT’s business operations were discontinued in September 2007 when the Company’s losses became unsustainable.
AriCon, LLC (“AriCon) was a joint venture that was intended to develop mobile robot platforms, applications, and solutions for the construction industry. In October 2016, AriCon ceased operations of all subsidiary business operations when the Company’s losses became unsustainable, and the Company was not able to obtain investment financing.
Carbon Source, Inc. (“CS”) was incorporated in the State of Wyoming on June 14, 2021 and its principal business is waste reclamation technologies and processing.
CoroWare Treasury, Inc. (“CWT”) was incorporated in the State of Wyoming on July 6, 2021 and its principal business is acquisitions related to acquiring technologies and subsidiary businesses related to waste processing.
CarbonMeta Research Ltd. (“CM”) was incorporated in England and Wales on August 12, 2021 and will be responsible for researching and prototyping technologies that convert organic waste materials into higher-value products like carbon nanotubes and hydrogen.
In 2021, the Company began investigating emerging technologies, strategic intellectual property partnerships, and sustainable growth business opportunities related to the production of hydrogen and high value carbon products from organic waste streams. Working cooperatively with Oxford University Innovation, CoroWare plans to implement proven and patented technologies to add value to organic waste streams. By utilizing these proven proprietary technologies, collected and captured plastic waste material can be upcycled to high value products such as carbon nanotubes (“CNTs”) and hydrogen gas.
CNTs can be used for improved electrical conduction and reinforcing materials that are used in a wide variety of industries including the automotive industry, aviation industry, medical industry, and construction. The number one growth driver is the increasing need for high performance batteries for the electric vehicle market.
The global hydrogen market is expected to more than double by the end of the decade. Plastic waste is a cheap and abundant feedstock that will allow the Company to scale quickly and produce hydrogen gas for a competitive price.
Plan of Operation for the Next Twelve Months
The Company believes that the proceeds of this Offering will satisfy its cash requirements for the next twelve months. To complete the Company’s entire development plan, it may have to raise additional funds in the next twelve months.
The Company may make significant changes in the number of employees at the corporate level, as well as retaining the services of software developers as contract labor or employees.
Investments. The Company intends to make substantial investment in processing organic waste into higher value carbon and hydrogen products either through licensing technologies, acquisitions, joint ventures, retaining engineers or a combination thereof.
Marketing and sales. The Company will incur substantial marketing and sales expenses which will consist primarily of salaries, and benefits for employees engaged in sales, sales support, marketing, business development, and customer service functions. Our marketing and sales expenses also include marketing and promotional expenditures.
Cost of revenue. The Company expects that the cost of revenue for its operations will consist primarily of expenses associated with the acquisition of capital equipment, development of proprietary techn9ologies and engineering processes for processing organic waste into higher value carbon and hydrogen products, and the distribution of carbon and hydrogen products. These include expenses related to providing products and services and salaries and benefits for employees on our operations teams.
Research and development. The Company will continue to engage in research and development expenses. These will consist primarily of salaries, and benefits for employees who are responsible for building new products as well as improving existing products. We will expense all of our research and development costs as they are incurred.
General and administrative. The majority of our general and administrative expenses will consist of salaries, benefits, and share-based compensation for certain of our executives as well as our legal, finance, human resources, corporate communications and policy employees, and other administrative employees. In addition, general and administrative expenses include professional and legal services. The Company expects to incur substantial expenses in marketing the current Offering, in closing sales, and in promoting and managing its operations.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2021 COMPARED TO THREE MONTHS ENDED JUNE 30, 2020
During the three months ended June 30, 2021, revenues were $- compared to revenues of $- during the three months ended June 30, 2020. The Company had no operations during the periods presented.
Cost of sales were $- and $- for the three months ended June 30, 2021 and 2020. Cost of goods sold primarily represents labor and labor-related costs in addition to overhead costs.
Gross profits were $- during the three months ended June 30, 2021 compared to $- during the three months ended June 30, 2020.
Operating expenses were $(251,236) for the three months ended June 30, 2021 compared to $37,500 for the three months ended June 30, 2020. General and administrative expenses amounted to $(251,236) and $37,500 during the three months ended June 30, 2021 and 2020, respectively
Income (loss) from operations was $251,236 for the three months ended June 30, 2021 compared to $(37,500) for the three months ended June 30, 2020.
Other income (expenses) was $(43,580,304) during the three months ended June 30, 2021 compared to $265,174 for the three months ended June 30, 2020, a decrease of $(43,845,478) or 16,434.61%. Other expenses is comprised primarily of gain/loss on derivative liabilities and interest expense. The change in derivative liabilities for the three months ended June 30, 2021 was $(43,365,798) compared to $554,949 for the three months ended June 30, 2020, a decrease of $(43,920,747) or 7,914.38%. The embedded conversion features associated with our convertible debentures are valued based on the number of shares that are indexed to that liability. Keeping the number of shares constant, the liability associated with the embedded conversion features increases as our share price increases and, likewise, decreases when our share price decreases. Derivative income (expense) displays the inverse relationship. Interest expense, net for the three months ended June 30, 2021 was $214,506 compared to $289,775 for the three months ended June 30, 2020, a decrease of $75,269 or 25.97%. The increase in interest expense is principally a result of an increase in accrued interest on convertible debt and notes payable.
Net income (loss) for the three months ended June 30, 2021 was $(43,329,068) compared to net income of $227,674 for the three months ended June 30, 2020, a decrease of $43,556,742 or 19,131.19%. The decrease in net income is primarily a result of the change in derivative liabilities.
SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020
During the six months ended June 30, 2021, revenues were $- compared to revenues of $- during the six months ended June 30, 2020. The Company had no operations during the periods presented.
Cost of sales were $- and $- for the six months ended June 30, 2021 and 2020. Cost of goods sold primarily represents labor and labor-related costs in addition to overhead costs.
Gross profits were $- during the six months ended June 30, 2021 compared to $- during the six months ended June 30, 2020.
Operating expenses were $(213,736) for the six months ended June 30, 2021 compared to $75,000 for the six months ended June 30, 2020. General and administrative expenses amounted to $(213,735) and $75,000 during the six months ended June 30, 2021 and 2020, respectively
Income (loss) from operations was $213,736 for the six months ended June 30, 2021 compared to $(75,000) for the six months ended June 30, 2020.
Other income (expenses) was $(49,880,221) during the six months ended June 30, 2021 compared to other income (expenses) of $(1,171,268) in the six months ended June 30, 2020, an increase of $(48,708,953) or 4,158.65%. Other expenses are comprised primarily of gain/loss on derivative liabilities and interest expense. The change in derivative liabilities for the six months ended June 30, 2021 was $(49,360,801) compared to $(600,942) for the six months ended June 30, 2020, a decrease of $(48,759,859) or 8,113.90%. The embedded conversion features associated with our convertible debentures are valued based on the number of shares that are indexed to that liability. Keeping the number of shares constant, the liability associated with the embedded conversion features increases as our share price increases and, likewise, decreases when our share price decreases. Derivative income (expense) displays the inverse relationship. Interest expense, net for the six months ended June 30, 2021 was $(519,420) compared to $(570,326) for the six months ended June 30, 2020, a decrease of $50,906 or 9.80%. The decrease in interest expense is principally a result of settlement agreements reached with some of the note holders.
Net income (loss) for the six months ended June 30, 2021 was $(49,666,485) compared to $(1,246,268) for the six months ended June 30, 2020, a decrease of $(48,420,217) or 3,885.22%. The decrease in net income is primarily a result of the change in derivative liabilities.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2021 net cash used in operating activities was $(2,475) compared to $(4,533) of net cash used in operating activities for the six months ended June 30, 2020. This decrease for the six months ended June 30, 2021 was primarily due to an increase in net loss and an increase in change in derivative liability.
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During the six months ended June 30, 2021, we used $- net cash from investing activities compared to $- for the three months ended June 30, 2020.
During the six months ended June 30, 2021, the Company provided $2,475 cash from financing activities compared to net cash provided by financing activities of $4,533 for the six months ended June 30, 2020. The decrease in cash provided from financing activities was primarily due to a decrease in proceeds from obligations collateralized by receivables.
At June 30, 2021, we had current assets of $-, current liabilities of $89,823,012, a working capital deficit of $89,823,012 and an accumulated deficit of $122,851,060.
At December 31, 2020, we had current assets of $-, current liabilities of $40,196,559, a working capital deficit of $40,196,559 and an accumulated deficit of $73,184,575.
We presently have limited and expensive available credit, and do not have bank financing or other external sources of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding. We will still need additional capital in order to continue operations until we are able to achieve positive operating cash flow. Additional capital is being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity, or capital expenditures.
CONTRACTUAL OBLIGATIONS
The following table sets forth the contractual obligations of the Company as of June 30, 2021:
| Payments due by Period | ||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than5 years | |||||||||||||||
| Obligations collateralized by receivables | $ | 298,286 | $ | 298,286 | $ | - | $ | - | $ | - | ||||||||||
| Convertible debt | 4,532,479 | 4,532,479 | - | - | - | |||||||||||||||
| Notes payable | 136,123 | 136,123 | - | - | - | |||||||||||||||
| Notes payable, related parties | 157,854 | 157,854 | - | - | - | |||||||||||||||
| Small Business Administration loan | 979,950 | 979,950 | - | - | - | |||||||||||||||
| $ | 6,104,692 | $ | 6,104,692 | $ | - | $ | - | $ | - | |||||||||||
YEAR ENDED DECEMBER 31, 2020 COMPARED TO YEAR ENDED DECEMBER 31, 2019
During the year ended December 31, 2020, revenues were $- compared to revenues of $- during the year ended December 31, 2019. For the years ended December 31, 2020 and 2019, the Company had no operations.
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Cost of goods sold was $- and $- for the years ended December 31, 2020 and 2019, respectively. Cost of goods sold primarily represents labor and labor-related costs in addition to overhead costs.
Gross profits were $- and $- for the years ended December 31, 2020 and 2019, respectively.
Operating expenses were $150,000 for the year ended December 31, 2020 compared to $150,000 for the year ended December 31, 2019. General and administrative expenses amounted to $150,000 during the year ended December 31, 2020 compared to $150,000 for the year ended December 31, 2019.
Income (loss) from operations was $(150,000) for the year ended December 31, 2020 compared to $(150,000) for the year ended December 31, 2019.
Other income (expenses) was $(11,579,741) during the year ended December 31, 2020 compared to other income of $10,181,946 in the year ended December 31, 2019, a decrease of $21,761,687 or 213.7%. Other expenses is comprised primarily of gain/loss on derivative, and interest expense. The change in derivative liabilities for the year ended December 31, 2020 was $(10,401,880) compared to $11,286,929 for the year ended December 31, 2019, a decrease of $21,688,810 or 192.2%. The embedded conversion features associated with our convertible debentures are valued based on the number of shares that are indexed to that liability. Keeping the number of shares constant, the liability associated with the embedded conversion features increases as our share price increases and, likewise, decreases when our share price decreases. Derivative income (expense) displays the inverse relationship. Interest expense, net for the year ended December 31, 2020 was $(1,177,860) compared to $(1,104,983) for the year ended December 31, 2019, an increase of $72,877 or 6.6%.
Net (loss) for the year ended December 31, 2020 was $(11,729,741) compared to net income of $10,031,946 for the year ended December 31, 2019, a decrease of $(21,761,687) or 216.9%.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 2020 net cash used in operating activities was $4,803, compared to net cash used in operating activities of $4,533 for the year ended December 31, 2019. This increase for the year ended December 31, 2020 was primarily due to an increase in net loss, an increase in derivative expense and a decrease in accounts payable and accrued expenses.
During the year ended December 31, 2020, we used $- net cash from investing activities compared to $- for the year ended December 31, 2019.
During the year ended December 31, 2020, the Company provided $4,803 in cash from financing activities compared to net cash provided by financing activities of $4,533 for the year ended December 31, 2019. The increase in cash from financing activities was primarily due to proceeds from obligations collateralized by receivables.
At December 31, 2020, we had current assets of $-, current liabilities of $40,196,559, a working capital deficit of $40,196,559 and an accumulated deficit of $73,184,575.
At December 31, 2019, we had current assets of $-, current liabilities of $28,466,819, a working capital deficit of $28,466,819 and an accumulated deficit of $61,454,835.
Derivative Financial Instruments
Derivative financial instruments, as defined in FASB ASC 815, Derivatives and Hedging (“ASC 815”), 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 various convertible note financings and (ii) the fair values of the detachable warrants that were issued in connection with those financing arrangements.
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 ASC 815, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements.
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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.
Recent Financing Transactions
Notes Payable
For the six months ended June 30, 2021 and years ended December 31, 2020 and 2019, the Company issued no new notes payable.
As of June 30, 2021 and December 31, 2020 and 2019 the Company had an aggregate total of $136,123, $136,123 and $136,123, respectively, in notes payable. These notes bear interest at rates ranging from 5% per annum to 41.6% per annum. As of June 30, 2021, all notes payable were in default. Accrued interest on notes payable totaled $510,298, $464,592 and $383,915 at June 30, 2021, December 31, 2020 and 2019, respectively.
Notes Payable Related Parties
For the six months ended June 30, 2021 and years ended December 31, 2020 and 2019, the Company issued no new notes payable to related parties.
As of June 30, 2021 and December 31, 2020 and 2019, the Company had an aggregate total of $157,854, $157,854 and $157,854, respectively, in related party notes payable. These notes bear simple interest at 10%-18% per annum, with default simple interest of 10%-24% per annum. As of June 30, 2021, all notes payable to related parties were in default. Accrued interest on related party notes payable totaled $408,141, $390,342 and $353,699 at June 30, 2021 and December 31, 2020 and 2019, respectively.
Convertible Notes Payable
For the six months ended June 30, 2021 and years ended December 31, 2020 and 2019, the Company issued no new convertible notes payable. Please see NOTE 18 – SUBSEQUENT EVENTS of the Company’s financial statements for the six months ended June 30, 2021 for further information.
As of June 30, 2021, December 31, 2020 and 2019 the Company had an aggregate principal balance total of $4,532,479, $4,549,479 and $4,549,479, respectively, in convertible notes payable. These notes bear interest at rates ranging from 0% per annum to 36% per annum. As of June 30, 2021, all convertible notes payable were in default. Accrued interest on convertible notes payable totaled $5,881,383, $5,471,389 and $4,456,819 at June 30, 2021, December 31, 2020 and 2019, respectively. Please see NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET of the Company’s financial statements for the six months ended June 30, 2021 for further information.
Obligations Collateralized by Receivables
For the six months ended June 30, 2021 and years ended December 31, 2020 and 2019, the Company did not enter into any new obligations collateralized by receivables.
On July 16, 2015, the Company entered into an accounts receivable financing arrangement with Knight Capital for a principal amount received in cash of $173,500. The terms of the arrangement require the Company to repay the principal balance plus an additional $52,050 in debt discounts for total remittance of $225,550. The terms of repayment require the Company to remit to the lender approximately 30%t of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $52,050 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $76,317.
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On August 17, 2015, the Company entered into an accounts receivable financing arrangement with QuickFix Capital for a principal amount received in cash of $70,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $32,200 in debt discounts for total remittance of $102,200. The terms of repayment require the Company to remit to the lender approximately 46% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $32,200 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $48,907.
On January 18, 2016, the Company entered into an accounts receivable financing arrangement with Power Up Lending Group, Ltd. for a principal amount received in cash of $120,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $48,000 in debt discounts for total remittance of $168,000. The terms of repayment require the Company to remit to the lender approximately 39% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $48,000 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $14,232.
On April 12, 2016, the Company entered into an accounts receivable financing arrangement with Power Up Lending Group, Ltd. for a principal amount received in cash of $75,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $30,000 in debt discounts for total remittance of $105,000. The terms of repayment require the Company to remit to the lender approximately 39% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $30,000 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $67,645.
On April 28, 2016, the Company entered into an accounts receivable financing arrangement with Power Up Lending Group, Ltd. for a principal amount received in cash of $55,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $19,250 in debt discounts for total remittance of $74,250. The terms of repayment require the Company to remit to the lender approximately 39% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $19,250 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $29,696.
On June 6, 2016, the Company entered into an accounts receivable financing arrangement with Power Up Lending Group, Ltd. for a principal amount received in cash of $35,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $14,700 in debt discounts for total remittance of $49,700. The terms of repayment require the Company to remit to the lender approximately 39% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $14,700 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $45,756.
Small Business Administration
On April 17, 2002, the Company borrowed $989,100 under a note agreement with the Small Business Administration. The note bears interest at 4% and is secured by the equipment and machinery assets of the Company. The balance outstanding at June 30, 2021and December 31, 2020 was $979,950 and $979,950, respectively. The note calls for monthly installments of principal and interest of $4,813 beginning September 17, 2002 and continuing until April 17, 2032.
The Company and the Small Business Administration reached an agreement in November 2010, whereby the Small Business Administration would accept $500 per month for 12 months with payment reverting back to $4,813 in November 2011. The Company only made four payments under the modification agreement. The Company continues to carry the loan as a current term liability because current payments are not being made, resulting in a default. Accrued interest payable on the note totaled $673,539, $654,101 and $614,903 as of June 30, 2021, December 31, 2020 and December 31, 2019, respectively.
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Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of our business, we are not exposed to market risk of the sort that may arise from changes in interest rates or foreign currency exchange rates, or that may otherwise arise from transactions in derivatives.
The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the fair value of the Company’s common stock, stock-based compensation, the recoverability and useful lives of long-lived assets, and the valuation allowance relating to the Company’s deferred tax assets.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Upon completion of this offering, we will not be subject to current and periodic reporting requirements. As a Regulation A, Tier 1 issuer, we will not be subject to the periodic and current reporting requirements under Rule 257(b) of Regulation A.
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As used herein, the terms the “Company,” “CoroWare” “we,” “us,” “our” and similar refer to CoroWare, Inc., a publicly quoted shell corporation incorporated on July 15, 2002 under the laws of the State of Delaware as weComm, Ltd. On August 20, 2002, the Company filed an Amendment to its Articles of Incorporation changing the name of the corporation to SRM Networks, Inc. In connection with the acquisition of Hy-Tech Computer Systems, Inc. on January 31, 2003, the Company changed its name to Hy-Tech Technology Group, Inc. In connection with the Agreement and Plan of Merger Robotics Workspace Technology, Inc., Innova Holdings, Inc. and the Company’s wholly owned subsidiary, RWT Acquisition, Inc., dated July 21, 2004, the Company’s named changed to Innova Holdings, Inc. Subsequently, on November 20, 2006, the Company changed its name to Innova Robotics and Automation, Inc. and then on April 23, 2008, the Company changed its name to CoroWare, Inc.
The Company has six wholly-owned subsidiaries: CoroWare Technologies, Inc. (“CTI”), CoroWare Robotics Solutions, Inc. (“CRS”), RWT Acquisition, Inc. (“RWT”), Carbon Sources, Inc. (“CS”), CoroWare Treasury, Inc. (“CWT”), CarbonMeta Research, Ltd. (“CM”) and a 51% interest in AriCon, LLC (“AriCon).
CoroWare Technologies (“CTI”) was incorporated in the State of Florida on May 16, 2006 and its principal business was a software professional services company with a strong focus on information technology integration and robotics integration, business automation solutions, and unmanned systems solutions to its customers in North America and Europe.
CoroWare Robotics Solutions, Inc. (“CRS”) was incorporated in the State of Texas on February 27, 2015, and its principal business was as a technology incubation company whose focus was on the delivery of mobile robotics and IOT products, solutions and services for university, government and corporate researchers, and enterprise customers. CRS’s business operations were discontinued in October 2016 when the Company’s gross margins and financing costs became unsustainable.
Robotic Workspace Technologies, Inc. (“RWT”) was incorporated in the State of Florida on July 1, 1994, and its principal business was developing and marketing open-architecture PC controls and related products that could improve the performance, applicability, and productivity of robots and other automated equipment. RWT’s business operations were discontinued in September 2007 when the Company’s losses became unsustainable.
AriCon, LLC (“AriCon) was a joint venture that was intended to develop mobile robot platforms, applications, and solutions for the construction industry. In October 2016, AriCon ceased operations of all subsidiary business operations when the Company’s losses became unsustainable, and the Company was not able to obtain investment financing.
Carbon Source, Inc. (“CS”) was incorporated in the State of Wyoming on June 14, 2021 and its principal business is waste reclamation technologies and processing.
CoroWare Treasury, Inc. (“CWT”) was incorporated in the State of Wyoming on July 6, 2021 and its principal business is acquisitions related to acquiring technologies and subsidiary businesses related to waste processing.
CarbonMeta Research Ltd. (“CM”) was incorporated in England and Wales on August 12, 2021 and will be responsible for researching and prototyping technologies that convert organic waste materials into higher-value products like carbon nanotubes and hydrogen.
In 2021, the Company began investigating emerging technologies, strategic intellectual property partnerships, and sustainable growth business opportunities related to the production of hydrogen and high value carbon products from organic waste streams. Working cooperatively with Oxford University Innovation, CoroWare plans to implement proven and patented technologies to add value to organic waste streams. By utilizing these proven proprietary technologies, collected and captured plastic waste material can be upcycled to high value products such as carbon nanotubes (“CNTs”) and hydrogen gas.
CNTs can be used for improved electrical conduction and reinforcing materials that are used in a wide variety of industries including the automotive industry, aviation industry, medical industry, and construction. The number one growth driver is the increasing need for high performance batteries for the electric vehicle market.
The global hydrogen market is expected to more than double by the end of the decade. Plastic waste is a cheap and abundant feedstock that will allow the Company to scale quickly and produce hydrogen gas for a competitive price.
Current operational subsidiaries
Carbon Sources, Inc. (“CS”)
CS will be responsible for implementing, “scaling up” and operationalizing the industrial processes that CarbonMeta Research developed and prototypes. CS will be responsible for establishing relationships with customers in a wide range of industries, including electric vehicle battery manufacturers and construction material manufacturers; and with key partners that supply waste processing equipment and organometallic catalysts. CS plans to establish waste stream conversion centers in regions that can supply consistent quantities of organic waste streams; and plans to participate in federal and state government programs which encourage the production of hydrogen and high value carbon products from organic waste streams.
CoroWare Treasury, Inc. (“CWT”)
CWT is responsible for investigating new technologies, establishing partnerships and signing licensing agreements for the Company and its subsidiaries. CWT has been investigating technologies that convert organic waste, plastic waste, and coal mining waste streams; pursuing partnerships with universities and equipment manufacturers
CarbonMeta Research Ltd (“CM”)
CM will be responsible for researching and prototyping technologies that convert organic waste materials into higher-value products like carbon nanotubes and hydrogen. Working cooperatively with Oxford University and key equipment partners, CM will prototype new industrial processes that selectively break carbon-hydrogen bonds in plastics waste using inexpensive, environmentally friendly iron-based catalysts to yield high purity hydrogen and high value carbons. Using these proven proprietary technologies, collected plastic waste material can be upcycled to high value products such as hydrogen gas, graphene and carbon nanotubes.
Milestones and Budget
We have the created the following milestones and budgets. It is important to note that achievement of these milestones and their budget targets is subject to substantial risk. Please see “Risk Factors” and “Forward Looking Statements.”
Operational Objectives September 15, 2021 to December 31, 2021:
| Expected proceeds from Reg A offering | Operational Objectives | |||
| $ | 60,000 | Licensing Fees | ||
| 80,000 | Lease Expenses for facilities in Oxfordshire, UK | |||
| 60,000 | Lab technician expenses for organic waste process prototyping | |||
| 60,000 | Develop operations plan to plan for prototyping and operations infrastructure | |||
| 80,000 | Office, Admin, SEC expenses, Salaries, Legal, Accounting systems, Travel, Accrued expenses/invoices, Licensing Fees | |||
| 30,000 | Develop marketing and sales plan, identify ALPHA customers | |||
| 500,000 | Purchase equipment for prototyping organic waste processing, carbon nanotube processing, and hydrogen processing | |||
| 330,000 | Cash reserve | |||
| $ | 1,200,000 | Total | ||
Operational Objectives January 1, 2022 to March 31, 2022:
| Expected proceeds from Reg A offering | Operational Objectives | |||
| $ | 60,000 | Licensing Fees and Patent Development | ||
| 60,000 | Lease Expenses for facilities in Oxfordshire, UK | |||
| 120,000 | Lab technician expenses for organic waste process prototyping and testing | |||
| 120,000 | Deploy prototype organic waste processing systems, prepare for ALPHA testing | |||
| 120,000 | Office, Admin, SEC expenses, Salaries, Legal, Accounting systems, Travel, Accrued expenses/invoices, Licensing Fees | |||
| 60,000 | Develop marketing and sales plan, identify BETA customers | |||
| 500,000 | Purchase equipment for scaling up organic waste processing, carbon nanotube processing, and hydrogen processing | |||
| 460,000 | Cash reserves | |||
| $ | 1,500,000 | Total | ||
Operational Objectives April 1, 2022 to June 30, 2022:
| Expected proceeds from Reg A offering | Operational Objectives | |||
| $ | 60,000 | Licensing Fees and Patent Development | ||
| 120,000 | Lease Expenses for expanded facilities in Oxfordshire, UK | |||
| 120,000 | Lab technician expenses for organic waste process prototyping and testing | |||
| 120,000 | Begin first phase of production for organic waste processing and sales of hydrogen and carbon nanotubes | |||
| 160,000 | Office, Admin, SEC expenses, regulatory liaisons, Salaries, Legal, Accounting systems, Travel, Accrued expenses/invoices | |||
| 90,000 | Implement marketing campaigns, identify sales prospects | |||
| 500,000 | Purchase equipment for scaling up organic waste processing, carbon nanotube processing, and hydrogen processing | |||
| 630,000 | Cash reserves | |||
| $ | 1,800,000 | Total | ||
Operational Objectives July 1, 2022 to September 30, 2022:
| Expected proceeds from Reg A offering | Operational Objectives | |||
| $ | 120,000 | Licensing Fees, Patent Development, Patent Filing, Patent Acquisition | ||
| 240,000 | Lease Expenses for expanded facilities in UK and Europe or Asia | |||
| 180,000 | Lab technician expenses for organic waste process prototyping and testing | |||
| 360,000 | Begin commercial phase for organic waste processing and sales of hydrogen and carbon nanotubes; Planning for operational facilities in Europe, SE Asia and United States | |||
| 240,000 | Office, Admin, SEC expenses, regulatory liaisons, Salaries, Legal, Accounting systems, Travel, Accrued expenses/invoices | |||
| 120,000 | Implement marketing campaigns, drive sales; planning for Europe, SE Asia and USA | |||
| 1,500,000 | Purchase equipment for production level organic waste processing, carbon nanotube processing, and hydrogen processing | |||
| 1,740,000 | Cash reserves | |||
| $ | 4,500,000 | Total | ||
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Competition
CoroWare is pursuing a business strategy that is similar to other companies, but CoroWare will be using proprietary and patented technologies that are unique in the industry. Nevertheless, there are many other companies that are already producing carbon nanotubes, including:
| ● | Advanced Material Development | |
| ● | Carbon Solutions, Inc. | |
| ● | Cnano Technology. | |
| ● | First Graphene | |
| ● | Hyperion Catalysis | |
| ● | Nanocyl S.A. | |
| ● | NanoIntegris | |
| ● | Raymor Nanotech | |
| ● | Tuball |
Our technologies may also allow us to compete with producers of grey, blue and green hydrogen gas. When utilizing electrical energy from sustainable sources, our hydrogen gas can be considered as green hydrogen and therefore sustainable.
As with the carbon nanotubes, there are many other companies that are already producing hydrogen gas, including:
| · | PowerTap Hydrogen Capital Corp |
| · | Sunhydrogen inc. |
| · | Ways2H |
| · | SGH2 |
| · | Standard Hydrogen Corp |
| · | Powerhouse Energygroup |
| · | Hydrogen Utopia International |
| · | Japan Blue Energy |
| · | Wabash Valley Resources |
| · | Raven SR |
| · | Bayotech |
| · | Electro Active |
Our potential competitors may have greater resources, better access to capital, longer histories, more intellectual property and lower cost operations.
They may secure better terms during the investment negotiation process, make strategic decisions more quickly than us and devote more capital to better performing investments than we do.
Our competitors may also enter into business combinations or alliances that strengthen their competitive positions.
Market opportunity
An estimated 8.3 billion metric tonnes of plastic waste have been generated to date, with a mere 9% of that volume being recycled, 12% incinerated and 79% going to landfills. In 2016, the world generated 242 million tonnes of plastic waste—12 percent of all municipal solid waste, according to The World Bank. This plastic waste primarily originated from three regions—57 million tonnes from East Asia and the Pacific, 45 million tonnes from Europe and Central Asia, and 35 million tonnes from North America.
Each year an additional 300 million tonnes of plastic waste are produced, which is projected to continue. According to the original study published in Science Advances, by 2050, there will be 12 billion metric tons of plastic in landfills.
Lack of proper waste management results in plastic waste reaching earth’s oceans. Several organizations are monitoring the abundance of plastic debris in rivers and oceans. Researchers, universities, and non-profit initiatives all conclude that plastic waste form a hazard for marine wildlife and should be captured, preferably before reaching earth’s oceans. Organizations such as The Ocean Cleanup are making great progress in capturing a portion of the plastic waste streams; however, processing this captured plastic is still a challenge.
Over the past few years, several organizations introduced methods to use plastic waste as a feedstock to produce high value materials. Some organizations offer plastic waste recycling solutions that transform unsorted, unwashed waste plastic into liquid fuels; however, these solutions do not address the worldwide objective of reducing greenhouse gas emissions.
The gasification of plastic waste for the synthetic gas (syngas) production is a widely used method to upcycle plastic waste. Several studies have shown that working under high temperatures are an important factor to obtain the gasses, as temperature affects the yield and the type of gasses obtained. A 2020 journal presented on the 6th International Conference on Energy and Environmental Research revealed the need for high temperatures, and more importantly it revealed that only a limited range of plastics could be used to generate high value synthetic gasses.
Pyrolysis is a common technique used to convert plastic and organic wastes into energy, in the form of solid, liquid, and gaseous fuels. Different catalysts are used to improve the pyrolysis process and improve efficiency. However, catalysts are expensive, thus making the overall process less profitable. Moreover, this process is also energy-intensive, and the resulting oil product requires additional energy to be further refined. Pyrolysis also requires emission treatment technologies since some gasses produced through this method are toxic.
Working cooperatively with university and industry partners, CoroWare plans to implement new industrial processes that selectively break carbon-hydrogen bonds in plastics waste using inexpensive, environmentally friendly iron-based catalysts to yield high purity hydrogen and high value carbons. Using these proven proprietary technologies, collected plastic waste material can be upcycled to high value products such as hydrogen gas, graphene and carbon nanotubes.
The global market for hydrogen currently stands at approximately 100 billion USD and is growing at a rate of 3-5% per annum. In addition, the market for hydrogen fuel cells is currently valued at 3 billion USD but is growing at 30-50% per annum.
According to Deloitte Consulting, hydrogen is projected to play a key role in the future of energy. Business leaders worldwide are moving their attention to creating a hydrogen infrastructure to benefit from the opportunities. Hydrogen is expected to be applied first in sectors that are under pressure to decarbonize, however current production methods to produce hydrogen on a large scale are not carbon neutral nor inexpensive. The demand for green hydrogen is growing as people recognize the potential. Plastic waste is a cheap and abundant feedstock that will allow the company to scale quickly and produce hydrogen gas for a competitive price.
The market for carbon products is approximately 30 billion USD, with a growth rate of over 20% in higher value segments. The Carbon Nanotube (CNT) market is estimated to grow up to USD 7 billion by 2026; the number one growth driver is the increasing need for high performance batteries for the electric vehicle market. Carbon Nanotubes can be used for improving electrical conduction and reinforcing materials used in the automotive, aviation, medical, and construction industries.
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Growth Issues
Scalability
CoroWare has been and will continue to partner with leading edge materials research taking place at Oxford University and other universities that are developing unique solutions for processing organic waste into high value hydrogen and carbon products.
Insufficient Capital
Currently, CoroWare is confronted with the need to attract and retain a consistent investment source in order to grow our operations rapidly. If CoroWare is not funded properly, it will prevent us from capturing a significant portion of the market. To establish a first mover advantage in this space, CoroWare is seeking funding from the capital markets which may include debt and equity offerings.
Production Lead Time
We anticipate that the lead time for the development of our first patented solution that will be commercially operational will be 18 months. This reflects equipment ordering, installation, development, testing, operational readiness, and market readiness.
Marketing Strategy
CoroWare shall market its hydrogen and carbon products to industrial customers that are developing higher capacity electrochemical energy storage, and construction customers that are seeking higher strength concrete materials, and tire manufacturers that are developing lower-resistance and longer wear tires for automobiles and trucks.
CoroWare shall market its carbon nanotube products to industrial customers that are developing higher capacity electrochemical energy storage, and construction customers that are seeking higher strength concrete materials, and tire manufacturers that are developing lower-resistance and longer wear tires for automobiles and trucks. The Company will implement a direct sales and marketing strategy to reach potential customers and generate revenues.
Seasonality
We do not expect any seasonality in our business.
Employees
As of June 30, 2021, we had one (1) part time employee that served as the Company’s sole officer and director. Our employee is not represented by a union. We consider relations with our employee to be positive and productive.
Legal Proceedings
We may from time to time be involved in various claims and legal proceedings of a nature we believe are normal and incidental to temporary employee staffing business. These matters may include product liability, intellectual property, employment, personal injury cause by our employees, and other general claims. We will accrue for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. We are not presently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
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Description of Property
Corporate Office
The Company currently shares office space at 13110 NE 177th Place, Woodinville, WA 98072. The Company is not under any lease obligation and is not required to make any monthly payments.
Our main corporate mailing address is 13110 NE 177th Place, Woodinville, WA 98072.
Intellectual Property
CoroWare will utilize and build upon university and commercial patents and trade secret in the United Kingdom, Europe, Asia and United States. As well, we may rely on confidentiality procedures and contractual provisions to protect our own proprietary technologies. We believe the following factors are essential to establishing and maintaining a competitive advantage:
| ● | the technical skills of our research and development teams, and engineering skills of our service operations teams; |
| ● | the chemical engineering expertise and knowledge of our research and development teams, and process management expertise of our service operations teams; |
| ● | the continued expansion of our proprietary technology; and |
| ● | a continued focus on the improved financial results of our clients. |
We have a policy of requiring key employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting relationship with us. Our employee agreements also require relevant employees to assign to us all rights to any inventions made or conceived during their employment with us. In addition, we have a policy of requiring individuals and entities with which we discuss potential business relationships to sign non-disclosure agreements. Our agreements with clients include confidentiality and non-disclosure provisions.
The following table sets forth information regarding our executive officers, directors and significant employees, including their ages as of June 30, 2021:
| Name | Age | Position | ||
| Lloyd Spencer | 59 | Chief Executive Officer, Principal Financial Officer, Director, Treasurer, Secretary |
The principal occupations for 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. Beginning in May 2006, Mr. Spencer has served as President and CEO of our subsidiary, CoroWare Technologies, Inc. Beginning in October 2004, Mr. Spencer was co-founder and President of CoroWare, Inc., a Washington State private company that was acquired by Innova Holdings, Inc., which is now known as CoroWare, Inc. From June 2002 to September 2004, Mr. Spencer was Vice President of Sales at Planet Technologies, a systems integration company based in Germantown, MD. From November 1996 to August 2001, Mr. Spencer was Solutions Unit Manager and Group Product Manager at Microsoft in Redmond, Washington. Prior to Microsoft, Mr. Spencer served as Assistant Vice-President and Business Unit Manager at Newbridge Networks; and Product Line Manager at Sun Microsystems. 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 Bachelor’s degree from Cornell University in 1980 with a major in Biology and Animal Science and with an emphasis in Immunogenetics.
On February 14, 2014, Mr. Lloyd Spencer, Chairman of the Board of Directors, was appointed as Interim Corporate Secretary. Mr. Spencer continues to serve as President and Chief Executive Officer.
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None of our executive officers and board directors has been involved in any of the following proceedings during the past ten (10) years:
1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2. any conviction in a criminal proceeding or being subject to a pending criminal proceedings (excluding traffic violations and other minor offenses);
3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4. being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Family Relationships
There are no family relationships between any of our officers and directors.
Involvement in Certain Legal Proceedings.
None of the following events have occurred during the past five years and which are material to an evaluation of the ability or integrity of any director or executive officer: (1) A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; or (2) Such person was convicted in a criminal proceeding (excluding traffic violations and other minor offenses).
Board Composition
Our Board of Directors currently consists of one member. Each director of the Company serves until the next annual meeting of stockholders and until his successor is elected and duly qualified, or until his earlier death, resignation or removal. Our board is authorized to appoint persons to the offices of Chairman of the Board of Directors, President, Chief Executive Officer, one or more vice presidents, a Treasurer or Chief Financial Officer and a Secretary and such other offices as may be determined by the board.
We have no formal policy regarding board diversity. In selecting board candidates, we seek individuals who will further the interests of our stockholders through an established record of professional accomplishment, the ability to contribute positively to our collaborative culture, knowledge of our business and understanding of our prospective markets.
Board Leadership Structure and Risk Oversight
The Board of Directors oversees our business and considers the risks associated with our business strategy and decisions. The board currently implements its risk oversight function as a whole. Each of the board committees when established will also provide risk oversight in respect of its areas of concentration and reports material risks to the board for further consideration.
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Code of Business Conduct and Ethics
The Company has adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. The code of business conduct and ethics is posted on our website at: https://www.coroware.com/wp-content/uploads/2021/06/CoroWare-Code-of-Business-Conduct-and-Ethics-2021.pdf.
Employment Agreements
The following table sets forth the cash compensation (including cash bonuses) paid or accrued, and equity awards granted, by CoroWare for the years ended December 31, 2020 and 2019, to our Chief Executive Officer, the Company’s sole officer and director.
Name & Principal Position |
Year | Paid or Accrued 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) |
2020 | $ | 150,000 | $ | - | $ | $ | - | $ | - | $ | - | $ | - | $ | 150,000 | ||||||||||||||||||
| 2019 | $ | 150,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 150,000 | ||||||||||||||||||
Notes:
| (1) |
On May 16, 2006, the Company and Lloyd Spencer (the “Executive”) entered into an Employment Agreement (the “Agreement”). The Executive shall serve as an executive officer of the corporation beginning on May 15, 2006 for a terms of five years and the Agreement shall automatically renew on the anniversary date for successive one year periods. As compensation, the Executive shall receive a salary of $12,500 per month. In addition, the Executive received a five-year stock option granting the Executive the right to purchase 5,000,000 shares of the Company’s common stock at a price of $0.18. |
Director’s Compensation
CoroWare, Inc. has not paid and does not presently propose to pay cash compensation to any director for acting in such capacity. No restricted shares were awarded for 2020 or 2019 services.
Employment Agreements
The Company has an Employment Agreement with its sole officer and director, Lloyd Spencer.
On May 16, 2006, the Company and Lloyd Spencer (the “Executive”) entered into an Employment Agreement (the “Agreement”). The Executive shall serve as an executive officer of the corporation beginning on May 15, 2006 for a terms of five years and the Agreement shall automatically renew on the anniversary date for successive one year periods. As compensation, the Executive shall receive a salary of $12,500 per month. In addition, the Executive received a five-year stock option granting the Executive the right to purchase 5,000,000 shares of the Company’s common stock at a price of $0.18.
Stock Option Plan and other Employee Benefits Plans
The Company does not maintain a Stock Option Plan or other Employee Benefit Plans.
Overview of Compensation Program
We currently do not maintain a Compensation Committee of the Board of Directors. Until a formal committee is established, our entire Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The Board of Directors ensures that the total compensation paid to the executives is fair, reasonable, and competitive.
Role of Executive Officers in Compensation Decisions
The Board of Directors makes all compensation decisions for, and approves recommendations regarding equity awards to, the executive officers and directors of the Company.
| 34 |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
To the best of our knowledge, from January 1, 2019 to June 30, 2021, other than as set forth above, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds $120,000, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our Common Stock, or any member of the immediate family of any of the foregoing persons, has an interest (other than compensation to our officers and directors in the ordinary course of business).
Statement of Policy
We have adopted a related-party transactions policy under which our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our Common Stock, and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related-party transaction with us without the consent of our audit committee. If the related party is, or is associated with, a member of our audit committee, the transaction must be reviewed and approved by another independent body of our Board of Directors, such as our governance committee. Any request for us to enter into a transaction with a related party in which the amount involved exceeds $120,000 and such party would have a direct or indirect interest must first be presented to our audit committee for review, consideration and approval. If advance approval of a related-party transaction was not feasible or was not obtained, the related-party transaction must be submitted to the audit committee as soon as reasonably practicable, at which time the audit committee shall consider whether to ratify and continue, amend and ratify, or terminate or rescind such related-party transaction. All of the transactions described above were reviewed and considered by, and were entered into with the approval of, or ratification by, our Board of Directors.
The following table sets forth the beneficial ownership of our Common Stock as of August 27, 2021 by:
| ● | each shareholder known by us to beneficially own more than 5% of our outstanding Common Stock; | |
| ● | each of our directors; | |
| ● | each of our named executive officers; and | |
| ● | all of our directors and executive officers as a group. |
We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities. A security holder is also deemed to be, as of any date, the beneficial owner of all securities that such security holder has the right to acquire within 60 days after such date through (i) the exercise of any option or warrant, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar arrangement, or (iv) the automatic termination of a trust, discretionary account or similar arrangement. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each person identified in the table has sole voting and investment power over all of the shares shown opposite such person’s name.
Percentage ownership in the following table is based on 14,102,057,165 shares of common stock outstanding as of August 27, 2021 and excludes:
| ● | An indeterminate number of shares of common stock to be issued upon the conversion of the Company’s Series B Preferred Stock; | |
| ● | An indeterminate number of shares of common stock to be issued upon the conversion of the Company’s Series D Preferred Stock; | |
| ● | An indeterminate number of shares of common stock to be issued upon the conversion of the Company’s Series E Preferred Stock; | |
| ● | An indeterminate number of shares of common stock to be issued upon the conversion of the Company’s Series F Preferred Stock; and | |
| ● | An indeterminate number of shares of common stock to be issued upon the conversion of the Company’s Series G Preferred Stock. | |
| ● | An indeterminate number of shares of common stock to be issued upon the conversion of the Company’s outstanding convertible notes. |
| Common Stock | Percentage of | |||||||
| Name of Beneficial Owner (1) | Beneficially Owned | Common Stock (2) | ||||||
| Lloyd Spencer (3)(4) | 60,606,335 | 0.43 | % | |||||
| Officers and Directors as a Group | 60,606,335 | 0.43 | % | |||||
| (1) | Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants, or convertible debt currently exercisable or convertible, or exercisable or convertible within 60 days of August 27, 2021 are deemed outstanding for computing percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any person. Percentages are based on a total of shares of Class A common stock outstanding on August 27, 2021, and the shares issuable upon exercise of options, warrants exercisable, and debt convertible on or within 60 days of August 27, 2021. | |
| (2) | The number of common shares outstanding used in computing the percentages is 14,102,057,165. | |
| (3) | Included within Mr. Spencer’s beneficial ownership includes 60,606,335 shares of common stock issued to Mr. Spencer for services rendered on behalf of the Company. | |
| (4) | The address for Mr. Spencer is 13110 NE 177th Place, Woodinville, WA 98072. |
| 35 |
Preferred Stock:
Series B Preferred Stock
Series B Preferred Stock | Percentage of | |||||||
| Beneficially | Series B | |||||||
| Name of Beneficial Owner | Owned | Preferred Stock | ||||||
| Multiple shareholders. No beneficial owners. | 159,666 | 100.00 | % | |||||
| Total | 159,666 | 100.00 | % | |||||
Series D Preferred Stock
Series D Preferred Stock | Percentage of | |||||||
| Beneficially | Series D | |||||||
| Name of Beneficial Owner | Owned | Preferred Stock | ||||||
| Lloyd Spencer | 60,000 | 60.00 | % | |||||
| Shanna Gerrard | 20,000 | 20.00 | % | |||||
| Jared Robert | 20,000 | 20.00 | % | |||||
| Total | 100,000 | 100.00 | % | |||||
Series E Preferred Stock
Series E Preferred Stock | Percentage of | |||||||
| Beneficially | Series E | |||||||
| Name of Beneficial Owner | Owned | Preferred Stock | ||||||
| Multiple shareholders. No beneficial owners. | 791,567 | 100.00 | % | |||||
| Total | 791,567 | 100.00 | % | |||||
Series F Preferred Stock
Series F Preferred Stock | Percentage of | |||||||
| Beneficially | Series F | |||||||
| Name of Beneficial Owner | Owned | Preferred Stock | ||||||
| John Kroon | 40,000 | 21.05 | % | |||||
| Cape First Funding, LLC | 110,000 | 57.90 | % | |||||
| Martin Nielsen | 40,000 | 21.05 | % | |||||
| Total | 190,000 | 100.00 | % | |||||
Series G Preferred Stock
Series G Preferred Stock | Percentage of | |||||||
| Beneficially | Series G | |||||||
| Name of Beneficial Owner | Owned | Preferred Stock | ||||||
| Lloyd Spencer | 25,000 | 100.00 | % | |||||
| Total | 25,000 | 100.00 | % | |||||
| 36 |
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
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.
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, 2020 | Date of Loan | Due Date | |||||||||||
| Amy Spencer | 18 | % | $ | 50,000 | $ | 50,000 | Jul 3, 2008 | Dec 20, 2008 | ||||||||
| Lloyd Spencer | 18 | % | $ | 223,629 | $ | 110,354 | Feb 2 – Aug 14, 2009 | Various dates thru Mar 16, 2010 | ||||||||
In July 2008, CTI entered into a 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. As of June 30, 2021, $50,000 principal and $118,874 interest were due.
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. During 2010, the Company made cash payments of $40,018 towards these loans and issued 10,000,000 shares of stock valued at $50,000. All of the remaining notes are currently in default and accruing late fees of 0.5% per month in addition to the interest. As of June 30, 2021, $107,854 principal and $289,267 interest were due.
| 37 |
CoroWare, Inc. (“CoroWare, Inc.,” “We,” or the “Company”) is offering up to $10,000,000 total of Securities, consisting of Common Stock, $0.0001 par value (the “Common Stock” or collectively the “Securities”).
Securities Being Offered
The following is a summary of the rights of our capital stock as provided in our articles of incorporation and bylaws. For more detailed information, please see our articles of incorporation and bylaws, which have been filed as exhibits to the Offering Statement of which this Offering Circular is a part.
General
Market capital structure:
Preferred stock
The Company is authorized to issue 10,000,000 shares of Preferred stock, par value $.001. The Company has designated six series of Preferred stock as of the date of this filing.
Series A Preferred Stock
The Company has authorized 125,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock (i) pays a dividend of 5%, payable at the discretion of the Company in cash or common stock, (ii) is convertible immediately after issuance into the Company’s common stock at the lesser of $0.005 per share or 75 percent of the average closing bid prices over the 20 trading days immediately preceding the date of conversion, (iii) has a liquidation preference of $1.00 per share, (iv) may be redeemed by the Company at any time up to five years after the issuance date for $1.30 per share plus accrued and unpaid dividends, and (v) has no voting rights except when mandated by Delaware law. At June 30, 2021 and December 31, 2020, the Company had 0 and 0 Series A Preferred shares issued and outstanding, respectively.
Series B Preferred Stock
The Company has authorized 525,000 shares of Series B Preferred Stock. Each share of Series B Preferred Stock (i) pays a dividend of 5 percent, payable at the discretion of the Company in cash or common stock, (ii) is convertible immediately after issuance into the Company’s common stock at the lesser of $15 per share or 75 percent of the average closing bid prices over the 20 trading days immediately preceding the date of conversion, (iii) has a liquidation preference of $1.00 per share, and (iv) may be redeemed by the Company at any time up to five years. At June 30, 2021 and December 31, 2020, the Company has 159,666 and 159,666 shares of Series B preferred stock issued and outstanding, respectively.
Series C Preferred Stock
The Company has authorized 500,000 shares of Series C Preferred Stock. During 2007, the Company initiated a private offering under Regulation D of the Securities Act of 1933 (the “Private Offering”), of an aggregate 500,000 units (collectively referred to as the “Units”) at a price of $1.00 (one dollar) per unit, with each unit consisting of one share of Series C Convertible Preferred Stock at the lesser of eighty five percent (85%) of the average closing bid price of the Common Stock over the twenty (20) trading days immediately preceding the date of conversion or $0.04 and stock purchase warrants equal to the number of shares of common stock converted from the Series C Convertible Preferred Stock, exercisable at $0.06 per share and which expire five (5) years from the conversion date. At June 30, 2021 and December 31, 2020, the Company had 0 and 0 shares of Series C preferred stock issued and outstanding, respectively.
Series D Preferred Stock
On November 10, 2011, the Board approved by unanimous written consent an amendment to the Corporation’s Certificate of Incorporation to designate the rights and preferences of Series D Preferred Stock. There are 500,000 shares of Series D Preferred Stock authorized with a par value of $0.001. Each share of Series D Preferred Stock has a stated value equal to $1.00. These preferred shares rank higher than all other securities. Each outstanding share of Series D Preferred Stock shall be convertible into the number of shares of the Corporation’s common stock determined by dividing the Stated Value by the Conversion Price which is defined as eighty five percent (85%) of the average closing bid price of the Common Stock over the twenty (20) trading days immediately preceding the date of conversion, (ii) but no less than Par Value of the Common Stock. Mandatory conversion can be demanded by the Company prior to October 1, 2013. Each one share of the Series D Preferred Stock shall have voting rights equal to 100,000 votes of Common Stock. At June 30, 2021 and December 31, 2020, the Company had 100,000 and 100,000 shares of Series D preferred stock issued and outstanding, respectively.
Series E Preferred Stock
On March 9, 2012, the Corporation filed the Certificate of Designation of the Rights and Preferences of Series E Convertible Preferred Stock of the Company with the Delaware Secretary of the State pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 1,000,000 authorized shares of Series E Convertible Preferred Stock, par value $0.001 per share. The Series E preferred shares are convertible into common shares at 50% of the lowest closing bid price of the common stock over the twenty days immediately prior the date of conversion, but no less than the par value of the common stock ($0.0001). At June 30, 2021 and December 31, 2020, the Company had 791,567 and 791,567 shares of Series E preferred stock issued and outstanding, respectively.
Series F Preferred Stock
On October 4, 2013, the Company filed the certificate of designation pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 500,000 authorized shares of Series F Convertible Preferred Stock, par value $0.001 per share.
The shares of preferred stock have a stated value of $1.00, have no voting rights, are entitled to no dividends due or payable and are convertible into the number of shares of the Corporation’s common stock determined by dividing the stated value by the conversion price which is defined as eighty five percent (85%) of the average closing bid price of the common stock over the five (5) trading days immediately preceding the date of conversion, but no less than par value of the common stock. At any time after the issuance date through the fifth (5th) anniversary of the issuance of the preferred stock, the Company shall have the option to redeem any unconverted shares at an amount equal to one hundred thirty percent (130%) of the stated value of the stock plus accrued and unpaid dividends, if any. Redemption shall be established by the Company in its sole and absolute discretion and no holder of Series F Preferred Stock may demand that the Series F Preferred Stock be redeemed. At June 30, 2021 and December 31, 2020, the Company had 190,000 and 190,000 shares of Series F preferred stock issued and outstanding, respectively.
Series G Preferred Stock
On April 17, 2014, the Company filed the certificate of designation pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 500,000 authorized shares of Series G Convertible Preferred Stock, par value $0.001 per share.
The shares of preferred stock have a stated value of $1.00, have voting rights equal to 5,000,000 votes of common stock, are entitled to no dividends due or payable, are non-redeemable and are convertible into the number of shares of the Corporation’s common stock determined by dividing the stated value by the conversion price which is defined as eighty five percent (85%) of the average closing bid price of the common stock over the twenty (20) trading days immediately preceding the date of conversion, but no less than par value of the common stock. At June 30, 2021 and December 31, 2020, the Company had 25,000 and 25,000 shares of Series G preferred stock issued and outstanding, respectively.
| 38 |
Common Stock
The Company is authorized to issue 35,000,000,000 shares of Common Stock, par value $.0001.
Capitalization
| Security | Par Value | Authorized | Outstanding | Voting Rights | ||||||||||||
| Common Stock | 0.0001 | 35,000,000,000 | 14,102,057,165 | 1:1 | ||||||||||||
Delaware Anti-Takeover Law
Certain provisions of our charter documents and Delaware law could have an anti-takeover effect and could delay, discourage or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might otherwise result in a premium being paid over the market price of our common stock.
Our certificate of incorporation and by-laws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors, including, among other things:
| ● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
| the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; | |
| ● | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
| ● | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; |
| ● | the requirement that a special meeting of stockholders may be called only by a majority vote of our board of directors or by stockholders holding shares of our common stock representing in the aggregate a majority of votes then outstanding, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; |
| ● | the ability of our board of directors, by majority vote, to amend our by-laws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer to amend our by-laws to facilitate a hostile acquisition; and |
| ● | advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. |
Delaware Anti-Takeover Statute
We are also subject to certain anti-takeover provisions under the General Corporation Law of the State of Delaware, or the DGCL. Under Section 203 of the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or (i) our board of directors approves the transaction prior to the stockholder acquiring the 15% ownership position, (ii) upon consummation of the transaction that resulted in the stockholder acquiring the 15% ownership position, the stockholder owns at least 85% of the outstanding voting stock (excluding shares owned by directors or officers and shares owned by certain employee stock plans) or (iii) the transaction is approved by the board of directors and by the stockholders at an annual or special meeting by a vote of 66 2/3% of the outstanding voting stock (excluding shares held or controlled by the interested stockholder). These provisions in our certificate of incorporation and by-laws and under Delaware law could discourage potential takeover attempts.
| 39 |
Since our inception, we have not paid any dividends on our common stock, and we currently expect that, for the foreseeable future, all earnings (if any) will be retained for the development of our business and no dividends will be declared or paid. In the future, our Board of Directors may decide, at their discretion, whether dividends may be declared and paid, taking into consideration, among other things, our earnings (if any), operating results, financial condition and capital requirements, general business conditions and other pertinent facts.
Transfer Agent
Our Transfer Agent is Empire Stock Transfer whose address is 1859 Whitney Mesa Dr., Henderson, NV 89014. Telephone (702) 818-5898 Fax (702) 974-1444. The transfer agent is registered under the Exchange Act and operates under the regulatory authority of the SEC and FINRA.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been a limited market for our Common Stock. Future sales of substantial amounts of our Common Stock, or securities or instruments convertible into our Common Stock, in the public market, or the perception that such sales may occur, could adversely affect the market price of our Common Stock prevailing from time to time. Furthermore, because there will be limits on the number of shares available for resale shortly after this Offering due to contractual and legal restrictions described below, there may be resales of substantial amounts of our Common Stock in the public market after those restrictions lapse. This could adversely affect the market price of our Common Stock prevailing at that time.
Rule 144
In general, a person who has beneficially owned restricted shares of our Common Stock for at least twelve months, in the event we are a reporting company under Regulation A, or at least six months, in the event we have been a reporting company under the Exchange Act for at least 90 days before the sale, would be entitled to sell such securities, provided that such person is not deemed to be an affiliate of ours at the time of sale or to have been an affiliate of ours at any time during the 90 days preceding the sale. A person who is an affiliate of ours at such time would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of shares that does not exceed the greater of the following:
| ● | 1% of the number of shares of our Common Stock then outstanding; or |
| ● | the average weekly trading volume of our Common Stock during the four calendar weeks preceding the filing by such person of a notice on Form 144 with respect to the sale; |
| 40 |
provided that, in each case, we are subject to the periodic reporting requirements of the Exchange Act for at least 90 days before the sale. Rule 144 trades must also comply with the manner of sale, notice and other provisions of Rule 144, to the extent applicable.
Certain legal matters with respect to the shares of common stock offered hereby will be passed upon by Law Offices of Gary L. Blum whose address is 3278 Wilshire Blvd, Suite 603, Los Angeles, CA 90010. Telephone: (213) 381-7450.
The consolidated financial statements of the Company appearing elsewhere in this Offering Circular have been prepared by management and have not been reviewed by an independent accountant.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Regulation A Offering Statement on Form 1-A under the Securities Act with respect to the shares of common stock offered hereby. This Offering Circular, which constitutes a part of the Offering Statement, does not contain all of the information set forth in the Offering Statement or the exhibits and schedules filed therewith. For further information about us and the common stock offered hereby, we refer you to the Offering Statement and the exhibits and schedules filed therewith. Statements contained in this Offering Circular regarding the contents of any contract or other document that is filed as an exhibit to the Offering Statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the Offering Statement. Upon the completion of this Offering, we will be required to file periodic reports, proxy statements, and other information with the SEC pursuant to the Securities Exchange Act of 1934. You may read and copy this information at the SEC’s Public Reference Room, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, including us, that file electronically with the SEC. The address of this site is www.sec.gov.
| 41 |
| F-1 |
COROWARE,
INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | - | $ | - | ||||
| Accounts receivable, net | - | - | ||||||
| Inventory, net | - | - | ||||||
| Total Current Assets | - | - | ||||||
| Property and equipment, net | - | - | ||||||
| Security deposits | - | - | ||||||
| TOTAL ASSETS | $ | - | $ | - | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 12,412,540 | $ | 12,132,363 | ||||
| Accrued expenses - related parties | 230,993 | 230,993 | ||||||
| Obligations collateralized by receivables, net | 298,286 | 295,811 | ||||||
| Convertible debt, net | 4,532,479 | 4,549,479 | ||||||
| Notes payable | 136,123 | 136,123 | ||||||
| Notes payable - related parties | 157,854 | 157,854 | ||||||
| Small business administration loan | 979,950 | 979,950 | ||||||
| Derivative liability | 71,074,787 | 21,713,986 | ||||||
| Total Current Liabilities | 89,823,012 | 40,196,559 | ||||||
| TOTAL LIABILITIES | 89,823,012 | 40,196,559 | ||||||
| Commitments and contingencies - Note 15 | - | - | ||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Redeemable convertible preferred stock, Series A, $0.001 par value, 125,000 shares authorized, 0 shares issued and outstanding | - | - | ||||||
| Redeemable convertible preferred stock, Series B, $0.001 par value, 525,000 shares authorized, 159,666 shares issued and outstanding | 160 | 160 | ||||||
| Redeemable convertible preferred stock, Series C, $0.001 par value, 500,000 shares authorized, 0 shares issued and outstanding | - | - | ||||||
| Redeemable convertible preferred stock, Series D, $0.001 par value, 500,000 shares authorized, 100,000 shares issued and outstanding | 100 | 100 | ||||||
| Redeemable convertible preferred stock, Series E, $0.001 par value, 1,000,000 shares authorized, 791,567 and 791,567 shares issued and outstanding, respectively | 791 | 791 | ||||||
| Redeemable convertible preferred stock, Series F, $0.001 par value, 500,000 shares authorized, 190,000 and 0 shares issued and outstanding | 190 | 190 | ||||||
| Redeemable convertible preferred stock, Series G, $0.001 par value, 500,000 shares authorized, 25,000 shares issued and outstanding | 25 | 25 | ||||||
| Common stock; 35,000,000,000 and 35,000,000,000 shares authorized at $0.0001 par value, 14,102,057,165 and 13,701,742,065 shares issued and outstanding, respectively | 1,410,206 | 1,370,174 | ||||||
| Additional paid-in capital | 31,543,315 | 31,543,315 | ||||||
| Non-controlling interest | 92,258 | 92,258 | ||||||
| Treasury stock | (18,997 | ) | (18,997 | ) | ||||
| Accumulated deficit | (122,851,060 | ) | (73,184,575 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (89,823,012 | ) | (40,196,559 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | - | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| F-2 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 2021 and 2020
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUES, NET | $ | - | $ | - | $ | - | $ | - | ||||||||
| COST OF REVENUE | - | - | - | - | ||||||||||||
| GROSS PROFIT | - | - | - | - | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative | (251,236 | ) | 37,500 | (213,736 | ) | 75,000 | ||||||||||
| TOTAL OPERATING EXPENSES | (251,236 | ) | 37,500 | (213,736 | ) | 75,000 | ||||||||||
| PROFIT (LOSS) FROM OPERATIONS | 251,236 | (37,500 | ) | 213,736 | (75,000 | ) | ||||||||||
| Other (expense) income: | ||||||||||||||||
| Derivative liability income (expense) | (43,365,798 | ) | 554,949 | (49,360,801 | ) | (600,942 | ) | |||||||||
| Interest expense | (214,506 | ) | (289,775 | ) | (519,420 | ) | (570,326 | ) | ||||||||
| TOTAL OTHER INCOME (EXPENSES) | (43,580,304 | ) | 265,174 | (49,880,221 | ) | (1,171,268 | ) | |||||||||
| INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST | (43,329,068 | ) | 227,674 | (49,666,485 | ) | (1,246,268 | ) | |||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | (43,329,068 | ) | 227,674 | (49,666,485 | ) | (1,246,268 | ) | |||||||||
| Income tax expense (provision) | - | - | - | - | ||||||||||||
| NET INCOME (LOSS) | $ | (43,329,068 | ) | $ | 227,674 | $ | (49,666,485 | ) | $ | (1,246,268 | ) | |||||
| BASIC AND DILUTED INCOME (LOSS) PER SHARE | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Weighted average number of common shares outstanding – basic and diluted | 14,204,468,277 | 13,701,742,065 | 13,578,434,976 | 13,701,742,065 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| F-3 |
COROWARE, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Stockholders’ Deficit
For the three and six months ended June 30, 2021 and 2020
For the three and six months ended June 30, 2021:
| Additional | Non | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Controlling | Treasury | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series B | Series D | Series E | Series F | Series G | Amount | Shares | Amount | Capital | Interest | Stock | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | 159,666 | 100,000 | 791,567 | 190,000 | 25,000 | $ | 1,266 | 13,701,742,065 | $ | 1,370,174 | $ | 31,543,315 | $ | 92,258 | $ | (18,997 | ) | $ | (73,184,575 | ) | $ | (40,196,559 | ) | ||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2021 | - | - | - | - | - | - | - | - | - | - | - | (6,337,417 | ) | (6,337,417 | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 159,666 | 100,000 | 791,567 | 190,000 | 25,000 | $ | 1,266 | 13,701,742,065 | $ | 1,370,174 | $ | 31,543,315 | $ | 92,258 | $ | (18,997 | ) | $ | (79,131,352 | ) | $ | (45,393,336 | ) | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | 7,500,000,000 | 750,000 | - | - | - | - | 750,000 | ||||||||||||||||||||||||||||||||||||||||
| Return of common stock | - | - | - | - | - | - | (7,500,000,000 | ) | (750,000 | ) | - | - | - | - | (750,000 | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock to a noteholder upon conversion | - | - | - | - | - | - | 400,315,100 | 40,032 | - | - | - | - | 40,032 | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | - | - | - | - | - | - | - | - | - | - | - | (43,329,068 | ) | (43,329,068 | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 159,666 | 100,000 | 791,567 | 190,000 | 25,000 | 1,266 | 14,102,057,165 | 1,410,206 | 31,543,315 | 92,258 | (18,997 | ) | (122,851,060 | ) | (89,823,012 | ) | |||||||||||||||||||||||||||||||||||||
For the three and six months ended June 30, 2020:
| Additional | Non | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Controlling | Treasury | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series B | Series D | Series E | Series F | Series G | Amount | Shares | Amount | Capital | Interest | Stock | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2020 | 159,666 | 100,000 | 791,567 | 190,000 | 25,000 | $ | 1,266 | 13,701,742,065 | $ | 1,370,174 | $ | 31,543,315 | $ | 92,258 | $ | (18,997 | ) | $ | (61,392,069 | ) | $ | (28,404,853 | ) | ||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2020 | - | - | - | - | - | - | - | - | - | - | - | (1,473,942 | ) | (1,473,942 | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | 159,666 | 100,000 | 791,567 | 190,000 | 25,000 | $ | 1,266 | 13,701,742,065 | $ | 1,370,174 | $ | 31,543,315 | $ | 92,258 | $ | (18,997 | ) | $ | (62,866,011 | ) | $ | (29,878,795 | ) | ||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2020 | - | - | - | - | - | - | - | - | - | - | - | 227,674 | 227,674 | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 159,666 | 100,000 | 791,567 | 190,000 | 25,000 | 1,266 | 13,701,742,065 | $ | 1,370,174 | $ | 31,543,315 | $ | 92,258 | $ | (18,997 | ) | $ | (62,638,427 | ) | $ | (29,651,121 | ) | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| F-4 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
For the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | (49,666,485 | ) | $ | 10,031,946 | |||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in derivative liability | 49,360,801 | (11,286,929 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable and accrued expenses | 303,209 | 1,250,450 | ||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 2,475 | (4,533 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | - | - | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | - | - | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from obligations collateralized by receivables | 2,475 | 4,533 | ||||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | 2,475 | 4,533 | ||||||
| Net decrease in cash | - | - | ||||||
| Cash at beginning of year | - | - | ||||||
| Cash at end of year | $ | - | $ | - | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | - | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Payment of accrued salaries through the issuance of common stock | $ | 40,032 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| F-5 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
As used herein, the terms the “Company,” “CoroWare” “we,” “us,” “our” and similar refer to CoroWare, Inc., a publicly quoted shell corporation incorporated on July 15, 2002 under the laws of the State of Delaware as weComm, Ltd. On August 20, 2002, the Company filed an Amendment to its Articles of Incorporation changing the name of the corporation to SRM Networks, Inc. In connection with the acquisition of Hy-Tech Computer Systems, Inc. on January 31, 2003, the Company changed its name to Hy-Tech Technology Group, Inc. In connection with the Agreement and Plan of Merger Robotics Workspace Technology, Inc., Innova Holdings, Inc. and the Company’s wholly owned subsidiary, RWT Acquisition, Inc., dated July 21, 2004, the Company’s named changed to Innova Holdings, Inc. Subsequently, on November 20, 2006, the Company changed its name to Innova Robotics and Automation, Inc. and then on April 23, 2008, the Company changed its name to CoroWare, Inc.
The Company has six wholly-owned subsidiaries: CoroWare Technologies, Inc. (“CTI”), CoroWare Robotics Solutions, Inc. (“CRS”), RWT Acquisition, Inc. (“RWT”), Carbon Sources, Inc. (“CS”), CoroWare Treasury, Inc. (“CWT”), CarbonMeta Research, Ltd. (“CM”) and a 51% interest in AriCon, LLC (“AriCon).
CoroWare Technologies (“CTI”) was incorporated in the State of Florida on May 16, 2006 and its principal business was a software professional services company with a strong focus on information technology integration and robotics integration, business automation solutions, and unmanned systems solutions to its customers in North America and Europe.
CoroWare Robotics Solutions, Inc. (“CRS”) was incorporated in the State of Texas on February 27, 2015, and its principal business was as a technology incubation company whose focus was on the delivery of mobile robotics and IOT products, solutions and services for university, government and corporate researchers, and enterprise customers. CRS’s business operations were discontinued in October 2016 when the Company’s gross margins and financing costs became unsustainable.
Robotic Workspace Technologies, Inc. (“RWT”) was incorporated in the State of Florida on July 1, 1994, and its principal business was developing and marketing open-architecture PC controls and related products that could improve the performance, applicability, and productivity of robots and other automated equipment. RWT’s business operations were discontinued in September 2007 when the Company’s losses became unsustainable.
AriCon, LLC (“AriCon) was a joint venture that was intended to develop mobile robot platforms, applications, and solutions for the construction industry. In October 2016, AriCon ceased operations of all subsidiary business operations when the Company’s losses became unsustainable, and the Company was not able to obtain investment financing.
Carbon Source, Inc. (“CS”) was incorporated in the State of Wyoming on June 14, 2021 and its principal business is waste reclamation technologies and processing.
CoroWare Treasury, Inc. (“CWT”) was incorporated in the State of Wyoming on July 6, 2021 and its principal business is acquisitions related to acquiring technologies and subsidiary businesses related to waste processing.
CarbonMeta Research Ltd. (“CM”) was incorporated in England and Wales on August 12, 2021 and will be responsible for researching and prototyping technologies that convert organic waste materials into higher-value products like carbon nanotubes and hydrogen.
In 2021, the Company began investigating emerging technologies, strategic intellectual property partnerships, and sustainable growth business opportunities related to the production of hydrogen and high value carbon products from organic waste streams. Working cooperatively with Oxford University Innovation, CoroWare plans to implement proven and patented technologies to add value to organic waste streams. By utilizing these proven proprietary technologies, collected and captured plastic waste material can be upcycled to high value products such as carbon nanotubes (“CNTs”) and hydrogen gas.
CNTs can be used for improved electrical conduction and reinforcing materials that are used in a wide variety of industries including the automotive industry, aviation industry, medical industry, and construction. The number one growth driver is the increasing need for high performance batteries for the electric vehicle market.
| F-6 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS (continued)
The global hydrogen market is expected to more than double by the end of the decade. Plastic waste is a cheap and abundant feedstock that will allow the Company to scale quickly and produce hydrogen gas for a competitive price.
Carbon Source, Inc. (“CS”) was incorporated in the State of Wyoming on June 14, 2021 and its principal business is waste reclamation technologies and processing.
CoroWare Treasury, Inc. (“CWT”) was incorporated in the State of Wyoming on July 6, 2021 and its principal business is acquisitions related to acquiring technologies and subsidiary businesses related to waste processing.
License Agreement
On June 2, 2021, the Company (the “Licensee”) entered into a License Agreement (the “Agreement”) with Oxford University Innovation Limited (the “Licensor”). Under the terms of the Agreement, the Licensee will license the licensed technology (OUI Project- Hydrogen from plastics via microwave-initiated catalytic dehydrogenation). The Agreement is non-exclusive and includes the United States and European Union. Signing fees for the Agreement are £54,807 and are due on August 2, 2021. The Royalty Rate is 5% of gross sales. The Agreement comprises milestone fees as: (i) £20,000 upon the first commercial sale of a licensed product; (ii) £50,000 upon generating $1,000,000 in sales; (iii) £10,000 upon the successful grant of the US patent; and (iv) £10,000 upon the successful grant of the EU patent.
NOTE 2 – CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2021, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the unaudited financial statements and notes thereto included in the Company’s December 31, 2020 Annual Report. The results of operations for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of the operating results for the full years.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of CoroWare, Inc. and its wholly-owned subsidiaries, CoroWare Technologies, Inc., CoroWare Robotics Solutions, Inc., and Robotic Workspace Technologies, Inc., Carbon Source, Inc. (“CS”), as well as its 51% interest in ARiCON, LLC (collectively, the “Company”). All significant inter-company balances and transactions have been eliminated in the unaudited condensed consolidated financial statements.
| F-7 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (continued)
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. The Company uses all available information and appropriate techniques to develop its estimates. However, actual results could differ from its estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of three months or less when purchased as cash equivalents. The Company had no cash equivalents as of June 30, 2021 and December 31, 2020. At times throughout the year, the Company might maintain bank balances that may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. Periodically, the Company evaluates the credit worthiness of the financial institutions and has not experienced any losses in such accounts. As of June 30, 2021 and December 31, 2020, the Company did not have bank balances that exceeded the FDIC insured limits.
Accounts Receivable
The Company’s accounts receivable is 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. The Company had an allowance for doubtful accounts of $- and $- at June 30, 2021 and December 31, 2020, respectively.
Inventory
Inventories, which are comprised solely of finished goods, are stated at the lower of cost (based on the first-in, first-out method) or market. The Company provides for estimated losses from obsolete or slow-moving inventories and writes down the cost of inventory at the time such determinations are made. Reserves are estimated based upon inventory on hand, historical sales activity, industry trends, the business environment and the expected net realizable value. The net realizable value is determined based upon current awareness of market prices.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major renewals and improvements are capitalized while expenditures for minor replacements, maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Upon retirement or disposal of assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss, if any, is reflected in loss on disposal of assets in the unaudited condensed consolidated statement of income and comprehensive income.
| F-8 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (continued)
At least annually, the Company evaluates, and adjusts when necessary, the estimated useful lives. The changes in estimated useful lives did not have a material impact on depreciation in any period. The estimated useful lives are:
| Leasehold improvements | Remaining term of lease | |
| Furniture and fixtures | 5-7 years | |
| Computer equipment and software | 3-5 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-35, Property, Plant and Equipment, Subsequent Measurement (“ASC 360-35”). 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.
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.
Segment Reporting
FASB ASC 280-10, Segment Reporting, defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief decision maker in deciding how to allocate resources and in assessing performance. The Company reports according to one main segment.
Fair Value of Financial Instruments
The Company follows FASB ASC 820-10-35-37 (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| F-9 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (continued)
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts reported in the Company’s unaudited condensed consolidated financial statements for accounts receivable, accounts payable and accrued expenses, and related party accrued expenses approximate their fair value because of the immediate or short-term nature of these financial instruments. The carrying amounts reported in the balance sheet for its notes payable approximates fair value as the contractual interest rate and features are consistent with similar instruments of similar risk in the marketplace.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
It is not, however, practical to determine the fair value of advances from stockholders, if any, due to their related party nature.
The following table presents assets and liabilities that are measured and recognized at fair value as of June 30, 2021 and December 31, 2020, on a recurring basis:
Assets and liabilities measured at fair value on a recurring basis at June 30, 2021 | Level 1 | Level 2 | Level 3 | Total Carrying Value | ||||||||||||
| Derivative liabilities | $ | - | $ | (71,074,787 | ) | $ | - | $ | (71,074,787 | ) |
Assets and liabilities measured at fair value on a recurring basis at December 31, 2020 | Level 1 | Level 2 | Level 3 | Total Carrying Value | ||||||||||||
| Derivative liabilities | $ | - | $ | (21,713,986 | ) | $ | - | $ | (21,713,986 | ) |
| F-10 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for FASB ASC 815, Derivatives and Hedging (“ASC 815”).
Professional standards generally provide three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
ASC 815 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Stock Based Compensation
The Company follows FASB ASC 718, Compensation – Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the unaudited condensed consolidated financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50, Equity–based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
| F-11 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Through newly issued restricted common stock, the Company pays qualified contractors and advisors common shares in lieu of compensation for services provided including business development, management, technology development, consulting, legal services and accounting services.
Revenue Recognition
The Company derives its 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. The Company 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.
The Company recognizes revenue for its 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.
The Company accounts 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, the Company allocates 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, the Company allocates 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.
The Company limits 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. The Company recognizes 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.
The Company’s collaboration service revenues are generated through the sale of CoroCall™, a managed collaboration service. Our contracts provide for usage pricing or when paid for pre-paid service. The Company recognizes this revenue in the period that the services or minutes are used and prepaid.
| F-12 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (continued)
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 for the three and six months ended June 30, 2021 and 2020 were $-, $-, $- and $-, respectively.
Advertising Expense
The Company expenses advertising costs as they are incurred. Advertising expense for the three and six months ended June 30, 2021 and 2020 were $-, $-, $- and $-, 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.
Basic and Diluted Loss per Share
The Company computes basic and diluted earnings per share amounts in accordance with FASB ASC 260, Earnings per Share. Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.
For the six months ended June 30, 2021 and 2020, the effect of common stock equivalents has been excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive.
The Company currently has convertible debt and preferred stock, which, if converted, as of June 30, 2021 and 2020, would have caused the Company to issue diluted shares totaling 37,796,573,503 and 119,130,481,130, respectively.
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 June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020, there were cumulative undeclared dividends to Preferred Series B shareholders of $15,969 and $15,969, respectively, the obligation for which is contingent on declaration by the board of directors. These balances have been recorded as part of accounts payable and accrued expenses.
| F-13 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 4 – GOING CONCERN
The Company incurred a net loss in the amount of $49,666,485 during the six months ended June 30, 2021 compared to a net loss of $1,246,268 for the six months ended June 30, 2020. The Company has a working capital deficit of $89,823,012 and $40,196,559 as of June 30, 2021 and December 31, 2020, respectively. The Company has accumulated deficits of $122,851,060 and $73,184,575 as of June 30, 2021 and December 31, 2020, respectively. Because of these and other factors, 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 unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 5 – INVENTORY
As of June 30, 2021 and December 31, 2020, inventories consist of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | - | $ | - | ||||
| Work in process | - | - | ||||||
| Finished goods | - | - | ||||||
| Subtotal | - | - | ||||||
| Less: inventory reserve | - | - | ||||||
| Inventory, net | $ | - | $ | - |
| F-14 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 2021 and December 31, 2020:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Computer equipment and software | $ | - | $ | - | ||||
| Furniture and fixtures | - | - | ||||||
| Subtotal | - | - | ||||||
| Less: accumulated depreciation | - | - | ||||||
| Property and equipment, net | $ | - | $ | - |
Depreciation expense for the six months ended June 30, 2021 and December 31, 2020 was $- and $-, respectively.
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following at June 30, 2021 and December 31, 2020:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accounts payable | $ | 1,328,393 | $ | 1,328,393 | ||||
| Accrued expenses | 30,078 | 30,078 | ||||||
| Dividends payable | 15,969 | 15,969 | ||||||
| Credit cards payable | 81,048 | 81,048 | ||||||
| Accrued interest | 7,501,108 | 7,007,195 | ||||||
| Accrued payroll | 936,368 | 861,368 | ||||||
| Accrued PTO | 134,861 | 134,861 | ||||||
| Commissions payable | 221,188 | 221,188 | ||||||
| Payroll taxes payable | 2,104,551 | 2,393,287 | ||||||
| Garnishment liens payable | 35,502 | 35,502 | ||||||
| Pension plan payable | 23,981 | 23,981 | ||||||
| Flex spending payable | (507 | ) | (507 | ) | ||||
| Total | $ | 12,412,540 | $ | 12,132,363 | ||||
NOTE 8 – RELATED PARTY TRANSACTIONS
As of June 30, 2021 and December 31, 2020, related party accrued expenses were $230,993 and $230,993, respectively, which consisted entirely of deferred salaries to employees.
| F-15 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 9 – OBLIGATIONS COLLATERALIZED BY RECEIVABLES, NET
On July 16, 2015, the Company entered into an accounts receivable financing arrangement with Knight Capital for a principal amount received in cash of $173,500. The terms of the arrangement require the Company to repay the principal balance plus an additional $52,050 in debt discounts for total remittance of $225,550. The terms of repayment require the Company to remit to the lender approximately 30% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $52,050 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $76,317.
On August 17, 2015, the Company entered into an accounts receivable financing arrangement with QuickFix Capital for a principal amount received in cash of $70,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $32,200 in debt discounts for total remittance of $102,200. The terms of repayment require the Company to remit to the lender approximately 46% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $32,200 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $48,907.
On January 8, 2016, the Company entered into an accounts receivable financing arrangement with PowerUp for a principal amount received in cash of $120,000, of which the remaining balance of $46,224 on the prior arrangement was paid off. The terms of the current arrangement are similar to the prior arrangement, whereby this arrangement requires the Company to repay the principal balance plus an additional $48,000 in debt discounts for total remittance of $168,000. The ending principal balance of this borrowing at June 30, 2021 was $14,232.
On April 12, 2016, the Company entered into an accounts receivable financing arrangement with PowerUp for a principal amount received in cash of $75,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $30,000 in debt discounts for total remittance of $105,000. The terms of repayment require the Company to remit to the lender approximately 12% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $30,000 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $67,645.
On April 28, 2016, the Company entered into an accounts receivable financing arrangement with PowerUp for a principal amount received in cash of $55,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $19,250 in debt discounts for total remittance of $74,250. The terms of repayment require the Company to remit to the lender approximately 10% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $19,250 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $29,696.
| F-16 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 9 – OBLIGATIONS COLLATERALIZED BY RECEIVABLES, NET (continued)
On June 2, 2016, the Company entered into an accounts receivable financing arrangement with PowerUp for a principal amount received in cash of $35,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $14,700 in debt discounts for total remittance of $49,700. The terms of repayment require the Company to remit to the lender approximately 11% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $14,700 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at June 30, 2021 was $45,756.
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET
In February 2003, the Company issued $230,000 of notes payable which matured in June 2003. The notes earn simple interest at 8% per annum unless they are in default, in which case they earn default simple interest at a rate of 15%. In July 2003, the terms of the note were changed such that the notes became convertible debentures, whereby at the option of the holder, all outstanding principal and interest can be converted into shares of the Company’s common stock at $1.00 per share. As of June 30, 2021, $100,000 of principal and $266,266 of accrued interest remain outstanding from these notes. These notes are currently in default.
On July 22, 2005, the Company issued a convertible promissory note to Richard Wynns (“Wynns”) for $30,000. The note accrues simple interest at a rate of 5% per annum and matures on December 31, 2006. At the option of the holder, all outstanding principal and interest can be converted into shares of the Company’s common stock at $0.15 per share. Through June 30, 2016, the holder converted $22,500 of principal into shares of the Company’s common stock. As of June 30, 2021, there is $7,500 of principal and $6,938 of accrued interest remaining on this note. This note is currently in default.
On October 3, 2005, the Company issued a convertible promissory note to Wynns for $30,000. The note accrues simple interest at a rate of 10% per annum and matures on November 2, 2005. On July 26, 2010, this note was amended whereby accrued interest through this date was added to the principal balance, making the total principal balance of the note $47,509. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 75% of the average of the three lowest closing prices during the 10-day trading period prior to conversion. As of June 30, 2021, there is $47,509 of principal and $52,247 of accrued interest remaining on this note. This note is currently in default.
On October 14, 2005, the Company issued a convertible promissory note to Wynns for $30,000. The note accrues simple interest at a rate of 10% per annum and matures on December 31, 2006. On July 26, 2010, this note was amended whereby accrued interest through this date was added to the principal balance, making the total principal balance of the note $46,489. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 75% of the average of the three lowest closing prices during the 10-day trading period prior to conversion. As of June 30, 2021, there is $46,489 of principal and $51,125 of accrued interest remaining on this note. This note is currently in default.
| F-17 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
On July 20, 2006, the Company issued a convertible promissory note to YA Global Investments, L.P. (“YA Global”) for $1,250,000, with a maturity date of July 20, 2009. On August 22, 2006, the Company issued a convertible promissory note to YA Global for $575,000, with a maturity date of August 22, 2009. The notes accrue simple interest at a rate of 10% per annum, with a default simple interest rate of 14% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through December 31, 2015, a total of $82,630 in principal and $373,323 in accrued interest were converted into shares of the Company’s common stock. Additionally, through December 31, 2015, $1,671,742 of principal from these notes were assigned to other parties in the form of convertible promissory notes. On February 5, 2016, all outstanding principal and accrued interest on these notes were consolidated into a new convertible promissory note along with all other outstanding notes due to YA Global.
On November 2, 2007, the Company issued a convertible promissory note to YA Global for $600,000, with a maturity date of November 2, 2010. On March 17, 2008, the Company issued a convertible promissory note to YA Global for $300,000, with a maturity date of March 17, 2010. The notes accrue simple interest at a rate of 14% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. On February 5, 2016, all outstanding principal and accrued interest on these notes were consolidated into a new convertible promissory note along with all other outstanding notes due to YA Global.
On January 12, 2010, the Company issued an amended convertible promissory note to Westmount Holdings International, Ltd., with a principal balance of $567,200 and accrued interest of $317,510, which was assigned from YA Global. The note accrues simple interest at a rate of 14% per annum and is due on demand. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through June 30, 2016, the Company converted $29,883 of principal and $261,259 of accrued interest into shares of the Company’s common stock. As of June 30, 2021, there is $537,317 of principal and $855,122 of accrued interest remaining on this note. This note is currently in default.
On January 28, 2011, the Company issued a convertible promissory note to Barclay Lyons, LLC for $10,750. The note accrues simple interest at a rate of 21% per annum and matures on July 28, 2011, with a default simple interest rate of 36%. Pursuant to the terms of the note, the principal balance is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lesser of (i) the closing price on the day prior to conversion, or (ii) the volume-weighted-average closing price of the five-day trading period prior to conversion, though in no instance shall the conversion price be less than $0.0001. There is a ceiling on the conversion rate of $0.05 per share, but this rate is to be discounted based on forward splits. As of June 30, 2021, there is $10,750 of principal and $39,533 of accrued interest remaining on this note. This note is currently in default.
On March 21, 2011, the Company issued a convertible promissory note to Redwood Management, LLC for $284,132. The note accrues interest at a rate of 14% per annum and matures on March 18, 2013. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. As of June 30, 2021, there is $123,936 of principal and $144,582 of accrued interest remaining on this note. This note is currently in default.
| F-18 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
On April 2, 2011, the Company issued a convertible promissory note to Martin Harvey for $67,042, which was assigned to Blackbridge Capital, LLC (“Blackbridge”). The note accrues compounded interest at a rate of 10% per annum and matures on May 2, 2011, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of the average of the five trading days prior to the applicable conversion date, with the number of conversion shares multiplied by 115%. Through June 30, 2016, a total of $42,557 in principal was converted into shares of the Company’s common stock, and a total of $17,500 in principal payments have been made. As of June 30, 2021, there is $6,985 of principal and $98,674 of accrued interest remaining on this note. This note is currently in default.
On June 2, 2011, the Company issued a convertible promissory note to Panache Capital, LLC (“Panache”) for $65,000. The note accrues simple interest at a rate of 8% per annum and matures on June 1, 2012, with a default simple interest rate of 15% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the of the average of the three lowest closing prices during the 20-day trading period prior to conversion. Through June 30, 2016, the Company converted $57,315 of principal into shares of the Company’s common stock. As of June 30, 2021, there is $7,685 of principal and $18,624 of accrued interest remaining on this note. This note is currently in default.
On June 29, 2011, the Company issued a convertible promissory note to Panache for $15,000. The note accrues simple interest at a rate of 8% per annum and matures on June 29, 2012. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the of the average of the three lowest closing prices during the 20-day trading period prior to conversion. Through June 30, 2016, the Company converted $14,798 of principal into shares of the Company’s common stock. As of June 30, 2021, there is $201 of principal and $5,539 of accrued interest remaining on this note. This note is currently in default.
On October 5, 2011, the Company issued a convertible promissory note to Premier IT Solutions for $21,962. The note accrues compounded interest at a rate of 10% per annum and matures on March 5, 2012, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of the average of the five trading days prior to the applicable conversion date, with the number of conversion shares multiplied by 115%. As of June 30, 2021, there is $21,962 of principal and $69,904 of accrued interest remaining on this note. This note is currently in default.
On February 21, 2012, the Company issued a convertible promissory note to Kelburgh, Ltd. for $13,000. The note accrues compounded interest at a rate of 10% per annum and matures on March 5, 2012, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of 85% of the average of the five trading days prior to the applicable conversion date. As of June 30, 2021, there is $13,000 of principal and $39,235 of accrued interest remaining on this note. This note is currently in default.
On August 3, 2012, the Company issued a convertible promissory note to Raphael Cariou (“Cariou”) for $7,000. The note accrues compounded interest at a rate of 10% per annum and matures on February 3, 2013, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of the average of the five trading days prior to the applicable conversion date, with the number of conversion shares multiplied by 115%. As of June 30, 2021, there is $7,000 of principal and $18,754 of accrued interest remaining on this note. This note is currently in default.
| F-19 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
On February 25, 2013, the Company issued two convertible promissory notes to AGS Capital Group, LLC (“AGS”) for $131,377 and $42,000. The notes accrue compounded interest at a rate of 14% per annum and mature on February 25, 2014. Pursuant to the terms of the notes, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of 35% of the lowest closing price during the 20-day trading period prior to conversion. Through June 30, 2016, $99,988 of principal has been converted into shares of the Company’s common stock. As of June 30, 2021, there is a total of $50,640 of principal and $186,510.41 of accrued interest remaining on these notes. These notes are currently in default.
On March 7, 2013, the Company issued a convertible promissory note to YA Global for $25,000. The note accrues simple interest at a rate of 14% per annum and matures on March 7, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 80% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. On February 5, 2016, all outstanding principal and accrued interest on this note were consolidated into a new convertible promissory note along with all other outstanding notes due to YA Global.
On August 23, 2013, the Company issued a convertible promissory note to Zoom Marketing (“Zoom”) for $140,000. The note accrues simple interest at a rate of 5% per annum and matures on January 23, 2014, with a default simple interest rate of 10% per annum. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the of the average of the three lowest closing prices during the five-day trading period prior to conversion. On March 27, 2014, Zoom assigned $75,000 of principal to Tangiers. As of June 30, 2021, there is $65,000 of principal and $52,542 of accrued interest remaining on this note. This note is currently in default.
On November 13, 2013, the Company issued a convertible promissory note to Tangiers for $17,000. The note accrues simple interest at a rate of 10% per annum and matures on November 13, 2014, with a default simple interest rate of 20% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lowest closing price during the 20-day trading period prior to conversion, with the conversion rate being rounded to $0.0001 or whole share. On May 28, 2021, the Company issued 400,315,100 shares of common stock to Tangiers in satisfaction of $17,000 principal and $23,032 principal. As of June 30, 2021, the note is paid in full
On February 21, 2014, the Company issued a convertible promissory note to Blackbridge for $5,000. The note accrues simple interest at a rate of 8% per annum and matures on September 21, 2014. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 30-day trading period prior to conversion. As of June 30, 2021, there is $5,000 of principal and $3,792 of accrued interest remaining on this note. This note is currently in default.
| F-20 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
On March 11, 2014, the Company issued two convertible promissory notes to LG Capital Funding, LLC (“LG”) for $32,000 and $24,000. The notes accrue simple interest at a rate of 12% per annum and mature on March 11, 2015, with default simple interest rates of 24% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lowest closing price during the 10-day trading period prior to, and including the date of, conversion. As of June 30, 2021, 2016, there is a total of $56,000 of principal and $91,465 of accrued interest remaining on these notes. These notes are currently in default.
On March 27, 2014, the Company issued a convertible promissory note to Tangiers for $75,000, which was assigned from Zoom. The note accrues simple interest at a rate of 10% per annum and is due on March 27, 2015, with a default simple interest rate of 20% per annum. On March 27, 2014, the Company issued a separate convertible promissory note to Tangiers, whereby the Company could borrow up to $600,000, of which $100,000 would be treated as an original issue discount on a pro rata basis. The note accrues simple interest at a rate of 0% per annum and is due on demand, with a default simple interest rate of 20% per annum. During the year ended December 31, 2014, the Company borrowed $72,000, of which $12,000 was original issue discount. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a 50% discount of the lowest closing price during the 20-day trading period prior to the date of conversion. As of June 30, 2021, there is a total of $147,000 of principal and $162,549 of accrued interest remaining on these notes. These notes are currently in default.
On April 1, 2014, YA Global sold $40,000 of their original note in the amount $1,250,000 to an unrelated third party (“Tuohy”). The Company then issued a convertible promissory note to Tuohy for that debt. The note calls for 14% simple interest through the maturity date of December 31, 2014. Pursuant to the terms of the notes the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 20-day trading period prior to conversion, or $0.01, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through June 30, 2016, Tuohy converted $40,000 of principal into shares of the Company’s common stock. The principal balance of this note has been paid in full, yet $153 of accrued interest remains unpaid.
On April 2, 2014, the Company issued a convertible promissory note to Burrington Capital, LLC (“Burrington”) for $25,000. The note calls for 10% compounded interest through the maturity date of October 1, 2014, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 20-day trading period prior to conversion, or $0.01, whichever is lower. As of June 30, 2021, there is $25,000 of principal and $46,840 of accrued interest remaining on this note. This note is currently in default.
On April 3, 2014, YA Global sold a portion of their note in the amount of $50,000 to an unrelated third party (“Ferro”). The Company then issued a convertible promissory note to Ferro for that debt. The note calls for 14% simple interest through the maturity date December 31, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the average of the three lowest closing prices during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through June 30, 2016, $22,175 of principal has been converted into shares of the Company’s common stock, and the Company has made $1,000 in principal payments. As of June 30, 2021, there is $26,825 of principal and $33,055 of accrued interest remaining on this note. This note is currently in default.
| F-21 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
On April 8, 2014, a note holder, YA Global, sold a portion of their note in the amount of $200,000 to Dakota Capital Pty Ltd. (“Dakota”). The Company then issued a convertible promissory note to Dakota for that debt. The note calls for 14% simple interest through the maturity date December 31, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a 50% discount of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower. As of June 30, 2021, there is $200,000 of principal and $202,367 of accrued interest remaining on this note. This note is currently in default.
On April 14, 2014, YA Global assigned $100,000 of their convertible note to Barry Liben. The note accrues interest at a rate of 0% per annum and is due December 31, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the average of the three lowest closing prices during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through June 30, 2016, Liben converted $47,200 in note principal into shares of the Company’s common stock. As of June 30, 2021, there is $52,800 of principal remaining on this note. This note is currently in default.
On December 10, 2014, the Company issued a convertible promissory note to Jared Robert for $20,000. The note accrues compounded interest at a rate of 10% per annum and is due on June 10, 2015, with a default compounded interest rate of 15%. Pursuant to the terms of the note the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 20-day trading period prior to conversion, or $0.01, whichever is lower. As of June 30, 2021, there is $20,000 of principal and $31,838 of accrued interest remaining on this note. This note is currently in default.
On January 7, 2015, the Company issued a convertible promissory note to LG for $20,625, of which $4,125 was an original issue discount. The note accrues simple interest at a rate of 12% per annum and is due on January 7, 2016, with a default simple interest rate of 24%. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 45% of the lowest closing price during the 20-day trading period prior to, and including the date of, conversion. As of June 30, 2021there is $20,625 of principal and $29,598 of accrued interest remaining on this note. This note is currently in default.
On March 12, 2015 the Company issued two convertible promissory notes to Cariou totaling $188,356 ($94,178 each) for settlement of compensation owed as well as penalties and interest. The note calls for 24% compounded interest through the maturity date of September 12, 2015, with a default compounded interest rate of 29%. The principal balance and accrued interest are convertible into the Company’s common stock at a conversion rate of the average of the five trading days prior the applicable conversion date, with the number of conversion shares multiplied by 115%. Through June 30, 2016, the Company made $12,000 in principal payments towards these notes. As of June 30, 2021, there is a total of $176,356 of principal and $881,091 of accrued interest remaining on these notes. These notes are currently in default.
| F-22 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
On February 5, 2016, the Company issued an amended convertible promissory note to YA Global for $2,829,690, which consolidated all the outstanding principal and interest due to YA Global from various notes outstanding through January 7, 2016. The note accrues simple interest at a rate of 6% per annum and matures on April 30, 2016, with a default simple interest rate of 18%. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of the lesser of (a) $0.0003 or (b) 50% of the lowest closing price during the 20-day trading period prior to conversion, with the conversion rate being rounded to $0.0001 or whole share. In relation to the note, the Company issued warrants to purchase 2,000,000,000 shares of the Company’s common stock at an exercise price of $0.0006 per share, with an expiration date of December 31, 2020. The warrants are also subject to a cashless exercise, should there be an event of default or the warrants are not subject to an effective registration statement. The Company valued these warrants on the date of issuance at $400,000 using the Black-Scholes method. Pursuant to FASB ASC 470-50, Debt, Modifications and Extinguishments, this consolidation of debt and the issuance of warrants has been determined to be an extinguishment of debt, and as a result, the Company has recognized a loss on extinguishment of debt of $3,299,717. Through June 30, 2016, $113,700 of principal has been converted into shares of the Company’s common stock. As of June 30, 2021, there is $2,715,990 of principal and $2,451,053 of accrued interest remaining on this note. This note is currently in default.
In the Company’s evaluation of each convertible debt instrument in accordance with FASB ASC 815, Derivatives and Hedging (pre-codification FAS 133 “Accounting for Derivative Financial Instruments and Hedging Activities”) (“ASC 815”), based on the variable conversion price, it was determined that the conversion features were not afforded the exemption as a conventional convertible instrument and did not otherwise meet the conditions for equity classification. As such, the conversion and other features were compounded into one instrument, bifurcated from the debt instrument and carried as a derivative liability, at fair value (see Note 14). As of June 30, 2021 and December 31, 2020, debt discounts related to convertible notes payable totaled $0 and $0, respectively.
NOTE 11 – NOTES PAYABLE
On June 29, 2007, the Company issued a promissory note to Gary Sumner for $45,000. The note accrues compounded interest of 5% per annum and matures on March 31, 2008, with a default simple interest rate of 18%. As of June 30, 2021, there is $45,000 of principal and $102,072 of accrued interest remaining on this note. This note is currently in default.
On July 3, 2008, the Company issued a promissory note to LTC International Corp. for $25,000. The note accrues simple interest of 20.80% per annum and matures on December 17, 2008, with a default simple interest rate of 41.60%. Through December 31, 2015, the Company made principal payments totaling $20,268. As of June 30, 2021, there is $4,732 of principal and $27,746 of accrued interest remaining on this note. This note is currently in default.
On March 17, 2010, the Company issued a promissory note to John Kroon for $10,000. The note accrues compounded interest of 18% per annum and matures on September 13, 2010, with a default compounded interest rate of 21%. As of June 30, 2021, there is $10,000 of principal and $93,364 of accrued interest remaining on this note. This note is currently in default.
On July 27, 2010, the Company issued a promissory note to Richard Wynns for $25,000. The note accrues compounded interest of 18% per annum and matures on January 23, 2011, with a default compounded interest rate of 21%. As of June 30, 2021, there is $25,000 of principal and $214,593 of accrued interest remaining on this note. This note is currently in default.
On March 15, 2011, the Company issued a promissory note to Barclay Lyons for $15,000. The note accrues simple interest of 18.99% per annum and matures on March 25, 2011, with a default simple interest rate of 28.99%. As of June 30, 2021, there is $15,000 of principal and $44,730 of accrued interest remaining on this note. This note is currently in default.
| F-23 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 11 – NOTES PAYABLE (continued)
On March 29, 2011, the Company issued a promissory note to George Ferch for $5,000. The note accrues interest of 0% per annum and matures on June 27, 2011, with a default compounded interest rate of 21%. As of June 30, 2021, there is $5,000 of principal and $35,166 of accrued interest remaining on this note. This note is currently in default.
On April 11, 2012, the Company issued a promissory note to Blackbridge for $6,000. The note accrues simple interest of 5% per annum and matures on May 25, 2012, with a default simple interest rate of 5%. Through June 30, 2016, the Company made principal payments totaling $4,500. As of June 30, 2021, there is $1,500 of principal and $914 of accrued interest remaining on this note. This note is currently in default.
On October 18, 2013, the Company issued a promissory note to Walter Jay Bell (“Bell”) for $10,000. The note accrues simple interest of 10% per annum and matures on November 29, 2013. As of June 30, 2021, there is $10,000 of principal and $7,748 of accrued interest remaining on this note. This note is currently in default.
On April 24, 2016, the Company issued a promissory note to Bell for $8,642. The note accrues simple interest of 10% per annum and matures on June 30, 2016. As of June 30, 2021, there is $8,642 of principal and $2,262 of accrued interest remaining on this note. This note is currently in default.
On May 10, 2016, the Company issued a promissory note to William Rittman for $20,000. The note accrues compounded interest of 16% per annum and matures on August 29, 2016. Effective May 16, 2016, the Company is to make weekly payments of $1,250 plus interest for sixteen consecutive weeks. As of June 30, 2021, there is $11,250 of principal and $9,447 of accrued interest remaining on this note.
NOTE 12 – NOTES PAYABLE, RELATED PARTIES
As of June 30, 2021 and December 31, 2020, the Company had an aggregate total of $157,854 and $157,854, respectively, in related party notes payable. These notes bear simple interest at 10%-18% per annum, with default simple interest of 10%-24% per annum. As of June 30, 2021, all notes payable to related parties were in default. Accrued interest on related party notes payable totaled $408,141 and $390,342 at June 30, 2021 and December 31, 2020, respectively.
NOTE 13 – SMALL BUSINESS ADMINISTRATION LOAN
On April 17, 2002, the Company borrowed $989,100 under a note agreement with the Small Business Administration. The note bears interest at 4% and is secured by the equipment and machinery assets of the Company. The balance outstanding at June 30, 2021and December 31, 2020 was $979,950 and $979,950, respectively. The note calls for monthly installments of principal and interest of $4,813 beginning September 17, 2002 and continuing until April 17, 2032.
The Company and the Small Business Administration reached an agreement in November 2010, whereby the Small Business Administration would accept $500 per month for 12 months with payment reverting back to $4,813 in November 2011. The Company only made four payments under the modification agreement. The Company continues to carry the loan as a current term liability because current payments are not being made, resulting in a default. Accrued interest payable on the note totaled $673,539 and $654,101 as of June 30, 2021 and December 31, 2020, respectively.
| F-24 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 14 – DERIVATIVE LIABILITY
Effective July 31, 2009, the Company adopted ASC 815, which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. The conversion price of certain convertible notes, convertible preferred stock and exercise price of certain warrants are variable and subject to the fair value of the Company’s units on the date of conversion or exercise. As a result, the Company has determined that the conversion and exercise features are not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the conversion and exercise features of the instruments to be recorded as a derivative liability.
ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as items of other income or expense. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with convertible notes payable and warrants.
At origination and subsequent revaluations, the Company valued the derivative liabilities using the Black-Scholes options pricing model under the following assumptions as of June 30, 2021 and December 31, 2020:
Six Months Ended June 30, 2021 | Year Ended December 31, 2020 | |||||||
| Risk-free interest rate | 0.21-0.87 | % | 0.13-0.36 | % | ||||
| Expected options life | 1 - 5 yrs | 1 - 3 yrs | ||||||
| Expected dividend yield | - | - | ||||||
| Expected price volatility | 376.07 | % | 693.24 | % | ||||
During the six months ended June 30, 2021, the Company’s derivative liability increased from $21,713,986 to $71,074,787, and the Company recognized a gain (loss) on derivative liabilities of $(43,365,798), $554,949, $(49,360,801) and $(600,942) for the three and six months ended June 30, 2021 and 2020, respectively, in conjunction with settlement of convertible notes payable, additions of new derivative liabilities and subsequent revaluations of existing derivative liabilities.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Employment Agreement
On May 16, 2006, the Company and Lloyd Spencer (the “Executive”) entered into an Employment Agreement (the “Agreement”). The Executive shall serve as an executive officer of the corporation beginning on May 15, 2006 for a terms of five years and the Agreement shall automatically renew on the anniversary date for successive one year periods. As compensation, the Executive shall receive a salary of $12,500 per month. In addition, the Executive received a five-year stock option granting the Executive the right to purchase 5,000,000 shares of the Company’s common stock at a price of $0.18.
Consulting Agreement
On May 10, 2021, the Company entered into a Consulting Agreement (the “Agreement”) with Global Technologies, Ltd (the “Consultant”) for preparation of the Company’s financial reports. Under the terms of the Agreement, the Consultant is to assist the Company in the preparation of its Registration Statement, Quarterly Reports for the periods ended March 31, 2021, June 30, 2021, September 30, 2021 and Annual Report for the period ended December 31, 2021. The Agreement shall have a term of one (1) year, commencing on June 10, 2021, and shall remain in effect to the earlier of one (1) year or until the Company’s Annual Report for the year ended December 31, 2021 is filed with OTC Markets or the Securities and Exchange Commission. As compensation for its performance under this Agreement, the Company shall pay Consultant a total of $45,000 payable in three (3) equal tranches as follows: (i) $15,000 payable upon the Company’s first capital raise; (ii) $15,000 payable upon the Company’s second capital raise; and (iii) $15,000 payable on or before October 31, 2021.
NOTE 16 – PREFERRED STOCK
a) Series A Preferred Stock
The Company has authorized 125,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock (i) pays a dividend of 5%, payable at the discretion of the Company in cash or common stock, (ii) is convertible immediately after issuance into the Company’s common stock at the lesser of $0.005 per share or 75% of the average closing bid prices over the 20 trading days immediately preceding the date of conversion, (iii) has a liquidation preference of $1.00 per share, (iv) may be redeemed by the Company at any time up to five years after the issuance date for $1.30 per share plus accrued and unpaid dividends, and (v) has no voting rights except when mandated by Delaware law.
| F-25 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 16 – PREFERRED STOCK (continued)
There were no issuances, conversions or redemptions of Series A Preferred Stock during the periods ended June 30, 2021 and December 31, 2020. At June 30, 2021 and December 31, 2020, the Company had 0 and 0 shares of Series A Preferred Stock issued and outstanding, respectively.
b) Series B Preferred Stock
The Company has authorized 525,000 shares of Series B Preferred Stock. Each share of Series B Preferred Stock (i) pays a dividend of 5%, 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, and (iv) may be redeemed by the Company at any time up to five years.
There were no issuances, conversions or redemptions of Series B Preferred Stock during the periods ended June 30, 2021 and December 31, 2020. At June 30, 2021 and December 31, 2020, the Company had 159,666 and 159,666 shares of Series B Preferred Stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series B Preferred Stock, the embedded conversion feature related to the Series B Preferred Stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series B Preferred Stock of $283,305 and $212,868 as of June 30, 2021 and December 31, 2020, respectively. This amount is included as a derivative liability on the Company’s unaudited condensed consolidated balance sheet. Fair value adjustments of $131,783, $(3,242), $(142,471) and $0 were charged to derivative income (expense) for the three and six months ended June 30, 2021 and 2020, respectively.
c) Series C Preferred Stock
The Company has authorized 500,000 shares of Series C Preferred Stock. During 2007, the Company initiated a private offering under Regulation D of the Securities Act of 1933 (the “Private Offering”), of an aggregate 500,000 units (collectively referred to as the “Units”) at a price of $1.00 per Unit, with each Unit consisting of one share of Series C Preferred Stock at the lesser of 85% of the average closing bid price of the common stock over the 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 Preferred Stock, exercisable at $0.06 per share and which expire five years from the conversion date.
There were no issuances, conversions or redemptions of Series C Preferred Stock during the periods ended June 30, 2021 and December 31, 2020. At June 30, 2021 and December 31, 2020, the Company had 0 and 0 shares of Series C Preferred Stock issued and outstanding, respectively.
| F-26 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 16 – PREFERRED STOCK (continued)
d) Series D Preferred Stock
On November 10, 2011 the Board approved by unanimous written consent an amendment to the Company’s Certificate of Incorporation to designate the rights and preferences of Series D Preferred Stock. There are 500,000 shares of Series D Preferred Stock authorized with a par value of $0.001. Each share of Series D Preferred Stock has a stated value equal to $1.00. These preferred shares rank higher than all other securities. Each outstanding share of Series D Preferred Stock shall be convertible into the number of shares of the Company’s common stock determined by dividing the stated value by the conversion price which is defined as 85% of the average closing bid price of the common stock over the twenty trading days immediately preceding the date of conversion, but no less than par value of the common stock. Mandatory conversion can be demanded by the Company prior to October 1, 2013. Each share of the Series D Preferred Stock shall have voting rights equal to 100,000 votes of common stock.
There were no issuances, conversions or redemptions of Series D Preferred Stock during the periods ended June 30, 2021 and December 31, 2020. At June 30, 2021 and December 31, 2020 there were 100,000 shares of Series D Preferred Stock issued and outstanding.
Based upon the Company’s evaluation of the terms and conditions of the Series D Preferred Stock, the embedded conversion feature related to the Series D Preferred Stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series D Preferred Stock of $1,992,033 and $200,000 as of June 30, 2021 and December 31, 2020, respectively. This amount is included as a derivative liability on the Company’s unaudited condensed consolidated balance sheet. Fair value adjustments of $1,292,033, $(19,439), $1,792,033 and $0 were charged to derivative income (expense) for the three and six months ended June 30, 2021 and 2020, respectively.
e) Series E Preferred Stock
On March 9, 2012, the Company filed the Certificate of Designation of the Rights and Preferences of Series E Preferred Stock of the Company with the Delaware Secretary of the State pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 1,000,000 authorized shares of Series E Preferred Stock, par value $0.001 per share. The Series E Preferred Stock is convertible into common stock at 50% of the lowest closing bid price of the common stock over the 20 days immediately prior the date of conversion, but no less than the par value of the common stock.
There were no issuances, conversions or redemptions of Series E Preferred Stock during the periods ended June 30, 2021 and December 31, 2020. At June 30, 2021 and December 31, 2020, there were 791,567 and 791,567 shares of Series E Preferred Stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series E Preferred Stock, the embedded conversion feature related to the Series E Preferred Stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
| F-27 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 16 – PREFERRED STOCK (continued)
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series E Preferred Stock of $13,112,376 and $1,388,822 as of June 30, 2021 and December 31, 2020, respectively. This amount is included as a derivative liability on the Company’s unaudited condensed consolidated balance sheet. Fair value adjustments of $8,378,095, $(18,085), $11,723,554 and $(36,170) were charged to derivative income (expense) for the three and six months ended June 30, 2021 and 2020, respectively.
f) Series F Preferred Stock
On October 4, 2013, the Company filed the certificate of designation pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 500,000 authorized shares of Series F Preferred Stock, par value $0.001 per share.
The shares of Series F Preferred Stock have a stated value of $1.00, have no voting rights, are entitled to no dividends due or payable and are convertible into the number of shares of the Company’s common stock determined by dividing the stated value by the conversion price, which is defined as 85% of the average closing bid price of the common stock over the five trading days immediately preceding the date of conversion, but no less than the par value of the common stock. At any time after the issuance date through the fifth anniversary of the issuance of the Series F Preferred Stock, the Company shall have the option to redeem any unconverted shares at an amount equal to 130% of the stated value of the Series F Preferred Stock plus accrued and unpaid dividends, if any. Redemption shall be established by the Company in its sole and absolute discretion and no holder of Series F Preferred Stock may demand that the Series F Preferred Stock be redeemed.
There were no issuances, conversions or redemptions of Series F Preferred Stock during the periods ended June 30, 2021 and December 31, 2020. At June 30, 2021 and December 31, 2020, the Company had 190,000 and 190,000 shares of Series F Preferred Stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series F Preferred Stock, the embedded conversion feature related to the Series F Preferred Stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series F Preferred Stock of $3,784,862 and $380,000 as of June 30, 2021 and December 31, 2020, respectively. This amount is included as a derivative liability on the Company’s unaudited condensed consolidated balance sheet. Fair value adjustments of $2,454,862, $(47,797), $3,404,862 and $0 were charged to derivative income (expense) for the three and six months ended June 30, 2021 and 2020, respectively.
| F-28 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 16 – PREFERRED STOCK (continued)
g) Series G Preferred Stock
On April 17, 2014, the Company filed the certificate of designation pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 500,000 authorized shares of Series G Preferred Stock, par value $0.001 per share.
The shares of Series G Preferred Stock have a stated value of $1.00, have voting rights equal to 5,000,000 votes of common stock, are entitled to no dividends due or payable, are non-redeemable, and are convertible into the number of shares of the Company’s common stock determined by dividing the stated value by the conversion price, which is defined as 85% of the average closing bid price of the common stock over the twenty trading days immediately preceding the date of conversion, but no less than par value of the common stock.
There were no issuances, conversions or redemptions of Series G Preferred Stock during the periods ended June 30, 2021 and December 31, 2020. At June 30, 2021 and December 31, 2020, the Company had 25,000 and 25,000 shares of Series G Preferred Stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series G Preferred Stock, the embedded conversion feature related to the Series G Preferred Stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series G Preferred Stock of $498,008 and $50,000 as of June 30, 2021 and December 31, 2020, respectively. This amount is included as a derivative liability on the Company’s unaudited condensed consolidated balance sheet. Fair value adjustments of $323,008, $(4,860), $448,008 and $0 were charged to derivative income (expense) for the three and six months ended June 30, 2021 and 2020, respectively.
NOTE 17 – COMMON STOCK AND TREASURY STOCK
Common Stock
The Company is authorized to issue up to 35,000,000,000 shares of $0.0001 par value common stock, of which 14,102,057,165 and 13,701,742,065 shares were issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.
Issuances during the six months ended June 30, 2021:
On March 9, 2021, the Company issued 7,500,000,000 shares of its common stock to its sole officer and director, Lloyd Spencer, as compensation for accrued wages for fiscal years 2016, 2017, 2018, 2019 and 2020.
On May 28, 2021, the Company issued 400,315,100 shares of common stock to a noteholder in satisfaction of $17,000 principal and $23,032 principal.
| F-29 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 17 – COMMON STOCK AND TREASURY STOCK (continued)
On June 4, 2021, the Company’s sole officer and director, Lloyd Spencer, returned 7,500,000,000 shares of common stock previously to Mr. Spencer for accrued compensation so that the shares may be used for future business transactions. The accrued wages due Mr. Spencer were for fiscal years 2016, 2017, 2018, 2019 and 2020 were reinstated to the Company’s financials.
Treasury Stock
As of June 30, 2021 and December 31, 2020, the Company held 189,966,000 and 189,966,000 shares of common stock in treasury, respectively.
NOTE 18 – STOCK OPTIONS AND WARRANTS
Employee Stock Options
None
Non-employee Stock Options
None
Stock Purchase Warrants
None
NOTE 19 – SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of FASB ASC Topic 855, Subsequent Events, and has determined that there were no material reportable subsequent events to be disclosed, other than those listed below:
On July 6, 2021, the Company filed Articles of Incorporation in the State of Wyoming to form a new wholly owned subsidiary, CoroWare Treasury, Inc.
On July 13, 2021, the Company issued 250,000,000 shares of common stock to a noteholder in satisfaction of $75,000 interest.
On July 19, 2021, the Company issued Tangiers Investment Group, LLC (“Tangiers”) a Fixed Convertible Promissory Note (the “Note”) in the amount of One Hundred Five Thousand and NO/100 Dollars ($105,000)($100,000 Funded and $5,000 Original Issuer Discount). The Note is convertible, in whole or in part, at any time and from time to time before maturity (July 19, 2022) at the option of the holder at the Fixed Conversion Price of $0.001. that The Note has a term of one (1) year and bears interest at 10% annually. Upon the event of default, the Note shall accrue interest at the rate equal to the lower of 20% per annum or the highest rate permitted by law. The transaction closed on July 19, 2021.
| F-30 |
COROWARE,
INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
NOTE 19 – SUBSEQUENT EVENTS (continued)
On July 19, 2021, Corware, Inc., CoroWare Technologies, Inc. (hereinafter “CoroWare”), Robotic Workspace Technologies, Inc. (collectively, the (Obligors”) and YA Global Investments, LP (hereinafter, “YA”) entered into a Settlement Agreement (the “Agreement”). On February 5, 2016, CoroWare issued to YA a Convertible Debenture in the amount $2,829,690. As of July 19, 2021, the Obligors are indebted to YA in the amount of $5,192,492. Under the terms of the Agreement, CoroWare agrees to issue to YA on one or more occasions an aggregate of 2,250,000,000 shares of common stock in full in final settlement of all claims YA may have against CoroWare and its subsidiaries.
On July 28, 2021, the Company filed an Articles of Amendment to its Amended and Restated Certificate of Incorporation (the “Articles of Amendment”) with the Secretary of State of Delaware to change the name of the Company to “CarbonMeta Technologies Inc.” (the “Name Change Amendment”). The Name Change Amendment was approved by a special vote of the Company’s stockholders on July 26, 2021 and became effective on July 27, 2021. The Company effected this name change to reflect its new business direction: the production of hydrogen and high value carbon products from organic waste streams. The Company’s new CUSIP number for the Company’s Common Stock, no par value, in connection with the Name Change Amendment is 14134L 103. The Company is awaiting final approval from FINRA.
On August 12, 2021, the Company filed Articles of Incorporation in England and Wales to form a new wholly owned subsidiary, CarbonMeta Research Ltd.
| F-31 |
Index to Financial Statements
| F-32 |
COROWARE, INC. AND SUBSIDIARIES
| For the Year ended | For the Year ended | |||||||
| December 31, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | - | $ | - | ||||
| Accounts receivable, net | - | - | ||||||
| Inventory, net | - | - | ||||||
| Other current assets | - | - | ||||||
| Total Current Assets | - | - | ||||||
| Property and equipment, net | - | - | ||||||
| Security deposits | - | - | ||||||
| TOTAL ASSETS | $ | - | $ | - | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 12,132,363 | $ | 10,809,307 | ||||
| Accrued expenses - related parties | 230,993 | 230,993 | ||||||
| Obligations collateralized by receivables, net | 298,286 | 291,008 | ||||||
| Convertible debt, net | 4,549,479 | 4,549,479 | ||||||
| Notes payable | 136,123 | 136,123 | ||||||
| Notes payable - related parties | 157,854 | 157,854 | ||||||
| Small business administration loan | 979,950 | 979,950 | ||||||
| Derivative liability | 21,713,986 | 11,312,105 | ||||||
| Total Current Liabilities | 40,196,559 | 28,466,819 | ||||||
| TOTAL LIABILITIES | $ | 40,196,559 | $ | 28,466,819 | ||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Redeemable preferred stock, Series A, $0.001 par value, 125,000 shares authorized, 0 shares issued and outstanding | $ | - | $ | - | ||||
| Redeemable preferred stock, Series B, $0.001 par value, 525,000 shares authorized, 159,666 shares issued and outstanding | 160 | 160 | ||||||
| Redeemable preferred stock, Series C, $0.001 par value, 500,000 shares authorized, 0 shares issued and outstanding | - | - | ||||||
| Redeemable preferred stock, Series D, $0.001 par value, 500,000 shares authorized, 100,000 shares issued and outstanding | 100 | 100 | ||||||
| Redeemable preferred stock, Series E, $0.001 par value, 1,000,000 shares authorized, 791,567 and 791,567 shares issued and outstanding, respectively | 791 | 791 | ||||||
| Redeemable preferred stock, Series F, $0.001 par value, 500,000 shares authorized, 190,000 and 190,000 shares issued and outstanding | 190 | 190 | ||||||
| Redeemable preferred stock, Series G, $0.001 par value, 500,000 shares authorized, 25,000 shares issued and outstanding | 25 | 25 | ||||||
| Common stock; 35,000,000,000 and 13,000,000,000 shares authorized at $0.0001 par value, respectively, 11,937,670,076 and 8,888,809,250 shares issued and outstanding, respectively | 1,370,174 | 1,370,174 | ||||||
| Additional paid-in capital | 31,543,315 | 31,543,315 | ||||||
| Non-controlling interest | 92,258 | 92,258 | ||||||
| Treasury stock | (18,997 | ) | (18,997 | ) | ||||
| Accumulated deficit | (73,184,575 | ) | (61,454,835 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (40,196,559 | ) | (28,466,819 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | - | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements
| F-33 |
COROWARE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 2020 and 2019
(Unaudited)
| For the Years Ended | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| REVENUES, NET | $ | - | $ | - | ||||
| COST OF REVENUE | - | - | ||||||
| GROSS PROFIT | - | - | ||||||
| OPERATING EXPENSES | ||||||||
| General and administrative | 150,000 | 150,000 | ||||||
| TOTAL OPERATING EXPENSES | 150,000 | 150,000 | ||||||
| LOSS FROM OPERATIONS | (150,000 | ) | (150,000 | ) | ||||
| OTHER INCOME (EXPENSES) | ||||||||
| Change in derivative liabilities | (10,401,881 | ) | 11,286,929 | |||||
| Interest expense, net | (1,177,860 | ) | (1,104,983 | ) | ||||
| TOTAL OTHER INCOME (EXPENSES) | (11,579,741 | ) | 10,181,946 | |||||
| INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST | (11,729,741 | ) | 10,031,946 | |||||
| INCOME (LOSS) BEFORE INCOME TAXES | (11,729,741 | ) | 10,031,946 | |||||
| Income tax expense (provision) | - | - | ||||||
| NET INCOME (LOSS) | $ | (11,729,741 | ) | $ | 10,031,946 | |||
| BASIC AND DILUTED INCOME (LOSS) PER SHARE | $ | (0.00 | ) | $ | 0.00 | |||
| BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | 10,730,896,775 | 10,730,896,775 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
| F-34 |
COROWARE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Deficit
For the years ended December 31, 2020 and 2019
(Unaudited)
| Additional | Non | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Controlling | Treasury | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| Series B | Series D | Series E | Series F | Series G | Amount | Shares | Amount | Capital | Interest | Stock | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2019 | 159,666 | 100,000 | 791,567 | 190,000 | 25,000 | $ | 1,266 | 13,701,742,065 | $ | 1,370,174 | $ | 31,543,315 | $ | 92,258 | $ | (18,997 | )) | $ | (71,486,781 | )) | $ | (38,498,765 | )) | |||||||||||||||||||||||||||||
| Net income for the year ended December 31, 2019 | - | - | - | - | - | - | - | - | - | - | - | 10,031,946 | 10,031,946 | |||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 159,666 | 100,000 | 791,567 | 190,000 | 25,000 | $ | 1,266 | 13,701,742,065 | $ | 1,370,174 | $ | 31,543,315 | $ | 92,258 | $ | (18,997 | )) | $ | (61,454,835 | ) | $ | (28,466,819 | ) | |||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2020 | - | - | - | - | - | - | - | - | - | - | - | (11,729,741 | ) | (11,729,741 | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 159,666 | 100,000 | 791,567 | 190,000 | 25,000 | $ | 1,266 | 13,701,742,065 | $ | 1,370,174 | $ | 31,543,315 | $ | 92,258 | $ | (18,997 | ) | $ | (73,184,575 | ) | $ | (40,196,559 | ) | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
| F-35 |
COROWARE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2020 and 2019
(Unaudited)
| For the Years Ended | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) gain | $ | (11,729,741 | ) | $ | 10,031,946 | |||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in derivative liability | 10,401,881 | (11,286,929 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable and accrued expenses | 1,323,057 | 1,250,450 | ||||||
| NET CASH (USED IN) OPERATING ACTIVITIES | (4,803 | ) | (4,533 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | - | - | ||||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from obligations collateralized by receivables | 4,803 | 4,533 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 4,803 | 4,533 | ||||||
| Net increase (decrease) in cash | - | - | ||||||
| Cash at beginning of year | - | - | ||||||
| Cash at end of year | $ | - | $ | - | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | - | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements
| F-36 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
As used herein, the terms the “Company,” “CoroWare” “we,” “us,” “our” and similar refer to CoroWare, Inc., a publicly quoted shell corporation incorporated on July 15, 2002 under the laws of the State of Delaware as weComm, Ltd. On August 20, 2002, the Company filed an Amendment to its Articles of Incorporation changing the name of the corporation to SRM Networks, Inc. In connection with the acquisition of Hy-Tech Computer Systems, Inc. on January 31, 2003, the Company changed its name to Hy-Tech Technology Group, Inc. In connection with the Agreement and Plan of Merger Robotics Workspace Technology, Inc., Innova Holdings, Inc. and the Company’s wholly owned subsidiary, RWT Acquisition, Inc., dated July 21, 2004, the Company’s named changed to Innova Holdings, Inc. Subsequently, on November 20, 2006, the Company changed its name to Innova Robotics and Automation, Inc. and then on April 23, 2008, the Company changed its name to CoroWare, Inc.
The Company has four wholly-owned subsidiaries: CoroWare Technologies, Inc. (“CTI”), CoroWare Robotics Solutions, Inc. (“CRS”), RWT Acquisition, Inc. (“RWT”), Carbon Sources, Inc. (“CS”) and a 51% interest in AriCon, LLC (“AriCon).
CoroWare Technologies (“CTI”) was incorporated in the State of Florida on May 16, 2006 and its principal business was a software professional services company with a strong focus on information technology integration and robotics integration, business automation solutions, and unmanned systems solutions to its customers in North America and Europe.
CoroWare Robotics Solutions, Inc. (“CRS”) was incorporated in the State of Texas on February 27, 2015, and its principal business was as a technology incubation company whose focus was on the delivery of mobile robotics and IOT products, solutions and services for university, government and corporate researchers, and enterprise customers. CRS’s business operations were discontinued in October 2016 when the Company’s gross margins and financing costs became unsustainable.
Robotic Workspace Technologies, Inc. (“RWT”) was incorporated in the State of Florida on July 1, 1994, and its principal business was developing and marketing open-architecture PC controls and related products that could improve the performance, applicability, and productivity of robots and other automated equipment. RWT’s business operations were discontinued in September 2007 when the Company’s losses became unsustainable.
AriCon, LLC (“AriCon) was a joint venture that was intended to develop mobile robot platforms, applications, and solutions for the construction industry. In October 2016, AriCon ceased operations of all subsidiary business operations when the Company’s losses became unsustainable, and the Company was not able to obtain investment financing.
Carbon Source, Inc. (“CS”) was incorporated in the State of Wyoming on June 14, 2021 and its principal business is waste reclamation technologies and processing.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of CoroWare, Inc. and its wholly-owned subsidiaries, CoroWare Technologies, Inc., CoroWare Robotics Solutions, Inc., and Robotic Workspace Technologies, Inc., as well as its 51% interest in ARiCON, LLC (collectively, the “Company”). All significant inter-company balances and transactions have been eliminated in the consolidated financial statements.
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. The Company uses all available information and appropriate techniques to develop its estimates. However, actual results could differ from its estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of three months or less when purchased as cash equivalents. The Company had no cash equivalents as of December 31, 2020 and 2019. At times throughout the year, the Company might maintain bank balances that may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. Periodically, the Company evaluates the credit worthiness of the financial institutions and has not experienced any losses in such accounts. As of December 31, 2020 and 2019, the Company did not have bank balances that exceeded the FDIC insured limits.
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. The Company had an allowance for doubtful accounts of $- and $- at December 31, 2020 and 2019, respectively.
| F-37 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
Inventories, which are comprised solely of finished goods, are stated at the lower of cost (based on the first-in, first-out method) or market. The Company provides for estimated losses from obsolete or slow-moving inventories, and writes down the cost of inventory at the time such determinations are made. Reserves are estimated based upon inventory on hand, historical sales activity, industry trends, the business environment and the expected net realizable value. The net realizable value is determined based upon current awareness of market prices.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major renewals and improvements are capitalized while expenditures for minor replacements, maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Upon retirement or disposal of assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss, if any, is reflected in loss on disposal of assets in the consolidated statement of income and comprehensive income.
At least annually, the Company evaluates, and adjusts when necessary, the estimated useful lives. The changes in estimated useful lives did not have a material impact on depreciation in any period. The estimated useful lives are:
| Leasehold improvements | Remaining term of lease | |
| Furniture and fixtures | 5-7 years | |
| Computer equipment and software | 3-5 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-35, Property, Plant and Equipment, Subsequent Measurement (“ASC 360-35”). 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.
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.
Segment Reporting
FASB ASC 280-10, Segment Reporting, defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief decision maker in deciding how to allocate resources and in assessing performance. The Company reports according to one main segment.
Fair Value of Financial Instruments
The Company follows FASB ASC 820-10-35-37 (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP and
| F-38 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts reported in the Company’s consolidated financial statements for accounts receivable, accounts payable and accrued expenses, and related party accrued expenses approximate their fair value because of the immediate or short-term nature of these financial instruments. The carrying amounts reported in the balance sheet for its notes payable approximates fair value as the contractual interest rate and features are consistent with similar instruments of similar risk in the marketplace.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
It is not, however, practical to determine the fair value of advances from stockholders, if any, due to their related party nature.
The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2020 and 2019, on a recurring basis:
Assets and liabilities measured at fair value on a recurring basis at December 31, 2020 | Level 1 | Level 2 | Level 3 | Total Carrying Value | ||||||||||||
| Derivative liabilities | $ | - | $ | (21,713,986 | ) | $ | - | $ | (21,713,986 | ) | ||||||
Assets and liabilities measured at fair value on a recurring basis at December 31, 2019 | Level 1 | Level 2 | Level 3 | Total Carrying Value | ||||||||||||
| Derivative liabilities | $ | - | $ | (11,312,105 | ) | $ | - | $ | (11,312,105 | ) | ||||||
| F-39 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for FASB ASC 815, Derivatives and Hedging (“ASC 815”).
Professional standards generally provide three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument”.
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
ASC 815 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Stock Based Compensation
The Company follows FASB ASC 718, Compensation – Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the consolidated financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50, Equity–based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Through newly issued restricted common stock, the Company pays qualified contractors and advisors common shares in lieu of compensation for services provided including business development, management, technology development, consulting, legal services and accounting services.
| F-40 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
The Company derives its 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. The Company 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.
The Company recognizes revenue for its 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.
The Company accounts 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, the Company allocates 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, the Company allocates 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.
The Company limits 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. The Company recognizes 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.
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 for the years ended December 31, 2020 and 2019 were $- and $-, respectively.
Advertising Expense
The Company expenses advertising costs as they are incurred. Advertising expense for the years ending December 31, 2020 and 2019 were $- and $-, 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.
Basic and Diluted Loss per Share
The Company computes basic and diluted earnings per share amounts in accordance with FASB ASC 260, Earnings per Share. Basic earnings per share is computed by dividing net income (loss) available to common
| F-41 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.
For the years ended December 31, 2020 and 2019, the effect of common stock equivalents has been excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive.
The Company currently has convertible debt and preferred stock, which, if converted, as of December 31, 2020 and 2019, would have caused the Company to issue diluted shares totaling 106,657,185,025 and 112,999,200,642, respectively.
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, 2020 and 2019 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 percent 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, 2020 and 2019, there were cumulative undeclared dividends to Preferred Series B shareholders of $15,969 and $15,969, respectively, the obligation for which is contingent on declaration by the board of directors. These balances have been recorded as part of accounts payable and accrued expenses.
ASU 2014-08
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on the Company’s financial position, results of operations or cash flows.
ASU 2014-09
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services, or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company is still evaluating the effect of the adoption of ASU 2014-09. On April 1, 2015, the FASB voted to propose to defer the effective date of the new revenue recognition standard by one year.
ASU 2014-12
In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be achieved after the Requisite Service Period (“ASU 2014-12”). This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2014-12 did not have any effect on the Company’s financial position, results of operations or cash flows.
| F-42 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
ASU 2014-15
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material effect on its financial position, results of operations or cash flows.
ASU 2014-16
In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815) (“ASU 2014-16”). ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2014-16 did not have any effect on the Company’s financial position, results of operations or cash flows.
ASU 2014-17
In November 2014, the FASB issued ASU No. 2014-17, Business Combinations (Topic 805): Pushdown Accounting (“ASU 2014-17”). This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on the Company’s financial position, results of operations or cash flows.
ASU 2015-01
In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. The adoption of ASU 2015-01 did not have any effect on the Company’s financial position, results of operations or cash flows.
ASU 2015-02
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”), which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). This ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB ASC and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. This ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2015-02 did not have any effect on the Company’s financial position, results of operations or cash flows.
| F-43 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
ASU 2015-03
In April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. The adoption of ASU 2014-08 did not have any effect on the Company’s financial position, results of operations or cash flows.
There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 3 – GOING CONCERN
The Company incurred a net loss in the amount of $11,729,741 during the year ended December 31, 2020 compared to net income of $10,031,946 for the year ended December 31, 2019. The Company has a working capital deficit of $40,195,559 and $28,466,819 as of December 31, 2020 and 2019, respectively. The Company has accumulated deficits of $73,184,575 and $61,454,835 as of December 31, 2020 and 2019, respectively. Because of these and other factors, 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 consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| F-44 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 5 – INVENTORY
As of December 31, 2020 and 2019, inventories consist of the following:
Year Ended December 31, 2020 | Year Ended December 31, 2019 | |||||||
| Raw materials | $ | - | $ | - | ||||
| Work in process | - | - | ||||||
| Finished goods | - | - | ||||||
| Subtotal | - | - | ||||||
| Less: inventory reserve | - | - | ||||||
| Inventory, net | $ | - | $ | - |
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2020 and 2019:
Year Ended December 31, 2020 | Year Ended December 31, 2019 | |||||||
| Computer equipment | $ | - | $ | - | ||||
| Furniture and fixtures | - | - | ||||||
| Subtotal | - | - | ||||||
| Less: accumulated depreciation | - | - | ||||||
| Property and equipment, net | $ | - | $ | - |
Depreciation expense for the years ended December 31, 2020 and 2019 was $- and $-, respectively.
| F-45 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following at December 31, 2020 and 2019:
| Year Ended | Year Ended | |||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Accounts payable | $ | 1,328,392 | $ | 1,328,394 | ||||
| Accrued expenses | 30,078 | 30,078 | ||||||
| Dividends payable | 15,969 | 15,969 | ||||||
| Credit cards payable | 81,048 | 81,048 | ||||||
| Accrued interest | 7,007,195 | 5,843,153 | ||||||
| Accrued payroll | 861,368 | 711,368 | ||||||
| Accrued PTO | 134,861 | 134,861 | ||||||
| Commissions payable | 221,188 | 221,188 | ||||||
| Payroll taxes payable | 2,393,287 | 2,393,287 | ||||||
| Garnishment liens payable | 35,502 | 35,502 | ||||||
| Pension plan payable | 23,981 | 23,981 | ||||||
| Flex spending payable | (507 | ) | (507 | ) | ||||
| Total | $ | 12,132,362 | $ | 10,818,322 | ||||
NOTE 8 – RELATED PARTY TRANSACTIONS
As of December 31, 2020 and 2019, related party accrued expenses were $230,993 and $230,993, respectively, which consisted entirely of deferred salaries to employees.
NOTE 9 – OBLIGATIONS COLLATERALIZED BY RECEIVABLES, NET
On July 16, 2015, the Company entered into an accounts receivable financing arrangement with Knight Capital for a principal amount received in cash of $173,500. The terms of the arrangement requires the Company to repay the principal balance plus an additional $52,050 in debt discounts for total remittance of $225,550. The terms of repayment require the Company to remit to the lender approximately 30% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $52,050 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at December 31, 2020 was $85,018.
On July 31, 2015, the Company entered into an accounts receivable financing arrangement with High-Speed Capital for a principal amount received in cash of $85,000. The terms of the arrangement requires the Company to repay the principal balance plus an additional $39,950 in debt discounts for total remittance of $124,950. The terms of repayment require the Company to remit to the lender approximately 47% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $39,950 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at December 31, 2020 was $37,683.
On August 17, 2015, the Company entered into an accounts receivable financing arrangement with QuickFix Capital for a principal amount received in cash of $70,000. The terms of the arrangement requires the Company to repay the principal balance plus an additional $32,200 in debt discounts for total remittance of $102,200. The terms of repayment require the Company to remit to the lender approximately 46% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This
| F-46 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 9 – OBLIGATIONS COLLATERALIZED BY RECEIVABLES, NET (continued)
borrowing is secured by the assets of the Company. The additional $32,200 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at December 31, 2020 was $73,907.
On August 18, 2015, the Company entered into an accounts receivable financing arrangement with PowerUp Lending Group, Ltd. for a principal amount received in cash of $150,000. The terms of the arrangement require the Company to repay the principal balance plus an additional $45,000 in debt discounts for total remittance of $195,000. The terms of repayment require the Company to remit to the lender approximately 39% of all future receivables arising from credit card, debit card and prepaid transactions until such time as the total remittance is paid in full. This borrowing is secured by the assets of the Company. The additional $45,000 will be recognized as interest expense over the estimated term of the agreement. The term is not fixed due to the variable repayment terms; however, management currently estimates such terms to be between approximately two and eight months. The ending principal balance of this borrowing at December 31, 2020 was $46,224.
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET
In February 2003, the Company issued $230,000 of notes payable which matured in June 2003. The notes earn simple interest at 8% per annum unless they are in default, in which case they earn default simple interest at a rate of 15%. In July 2003, the terms of the note were changed such that the notes became convertible debentures, whereby at the option of the holder, all outstanding principal and interest can be converted into shares of the Company’s common stock at $1.00 per share. As of December 31, 2020, $100,000 of principal and $258,828 of accrued interest remain outstanding from these notes. These notes are currently in default.
On July 22, 2005, the Company issued a convertible promissory note to Richard Wynns (“Wynns”) for $30,000. The note accrues simple interest at a rate of 5% per annum and matures on December 31, 2006. At the option of the holder, all outstanding principal and interest can be converted into shares of the Company’s common stock at $0.15 per share. Through December 31, 2015, the holder converted $22,500 of principal into shares of the Company’s common stock. As of December 31, 2020, there is $7,500 of principal and $6,752 of accrued interest remaining on this note. This note is currently in default.
On October 3, 2005, the Company issued a convertible promissory note to Wynns for $30,000. The note accrues simple interest at a rate of 10% per annum and matures on November 2, 2005. On July 26, 2010, this note was amended whereby accrued interest through this date was added to the principal balance, making the total principal balance of the note $47,509. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 75% of the average of the three lowest closing prices during the 10-day trading period prior to conversion. As of December 31, 2020, there is $47,509 of principal and $49,871 of accrued interest remaining on this note. This note is currently in default.
On October 14, 2005, the Company issued a convertible promissory note to Wynns for $30,000. The note accrues simple interest at a rate of 10% per annum and matures on December 31, 2006. On July 26, 2010, this note was amended whereby accrued interest through this date was added to the principal balance, making the total principal balance of the note $46,489. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 75% of the average of the three lowest closing prices during the 10-day trading period prior to conversion. As of December 31, 2020, there is $46,489 of principal and $48,801 of accrued interest remaining on this note. This note is currently in default.
On July 20, 2006, the Company issued a convertible promissory note to YA Global Investments, L.P. (“YA Global”) for $1,250,000, with a maturity date of July 20, 2009. On August 22, 2006, the Company issued a convertible promissory note to YA Global for $575,000, with a maturity date of August 22, 2009. The notes accrue simple interest at a rate of 10% per annum, with a default simple interest rate of 14% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder
| F-47 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through December 31, 2015, a total of $82,630 in principal and $373,323 in accrued interest were converted into shares of the Company’s common stock. Additionally, through December 31, 2015, $1,671,742 of principal from these notes were assigned to other parties in the form of convertible promissory notes. On February 5, 2016, the principal and interest were consolidated into a new convertible promissory note.
On November 2, 2007, the Company issued a convertible promissory note to YA Global for $600,000, with a maturity date of November 2, 2010. On March 17, 2008, the Company issued a convertible promissory note to YA Global for $300,000, with a maturity date of March 17, 2010. The notes accrue simple interest at a rate of 14% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. On February 5, 2016, the principal and interest were consolidated into a new convertible promissory note.
On January 12, 2010, the Company issued an amended convertible promissory note to Westmount Holdings International, Ltd., with a principal balance of $567,200 and accrued interest of $317,510, which was assigned from YA Global. The note accrues simple interest at a rate of 14% per annum and is due on demand. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through December 31, 2015, the Company converted $29,883 of principal and $261,259 of accrued interest into shares of the Company’s common stock. As of December 31, 2020, there is $537,317 of principal and $817,819 of accrued interest remaining on this note. This note is currently in default.
On January 28, 2011, the Company issued a convertible promissory note to Barclay Lyons, LLC for $10,750. The note accrues simple interest at a rate of 21% per annum and matures on July 28, 2011, with a default simple interest rate of 36%. Pursuant to the terms of the note, the principal balance is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lesser of (i) the closing price on the day prior to conversion, or (ii) the volume-weighted-average closing price of the five-day trading period prior to conversion, though in no instance shall the conversion price be less than $0.0001. There is a ceiling on the conversion rate of $0.05 per share, but this rate is to be discounted based on forward splits. As of December 31, 2020, there is $10,750 of principal and $37,614 of accrued interest remaining on this note. This note is currently in default.
On March 21, 2011, the Company issued a convertible promissory note to Redwood Management, LLC for $284,132. The note accrues interest at a rate of 14% per annum and matures on March 18, 2013. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. As of December 31, 2020, there is $123,936 of principal and $135,978 of accrued interest remaining on this note. This note is currently in default.
On April 2, 2011, the Company issued a convertible promissory note to Martin Harvey for $67,042, which was assigned to Blackbridge Capital, LLC (“Blackbridge”). The note accrues compounded interest at a rate of 10% per annum and matures on May 2, 2011, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of the average of the five trading days prior to the applicable conversion date, with the number of conversion shares multiplied by 115%. As of December 31, 2020, there is $11,985 of principal and $94,596 of accrued interest remaining on this note. This note is currently in default.
On June 2, 2011, the Company issued a convertible promissory note to Panache Capital, LLC (“Panache”) for $65,000. The note accrues simple interest at a rate of 8% per annum and matures on June 1, 2012, with a default
| F-48 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
simple interest rate of 15% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the of the average of the three lowest closing prices during the 20-day trading period prior to conversion. Through December 31, 2015, the Company converted $57,315 of principal into shares of the Company’s common stock. As of December 31, 20120, there is $7,685 of principal and $18,052 of accrued interest remaining on this note. This note is currently in default.
On June 29, 2011, the Company issued a convertible promissory note to Panache for $15,000. The note accrues simple interest at a rate of 8% per annum and matures on June 29, 2012. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the of the average of the three lowest closing prices during the 20-day trading period prior to conversion. As of December 31, 2020, there is $201 of principal and $5,531 of accrued interest remaining on this note. This note is currently in default.
On October 5, 2011, the Company issued a convertible promissory note to Premier IT Solutions for $21,962. The note accrues compounded interest at a rate of 10% per annum and matures on March 5, 2012, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of the average of the five trading days prior to the applicable conversion date, with the number of conversion shares multiplied by 115%. As of December 31, 2020, there is $21,962 of principal and $63,358 of accrued interest remaining on this note. This note is currently in default.
On February 21, 2012, the Company issued a convertible promissory note to Kelburgh, Ltd. for $13,000. The note accrues compounded interest at a rate of 10% per annum and matures on March 5, 2012, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of 85% of the average of the five trading days prior to the applicable conversion date. As of December 31, 2020, there is $13,000 of principal and $35,512 of accrued interest remaining on this note. This note is currently in default.
On August 3, 2012, the Company issued a convertible promissory note to Raphael Cariou (“Cariou”) for $7,000. The note accrues compounded interest at a rate of 10% per annum and matures on February 3, 2013, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of the average of the five trading days prior to the applicable conversion date, with the number of conversion shares multiplied by 115%. As of December 31, 2020, there is $7,000 of principal and $16,918 of accrued interest remaining on this note. This note is currently in default.
On February 25, 2013, the Company issued two convertible promissory notes to AGS Capital Group, LLC (“AGS”) for $131,377 and $42,000. The notes accrue compounded interest at a rate of 14% per annum and mature on February 25, 2014. Pursuant to the terms of the notes, the principal balance and accrued interest are convertible into shares of the Company’s common stock at a conversion rate of 35% of the lowest closing price during the 20-day trading period prior to conversion. Through December 31, 2015, $96,138 of principal has been converted into shares of the Company’s common stock. As of December 31, 2020, there is a total of $50,640 of principal and $170,413 of accrued interest remaining on these notes. These notes are currently in default.
On March 7, 2013, the Company issued a convertible promissory note to YA Global for $25,000. The note accrues simple interest at a rate of 14% per annum and matures on March 7, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 80% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. On February 5, 2016, the principal and interest were consolidated into a new convertible promissory note.
| F-49 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
On August 23, 2013, the Company issued a convertible promissory note to Zoom Marketing (“Zoom”) for $140,000. The note accrues simple interest at a rate of 5% per annum and matures on January 23, 2014, with a default simple interest rate of 10% per annum. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the of the average of the three lowest closing prices during the five-day trading period prior to conversion. On March 27, 2014, Zoom assigned $75,000 of principal to Tangiers. As of December 31, 2020, there is $65,000 of principal and $49,319 of accrued interest remaining on this note. This note is currently in default.
On November 13, 2013, the Company issued a convertible promissory note to Tangiers for $17,000. The note accrues simple interest at a rate of 10% per annum and matures on November 13, 2014, with a default simple interest rate of 20% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lowest closing price during the 20-day trading period prior to conversion, with the conversion rate being rounded to $0.0001 or whole share. As of December 31, 2020, there is $17,000 of principal and $22,547 of accrued interest remaining on this note. This note is currently in default.
On February 21, 2014, the Company issued a convertible promissory note to Blackbridge for $5,000. The note accrues simple interest at a rate of 8% per annum and matures on September 21, 2014. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 30-day trading period prior to conversion. As of December 31, 2020, there is $5,000 of principal and $3,451 of accrued interest remaining on this note. This note is currently in default.
On March 11, 2014, the Company issued two convertible promissory notes to LG Capital Funding, LLC (“LG”) for $32,000 and $24,000. The notes accrue simple interest at a rate of 12% per annum and mature on March 11, 2015, with default simple interest rates of 24% per annum. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the lowest closing price during the 10-day trading period prior to, and including the date of, conversion. As of December 31, 2020, there is a total of $56,000 of principal and $84,801 of accrued interest remaining on these notes. These notes are currently in default.
On March 27, 2014, the Company issued a convertible promissory note to Tangiers for $75,000, which was assigned from Zoom. The note accrues simple interest at a rate of 10% per annum and is due on March 27, 2015, with a default simple interest rate of 20% per annum. On March 27, 2014, the Company issued a separate convertible promissory note to Tangiers, whereby the Company could borrow up to $600,000, of which $100,000 would be treated as an original issue discount on a pro rata basis. The note accrues simple interest at a rate of 0% per annum and is due on demand, with a default simple interest rate of 20% per annum. During the year ended December 31, 2014, the Company borrowed $72,000, of which $12,000 was original issue discount. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a 50% discount of the lowest closing price during the 20-day trading period prior to the date of conversion. As of December 31, 2020, there is a total of $147,000 of principal and $92,219 of accrued interest remaining on these notes. These notes are currently in default.
On April 1, 2014, YA Global sold $40,000 of their original note in the amount $1,250,000 to an unrelated third party (“Tuohy”). The Company then issued a convertible promissory note to Tuohy for that debt. The note calls for 14% simple interest through the maturity date of December 31, 2014. Pursuant to the terms of the notes the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 20-day trading period prior to conversion, or $0.01, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through December 31, 2015, Tuohy converted $40,000 of principal into shares of the Company’s common stock. The principal balance of this note has been paid in full, yet $153 of accrued interest remains unpaid.
| F-50 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
On April 2, 2014, the Company issued a convertible promissory note to Burrington Capital, LLC (“Burrington”) for $25,000. The note calls for 10% compounded interest through the maturity date of October 1, 2014, with a default compounded interest rate of 15% per annum. Pursuant to the terms of the note the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 20-day trading period prior to conversion, or $0.01, whichever is lower. As of December 31, 2020, there is $25,000 of principal and $41,721 of accrued interest remaining on this note. This note is currently in default.
On April 3, 2014, YA Global sold a portion of their note in the amount of $50,000 to an unrelated third party (“Ferro”). The Company then issued a convertible promissory note to Ferro for that debt. The note calls for 14% simple interest through the maturity date December 31, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the average of the three lowest closing prices during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. As of December 31, 2020, there is $26,825 of principal and $31,193 of accrued interest remaining on this note. This note is currently in default.
On April 8, 2014, a note holder, YA Global, sold a portion of their note in the amount of $200,000 to Dakota Capital Pty Ltd. (“Dakota”). The Company then issued a convertible promissory note to Dakota for that debt. The note calls for 14% simple interest through the maturity date December 31, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a 50% discount of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower. As of December 31, 2020, there is $200,000 of principal and $188,482 of accrued interest remaining on this note. This note is currently in default.
On April 14, 2014, YA Global assigned $100,000 of their convertible note to Barry Liben. The note accrues interest at a rate of 0% per annum and is due December 31, 2014. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 50% of the average of the three lowest closing prices during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through December 31, 2015, Liben converted $25,000 in note principal into shares of the Company’s common stock. As of December 31, 2020, there is $52,800 of principal remaining on this note. This note is currently in default.
On December 10, 2014, the Company issued a convertible promissory note to Jared Robert for $20,000. The note accrues compounded interest at a rate of 10% per annum and is due on June 10, 2015, with a default compounded interest rate of 15%. Pursuant to the terms of the note the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 60% of the lowest closing price during the 20-day trading period prior to conversion, or $0.01, whichever is lower. As of December 31, 2020, there is $20,000 of principal and $28,144 of accrued interest remaining on this note. This note is currently in default.
On January 7, 2015, the Company issued a convertible promissory note to LG Capital for $20,625, of which $4,125 was an original issue discount. The note accrues simple interest at a rate of 12% per annum and is due on January 7, 2016, with a default simple interest rate of 24%. Pursuant to the terms of the note, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 45% of the lowest closing price during the 20-day trading period prior to, and including the date of, conversion. As of December 31, 2020, there is $20,625 of principal and $27,144 of accrued interest remaining on this note. This note is currently in default.
On March 12, 2015, the Company issued two convertible promissory notes to Cariou totaling $188,356 ($94,178 each) for settlement of compensation owed as well as penalties and interest. The note calls for 24% compounded interest through the maturity date of September 12, 2015, with a default compounded interest rate of 29%. The principal balance and accrued interest are convertible into the Company’s common stock at a conversion rate of
| F-51 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 10 – CONVERTIBLE NOTES PAYABLE, NET (continued)
the average of the five trading days prior the applicable conversion date, with the number of conversion shares multiplied by 115%. Through December 31, 2015, the Company made $9,000 in principal payments towards these notes. As of December 31, 2020, there is a total of $176,356 of principal and $741,007 of accrued interest remaining on these notes. These notes are currently in default.
On February 5, 2016, the Company issued a convertible promissory note to YA Global in the amount of $2,829,690. The note accrues simple interest at a rate of 6% per annum and is due on April 30, 2016, with a default simple interest rate of 18%. Pursuant to the terms of the notes, the principal balance and accrued interest is convertible at the option of the note holder into shares of the Company’s common stock at a rate of 85% of the lowest closing price during the 30-day trading period prior to conversion, or $0.02, whichever is lower, with the conversion rate being rounded to $0.0001 or whole share. Through December 31, 2015, a total of $88,700 in principal and $75,018 in accrued interest were converted into shares of the Company’s common stock. As of December 31, 2020, there is a total of $2,740,990 of principal and $2,319,716 of accrued interest remaining on the note. These notes are currently in default.
In the Company’s evaluation of each convertible debt instrument in accordance with FASB ASC 815, Derivatives and Hedging (pre-codification FAS 133 “Accounting for Derivative Financial Instruments and Hedging Activities”) (“ASC 815”), based on the variable conversion price, it was determined that the conversion features were not afforded the exemption as a conventional convertible instrument and did not otherwise meet the conditions for equity classification. As such, the conversion and other features were compounded into one instrument, bifurcated from the debt instrument and carried as a derivative liability, at fair value (see Note 15). As of December 31, 2020 and 2019, debt discounts related to convertible notes payable totaled $0 and $0, respectively.
NOTE 11 – NOTES PAYABLE
On June 29, 2007, the Company issued a promissory note to Gary Sumner for $45,000. The note accrues compounded interest of 5% per annum and matures on March 31, 2008, with a default simple interest rate of 18%. As of December 31, 2020, there is $45,000 of principal and $98,055 of accrued interest remaining on this note. This note is currently in default.
On July 3, 2008, the Company issued a promissory note to LTC International Corp. for $25,000. The note accrues simple interest of 20.80% per annum and matures on December 17, 2008, with a default simple interest rate of 41.60%. As of December 31, 2020, there is $4,732 of principal and $26,770 of accrued interest remaining on this note. This note is currently in default.
On March 17, 2010, the Company issued a promissory note to John Kroon for $10,000. The note accrues compounded interest of 18% per annum and matures on September 13, 2010, with a default compounded interest rate of 21%. As of December 31, 2020, there is $10,000 of principal and $83,146 of accrued interest remaining on this note. This note is currently in default.
On July 27, 2010, the Company issued a promissory note to Richard Wynns for $25,000. The note accrues compounded interest of 18% per annum and matures on January 23, 2011, with a default compounded interest rate of 21%. As of December 31, 2020, there is $25,000 of principal and $190,908 of accrued interest remaining on this note. This note is currently in default.
On March 15, 2011, the Company issued a promissory note to Barclay Lyons for $15,000. The note accrues simple interest of 18.99% per annum and matures on March 25, 2011, with a default simple interest rate of 28.99%. As of December 31, 2020, there is $15,000 of principal and $42,574 of accrued interest remaining on this note. This note is currently in default.
On March 29, 2011, the Company issued a promissory note to George Ferch for $5,000. The note accrues interest of 0% per annum and matures on June 27, 2011, with a default compounded interest rate of 21%. As of December
| F-52 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 11 – NOTES PAYABLE (continued)
31, 2020, there is $5,000 of principal and $31,195 of accrued interest remaining on this note. This note is currently in default.
On April 11, 2012, the Company issued a promissory note to Blackbridge for $6,000. The note accrues simple interest of 5% per annum and matures on May 25, 2012, with a default simple interest rate of 5%. As of December 31, 2020, there is $1,500 of principal and $877 of accrued interest remaining on this note. This note is currently in default.
On October 18, 2013, the Company issued a promissory note to Walter Jay Bell for $10,000. The note accrues simple interest of 10% per annum and matures on November 29, 2013. As of December 31, 2020, there is $10,000 of principal and $2,203 of accrued interest remaining on this note. This note is currently in default.
On April 24, 2016, the Company issued a promissory note to Walter Jay Bell for $8,642. The note accrues simple interest of 5% per annum and matures on June 30, 2016. As of December 31, 2020, there is $8,642 of principal and $2,046 of accrued interest remaining on this note. This note is currently in default.
On May 10, 2016, the Company issued a promissory note to William Rittman for $20,000. The note accrues simple interest of 16% per annum and matures on August 29, 2016. As of December 31, 2020, there is $11,250 of principal and $8,545 of accrued interest remaining on this note. This note is currently in default.
NOTE 12 – NOTES PAYABLE, RELATED PARTIES
As of December 31, 2020 and 2019 the Company had an aggregate total of $157,854 and $157,854, respectively, in related party notes payable. These notes bear simple interest at 18% per annum, with default simple interest of 24% per annum. As of December 31, 2020, all notes payable to related parties were in default. Accrued interest on related party notes payable totaled $390,342 and $353,699 at December 31, 2020 and 2019, respectively.
NOTE 13 – SMALL BUSINESS ADMINISTRATION LOAN
On April 17, 2002, the Company borrowed $989,100 under a note agreement with the Small Business Administration. The note bears interest at 4% and is secured by the equipment and machinery assets of the Company. The balance outstanding at December 31, 2020 and 2019 was $979,950 and $979,950, respectively. The note calls for monthly installments of principal and interest of $4,813 beginning September 17, 2002 and continuing until April 17, 2032.
The Company and the Small Business Administration reached an agreement in November 2010, whereby the Small Business Administration would accept $500 per month for 12 months with payment reverting back to $4,813 in November 2011. The Company only made four payments under the modification agreement. The Company continues to carry the loan as a current term liability because current payments are not being made, resulting in a default. Accrued interest payable on the note totaled $654,101 and $614,903 as of December 31, 2020 and 2019, respectively.
NOTE 14 – DERIVATIVE LIABILITY
Effective July 31, 2009, the Company adopted ASC 815, which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. The conversion price of certain convertible notes and exercise price of certain warrants are variable and subject to the fair value of the Company’s units on the date of conversion or exercise. As a result, the Company has determined that the conversion and exercise features are not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the conversion and exercise features of the instruments to be recorded as a derivative liability.
ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as items of other income or expense. The Company’s
| F-53 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 14 – DERIVATIVE LIABILITY (continued)
only asset or liability measured at fair value on a recurring basis is its derivative liability associated with convertible notes payable and warrants.
At origination and subsequent revaluations, the Company valued the derivative liabilities using the Black-Scholes options pricing model under the following assumptions:
Year Ended December 31, 2020 | Year Ended December 31, 2019 | |||||||
| Risk-free interest rate | 0.13-0.36 | % | 0.16-0.17 | % | ||||
| Expected options life | 1 - 3 yrs | 1 - 3 yrs | ||||||
| Expected dividend yield | - | - | ||||||
| Expected price volatility | 693.24 | % | 1172.65 | % | ||||
During the year ended December 31, 2020, the Company’s derivative liability increased from $11,312,105 to $21,713,986, and the Company recognized a (loss) gain on derivative liabilities of $(10,401,881) and $11,286,929 for the years ended December 31, 2020 and 2019, respectively, in conjunction with settlement of convertible notes payable, additions of new derivative liabilities and subsequent revaluations of existing derivative liabilities.
NOTE 15 – PREFERRED STOCK
a) Series A Preferred Stock
The Company has authorized 125,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock (i) pays a dividend of 5%, payable at the discretion of the Company in cash or common stock, (ii) is convertible immediately after issuance into the Company’s common stock at the lesser of $0.005 per share or 75 percent of the average closing bid prices over the 20 trading days immediately preceding the date of conversion, (iii) has a liquidation preference of $1.00 per share, (iv) may be redeemed by the Company at any time up to five years after the issuance date for $1.30 per share plus accrued and unpaid dividends, and (v) has no voting rights except when mandated by Delaware law. At December 31, 2020 and 2019, the Company had 0 and 0 Series A Preferred shares issued and outstanding, respectively.
b) Series B Preferred Stock
The Company has authorized 525,000 shares of Series B Preferred Stock. Each share of Series B Preferred Stock (i) pays a dividend of 5 percent, payable at the discretion of the Company in cash or common stock, (ii) is convertible immediately after issuance into the Company’s common stock at the lesser of $15 per share or 75 percent of the average closing bid prices over the 20 trading days immediately preceding the date of conversion, (iii) has a liquidation preference of $1.00 per share, and (iv) may be redeemed by the Company at any time up to five years.
Based upon the Company’s evaluation of the terms and conditions of the Series B Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series B preferred stock of $212,868 and $212,888 as of December 31, 2020 and 2019, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $(212,888) and $21,005 were charged to derivative income (expense) for the years ended December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, the Company has 159,666 and 159,666 shares of Series B preferred stock issued and outstanding, respectively.
| F-54 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 15 – PREFERRED STOCK (continued)
c) Series C Preferred Stock
The Company has authorized 500,000 shares of Series C Preferred Stock. During 2007, the Company initiated a private offering under Regulation D of the Securities Act of 1933 (the “Private Offering”), of an aggregate 500,000 units (collectively referred to as the “Units”) at a price of $1.00 (one dollar) per unit, with each unit consisting of one share of Series C Convertible Preferred Stock at the lesser of eighty five percent (85%) of the average closing bid price of the Common Stock over the twenty (20) trading days immediately preceding the date of conversion or $0.04 and stock purchase warrants equal to the number of shares of common stock converted from the Series C Convertible Preferred Stock, exercisable at $0.06 per share and which expire five (5) years from the conversion date. At December 31, 2020 and 2019, the Company had 0 and 0 shares of Series C preferred stock issued and outstanding, respectively.
d) Series D Preferred Stock
On November 10, 2011, the Board approved by unanimous written consent an amendment to the Corporation’s Certificate of Incorporation to designate the rights and preferences of Series D Preferred Stock. There are 500,000 shares of Series D Preferred Stock authorized with a par value of $0.001. Each share of Series D Preferred Stock has a stated value equal to $1.00. These preferred shares rank higher than all other securities. Each outstanding share of Series D Preferred Stock shall be convertible into the number of shares of the Corporation’s common stock determined by dividing the Stated Value by the Conversion Price which is defined as eighty five percent (85%) of the average closing bid price of the Common Stock over the twenty (20) trading days immediately preceding the date of conversion, (ii) but no less than Par Value of the Common Stock. Mandatory conversion can be demanded by the Company prior to October 1, 2013. Each one share of the Series D Preferred Stock shall have voting rights equal to 100,000 votes of Common Stock.
There were no issuances, conversions or redemptions of Series D stock during the years ended December 31, 2020 and 2019. At December 31, 2020 and 2019, the Company had 100,000 and 100,000 shares of Series D preferred stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series D Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series D preferred stock of $200,000 and $100,000 as of December 31, 2020 and 2019, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $(100,000) and $29,282 were charged to derivative income (expense) for the year ended December 31, 2020 and 2019, respectively.
e) Series E Preferred Stock
On March 9, 2012, the Corporation filed the Certificate of Designation of the Rights and Preferences of Series E Convertible Preferred Stock of the Company with the Delaware Secretary of the State pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 1,000,000 authorized shares of Series E Convertible Preferred Stock, par value $0.001 per share. The Series E preferred shares are convertible into common shares at 50% of the lowest closing bid price of the common stock over the twenty days immediately prior the date of conversion, but no less than the par value of the common stock ($0.0001).
| F-55 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 15 – PREFERRED STOCK (continued)
At December 31, 2020 and 2019, the Company had 791,567 and 791,567 shares of Series E preferred stock issued and outstanding, respectively. Based upon the Company’s evaluation of the terms and conditions of the Series E Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series E preferred stock of $1,388,882 and $766,751 as of December 31, 2020 and 2019, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $(622,131) and $18,085 were charged to derivative income (expense) for the year ended December 31, 2020 and 2019, respectively.
f) Series F Preferred Stock
On October 4, 2013, the Company filed the certificate of designation pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 500,000 authorized shares of Series F Convertible Preferred Stock, par value $0.001 per share.
The shares of preferred stock have a stated value of $1.00, have no voting rights, are entitled to no dividends due or payable and are convertible into the number of shares of the Corporation’s common stock determined by dividing the stated value by the conversion price which is defined as eighty five percent (85%) of the average closing bid price of the common stock over the five (5) trading days immediately preceding the date of conversion, but no less than par value of the common stock. At any time after the issuance date through the fifth (5th) anniversary of the issuance of the preferred stock, the Company shall have the option to redeem any unconverted shares at an amount equal to one hundred thirty percent (130%) of the stated value of the stock plus accrued and unpaid dividends, if any. Redemption shall be established by the Company in its sole and absolute discretion and no holder of Series F Preferred Stock may demand that the Series F Preferred Stock be redeemed. At December 31, 2020 and 2019, the Company had 190,000 and 190,000 shares of Series F preferred stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series F Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series F preferred stock of $380,000 and $190,000 as of December 31, 2020 and 2019, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $(190,000) and $- were charged to derivative income (expense) for the year ended December 31, 2020 and 2019, respectively.
g) Series G Preferred Stock
On April 17, 2014, the Company filed the certificate of designation pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of 500,000 authorized shares of Series G Convertible Preferred Stock, par value $0.001 per share.
The shares of preferred stock have a stated value of $1.00, have voting rights equal to 5,000,000 votes of common stock, are entitled to no dividends due or payable, are non-redeemable and are convertible into the number of
| F-56 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 15 – PREFERRED STOCK (continued)
shares of the Corporation’s common stock determined by dividing the stated value by the conversion price which is defined as eighty five percent (85%) of the average closing bid price of the common stock over the twenty (20) trading days immediately preceding the date of conversion, but no less than par value of the common stock. At December 31, 2020 and 2019, the Company had 25,000 and 25,000 shares of Series G preferred stock issued and outstanding, respectively.
Based upon the Company’s evaluation of the terms and conditions of the Series G Preferred Stock, the embedded conversion feature related to the preferred stock was afforded the exemption as a conventional convertible instrument due to certain variabilities in the conversion price and met the conditions for equity classification. However, the Company is required to bifurcate the embedded conversion feature and carry it as a derivative liability.
The Company estimated the fair value of the compound derivative using a common stock equivalent and the current share price of the Company’s common stock. As a result of this estimate, the Company’s valuation model resulted in a compound derivative balance associated with the Series G preferred stock of $50,000 and $25,000 as of December 31, 2020 and 2019, respectively. This amount is included as a current liability on the Company’s balance sheet. Fair value adjustments of $(25,000) and $7,321 were charged to derivative income (expense) for the year ended December 31, 2020 and 2019, respectively.
NOTE 16 – COMMON STOCK AND TREASURY STOCK
Common Stock
The Company is authorized to issue up to 35,000,000,000 shares of $0.0001 par value common stock, of which 13,701,742,065 and 13,701,742,065 shares were issued and outstanding as of December 31, 2020 and 2019, respectively.
During the years ended December 31, 2020 and 2019, the Company did not issue any shares of common stock.
Treasury Stock
As of December 31, 2020 and 2019, the Company held 131,718,000 and 1,785,000 shares of common stock in treasury, respectively.
NOTE 17 – STOCK OPTIONS AND WARRANTS
Employee Stock Options
None
Non-employee Stock Options
None
Stock Purchase Warrants
None
| F-57 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 18 – INCOME TAXES
The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes (“ASC 740”), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.
ASC 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the consolidated financial statements.
Net deferred tax assets consist of the following components as of December 31, 2020 and 2019:
As a result of the Tax Cuts and Jobs Act (Tax Legislation) enacted on December 22, 2017, the United States corporate income tax rate is 21% effective January 1, 2018.
The provision for (benefit from) income taxes differs from the amount computed by applying the statutory United States federal income tax rate for the periods presented to income (loss) before income taxes. The income tax rate was 21% for the years ended December 31, 2020 and 2019.
The sources of the differences follow:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Expected tax at 21% | $ | (2,463,246 | ) | $ | 2,106,709 | |||
| Non-deductible (taxable) change in derivative liabilities | 2,184,395 | (2,370,255 | ) | |||||
| Change in valuation allowance/NOL carryforward | 278,851 | 263,546 | ||||||
| Total provision for income taxes | $ | - | $ | - | ||||
At December 31, 2020, the Company had net operating loss carry forwards of approximately $18,206,575 that expires in varying amounts from the year 2021 thru the year 2037. No tax benefit has been reported in the December 31, 2020 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
The income tax provision differs from the amount of income tax determined by applying the estimated U.S. federal and state income tax rates of 34 percent to pretax income from continuing operations for the year ended December 31, 2020 and 2019 due to the following:
| December 31, 2020 | December 31, 2019 | |||||||
| Loss carryforwards (expire through 2037) | $ | 18,206,575 | $ | 16,878,715 | ||||
| Valuation allowance | (18,206,575 | ) | (16,878,715 | ) | ||||
| Net deferred taxes | $ | - | $ | - | ||||
NOTE 19 – COMMITMENTS AND CONTINGENCIES
Lease Agreements
None
NOTE 20 – SUBSEQUENT EVENTS
On February 26, 2021, the Company issued 7,500,000,000 shares of its common stock to its sole officer and director, Lloyd Spencer, as compensation for accrued wages for fiscal years 2016, 2017, 2018, 2019 and 2020.
On June 2, 2021, the Company (the “Licensee”) entered into a License Agreement (the “Agreement”) with Oxford University Innovation Limited (the “Licensor”). Under the terms of the Agreement, the Licensee will license the licensed technology (OUI Project- Hydrogen from plastics via microwave-initiated catalytic dehydrogenation). The Agreement is non-exclusive and includes the United States and European Union. Signing fees for the Agreement are £54,807 and are due on August 2, 2021. The Royalty Rate is 5% of gross sales. The Agreement comprises milestone fees as: (i) £20,000 upon the first commercial sale of an licensed product; (ii) £50,000 upon generating $1,000,000 in sales; (iii) £10,000 upon the successful grant of the US patent; and (iv) £10,000 upon the successful grant of the EU patent.
On June 4, 2021, the Company’s sole officer and director, Lloyd Spencer, returned 7,500,000,000 shares of common stock previously to Mr. Spencer for accrued compensation so that the shares may be used for future business transactions. The accrued wages due Mr. Spencer were for fiscal years 2016, 2017, 2018, 2019 and 2020 were reinstated to the Company’s financials.
On June 10, 2021, the Company entered into a Consulting Agreement (the “Agreement”) with Global Technologies, Ltd (the “Consultant”) for preparation of the Company’s financial reports. Under the terms of the
| F-58 |
COROWARE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
NOTE 20 – SUBSEQUENT EVENTS (continued)
Agreement, the Consultant is to assist the Company in the preparation of its Annual Reports, Quarterly Reports and its Registration Statement(s). The Agreement shall have a term of one (1) year or until the Company’s Annual Report for the period ended December 31, 2021 is filed with OTC Markets or the Securities and Exchange Commission. As compensation, the Consultant, shall receive payment in the amount of $45,000.
On June 14, 2021, the Company filed Articles of Incorporation in the State of Wyoming a new wholly owned subsidiary, Carbon Source, Inc.
| F-59 |
PART III—EXHIBITS
Index to Exhibits
| 42 |
* Filed herewith
| 43 |
III-1
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this Offering Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Woodinville, State of Washington, on August 30, 2021.
| (Exact name of issuer as specified in its charter): | CoroWare, Inc. |
This Offering Statement has been signed by the following persons in the capacities and on the dates indicated.
| By (Signature and Title): | /s/ Lloyd Spencer | ||
| Lloyd Spencer, Chief Executive Officer (Principal Executive Officer). |
(Date): August 30, 2021
| /s/ Lloyd Spencer |
| Lloyd Spencer, Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer). |
(Date): August 30, 2021
SIGNATURES OF DIRECTORS:
| /s/ Lloyd Spencer | August 30, 2021 |
||
| Lloyd Spencer, Director | Date |
| 44 |
Exhibit 2.4
Exhibit 2.5
Exhibit 2.7
Exhibit 3.3
Exhibit 3.4
Exhibit 3.5
Exhibit 3.6
Exhibit 3.7
Exhibit 3.8
Exhibit 3.9
Exhibit 3.10
Exhibit 3.11
Exhibit 3.12
Exhibit 3.13
Exhibit 3.14
Exhibit 3.15
Exhibit 3.16
Exhibit 3.17
Exhibit 3.18
Exhibit 4.1
COROWARE, INC.
SUBSCRIPTION AGREEMENT
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. THIS INVESTMENT IS SUITABLE ONLY FOR PERSONS WHO CAN BEAR THE ECONOMIC RISK FOR AN INDEFINITE PERIOD OF TIME AND WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. FURTHERMORE, INVESTORS MUST UNDERSTAND THAT SUCH INVESTMENT IS ILLIQUID AND IS EXPECTED TO CONTINUE TO BE ILLIQUID FOR AN INDEFINITE PERIOD OF TIME. NO PUBLIC MARKET EXISTS FOR THE SECURITIES, AND NO PUBLIC MARKET IS EXPECTED TO DEVELOP FOLLOWING THIS OFFERING.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND STATE SECURITIES OR BLUE SKY LAWS. ALTHOUGH AN OFFERING STATEMENT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), THAT OFFERING STATEMENT DOES NOT INCLUDE THE SAME INFORMATION THAT WOULD BE INCLUDED IN A REGISTRATION STATEMENT UNDER THE ACT. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE MERITS OF THIS OFFERING OR THE ADEQUACY OR ACCURACY OF THE SUBSCRIPTION AGREEMENT OR ANY OTHER MATERIALS OR INFORMATION MADE AVAILABLE TO SUBSCRIBER IN CONNECTION WITH THIS OFFERING THROUGH THE WEBSITE MAINTAINED BY THE COMPANY OR THROUGH WEALTHFORGE SECURITIES, LLC (THE “BROKER”). ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROSPECTIVE INVESTORS MAY NOT TREAT THE CONTENTS OF THE SUBSCRIPTION AGREEMENT, THE OFFERING CIRCULAR OR ANY OF THE OTHER MATERIALS RELATING TO THE OFFERING AND PRESENTED TO INVESTORS ON THE COMPANY’S WEBSITE OR PROVIDED BY THE BROKER (COLLECTIVELY, THE “OFFERING MATERIALS”) OR ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE COMPANY OR ANY OF ITS OFFICERS, EMPLOYEES OR AGENTS (INCLUDING “TESTING THE WATERS” MATERIALS) AS INVESTMENT, LEGAL OR TAX ADVICE. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND THE RISKS INVOLVED. EACH PROSPECTIVE INVESTOR SHOULD CONSULT THE INVESTOR’S OWN COUNSEL, ACCOUNTANT AND OTHER PROFESSIONAL ADVISOR AS TO INVESTMENT, LEGAL, TAX AND OTHER RELATED MATTERS CONCERNING THE INVESTOR’S PROPOSED INVESTMENT.
THE OFFERING MATERIALS MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
THE COMPANY MAY NOT BE OFFERING THE SECURITIES IN EVERY STATE. THE OFFERING MATERIALS DO NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY STATE OR JURISDICTION IN WHICH THE SECURITIES ARE NOT BEING OFFERED.
THE INFORMATION PRESENTED IN THE OFFERING MATERIALS WAS PREPARED BY THE COMPANY SOLELY FOR THE USE BY PROSPECTIVE INVESTORS IN CONNECTION WITH THIS OFFERING. NO REPRESENTATIONS OR WARRANTIES ARE MADE AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN ANY OFFERING MATERIALS, AND NOTHING CONTAINED IN THE OFFERING MATERIALS IS OR SHOULD BE RELIED UPON AS A PROMISE OR REPRESENTATION AS TO THE FUTURE PERFORMANCE OF THE COMPANY.
THE COMPANY RESERVES THE RIGHT IN ITS SOLE DISCRETION AND FOR ANY REASON WHATSOEVER TO MODIFY, AMEND AND/OR WITHDRAW ALL OR A PORTION OF THE OFFERING AND/OR ACCEPT OR REJECT IN WHOLE OR IN PART ANY PROSPECTIVE INVESTMENT IN THE SECURITIES OR TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS THAN THE AMOUNT OF SECURITIES SUCH INVESTOR DESIRES TO PURCHASE. EXCEPT AS OTHERWISE INDICATED, THE OFFERING MATERIALS SPEAK AS OF THEIR DATE. NEITHER THE DELIVERY NOR THE PURCHASE OF THE SECURITIES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THAT DATE.
Ladies and Gentlemen:
1. Subscription.
(a) The undersigned (“Subscriber”) hereby irrevocably subscribes for and agrees to purchase Common Stock (the “Securities”), of CoroWare, Inc., a Delaware corporation (the “Company”), at a purchase price of $0.002 per share of Common Stock (the “Per Security Price”), upon the terms and conditions set forth herein.
(b) Subscriber understands that the Securities are being offered pursuant to an offering circular (the “Offering Circular”) filed with the SEC as part of the Offering Statement. By executing this Subscription Agreement, Subscriber acknowledges that Subscriber has received this Subscription Agreement, copies of the Offering Circular and Offering Statement, including exhibits thereto, and any other information required by the Subscriber to make an investment decision.
(c) The Subscriber’s subscription may be accepted or rejected in whole or in part, at any time prior to a Closing Date (as hereinafter defined), by the Company at its sole discretion. In addition, the Company, at its sole discretion, may allocate to Subscriber only a portion of the number of Securities Subscriber has subscribed for. The Company will notify Subscriber whether this subscription is accepted (whether in whole or in part) or rejected. If Subscriber’s subscription is rejected, Subscriber’s payment (or portion thereof if partially rejected) will be returned to Subscriber without interest and all of Subscriber’s obligations hereunder shall terminate.
(d) The aggregate number of Securities sold shall not exceed 5,000,000,000 shares (the “Maximum Offering”). The Company may accept subscriptions until the termination date given in the Offering Circular, unless otherwise extended by the Company in its sole discretion in accordance with applicable SEC regulations for such other period required to sell the Maximum Offering (the “Termination Date”). The Company may elect at any time to close all or any portion of this offering, on various dates at or prior to the Termination Date (each a “Closing Date”).
(e) In the event of rejection of this subscription in its entirety, or in the event the sale of the Securities (or any portion thereof) is not consummated for any reason, this Subscription Agreement shall have no force or effect, except for Section 5 hereof, which shall remain in force and effect.
2. Purchase Procedure.
(a) Payment. The purchase price for the Securities shall be paid simultaneously with the execution and delivery to the Company of the signature page of this Subscription Agreement. Subscriber shall deliver a signed copy of this Subscription Agreement (which may be executed and delivered electronically), along with payment for the aggregate purchase price of the Securities by ACH electronic transfer or wire transfer to an account designated by the Company, or by any combination of such methods.
(b) No Escrow. The proceeds of this offering will not be placed into an escrow account. As there is no minimum offering, upon the approval of any subscription to this Offering Circular, the Company shall immediately deposit said proceeds into the bank account of the Company and may dispose of the proceeds in accordance with the Use of Proceeds.
3. Representations and Warranties of the Company.
The Company represents and warrants to Subscriber that the following representations and warranties are true and complete in all material respects as of the date of each Closing Date, except as otherwise indicated. For purposes of this Agreement, an individual shall be deemed to have “knowledge” of a particular fact or other matter if such individual is actually aware of such fact. The Company will be deemed to have “knowledge” of a particular fact or other matter if one of the Company’s current officers has, or at any time had, actual knowledge of such fact or other matter.
(a) Organization and Standing. The Company is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite power and authority to own and operate its properties and assets, to execute and deliver this Subscription Agreement and any other agreements or instruments required hereunder. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business.
(b) Issuance of the Securities. The issuance, sale and delivery of the Securities in accordance with this Subscription Agreement have been duly authorized by all necessary corporate action on the part of the Company. The Securities, when so issued, sold and delivered against payment therefor in accordance with the provisions of this Subscription Agreement, will be duly and validly issued, fully paid and non-assessable.
(c) Authority for Agreement. The execution and delivery by the Company of this Subscription Agreement and the consummation of the transactions contemplated hereby (including the issuance, sale and delivery of the Securities) are within the Company’s powers and have been duly authorized by all necessary corporate action on the part of the Company. Upon full execution hereof, this Subscription Agreement shall constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies and (iii) with respect to provisions relating to indemnification and contribution, as limited by considerations of public policy and by federal or state securities laws.
(d) No filings. Assuming the accuracy of the Subscriber’s representations and warranties set forth in Section 4 hereof, no order, license, consent, authorization or approval of, or exemption by, or action by or in respect of, or notice to, or filing or registration with, any governmental body, agency or official is required by or with respect to the Company in connection with the execution, delivery and performance by the Company of this Subscription Agreement except (i) for such filings as may be required under Regulation A or under any applicable state securities laws, (ii) for such other filings and approvals as have been made or obtained, or (iii) where the failure to obtain any such order, license, consent, authorization, approval or exemption or give any such notice or make any filing or registration would not have a material adverse effect on the ability of the Company to perform its obligations hereunder.
(e) Capitalization. The authorized and outstanding securities of the Company immediately prior to the initial investment in the Securities is as set forth in “Securities Being Offered” in the Offering Circular. Except as set forth in the Offering Circular, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), or agreements of any kind (oral or written) for the purchase or acquisition from the Company of any of its securities.
(f) Financial statements. Complete copies of the Company’s financial statements consisting of the balance sheets of the Company given in the Offering Circular and the related statements of income, stockholders’ equity and cash flows for the two-year period then ended (the “Financial Statements”) have been made available to the Subscriber and appear in the Offering Circular. The Financial Statements are based on the books and records of the Company and fairly present in all material respects the financial condition of the Company as of the respective dates they were prepared and the results of the operations and cash flows of the Company for the periods indicated.
(g) Proceeds. The Company shall use the proceeds from the issuance and sale of the Securities as set forth in “Use of Proceeds to issuer” in the Offering Circular.
(h) Litigation. There is no pending action, suit, proceeding, arbitration, mediation, complaint, claim, charge or investigation before any court, arbitrator, mediator or governmental body, or to the Company’s knowledge, currently threatened in writing (a) against the Company or (b) against any consultant, officer, manager, director or key employee of the Company arising out of his or her consulting, employment or board relationship with the Company or that could otherwise materially impact the Company.
4. Representations and Warranties of Subscriber. By executing this Subscription Agreement, Subscriber (and, if Subscriber is purchasing the Securities subscribed for hereby in a fiduciary capacity, the person or persons for whom Subscriber is so purchasing) represents and warrants, which representations and warranties are true and complete in all material respects as of such Subscriber’s respective Closing Date(s):
(a) Requisite Power and Authority. Such Subscriber has all necessary power and authority under all applicable provisions of law to execute and deliver this Subscription Agreement and other agreements required hereunder and to carry out their provisions. All action on Subscriber’s part required for the lawful execution and delivery of this Subscription Agreement and other agreements required hereunder have been or will be effectively taken prior to the Closing Date. Upon their execution and delivery, this Subscription Agreement and other agreements required hereunder will be valid and binding obligations of Subscriber, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (b) as limited by general principles of equity that restrict the availability of equitable remedies.
(b) Investment Representations. Subscriber understands that the Securities have not been registered under the Securities Act of 1933, as amended (the “Securities Act”). Subscriber also understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Subscriber’s representations contained in this Subscription Agreement.
(c) Illiquidity and Continued Economic Risk. Subscriber acknowledges and agrees that there is a limited public market for the Securities and that there is no guarantee that a market for their resale will ever exist. Subscriber must bear the economic risk of this investment indefinitely and the Company has no obligation to list the Securities on any market or take any steps (including registration under the Securities Act or the Securities Exchange Act of 1934, as amended) with respect to facilitating trading or resale of the Securities. Subscriber acknowledges that Subscriber is able to bear the economic risk of losing Subscriber’s entire investment in the Securities. Subscriber also understands that an investment in the Company involves significant risks and has taken full cognizance of and understands all of the risk factors relating to the purchase of Securities.
(d) Company Information. Subscriber understands that the Company is subject to all the risks that apply to early-stage companies, whether or not those risks are explicitly set out in the Offering Circular. Subscriber has had such opportunity as it deems necessary (which opportunity may have presented through online chat or commentary functions) to discuss the Company’s business, management and financial affairs with managers, officers and management of the Company and has had the opportunity to review the Company’s operations and facilities. Subscriber has also had the opportunity to ask questions of and receive answers from the Company and its management regarding the terms and conditions of this investment. Subscriber acknowledges that except as set forth herein, no representations or warranties have been made to Subscriber, or to Subscriber’s advisors or representative, by the Company or others with respect to the business or prospects of the Company or its financial condition.
(e) Valuation. The Subscriber acknowledges that the price of the Securities was set by the Company on the basis of the Company’s internal valuation and no warranties are made as to value. The Subscriber further acknowledges that future offerings of Securities may be made at lower valuations, with the result that the Subscriber’s investment will bear a lower valuation.
(f) Domicile. Subscriber maintains Subscriber’s domicile (and is not a transient or temporary resident) at the address shown on the signature page.
(g) No Brokerage Fees. There are no claims for brokerage commission, finders’ fees or similar compensation in connection with the transactions contemplated by this Subscription Agreement or related documents based on any arrangement or agreement binding upon Subscriber.
(h) Issuer-Directed Offering; No Underwriter. Subscriber understands that the offering is being conducted by the Company directly (issuer-directed) and the Company has not engaged a selling agent such as an underwriter or placement agent.
(i) Foreign Investors. If Subscriber is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), Subscriber hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Securities or any use of this Subscription Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Securities, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Securities. Subscriber’s subscription and payment for and continued beneficial ownership of the Securities will not violate any applicable securities or other laws of the Subscriber’s jurisdiction.
5. Survival of Representations. The representations, warranties and covenants made by the Subscriber herein shall survive the Termination Date of this Agreement.
6. Governing Law; Jurisdiction. This Subscription Agreement shall be governed and construed in accordance with the laws of the State of Delaware.
7. Notices. Notice, requests, demands and other communications relating to this Subscription Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given if and when (a) delivered personally, on the date of such delivery; or (b) mailed by registered or certified mail, postage prepaid, return receipt requested, in the third day after the posting thereof; or (c) emailed, telecopied or cabled, on the date of such delivery to the address of the respective parties as follows:
If to the Company, to:
CoroWare, Inc.
13110 NE 177th Place, #145
Woodinville, WA 98072
If to a Subscriber, to Subscriber’s address as shown on the signature page hereto
or to such other address as may be specified by written notice from time to time by the party entitled to receive such notice. Any notices, requests, demands or other communications by telecopy or cable shall be confirmed by letter given in accordance with (a) or (b) above.
8. Miscellaneous.
(a) All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons or entity or entities may require.
(b) This Subscription Agreement is not transferable or assignable by Subscriber.
(c) The representations, warranties and agreements contained herein shall be deemed to be made by and be binding upon Subscriber and its heirs, executors, administrators and successors and shall inure to the benefit of the Company and its successors and assigns.
(d) None of the provisions of this Subscription Agreement may be waived, changed or terminated orally or otherwise, except as specifically set forth herein or except by a writing signed by the Company and Subscriber.
(e) In the event any part of this Subscription Agreement is found to be void or unenforceable, the remaining provisions are intended to be separable and binding with the same effect as if the void or unenforceable part were never the subject of agreement.
(f) The invalidity, illegality or unenforceability of one or more of the provisions of this Subscription Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Subscription Agreement in such jurisdiction or the validity, legality or enforceability of this Subscription Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
(g) This Subscription Agreement supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof.
(h) The terms and provisions of this Subscription Agreement are intended solely for the benefit of each party hereto and their respective successors and assigns, and it is not the intention of the parties to confer, and no provision hereof shall confer, third-party beneficiary rights upon any other person.
(i) The headings used in this Subscription Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.
(j) This Subscription Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
(k) If any recapitalization or other transaction affecting the stock of the Company is effected, then any new, substituted or additional securities or other property which is distributed with respect to the Securities shall be immediately subject to this Subscription Agreement, to the same extent that the Securities, immediately prior thereto, shall have been covered by this Subscription Agreement.
| (l) | No failure or delay by any party in exercising any right, power or privilege under this Subscription Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. |
[SIGNATURE PAGE FOLLOWS]
CoroWare, Inc.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
The undersigned, desiring to purchase Common Stock of CoroWare, Inc., by executing this signature page, hereby executes, adopts and agrees to all terms, conditions and representations of the Subscription Agreement.
| (a) | The number of shares of Common Stock the undersigned hereby irrevocably subscribes for is: |
| (b) | The aggregate purchase price (based on a purchase price of $0.002 per Share) for the Common Stock the undersigned hereby irrevocably subscribes for is: |
| (c) | The Securities being subscribed for will be owned by, and should be recorded on the Company’s books as held in the name of: |
| (print name of owner or joint owners) |
| Signature(s) | ||
| Signature | ||
| Name (Please Print) | ||
| Name (Please Print) | ||
| Entity Name (if applicable) | ||
| Signatory title (if applicable) | ||
| Email address | Email address | |
| Address | Address | |
| Telephone Number | Telephone Number | |
| Social Security Number/EIN | Social Security Number | |
| Date | Date |
This
Subscription is accepted on ________________________, 2021
by ___________________________________________________
(Name, Signature, Date)
Exhibit 4.2
Exhibit 4.3
Exhibit 4.4
Exhibit 4.5
Exhibit 4.6
Exhibit 4.7
Exhibit 4.8
Exhibit 10.1
FORBEARANCE AGREEMENT
This FORBEARANCE AGREEMENT (this “Agreement”) is dated as of February 5, 2016, by and among (i) COROWARE, INC. (“CoroWare”), (ii) COROWARE TECHNOLOGIES, INC. (“CT”), (iii) the subsidiaries and affiliates of CoroWare and CT listed on Schedule 1 attached hereto (the “Subsidiaries”) (CoroWare, CT and the Subsidiaries shall be collectively referred to herein as the “Obligors”), and (ii) YA Global Investments, L.P., formerly known as Cornell Capital Partners, LP, a Cayman Island exempt limited partnership (the “Lender”), and having offices located at 1012 Springfield Avenue, Mountainside, New Jersey 07092.
Background
Reference is made to certain financing arrangements entered into by and among the Obligors and the Lender evidenced by, among other things, the documents, instruments, and agreements listed in the attached Schedule 2 (collectively, together with all other documents, instruments, and agreements executed in connection therewith or related thereto and Related Documents (as defined herein), the “Financing Documents”).
The Obligors acknowledge and agree that one or more Defaults and/or Events of Default have occurred under the Financing Documents prior to the date hereof as a result of the Obligors’ failure to pay amounts due under the Financing Documents as and when due (collectively, the “Stated Defaults”).
The Obligors have requested that the Lender (i) agree to amend, restate and consolidate the Notes and the Debentures (as each of those terms are defined on Schedule 2), (ii) agree to certain other modifications of the terms and conditions of the Financing Documents, and (iii) forbear from enforcing its rights and remedies under the Financing Documents as a result of the Stated Defaults until April 30, 2016 (the “Termination Date”), and the Lender has agreed to do so, but only upon the terms and conditions expressly set forth herein.
Accordingly, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and among the Obligors and the Lender as follows:
Acknowledgment of Indebtedness
| 1. | The Obligors each hereby acknowledge and agree that each of the Obligors is and shall remain (or otherwise hereby agrees to be) jointly and severally liable to the Lender as follows: |
| a. | Due under the Notes and Debentures (as such terms are defined on Schedule 2) as of January 7, 2016: |
| Principal | $ | 1,033,128 | ||
| Interest | $ | 1,796,562 |
| 1 |
| b. | In addition, for all interest and late charges accruing from and after January 7, 2016, and for all fees, redemption premiums, liquidated damages, costs, expenses, and costs of collection (including attorneys’ fees and expenses) and other amounts, heretofore or hereafter accrued or coming due or incurred by the Lender in connection with the protection, preservation, or enforcement of its rights and remedies under the Financing Documents (including the preparation and negotiation of this Agreement). |
All amounts due as set forth in this Section 1, and all amounts heretofore or hereafter payable under this Agreement, the Related Documents, and/or the Financing Documents, shall be referred to herein collectively as the “Obligations”.
Waiver of Claims
| 2. | The Obligors hereby acknowledge and agree that none of the Obligors have any offsets, defenses, claims, or counterclaims against the Lender, its general partner, and its investment manager, and each of their respective agents, servants, attorneys, advisors, officers, directors, employees, affiliates, partners, members, managers, predecessors, successors, and assigns (singly and collectively, as the “Released Parties”), with respect to the Obligations, the Financing Documents, the transactions set forth or otherwise contemplated in this Agreement, or otherwise, and that if the Obligors now have, or ever did have, any offsets, defenses, claims, or counterclaims against any of the Released Parties, whether known or unknown, at law or in equity, from the beginning of the world through this date and through the time of execution of this Agreement, all of them are hereby expressly WAIVED, and the Obligors each hereby RELEASE each of the Released Parties from any and all liability therefor. |
Ratification of Financing Documents; Confirmation of Collateral;
Cross-Collateralization; Further Assurances
| 3. | The Obligors: |
| a. | Hereby ratify, confirm, and reaffirm all and singular the terms and conditions of the Financing Documents. The Obligors further acknowledge and agree that except as specifically modified in this Agreement, all terms and conditions of those documents, instruments, and agreements shall remain in full force and effect; | |
| b. | Hereby ratify, confirm, and reaffirm that (i) the obligations secured by the Financing Documents include, without limitation, the Obligations, and any future modifications, amendments, substitutions or renewals thereof, including, without limitation, the Notes and Debentures (as defined in Schedule 2), and (ii) all collateral, whether now existing or hereafter acquired, granted to the Lender pursuant to the Financing Documents or otherwise shall, regardless of any provisions in the Financing Documents to the contrary, secure all of the Obligations until full and final payment of the Obligations; and |
| 2 |
| c. | The Obligors have granted the Lender security interests in all of their assets, and to confirm the same the Obligors hereby grant the Lender a security interest in all of their respective assets, whether now existing or hereafter acquired, including, without limitation, all accounts, inventory, goods, equipment, software and computer programs, securities, investment property, financial assets, deposit accounts, chattel paper, electronic chattel paper, instruments, documents, letter-of-credit rights, health-care-insurance receivables, supporting obligations, notes secured by real estate, commercial tort claims, and general intangibles including payment intangibles, to secure the Obligations free and clear of all liens and encumbrances; | |
| d. | Each Obligor shall, from and after the execution of this Agreement, execute and deliver to the Lender whatever additional documents, instruments, and agreements that the Lender may require in order to correct any document deficiencies, or to vest or perfect the Financing Documents and the Collateral granted therein more securely in the Lender and/or to otherwise give effect to the terms and conditions of this Agreement and/or the Related Documents, and hereby irrevocably authorize the Lender to file any financing statements (including financing statements with a generic description of the collateral such as “all assets”), and take any other normal and customary steps, the Lender deems necessary to perfect or evidence the Lender’s security interests and liens in any such Collateral; and | |
| e. | This Agreement shall constitute an authenticated record as such term is defined in the Uniform Commercial Code. |
Conditions Precedent
| 4. | The Lender’s agreements hereunder as contemplated herein shall not be effective unless and until each of the following conditions precedent have been fulfilled, pursuant to documentation in form and substance satisfactory to the Lender in all respects, all as determined by the Lender in its sole and exclusive discretion (with the date on which the Lender has confirmed in writing that all of such conditions precedent have been so satisfied being referred to herein as the “Effective Date”): |
| a. | CoroWare shall have executed and delivered to the Lender an Amended and Restated Secured Convertible Debenture (the “A&R Debenture”) in the original principal amount of $2,829,690 (representing the aggregate outstanding principal and interest on the Notes and Debentures as of January 7, 2016), which shall amend, restate, and consolidate the Notes and the Debentures and in a form acceptable to the Lender in its sole discretion; | |
| b. | Each of the Obligors (other than CoroWare) shall have executed and delivered to the Lender an Global Guaranty Agreement (the “Guaranty Agreement”) and Amended and Restated Intellectual Property Security Agreement, in each case in a form acceptable to the Lender in its sole discretion; |
| 3 |
| c. | CoroWare shall deliver to the Lender a Warrant (the “Warrant”) granting the Lender the right to purchase shares of CoroWare’s common stock in a form acceptable to the Lender in its sole discretion; | |
| d. | CoroWare shall have reserved an aggregate of 4.0 billion shares of its common stock for the exclusive use and benefit of the Lender in order for CoroWare to fulfill its obligations to issue shares of its common stock upon the Lender’s conversion of the A&R Debenture or the exercise of the Warrant Agreement. CoroWare’s existing transfer agent and any future transfer agent shall provide the Lender with a letter (the “Transfer Agent Instructions”) acceptable to the Lender in its sole discretion acknowledging such exclusive share reserve; | |
| e. | All action on the part of the Obligors necessary for the valid execution, delivery and performance by the Obligors of this Agreement shall have been duly and effectively taken and evidence thereof, including, without limitation, an opinion of the Obligors’ counsel, satisfactory to the Lender in all respects shall have been provided to the Lender; and | |
| f. | This Agreement, and all documents, instruments, and agreements required in connection with, related to, or contemplated by this Agreement (collectively, the “Related Documents”), shall be executed and delivered to the Lender by the parties thereto, shall be in full force and effect and shall be form and substance satisfactory to the Lender. |
Amendment, Restatement, and Consolidation of
Notes and Debentures
| 5. | From and after the Effective Date, the Obligors and the Lender agree that (a) the Notes and Debentures shall be amended, restated, and consolidated pursuant to the A&R Debenture, (b) the obligations guaranteed by the Guaranty shall continue to include all Obligations, including, without limitation, that portion of the Obligations evidenced by the A&R Debenture, and (c) all of the Collateral granted pursuant to the Financing Documents shall continue to secure all Obligations, including, without limitation, that portion of the Obligations evidenced by the A&R Debenture, subject to the provisions of Section 7, hereof. The A&R Debenture is being acquired by the Lender for consideration consisting solely of the surrender of the Notes and Debentures. Counsel to the Obligors shall provide an opinion letter (the “Opinion Letter”), reasonably satisfactory to the Lender, stating that the Lender may tack on its holding period of the Notes or the Debentures (as applicable) to its holding period of the A&R Debenture pursuant to Rule 144 of the Securities Act of 1933. |
| 4 |
Interest Rate; Repayment of Obligations
| 6. | From and after the Effective Date, interest shall accrue upon, and the Obligations shall be repaid, as follows: |
| a. | $25,000 shall be paid on the date hereof, which amount shall be credited to accrued but unpaid interest on the A&R Debenture; | |
| b. | $25,000 shall be paid on or before March 1, 2016, which amount shall be credited to accrued but unpaid interest on the A&R Debenture; | |
| c. | $30,000 shall be paid on or before April 1, 2016, which amount shall be credited to accrued but unpaid interest on the A&R Debenture; | |
| d. | with the prior written, mutual consent of each Obligor and the Lender, at each Party’s sole and absolute discretion, $50,000 shall be paid on or before May 1, 2016, which amount shall be credited to accrued but unpaid interest on the A&R Debenture. In the event of such prior, written consent and the Lender’s receipt of payment, then the Termination Date shall be extended to May 30, 2016; | |
| e. | Interest shall accrue upon the principal balance of the Obligations at the non-default rate set forth in the A&R Debenture; | |
| f. | The Lender shall have the right, but not the obligation, to make conversions under, and in accordance with the terms and conditions of, the A&R Debenture subject to the terms of this Agreement; and | |
| g. | All Obligations shall be repaid in full on or before the earlier of (i) the occurrence of any Termination Event, or (ii) Termination Date. |
Forbearance by Lender
| 7. | From and after the later to occur of the Effective Date, and in consideration of the Obligors’ performance in accordance with this Agreement, the Lender shall forbear from: |
| a. | enforcing the Lender’s rights and remedies as a result of the Stated Defaults, and | |
| b. | not exercising its rights to convert any part of the A&R Debenture into CoroWare’s common stock, in each case until the earlier of (i) the occurrence of a Termination Event (as defined below), or (ii) the Termination Date. |
Notwithstanding the foregoing, nothing contained in this Agreement or the other Financing Documents shall constitute a waiver by the Lender of any default or event of default, whether now existing or hereafter arising (including, without limitation, the Stated Defaults). This Agreement shall only constitute an agreement by the Lender to forbear from enforcing its rights and remedies upon the terms and conditions set forth herein.
| 5 |
Obligors’ Representations, Warranties, and Covenants
| 8. | Each of the Obligors hereby represents, warrants, and covenants to and with the Lender as follows: |
| a. | Except for the security interests granted to the Lender by the Obligors, and those security interests and/or liens set forth on the attached Schedule 3, no other person holds or has otherwise been granted a lien or security interest to and in the Collateral, whether subordinate to the Lender’s existing security interest or otherwise, and none of the Obligors has made (or will make) any assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in, or other lien or encumbrance on, the Collateral; | |
| b. | Attached hereto as Schedule 4 is an updated chart showing the current corporate structure of the Obligors; | |
| c. | All of the debts, loans, and other indebtedness of every kind and nature of each of the Obligors (other than current, unsecured trade debt incurred in the ordinary course of business) are listed on the attached Schedule 5; | |
| d. | The execution and delivery of this Agreement, the A&R Debenture, and the other Related Documents by the Obligors and the performance by the Obligors of their respective obligations and agreements under this Agreement, the A&R Debenture (including the issuance of common shares in CoroWare upon conversion as provided therein), the other Related Documents and the other Financing Documents are within the authority of the Obligors, have been duly authorized by all necessary corporate proceedings on behalf of each Obligor, and do not and will not contravene any provision of law, statute, rule or regulation to which the Obligors (or any of them) are subject or, if applicable, any of the Obligors’ charter, other organization papers, by-laws or any stock provision or any amendment thereof or of any agreement or other instrument binding upon the any of the Obligors; | |
| e. | This Agreement, the A&R Debenture (including the obligation to issue common shares in CoroWare upon conversion as provided therein), and the other Financing Documents constitute legal, valid and binding obligations of the Obligors, enforceable in accordance with their respective terms; | |
| f. | No approval or consent of, or filing with, any governmental agency or authority is required to make valid and legally binding the execution, delivery or performance by the Obligors of this Agreement, or any of the other Financing Documents; | |
| g. | The representations and warranties contained in this Agreement and the other Financing Documents were true and correct in all material respects at and as of the date made and are true and correct as of the date hereof, except to the extent of changes resulting from transactions specifically contemplated or specifically permitted by this Agreement and the other Financing Documents, changes which have been disclosed in writing to the Lender on or prior to the date hereof (including the Stated Defaults) and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date; |
| 6 |
| h. | To the extent that from and after the date hereof any representation or warranty contained in this Agreement is no longer true or correct in all material respects, the Obligors shall promptly notify the Lender in writing of the same, and all of the relevant circumstances relating to the same; | |
| i. | None of the Obligors currently have any commercial tort claims (as such term is defined in the Uniform Commercial Code) and hereby covenant and agree that in the event any of the Obligors shall hereafter hold or acquire a commercial tort claim, the Obligors shall immediately notify the Lender of the particulars of such claim in writing and shall grant to the Lender a security interest therein and in the proceeds thereof, upon such terms and documentation as may be satisfactory to the Lender; and | |
| j. | The Obligors have read and understand each of the terms and conditions of this Agreement and the Related Documents and confirm that they are entering into this Agreement and the Related Documents freely and voluntarily, without duress, after having had an opportunity for consultation with independent counsel of their own selection, and not in reliance upon any representations, warranties, or agreements made by the Lender and not set forth in this Agreement or the other Related Documents. |
Termination Events
| 9. | The occurrence of any one or more of the following events shall constitute a termination event (hereinafter, a “Termination Event”) under this Agreement: |
| a. | The failure of the Obligors to pay any amount required to be paid to the Lender under this Agreement, the A&R Debenture, and/or the other Related Documents, as and when due, including, without limitation, the failure to pay all Obligations in full on the Termination Date, it being expressly acknowledged and agreed that TIME IS OF THE ESSENCE; | |
| b. | The failure of the Obligors to promptly, punctually, or faithfully perform or comply with any other term or condition of this Agreement, the A&R Debenture, and/or the other Related Documents as and when due, it being expressly acknowledged and agreed that TIME IS OF THE ESSENCE; |
| 7 |
| c. | The issuance of an attachment, injunction, restraining order, or other order of any court of competent jurisdiction or government authority enjoining, restraining, or otherwise restricting the ability of the Obligors to perform hereunder, and/or under the Related Documents and/or the Financing Documents; | |
| d. | The determination by the Lender that any warranty or representation made by the Obligors in connection with this Agreement, the Related Documents, or otherwise was false or misleading in any respect; | |
| e. | The occurrence of a materially adverse change in or to the Collateral, as determined by the Lender in its sole and exclusive discretion; | |
| f. | The occurrence of any default, or event of default (other than the Stated Defaults) under the Financing Documents, without regard to any grace or cure periods; or | |
| g. | The occurrence of any default, or event of default under any of the obligations and liabilities of Carbonics to the Lender. |
Rights Upon Occurrence of a Termination Event
| 10. | Upon the occurrence of any Termination Event: |
| a. | The Lender’s agreement to forbear as set forth in this Agreement shall automatically terminate and the Lender may, at its option, immediately commence enforcing its rights and remedies pursuant to this Agreement, the Related Documents, the Financing Documents and/or otherwise under applicable law; | |
| b. | The Lender may at its sole discretion convert amounts under the A&R Debenture into shares of CoroWare’s common stock on the terms set forth therein; | |
| c. | All Obligations shall be immediately due and payable in full, without demand, notice, or protest, all of which are hereby expressly WAIVED; and | |
| d. | Interest shall accrue at the default rate of interest set forth in the A&R Debenture. |
Costs of Collection
| 11. | The Obligors shall be liable to the Lender for any and all unreimbursed costs, expenses, and costs of collection (including attorneys’ fees and expenses) heretofore or hereafter incurred by the Lender in connection with the protection, preservation, and enforcement by the Lender of its rights and remedies under the Financing Documents, the Related Documents, and/or this Agreement, including, without limitation, the negotiation and preparation of this Agreement and the Related Documents, and/or any matters related thereto. |
| 8 |
Notices
| 12. | All notices hereunder to any party hereto shall be in writing and (i) hand delivered, (ii) sent by a nationally recognized overnight courier, or (iii) posted in the United States mail by registered or certified mail, return receipt requested, addressed to such party at its address indicated below: |
| If to any Obligor | c/o CoroWare, Inc. | ||
| 601 108th Ave NE #1900 | |||
| Bellevue, WA 98004 | |||
| Attn: Lloyd Spencer | |||
| Telephone: (800) 641-2676 x756 | |||
| Facsimile: (425) 968-4671 |
| If to the Lender: | YA Global Investments, L.P. | ||
| c/o Yorkville Advisors, LLC | |||
| 1012 Springfield Avenue | |||
| Mountainside, New Jersey 07092 | |||
| Attention: David Gonzalez | |||
| Telephone: (201) 985-8300 |
or at any other address specified by such party in writing upon seven (7) days’ written notice to the other parties. Any such notice shall be treated as having been given upon the earlier of (i) actual receipt (by any method of delivery) by the person to whom the notice is addressed, or (ii) upon delivery to such address (or refusal to accept delivery).
Waivers
| 13. | Non-Interference. From and after the occurrence of a Termination Event, the Obligors agree: |
| a. | Not to interfere with the exercise by the Lender of any of its rights and remedies under this Agreement, the Related Documents, the Financing Documents, and/or applicable law, including, without limitation, the Lender’s right to exercise conversions under the A&R Debenture into CoroWare’s common stock; | |
| b. | They shall not seek to distrain or otherwise hinder, delay, or impair the Lender’s efforts to realize upon any Collateral or otherwise to enforce its rights and remedies pursuant to this Agreement, the Related Documents, the Financing Documents, and/or applicable law, and shall at all times cooperate with the Lender’s exercise of its rights and remedies under this Agreement, the Related Documents, the Financing Documents, and/or applicable law; and | |
| c. | The provisions of this Section shall be specifically enforceable by the Lender (without any obligation to post a bond or any other security). |
| 9 |
| 14. | Automatic Stay. The Obligors agree that upon the filing of any Petition for Relief by or against any of the Obligors under the United States Bankruptcy Code (a “Bankruptcy Filing”), the Lender shall be entitled to immediate and complete relief from the automatic stay with respect to such Obligor or Obligors, and Lender shall be permitted to proceed to protect and enforce its rights and remedies under applicable law. The Obligors hereby expressly assent to any motion filed by the Lender seeking relief from the automatic stay. The Obligors further hereby expressly WAIVE the protections afforded under Section 362 of the United States Bankruptcy Code with respect to the Lender. |
| 15. | Jury Trial. The Obligors and the Lender hereby make the following waiver knowingly, voluntarily, and intentionally, and understand that the other, in entering into this Agreement, is relying on such a waiver: THE OBLIGORS AND THE LENDER EACH HEREBY IRREVOCABLY WAIVE ANY PRESENT OR FUTURE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE OTHER BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST SUCH PARTY OR IN WHICH SUCH PARTY IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN RESPECT OF, ANY RELATIONSHIP BETWEEN THE OBLIGORS, OR ANY OTHER PERSON, AND THE LENDER. |
Entire Agreement
| 16. | This Agreement shall be binding upon the Obligors and the Obligors’ respective employees, representatives, successors, and assigns, and shall inure to the benefit of the Lender and the Lender’s successors and assigns. This Agreement and all documents, instruments, and agreements executed in connection herewith incorporate all of the discussions and negotiations between the Obligors and the Lender, either expressed or implied, concerning the matters included herein and in such other documents, instruments and agreements, any statute, custom, or usage to the contrary notwithstanding. No such discussions or negotiations shall limit, modify, or otherwise affect the provisions hereof. No modification, amendment, or waiver of any provision of this Agreement, or any provision of any other document, instrument, or agreement between the Obligors and the Lender shall be effective unless executed in writing by the party to be charged with such modification, amendment, or waiver, and if such party be the Lender, then by a duly authorized officer thereof. |
Construction of Agreement
| 17. | In connection with the interpretation of this Agreement and all other documents, instruments, and agreements incidental hereto: |
| a. | All rights and obligations hereunder and thereunder, including matters of construction, validity, and performance, shall be governed by and construed in accordance with the law of the State of New Jersey and are intended to take effect as sealed instruments. Each of the Obligors hereby irrevocably submits to the jurisdiction of any federal or state court located within the State of New Jersey. |
| 10 |
| b. | The captions of this Agreement are for convenience purposes only, and shall not be used in construing the intent of the Lender and the Obligors under this Agreement. | |
| c. | In the event of any inconsistency between the provisions of this Agreement and the Financing Documents, Related Documents, or any other document, instrument, or agreement entered into by and between the Lender and the Obligors, the provisions of this Agreement shall govern and control. | |
| d. | The Lender and the Obligors have prepared this Agreement and all documents, instruments, and agreements incidental hereto with the aid and assistance of their respective counsel. Accordingly, all of them shall be deemed to have been drafted by the Lender and the Obligors and shall not be construed against either the Lender or the Obligors. |
Illegality or Unenforceability
| 18. | Any determination that any provision or application of this Agreement is invalid, illegal, or unenforceable in any respect, or in any instance, shall not affect the validity, legality, or enforceability of any such provision in any other instance, or the validity, legality, or enforceability of any other provision of this Agreement. |
[Remainder of Page Intentionally Left Blank]
| 11 |
IN WITNESS WHEREOF, this Agreement has been executed as of the date first set forth above.
YA GLOBAL INVESTMENTS, L.P. By Yorkville Advisors, LLC, its investment advisor, |
| By: | ||
| Name: | ||
| Title: |
[YA Global Signature Page to Agreement]
[Signatures continued on following page]
| COROWARE, INC. | ||
| By | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
| COROWARE TECHNOLOGIES, INC. | ||
| By | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
| ROBOTIC WORKSPACE TECHNOLOGIES, INC. | ||
| By | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
[Schedule 2: Financing Documents]
SCHEDULE 1
Obligors
CoroWare, Inc.
CoroWare Technologies, Inc.
Robotic Workspace Technologies, Inc.
[Schedule 2: Financing Documents]
Schedule 2
Financing Documents
Secured Convertible Debentures (collectively, the “Debentures”)
| 1. | Secured Convertible Debenture, No. IVHG-2-1, dated as of July 20, 2006 in the original principal balance of $1,250,000 given by CoroWare, Inc. to YA Global Investments, LP. | |
| 2. | Secured Convertible Debenture, No. IVHG-2-2, dated as of August 22, 2006 in the original principal balance of $575,000 given by CoroWare, Inc. to YA Global Investments, LP. | |
| 3. | Secured Convertible Debenture, No. IVHG-2-4, dated as of November 2, 2007 in the original principal balance of $600,000 given by CoroWare, Inc. to YA Global Investments, LP. | |
| 4. | Secured Convertible Debenture, No. IVHG-2-5, dated as of March 17, 2008 in the original principal balance of $300,000 given by CoroWare, Inc. to YA Global Investments, LP. | |
| 5. | Amendment No. 1 to Convertible Debentures dated as of March 19, 2008 between CoroWare, Inc. and YA Global Investments, LP. | |
| 6. | Series B Secured Convertible Debenture, No. Coro-3-1, dated as of March 7, 2013 in the original principal balance of $25,000 given by CoroWare, Inc. to YA Global Investments, LP. |
Promissory Notes (collectively, the “Notes”)
| 1. | Promissory Note dated as of August 1, 2008 in the original principal balance of $12,500 given by CoroWare Technologies, Inc. to YA Global Investments, LP. | |
| 2. | Promissory Note dated as of August 18, 2008 in the original principal balance of $25,000 given by CoroWare Technologies, Inc. to YA Global Investments, LP. |
Security Agreements (collectively, the “Security Agreements”)
| 1. | Security Agreement dated as of July 20, 2006 between CoroWare, Inc. and YA Global Investments, LP. | |
| 2. | Security Agreement dated as of July 20, 2006 between CoroWare Technologies, Inc. and YA Global Investments, LP. | |
| 3. | Security Agreement dated as of November 2, 2007 among CoroWare, Inc., CoroWare Technologies, Inc., Robotic Workspace Technologies, Inc., Innova Robotics, Inc., Robotics Software Services, Inc. and YA Global Investments, LP. | |
| 4. | Patent and Trademark Security Agreement dated as of October 29, 2007 among CoroWare, Inc., Robotic Workspace Technologies, Inc. and YA Global Investments, LP. |
All other documents, instruments, and agreements executed in connection with, or related to the foregoing.
[Schedule 2: Financing Documents]
SCHEDULE 3
Liens
| Date: | 04/30/2012 |
| Filing Number: | 201212206765 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
| Date: | 08/06/2012 |
| Filing Number: | 201221940001 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
| Date: | 08/20/2012 |
| Filing Number: | 201223372312 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
| Date: | 08/20/2012 |
| Filing Number: | 201223372183 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
| Date: | 03/17/2014 |
| Filing Number: | 201407602044 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
| Date: | 05/13/2014 |
| Filing Number: | 201413445727 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
| Date: | 07/30/2014 |
| Filing Number: | 201421127103 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
[Schedule 3: Liens]
| Date: | 10/01/2014 |
| Filing Number: | 201427465018 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
| Date: | 12/08/2014 |
| Filing Number: | 201434317362 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
| Date: | 02/19/2015 |
| Filing Number: | 201505016316 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
| Date: | 11/13/2015 |
| Filing Number: | 201531761983 |
| Jurisdiction: | Sec Of State WA |
| Secured Party: | Irs, CCP-Lienunit Oh Cincinnati 45250 Po Box 145595 |
| Activity: | Filed |
[Schedule 3: Liens]
[Schedule 4: Organizational Chart]
SCHEDULE 5
Obligors’ Outstanding Debt
| Business Liabilities | Date Pledged | Balance Owed | Payment Amount | |||||||
| High Speed Capital / Yellowstone Capital 160 Pearl St New York, NY 10005 | 7/30/2015 | $ | 37,683.00 | $ | 37,683.00 | |||||
| Knight Capital 9 East Loockerman Street, Suite 3A-543 Dover, DE 19901 | 7/16/2015 | $ | 85,017.93 | $ | 85,017.93 | |||||
| Power Up Lending 111 Great Neck Rd. Suite 216 Great Neck, NY 11021 | 1/8/2016 | $ | 161,235.00 | $ | 161,235.00 | |||||
| Quick Fix Capital 884 Town Center Drive Langhorne, PA 19047 | 8/17/2015 | $ | 73,906.87 | $ | 73,906.87 | |||||
| Total | $ | 357,842.80 | ||||||||
Exhibit 10.2
AMENDED AND RESTATED
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This AMENDED AND RESTATED INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “Agreement”), is dated as of February 5, 2016, by each of the undersigned entities (collectively, the “Grantors”) in favor of YA Global Investments, L.P. as collateral agent for itself and certain other lenders (in such capacity, the “Secured Party”).
RECITALS:
A. Reference is made to (a) the Amended and Restated Global Security Agreement, dated as of the date hereof, between the Grantors and the Secured Party (as may be amended and supplemented from time to time, the “Security Agreement”); and (b) the Global Guaranty Agreement, dated as of the date hereof, among the Grantors, as guarantors, and the Secured Party.
B. The Secured Party has extended financial accommodations to certain Grantors, pursuant to the a certain Forbearance Agreement and Amended, Restated and Consolidated Secured Convertible Debenture, each of even date herewith (the “Forbearance Agreement”), and the Grantors will directly benefit from the extension of such financial accommodation as part of the affiliated business operations of the Grantors; each Grantor acknowledges that without this Agreement, the Secured Party would not be willing to enter into the transaction documents related to such financial accommodations.
D. Each Grantor has determined that the execution, delivery and performance of this Agreement directly benefits, and is in the best interest of, such Grantor.
NOW THEREFORE, in consideration of the mutual covenants, agreements, warranties, and representations herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions.
(a) Generally. All references herein to the UCC shall mean the Uniform Commercial Code as in effect from time to time in the State of New Jersey; provided, however, that if a term is defined in Article 9 of the UCC differently than in another Article thereof, the term shall have the meaning set forth in Article 9; provided further that, if by reason of mandatory provisions of law, perfection, or the effect of perfection or non-perfection, of the security interest in any IP Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New Jersey, “UCC” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy, as the case may be.
(b) Definition of Certain Terms Used Herein. Unless the context otherwise requires, all capitalized terms used but not defined in this Agreement, including its preamble and recitals, shall have the meanings set forth in the Security Agreement. In addition, as used herein, the following terms shall have the following meanings:
“Copyrights” shall mean all copyrights, copyright applications and like protections in each work of authorship or derivative work thereof of the Grantors, whether registered or unregistered, whether published or unpublished and whether or not constitute a trade secret, including, without limitation, the United States copyright registrations listed on EXHIBIT A annexed hereto and made a part hereof, together with any goodwill of the business connected with, and symbolized by, any of the foregoing.
“Copyright Licenses” shall mean all agreements, whether written or oral, providing for the grant by or to the Grantors of any right under any Copyright, including, without limitation, the agreements listed on EXHIBIT A annexed hereto and made a part hereof.
“Copyright Office” shall mean the United States Copyright Office or any other federal governmental agency which may hereafter perform its functions.
“IP Collateral” shall have the meaning assigned to such term in Section 2 of this Agreement.
“Licenses” shall mean, collectively, the Copyright Licenses, Patent Licenses, Trademark Licenses, and any other license providing for the grant by or to the Grantors of any right under any IP Collateral.
“Patents” shall mean all patents and applications for patents of the Grantors, and the inventions and improvements therein disclosed, and any and all divisions, revisions, reissues and continuations, continuations-in-part, extensions, and reexaminations of said patents including, without limitation, the United States patent registrations listed on EXHIBIT B annexed hereto and made a part hereof.
“Patent Licenses” shall mean all agreements, whether written or oral, providing for the grant by or to the Grantors of any right under any Patent, including, without limitation, the agreements listed on EXHIBIT B annexed hereto and made a part hereof.
“PTO” shall mean the United States Patent and Trademark Office or any other federal governmental agency which may hereafter perform its functions.
“Trademarks” shall mean all trademarks, trade names, corporate names, company names, domain names, business names, fictitious business names, domain names, URLs, trade dress, trade styles, service marks, designs, logos and other source or business identifiers of the Grantors, whether registered or unregistered, including, without limitation, the United States trademark registrations listed on EXHIBIT C annexed hereto and made a part hereof, together with any goodwill of the business connected with, and symbolized by, any of the foregoing.
“Trademark Licenses” shall mean all agreements, whether written or oral, providing for the grant by or to the Grantors of any right under any Trademark, including, without limitation, the agreements listed on EXHIBIT C annexed hereto and made a part hereof.
| 2 |
SECTION 2. Grant of Security Interest. In furtherance and as confirmation of the security interest granted by the Grantors to the Secured Party under the Security Agreement, and as further security for the payment or performance in full of the Obligations, each Grantor hereby grants to the Secured Party a continuing security interest, with a power of sale (which power of sale shall be exercisable only following the occurrence and during the continuance of an Event of Default), in all of the present and future right, title and interest of such Grantor in and to the following property, and each item thereof, whether now owned or existing or hereafter acquired or arising, together with all products, proceeds, substitutions, and accessions of or to any of the following property (collectively, the “IP Collateral”):
| (a) | All Copyrights and Copyright Licenses; | |
| (b) | All Patents and Patent Licenses; | |
| (c) | All Trademarks and Trademark Licenses; | |
| (d) | All other Licenses; | |
| (e) | All renewals of any of the foregoing; |
(f) All trade secrets, know-how and other proprietary information; works of authorship and other copyright works (including copyrights for computer programs), and all tangible and intangible property embodying the foregoing; inventions (whether or not patentable) and all improvements thereto; industrial design applications and registered industrial designs; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases, and other physical manifestations, embodiments or incorporations of any of the foregoing, and any Licenses in any of the foregoing, and all other IP Collateral and proprietary rights;
(g) All General Intangibles connected with the use of, or related to, any and all IP Collateral (including, without limitation, all goodwill of each Grantor and its business, products and services appurtenant to, associated with, or symbolized by, any and all IP Collateral and the use thereof);
(h) All income, royalties, damages and payments now and hereafter due and/or payable under and with respect to any of the foregoing, including, without limitation, payments under all Licenses entered into in connection therewith and damages and payments for past or future infringements, misappropriations or dilutions thereof;
(i) The right to sue for past, present and future infringements, misappropriations, and dilutions of any of the foregoing; and
(j) All of the Grantors’ rights corresponding to any of the foregoing throughout the world.
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SECTION 3. Protection of IP Collateral By Grantors. Except as set forth below in this Section 3, the Grantors shall undertake the following with respect to each of the items respectively described in Sections 2(a) - (j):
(a) Pay all renewal fees and other fees and costs associated with maintaining the IP Collateral and with the processing and prosecution of the IP Collateral and take all other steps reasonably necessary to maintain each registration of the IP Collateral.
(b) Take all actions reasonably necessary to prevent any of the IP Collateral from becoming forfeited, abandoned, dedicated to the public, invalidated or impaired in any way.
(c) At the Grantors’ sole cost, expense, and risk, pursue the processing and prosecution of each application for registration which is the subject of the security interest created herein and not abandon or delay any such efforts.
(d) At the Grantors’ sole cost, expense, and risk, take any and all action which the Grantors reasonably deem necessary or desirable under the circumstances to protect the IP Collateral from infringement, misappropriation or dilution, including, without limitation, the prosecution and defense of infringement actions.
SECTION 4. Grantors’ Representations and Warranties. In addition to any representations and warranties contained in any of the other Loan Instruments, each Grantor represents and warrants that:
(i) EXHIBIT A is a true, correct and complete list of all United States Copyright registrations owned by each Grantor and all Copyright Licenses to which such Grantor is a party as of the date hereof.
(ii) EXHIBIT B is a true, correct and complete list of all United States Patents owned by each Grantor and all Patent Licenses to which such Grantor is a party as of the date hereof.
(iii) EXHIBIT C is a true, correct and complete list of all United States Trademark registrations owned by each Grantor and all Trademark Licenses to which such Grantor is a party as of the date hereof.
(iv) Except as set forth in EXHIBITS A, B and C, none of the IP Collateral owned by a Grantor is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor as of the date hereof.
(v) The Grantors shall not transfer or otherwise encumber any interest in the IP Collateral, except as expressly permitted in the Forbearance Agreement.
(vi) Each Grantor owns, or is licensed to use, all IP Collateral in connection with the conduct of its business. Except as expressly set forth in the Forbearance Agreement, no claim has been asserted and is pending by any person challenging or questioning the use by a Grantor of any of its IP Collateral, or the validity or effectiveness of any of its IP Collateral. Each Grantor considers that the use by such Grantor of the IP Collateral does not infringe the rights of any person in any material respect. No holding, decision or judgment has been rendered by any governmental authority which would limit, cancel or question the validity of, or a Grantor’s rights in, any IP Collateral in any material respect.
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(vii) Performance of this Agreement does not conflict with or result in a breach of any material agreement to which any Grantor is bound.
(viii) Each Grantor shall give the Secured Party prompt written notice, with reasonable detail, following the occurrence of any of the following:
(A) Each Grantor’s obtaining rights to, or being issued a registration in or receiving an issuance of, any new IP Collateral, or otherwise acquiring ownership of any registered IP Collateral (other than the acquisition by a Grantor of the right to sell products containing the trademarks of others in the ordinary course of such Grantor’s business).
(B) Each Grantor’s becoming entitled to the benefit of any registered IP Collateral whether as licensee or licensor (other than commercially available off the shelf computer programs, products or applications and a Grantor’s right to sell products containing the trademarks of others in the ordinary course of such Grantor’s business).
(C) Each Grantor’s entering into any new Licenses with respect to the IP Collateral (other than commercially available off the shelf computer programs, products or applications and a Grantor’s right to sell products containing the trademarks of others in the ordinary course of such Grantor’s business).
(D) Each Grantor’s knowing, or having reason to know, that any registration relating to any IP Collateral may, other than as provided in Section 3 above, become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the PTO, the Copyright Office or any court or tribunal) regarding a Grantor’s ownership of, or the validity or enforceability of, any IP Collateral or such Grantor’s right to register the same or to own and maintain the same.
SECTION 5. Agreement Applies to Future IP Collateral.
(a) The provisions of this Agreement shall automatically apply to any such additional property or rights described in Section 4(viii) above, all of which shall be deemed to be and treated as “IP Collateral” within the meaning of this Agreement. Upon the acquisition by a Grantor of any additional IP Collateral, such Grantor shall promptly deliver to the Secured Party an updated EXHIBIT A, B, and/or C (as applicable) to this Agreement and hereby authorizes the Secured Party to file, at such Grantor’s expense, such updated Exhibit as set forth in Section 5(b).
(b) Each Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Secured Party may reasonably request to evidence the Secured Party’s security interest in any IP Collateral (including, without limitation, filings with the PTO, the Copyright Office or any similar office), and each Grantor hereby constitutes the Secured Party as its attorney-in-fact to execute and file all such writings for the foregoing purposes, all such acts of such attorney being hereby ratified and confirmed; provided, however, that the Secured Party’s taking of such action shall not be a condition to the creation or perfection of the security interest created hereby.
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(c) Each Grantor authorizes and requests that the Copyright Office and the PTO record this Agreement, any amendments thereto or copies thereof..
SECTION 6. Grantors’ Rights To Enforce IP Collateral. Prior to the occurrence of an Event of Default, the Grantors shall have the exclusive right to sue for past, present and future infringement of the IP Collateral, including the right to seek injunctions and/or money damages in an effort by the Grantors to protect the IP Collateral against encroachment by third parties, provided, however, that:
(a) Each Grantor provides the Secured Party with written notice of such Grantor’s institution of any legal proceedings for enforcement of any IP Collateral.
(b) Any money damages awarded or received by a Grantor on account of such suit (or the threat of such suit) shall constitute IP Collateral.
(c) Upon the occurrence and during the continuance of any Event of Default, the Secured Party, by notice to the Grantors, may terminate or limit the Grantors’ rights under this Section 6.
SECTION 7. Secured Party’s Actions To Protect IP Collateral. In the event of:
(a) a Grantor’s failure, within fifteen (15) days of written notice from the Secured Party, to cure any failure by such Grantor to observe or perform any of such Grantor’s covenants, agreements or other obligations hereunder; and/or
(b) the occurrence and continuance of any other Event of Default,
the Secured Party, acting in its own name or in that of the Grantors, may (but shall not be required to) act in the Grantors’ place and stead and/or in the Secured Party’s own right in connection therewith.
SECTION 8. Rights Upon Default. Upon the occurrence and during the continuance of an Event of Default, in addition to all other rights and remedies, the Secured Party may exercise all rights and remedies of a secured party under the UCC, with respect to the IP Collateral, in addition to which the Secured Party may sell, license, assign, transfer, or otherwise dispose of the IP Collateral, subject to those restrictions to which a Grantor is subject under applicable law and by contract. Any person may conclusively rely upon an affidavit of an officer of the Secured Party that an Event of Default has occurred and that the Secured Party is authorized to exercise such rights and remedies. In connection with such exercise of rights, the Secured Party shall have a non-exclusive, royalty free license to use the IP Collateral, which shall include a right for the Secured Party to grant one or more non-exclusive sublicenses to use the IP Collateral.
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SECTION 9. Secured Party As Attorney-In-Fact.
(a) The Grantors hereby irrevocably make, constitute and appoint the Secured Party (and all officers, employees or agents designated by the Secured Party) as and for the Grantors’ true and lawful agent and attorney-in-fact, effective following the occurrence and during the continuance of any Event of Default, and in such capacity the Secured Party shall have the right, with power of substitution for the Grantors and in the Grantors’ names or otherwise, for the use and benefit of the Secured Party:
(A) To supplement and amend from time to time EXHIBITS A, B and C of this Agreement to include any newly developed, applied for, registered, or acquired IP Collateral of the Grantors and any intent-to-use Trademark applications for which a statement of use or an amendment to allege use has been filed and accepted by the PTO.
(B) To exercise any of the rights and powers referenced herein.
(C) To execute all such instruments, documents, and papers as the Secured Party reasonably determines to be necessary or desirable in connection with the exercise of such rights and remedies and to cause the sale, license, assignment, transfer, or other disposition of the IP Collateral, subject to those restrictions to which the Grantors are subject under applicable law and by contract.
(b) The power of attorney granted herein, being coupled with an interest, shall be irrevocable until this Agreement is terminated in writing by a duly authorized officer of the Secured Party.
(c) The Secured Party shall not be obligated to do any of the acts or to exercise any of the powers authorized by Section 9(a), but if the Secured Party elects to do any such act or to exercise any of such powers, it shall not be accountable for more than it actually receives as a result of such exercise of power.
SECTION 10. Intent. This Agreement is being executed and delivered by the Grantors for the purpose of registering and confirming the grant of the security interest of the Secured Party in the IP Collateral with the PTO and the Copyright Office. It is intended that the security interest granted pursuant to this Agreement is granted as a supplement to, and not in limitation of, the security interest granted to the Secured Party under the Security Agreement. All provisions of the Security Agreement (including, without limitation, the rights, remedies, powers, privileges and discretions of the Secured Party thereunder) shall apply to the IP Collateral. In the event of a conflict between this Agreement and the Security Agreement, the terms of this Agreement shall control with respect to the IP Collateral and the terms of the Security Agreement shall control with respect to all other Collateral.
SECTION 11. Further Assurances. Each Grantor agrees, at its own expense, to execute, acknowledge, deliver and cause to be duly filed all such further documents, financing statements, agreements and instruments and take all such further actions as the Secured Party may from time to time reasonably request to better assure, preserve, protect and perfect the security interest in the IP Collateral granted pursuant to this Agreement and the rights and remedies created hereby or the validity or priority of such security interest, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement, the granting of the security interest and the filing of any financing statements or other documents in connection herewith or therewith.
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SECTION 12. Indemnity. Each Grantor agrees to defend, indemnify and hold harmless the Secured Party and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement, and (b) all losses or expenses in any way suffered, incurred, or paid by the Secured Party as a result of or in any way arising out of, following or consequential to transactions between the Secured Party and a Grantor, whether under this Agreement or otherwise (including, without limitation, attorney’s fees and expenses).
SECTION 13. Release of IP Collateral. Upon payment and performance in full of all Obligations, the Secured Party shall, at the Grantors’ expense, execute and deliver to the Grantors all instruments and other documents as may be necessary or proper to release the lien on any security interest in the IP Collateral which has been granted hereunder.
SECTION 14. Additional Grantors. Pursuant to Section 6.12 of the Security Agreement, each subsidiary of the Grantors that was not in existence or not a subsidiary on the date of the Security Agreement is required to become a Grantor and to enter in this Agreement as a Grantor upon becoming a subsidiary. Such subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement.
SECTION 15. Notices. Unless otherwise provided herein, all demands, notices, consents, service of process, requests and other communications hereunder shall be in writing and shall be delivered to the addresses provided in the Security Agreement.
SECTION 16. Binding Effect. All of the covenants and obligations contained herein shall be binding upon and shall inure to the benefit of the respective parties, their successors and assigns.
SECTION 17. Governing Law; Venue. The validity, interpretation and performance of this Agreement shall be determined in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey or Federal district courts located in Newark, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph, provided, however, that nothing herein shall prevent the Secured Party from enforcing its rights and remedies (including, without limitation, by filing a civil action) with respect to the IP Collateral and/or the Grantors in any other jurisdiction which the Secured Party deems necessary or appropriate in order to realize on the IP Collateral or to otherwise enforce the Secured Party’s rights against the Grantors or the IP Collateral.
SECTION 18. JURY TRIAL. AS A MATERIAL INDUCEMENT FOR THE SECURED PARTY TO MAKE FINANCIAL ACCOMMODATIONS TO THE GRANTORS, EACH GRANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
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SECTION 19. Severability. If any provision of this Agreement is, for any reason, invalid or unenforceable, the remaining provisions of this Agreement will nevertheless be valid and enforceable and will remain in full force and effect. Any provision of this Agreement that is held invalid or unenforceable by a court of competent jurisdiction will be deemed modified to the extent necessary to make it valid and enforceable and as so modified will remain in full force and effect.
SECTION 20. Amendment and Waiver. This Agreement may be amended, or any provision of this Agreement may be waived, provided that any such amendment or waiver will be binding on a party hereto only if such amendment or waiver is set forth in a writing executed by the parties hereto. The waiver by any such party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach. The Secured Party’s failure to exercise any right, remedy or option under this Agreement or other agreement between the Secured Party and the Grantors or delay by the Secured Party in exercising the same will not operate as a waiver. No waiver by the Secured Party shall affect its right to require strict performance of this Agreement.
SECTION 21. Liability of Grantors. Notwithstanding any provision herein, the Grantors, and each of them, are and shall be jointly and severally liable for any and all Obligations (whether any such Obligation is specified as an obligation of the Grantors or of any of them).
SECTION 22. Entire Agreement. This Agreement and the other documents or agreements delivered in connection herewith set forth the entire understanding of the parties with respect to the subject matter hereof, and shall not be modified or affected by any offer, proposal, statement or representation, oral or written, made by or for any party in connection with the negotiation of the terms hereof, and may be modified only by instruments signed by all of the parties hereto.
SECTION 23. Amended and Restated Agreement. This Agreement shall amend and restate that certain Patent and Trademark Security Agreement dated as of October 29, 2007 granted in favor of the Secured Party (as amended and in effect, the “Existing Agreement”). This Agreement is not in any way intended to constitute a novation of the obligations and liabilities existing under the Existing Agreement or evidence payment of all or any portion of such obligations and liabilities.
SECTION 24. Counterparts. This Agreement may be executed and delivered by exchange of facsimile signatures of the Secured Party and the Grantors, and those signatures need not be affixed to the same copy. This Agreement may be executed in any number of counterparts.
[remainder of page intentionally blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Intellectual Property Security Agreement as of the date first above written.
| COROWARE, INC. | ||
| By: | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
| COROWARE TECHNOLOGIES, INC. | ||
| By: | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
| ROBOTIC WORKSPACE TECHNOLOGIES, INC. | ||
| By: | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
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IN WITNESS WHEREOF, the parties hereto have executed this Intellectual Property Security Agreement as of the date first above written.
SECURED PARTY:
| |
| YA GLOBAL INVESTMENTS, L.P. | |
| By: Yorkville Advisors, LLC | |
| Its: Investment Manager |
| By: | ||
| Name: | ||
| Title: |
[Signature page to Amended and Restated Intellectual Property Security Agreement]
SCHEDULE I
(Subsidiaries and Affiliates)
CoroWare, Inc.
CoroWare Technologies, Inc.
Robotic Workspace Technologies, Inc.
EXHIBIT A
List of Copyrights and Copyright Licenses
None
EXHIBIT B
List of Patents and Patent Licenses
None
EXHIBIT C
List of Trademarks and Trademark Licenses
None
Exhibit 10.3
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
COROWARE, INC.
Warrant To Purchase Common Stock
| Warrant No.: COWI-1 | Number of Shares: 2,000,000,000 |
| Warrant Exercise Price: $0.0006 per share | |
| Expiration Date: December 31, 2020 | |
| Date of Issuance: February 5, 2016 |
CoroWare, Inc., a Delaware corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, YA Global Investments, L.P. (the “Holder”), the registered holder hereof or its permitted assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. Eastern Two Billion (2,000,000,000) fully paid and nonassessable shares of Common Stock (as defined herein) of the Company (the “Warrant Shares”) at the exercise price per share provided in Section 1(b) below or as subsequently adjusted; provided, however, that in no event shall the holder be entitled to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares which, upon giving effect to such exercise, would cause the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock following such exercise, except within sixty (60) days of the Expiration Date (however, such restriction may be waived by Holder (but only as to itself and not to any other holder) upon not less than 65 days prior notice to the Company). For purposes of the foregoing proviso, the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such proviso is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised Warrants beneficially owned by the holder and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by the holder and its affiliates (including, without limitation, any convertible notes or preferred stock) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock a holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written request of any holder, the Company shall promptly, but in no event later than one (1) Business Day following the receipt of such notice, confirm in writing to any such holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the exercise of Warrants (as defined below) by such holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.
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Section 1.
(a) This Warrant is issued pursuant to that Forbearance Agreement of even date herewith between the Company and the Holder.
(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:
(i) “Approved Stock Plan” means a stock option plan that has been approved by the Board of Directors of the Company prior to the date of the Securities Purchase Agreement, pursuant to which the Company’s securities may be issued only to any employee, officer or director for services provided to the Company.
(ii) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to remain closed.
(iii) “Closing Bid Price” means the closing bid price of Common Stock as quoted on the Principal Market (as reported by Bloomberg Financial Markets (“Bloomberg”) through its “Volume at Price” function).
(iv) “Common Stock” means (i) the Company’s common stock, par value $0.0001 per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.
(v) “Excluded Securities” means, (a) shares issued or deemed to have been issued by the Company pursuant to an Approved Stock Plan, (b) shares of Common Stock issued or deemed to be issued by the Company upon the conversion, exchange or exercise of any right, option, obligation or security outstanding on the date prior to date of the Securities Purchase Agreement, provided that the terms of such right, option, obligation or security are not amended or otherwise modified on or after the date of the Securities Purchase Agreement, and provided that the conversion price, exchange price, exercise price or other purchase price is not reduced, adjusted or otherwise modified and the number of shares of Common Stock issued or issuable is not increased (whether by operation of, or in accordance with, the relevant governing documents or otherwise) on or after the date of the Securities Purchase Agreement, and (c) the shares of Common Stock issued or deemed to be issued by the Company upon conversion of the Convertible Debentures or exercise of the Warrants.
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(vi) “Expiration Date” means December 31, 2020
(vii) “Issuance Date” means the date hereof.
(viii) “Options” means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.
(ix) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.
(x) “Primary Market” means on any of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital Market, or (e) the OTC Bulletin Board (“OTCBB”)
(xi) “Securities Act” means the Securities Act of 1933, as amended.
(xii) “Warrant” means this Warrant and all Warrants issued in exchange, transfer or replacement thereof.
(xiii) “Warrant Exercise Price” shall be $0.0006 or as subsequently adjusted as provided in Section 8 hereof.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to the Company shall be deemed to include the Company’s successors and (B) to any applicable law defined or referred to herein shall be deemed references to such applicable law as the same may have been or may be amended or supplemented from time to time.
(ii) When used in this Warrant, the words “herein”, “hereof”, and “hereunder” and words of similar import, shall refer to this Warrant as a whole and not to any provision of this Warrant, and the words “Section”, “Schedule”, and “Exhibit” shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender includes the masculine or feminine, and the singular number includes the plural, and vice versa.
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Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the Company, pro rata as hereinafter provided, at any time on any Business Day on or after the opening of business on such Business Day, commencing with the first day after the date hereof, and prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of a written notice, in the form of the subscription notice attached as Exhibit A hereto (the “Exercise Notice”), of such holder’s election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, payment to the Company of an amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares being purchased, multiplied by the number of Warrant Shares (at the applicable Warrant Exercise Price) as to which this Warrant is being exercised (plus any applicable issue or transfer taxes) (the “Aggregate Exercise Price”) in cash or wire transfer of immediately available funds and the surrender of this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) to a common carrier for overnight delivery to the Company as soon as practicable following such date (“Cash Basis”) or (ii) if at the time of exercise, the Warrant Shares are not subject to an effective registration statement or if an Event of Default has occurred, by delivering an Exercise Notice and in lieu of making payment of the Aggregate Exercise Price in cash or wire transfer, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (the “Cashless Exercise”):
Net Number = (A x B) – (A x C)
B
For purposes of the foregoing formula:
A = the total number of Warrant Shares with respect to which this Warrant is then being exercised.
B = the Closing Bid Price of the Common Stock on the date of exercise of the Warrant.
C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2, the Company shall on or before the fifth (5th) Business Day following the date of receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) and the receipt of the representations of the holder specified in Section 6 hereof, if requested by the Company (the “Exercise Delivery Documents”), and if the Common Stock is DTC eligible, credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder’s or its designee’s balance account with The Depository Trust Company; provided, however, if the holder who submitted the Exercise Notice requested physical delivery of any or all of the Warrant Shares, or, if the Common Stock is not DTC eligible then the Company shall, on or before the fifth (5th) Business Day following receipt of the Exercise Delivery Documents, issue and surrender to a common carrier for overnight delivery to the address specified in the Exercise Notice, a certificate, registered in the name of the holder, for the number of shares of Common Stock to which the holder shall be entitled pursuant to such request. Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (i) or (ii) above the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised. In the case of a dispute as to the determination of the Warrant Exercise Price, the Closing Bid Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the holder the number of Warrant Shares that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within one (1) Business Day of receipt of the holder’s Exercise Notice.
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(b) If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price or arithmetic calculation of the Warrant Shares within one (1) day of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall immediately submit via facsimile (i) the disputed determination of the Warrant Exercise Price or the Closing Bid Price to an independent, reputable investment banking firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its independent, outside accountant. The Company shall cause the investment banking firm or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment banking firm’s or accountant’s determination or calculation, as the case may be, shall be deemed conclusive absent manifest error.
(c) Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than five (5) Business Days after any exercise and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant exercised, less the number of Warrant Shares with respect to which such Warrant is exercised.
(d) No fractional Warrant Shares are to be issued upon any pro rata exercise of this Warrant, but rather the number of Warrant Shares issued upon such exercise of this Warrant shall be rounded up or down to the nearest whole number.
(e) If the Company or its Transfer Agent shall fail for any reason or for no reason to issue to the holder within ten (10) days of receipt of the Exercise Delivery Documents, a certificate for the number of Warrant Shares to which the holder is entitled or to credit the holder’s balance account with The Depository Trust Company for such number of Warrant Shares to which the holder is entitled upon the holder’s exercise of this Warrant, the Company shall, in addition to any other remedies under this Warrant or otherwise available to such holder, pay as additional damages in cash to such holder on each day the issuance of such certificate for Warrant Shares is not timely effected an amount equal to 0.025% of the product of (A) the sum of the number of Warrant Shares not issued to the holder on a timely basis and to which the holder is entitled, and (B) the Closing Bid Price of the Common Stock for the trading day immediately preceding the last possible date which the Company could have issued such Common Stock to the holder without violating this Section 2.
(f) If within ten (10) days after the Company’s receipt of the Exercise Delivery Documents, the Company fails to deliver a new Warrant to the holder for the number of Warrant Shares to which such holder is entitled pursuant to Section 2 hereof, then, in addition to any other available remedies under this Warrant, or otherwise available to such holder, the Company shall pay as additional damages in cash to such holder on each day after such tenth (10th) day that such delivery of such new Warrant is not timely effected in an amount equal to 0.25% of the product of (A) the number of Warrant Shares represented by the portion of this Warrant which is not being exercised and (B) the Closing Bid Price of the Common Stock for the trading day immediately preceding the last possible date which the Company could have issued such Warrant to the holder without violating this Section 2.
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Section 3. Covenants as to Common Stock. The Company hereby covenants and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.
(b) All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
(c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least one hundred percent (100%) of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price. If at any time the Company does not have a sufficient number of shares of Common Stock authorized and available, then the Company shall call and hold a special meeting of its stockholders within sixty (60) days of that time for the sole purpose of increasing the number of authorized shares of Common Stock.
(d) If at any time after the date hereof the Company shall file a registration statement, the Company shall include the Warrant Shares issuable to the holder, pursuant to the terms of this Warrant and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Warrant Shares from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system.
(e) The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. The Company will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Warrant Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.
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(f) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets.
Section 4. Taxes. The Company shall pay any and all taxes, except any applicable withholding, which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant and the Warrant Shares for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an “accredited investor” as such term is defined in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an “Accredited Investor”). Upon exercise of this Warrant the holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Warrant Shares so purchased are being acquired solely for the holder’s own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale and that such holder is an Accredited Investor. If such holder cannot make such representations because they would be factually incorrect, it shall be a condition to such holder’s exercise of this Warrant that the Company receive such other representations as the Company considers reasonably necessary to assure the Company that the issuance of its securities upon exercise of this Warrant shall not violate any United States or state securities laws.
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Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the Issuance Date of this Warrant, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than Excluded Securities) for a consideration per share less than a price (the “Applicable Price”) equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share. Upon each such adjustment of the Warrant Exercise Price hereunder, the number of Warrant Shares issuable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above, the following shall be applicable:
(i) Issuance of Options. If after the date hereof, the Company in any manner grants any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any convertible securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such Convertible Securities shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option or upon conversion or exchange of any convertible security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such convertible securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such convertible securities.
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(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any convertible securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such convertible securities for such price per share. For the purposes of this Section 8(b)(ii), the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the convertible security and upon conversion or exchange of such convertible security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such convertible securities, and if any such issue or sale of such convertible securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any convertible securities, or the rate at which any convertible securities are convertible into or exchangeable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price which would have been in effect at such time had such Options or convertible securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of Warrant Shares issuable upon exercise of this Warrant shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or convertible security that was outstanding as of the Issuance Date of this Warrant are changed in the manner described in the immediately preceding sentence, then such Option or convertible security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment pursuant to this Section 8(b) shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect.
(iv) Calculation of Consideration Received. If any Common Stock, Options or convertible securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefore will be deemed to be the net amount received by the Company therefore. If any Common Stock, Options or convertible securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the market price of such securities on the date of receipt of such securities. If any Common Stock, Options or convertible securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefore will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or convertible securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Warrants representing at least two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Warrants representing at least two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then outstanding. The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne jointly by the Company and the holders of Warrants.
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(v) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01.
(vi) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock.
(vii) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in convertible securities or (2) to subscribe for or purchase Common Stock, Options or convertible securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
(c) Adjustment of Warrant Exercise Price upon Subdivision of Common Stock. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, any Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. Any adjustment under this Section 8(c) shall become effective at the close of business on the date the subdivision or combination becomes effective. The Warrant Exercise Price shall not be adjusted for any combination of outstanding shares of Common Stock into a smaller number of shares (such as by way of a reverse stock split or anything having a similar effect).
(d) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:
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(i) any Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Closing Sale Price of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Closing Sale Price of the Common Stock on the trading day immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have been payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).
(e) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrants; provided, except as set forth in Section 8(c),that no such adjustment pursuant to this Section 8(e) will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.
(f) Voluntary Adjustments By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.
(g) Notices.
(i) Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment.
(ii) The Company will give written notice to the holder of this Warrant at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.
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(iii) The Company will also give written notice to the holder of this Warrant at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to another Person or other transaction in each case which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an “Organic Change.” Prior to the consummation of any (i) sale of all or substantially all of the Company’s assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the “Acquiring Entity”) a written agreement (in form and substance satisfactory to the holders of Warrants representing at least two-thirds (iii) of the Warrant Shares issuable upon exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for such Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holders of the Warrants (including an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrants without regard to any limitations on exercise, if the value so reflected is less than any Applicable Warrant Exercise Price immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders of Warrants representing a majority of the Warrant Shares issuable upon exercise of the Warrants then outstanding) to insure that each of the holders of the Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the Warrant Shares immediately theretofore issuable and receivable upon the exercise of such holder’s Warrants (without regard to any limitations on exercise), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of Warrant Shares which would have been issuable and receivable upon the exercise of such holder’s Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).
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Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking (or, in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of receipt is received by the sending party transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:
| If to Holder: | YA Global Investments, L.P. | |
| 1012 Springfield Ave | ||
| Mountainside, NJ 07092 | ||
| Attention: Mark Angelo | ||
| Telephone: (201) 985-8300 | ||
| Facsimile: (201) 985-8266 | ||
| If to the Company, to: | CoroWare, Inc. | |
601 108th Avenue NE, Suite 1900 Bellevue, WA 98004 Attn: Lloyd Spencer Telephone: (800) 641-2676 |
If to a holder of this Warrant, to it at the address and facsimile number set forth on Exhibit C hereto, with copies to such holder’s representatives as set forth on Exhibit C, or at such other address and facsimile as shall be delivered to the Company upon the issuance or transfer of this Warrant. Each party shall provide five days’ prior written notice to the other party of any change in address or facsimile number. Written confirmation of receipt (A) given by the recipient of such notice, consent, facsimile, waiver or other communication, (or (B) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
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Section 12. Date. The date of this Warrant is set forth on page 1 hereof. This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 8(b) shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.
Section 13. Amendment and Waiver. Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of Warrants representing at least two-thirds of the Warrant Shares issuable upon exercise of the Warrants then outstanding; provided that, except for Section 8(d), no such action may increase the Warrant Exercise Price or decrease the number of shares or class of stock obtainable upon exercise of any Warrant without the written consent of the holder of such Warrant.
Section 14. Descriptive Headings; Governing Law. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The corporate laws of the State of Nevada shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New Jersey. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Hudson County and the United States District Court for the District of New Jersey, for the adjudication of any dispute hereunder or in connection herewith or therewith, or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.
Section 15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the date first set forth above.
| COROWARE, INC. | ||
| By: | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
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EXHIBIT A TO WARRANT
EXERCISE NOTICE
TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
COROWARE, INC.
The undersigned holder hereby exercises the right to purchase ______________ of the shares of Common Stock (“Warrant Shares”) of CoroWare, Inc. (the “Company”), evidenced by the attached Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
Specify Method of exercise by check mark:
1. ___ Cash Exercise
(a) Payment of Warrant Exercise Price. The holder shall pay the Aggregate Exercise Price of $______________ to the Company in accordance with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the holder _________ Warrant Shares in accordance with the terms of the Warrant.
2. ___ Cashless Exercise
(a) Payment of Warrant Exercise Price. In lieu of making payment of the Aggregate Exercise Price, the holder elects to receive upon such exercise the Net Number of shares of Common Stock determined in accordance with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the holder _________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
| Name of Registered Holder | ||
| By: | ||
| Name: | ||
| Title: | ||
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of CoroWare, Inc. represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.
| Dated: |
| By: | ||
| Name: | ||
| Title: |
| B-1 |
Exhibit 10.4
AMENDED AND RESTATED GLOBAL SECURITY AGREEMENT
THIS AMENDED AND RESTATED GLOBAL SECURITY AGREEMENT (the “Agreement”) is entered into as of February 5, 2016, by and among (i) CoroWare, Inc., a Delaware corporation (“CoroWare”), and (ii) each Subsidiary and Affiliate of CoroWare listed on Schedule 1 attached hereto (collectively, the “Subsidiaries,” and together with CoroWare, jointly, severally, and collectively, the “Grantors”) in favor of YA Global Investments, L.P. (the “Secured Party”).
WHEREAS, this Agreement is given in connection with the terms of a certain Forbearance Agreement (as the same may be amended, modified, extended, restated, supplemented and in effect from time to time, the “Forbearance Agreement”), dated as of the date hereof, by and between CoroWare and the Secured Party;
WHEREAS, each of the Grantors has executed and delivered (i) a Global Guaranty Agreement, dated as of the date hereof, in favor of the Secured Party pursuant to which the Grantors absolutely and unconditionally guarantee to the Secured Party the payment and performance of all now existing and hereafter arising Obligations (as the same may be amended, modified, extended, restated, supplemented and in effect from time to time, the “Guaranty”), and (ii) an Amended and Restated Intellectual Property Security Agreement, dated as of the date hereof (as the same may be amended, modified, extended, restated, supplemented and in effect from time to time, the “IP Security Agreement”);
WHEREAS, in connection with the financial accommodations to CoroWare by the Secured Party under an Amended, Restated and Consolidated Secured Convertible Debenture and a Forbearance Agreement or otherwise, the Grantors will directly benefit from the extension of such financial accommodations as part of the affiliated business operations of CoroWare and the other Grantors.
NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
1.1 Recitals.
The above recitals are true and correct and are incorporated herein, in their entirety, by this reference.
1.2 Interpretations.
Nothing herein expressed or implied is intended or shall be construed to confer upon any person other than the Secured Party any right, remedy or claim under or by reason hereof.
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1.3 Definitions.
(a) To the extent used in this Agreement and not defined herein, terms defined in the UCC shall have the meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined) ascribed to such terms in the UCC or in the Forbearance Agreement, as applicable. To the extent the definition of any category or type of Collateral is expanded by any amendment, modification or revision to the UCC, such expanded definition will apply automatically as of the date of such amendment, modification or revision.
(b) As used in this Agreement, the following terms shall have the meanings indicated below (such meanings to be equally applicable to both the singular and plural forms of such terms):
“Collateral” has the meaning set forth in Section 2.1.
“Convertible Debenture” shall mean the Amended, Restated and Consolidated Secured Convertible Debenture of even date herewith given by CoroWare to the Secured Party.
“Event of Default” shall mean (i) a Grantor defaulting in any of its obligations under this Agreement; or (ii) the occurrence of a default or event of default under any of the other Financing Agreements.
“Financing Documents” shall have the meaning ascribed to it in the Forbearance Agreement.
“GAAP” shall mean generally accepted accounting principles in the United States of America.
“Indemnified Person” shall have the meaning given in Section 8.8.
“Intellectual Property” shall mean all present and future trade secrets, know-how and other proprietary information; trademarks, trademark applications, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights and copyright applications; (including copyrights for computer programs) and all tangible and intangible property embodying the copyrights, unpatented inventions (whether or not patentable); patents and patent applications; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing. Schedule 4 attached hereto sets forth all Intellectual Property of the Grantors (as such Schedule may be amended, modified or supplemented from time to time).
“Lien” has the meaning set forth in Section 4.2.
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“Material Adverse Effect” shall mean any material and adverse effect as determined by the Secured Party in its reasonable discretion upon (a) the Grantors’ assets, business, operations, properties or condition, financial or otherwise; (b) the Grantors’ ability to make payment as and when due of all or any part of the Obligations; or (c) the Collateral.
“Obligations” shall mean and include any and all debts, liabilities, obligations, covenants and duties owing by any Grantor to the Secured Party and the Other Lends, now existing or hereafter arising of every nature, type, and description, whether liquidated, unliquidated, primary, secondary, secured, unsecured, direct, indirect, absolute, or contingent, and whether or not evidenced by a note, guaranty or other instrument, and any amendments, extensions, renewals or increases thereof, including, without limitation, all those under (i) the Financing Agreements; (ii) any agreement or document related to the Financing Agreements; or (iii) any other or related documents, and including any interest accruing thereon after insolvency, reorganization or like proceeding relating to the Grantors, whether or not a claim for post-petition interest is allowed in such proceeding, and all costs and expenses of the Secured Party incurred in the enforcement, collection or otherwise in connection with any of the foregoing, including, but not limited to, reasonable attorneys’ fees and expenses and all obligations of the Grantors to the Secured Party to perform acts or refrain from taking any action.
“Permitted Indebtedness” shall mean: (i) indebtedness evidenced by the Convertible Debenture and any other indebtedness owed to the Secured Party; (ii) indebtedness incurred solely for the purpose of financing the acquisition or lease of any equipment by the Grantors, including capital lease obligations with no recourse other than to such equipment; (iii) indebtedness (A) the repayment of which has been subordinated to the payment of the Obligations on terms and conditions acceptable to the Secured Party, including with regard to interest payments and repayment of principal, (B) which does not mature or otherwise require or permit redemption or repayment prior to or on the 91st day after the maturity date of any Convertible Debenture then outstanding; and (C) which is not secured by any assets of the Grantors; (iv) indebtedness solely between a Grantor and/or one of its domestic subsidiaries, on the one hand, and a Grantor and/or one of its domestic subsidiaries, on the other which indebtedness is not secured by any assets of such Grantor or any of its subsidiaries, provided that (x) in each case a majority of the equity of any such domestic subsidiary is directly or indirectly owned by a Grantor, such domestic subsidiary is controlled by a Grantor and such domestic subsidiary has joined this Agreement as a Grantor hereunder, and (y) any such loan shall be evidenced by an intercompany note that is pledged by such Grantor or its subsidiary, as applicable, as collateral pursuant to this Agreement; (v) reimbursement obligations in respect of letters of credit issued for the account of a Grantor or any of its subsidiaries for the purpose of securing performance obligations of such Grantor or its subsidiaries incurred in the ordinary course of business so long as the aggregate face amount of all such letters of credit does not exceed $50,000 at any one time; and (vi) renewals, extensions and refinancing of any indebtedness described in clause (i) or (ii) of this subsection.
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“Permitted Liens” shall mean (1) the security interest created by this Agreement, (2) any other security interest granted to the Secured Party, (3) existing Liens disclosed by each Grantor on Schedule 4.2; (4) inchoate Liens for taxes, assessments or governmental charges or levies not yet due, as to which the grace period, if any, related thereto has not yet expired, or being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (5) Liens of carriers, materialmen, warehousemen, mechanics and landlords and other similar Liens which secure amounts which are not yet overdue by more than 60 days or which are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (6) non-exclusive licenses, sublicenses, leases or subleases granted to other persons in accordance with the terms of the Forbearance Agreement and which do not materially interfere with the conduct of the business of the Grantors; (7) Liens securing capitalized lease obligations and purchase money indebtedness incurred solely for the purpose of financing an acquisition or lease; (8) easements, rights-of-way, restrictions, encroachments, municipal zoning ordinances and other similar charges or encumbrances, and minor title deficiencies, in each case not securing debt and not materially interfering with the conduct of the business of the Grantors and not materially detracting from the value of the property subject thereto; (9) Liens arising out of the existence of judgments or awards which judgments or awards do not constitute an Event of Default; (10) Liens incurred in the ordinary course of business in connection with workers compensation claims, unemployment insurance, pension liabilities and social security benefits and Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of business, statutory obligations, surety bonds, performance bonds and other obligations of a like nature (other than appeal bonds) incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money); (11) Liens in favor of a banking institution arising by operation of law encumbering deposits (including the right of set-off) and contractual set-off rights held by such banking institution and which are within the general parameters customary in the banking industry and only burdening deposit accounts or other funds maintained with a creditor depository institution; (12) usual and customary set-off rights in leases and other contracts; and (13) escrows in connection with acquisitions and dispositions.
“Real Estate” means all leases and all land, together with the buildings, structures, parking areas, and other improvements thereon, now or hereafter owned by any Grantor, including all easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and occupancies thereof.
“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of New Jersey; provided, however, that if a term is defined in Article 9 of the Uniform Commercial Code differently than in another Article thereof, the term shall have the meaning set forth in Article 9 of the UCC; provided further that, if by reason of mandatory provisions of law, perfection, or the effect of perfection or non-perfection, of a security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New Jersey, “Uniform Commercial Code” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy, as the case may be.
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ARTICLE 2.
SECURITY INTEREST
2.1 Grant of Security Interest.
(a) As security for the payment or performance in full of the Obligations, each Grantor hereby pledges to the Secured Party, its successors and assigns, and hereby grants to the Secured Party, its successors and assigns, a security interest in and to all assets and personal property of each Grantor, wherever located and whether now or hereinafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible, including without limitation, all Goods, Inventory, Equipment, Fixtures, Instruments, Documents, Accounts, Contracts and Contract Rights, Chattel Paper, Deposit Accounts, Money, Letters of Credit and Letter-of-Credit Rights, Commercial Tort Claims, Securities and all other Investment Property, General Intangibles, Farm Products, all books and records and information relating to any of the foregoing, all Supporting obligations, and any and all Proceeds and products of any and all of the foregoing, and as more particularly described on Exhibit A attached hereto (collectively, the “Collateral”)
(b) Simultaneously with the execution and delivery of this Agreement, each Grantor shall make, execute, acknowledge, file, record and deliver to the Secured Party such documents, instruments, and agreements, including, without limitation, financing statements, mortgages, certificates, affidavits and forms as may, in the Secured Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve, the security interest of the Secured Party in the Collateral.
(c) In the event that any Grantor obtains title to any Real Estate, such Grantor shall promptly execute and deliver an original mortgage, deed of trust, or other instrument in a form and substance acceptable to the Secured Party in all respects sufficient to provide the Secured party with a perfected first priority lien on such Real Estate.
2.2 No Assumption of Liability.
The security interest in the Collateral is granted as security only and shall not subject the Secured Party to, or in any way alter or modify any obligation or liability of any Grantor with respect to or arising out of the Collateral.
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
3.1 Secured Party Appointed Attorney-In-Fact.
Each Grantor hereby appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of each Grantor or otherwise, from time to time in the Secured Party’s discretion to take any action and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement or for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest in the Collateral, including, without limitation, to (a) file one or more financing statements, continuation statements, filings with the United States Patent and Trademark Office or United States Copyright Office (or any successor office) or other documents; (b) receive and collect all instruments made payable to a Grantor representing any payments in respect of the Collateral or any part thereof and to give full discharge for the same; (c) demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as and when the Secured Party may determine, and (d) to execute and complete in the name of one or more Grantors such documents and forms as may be necessary to transfer any domain names and related content to the Secured Party or its designee, including without limitation, completing and submitting online forms in the name of a Grantor and taking all actions necessary in connection therewith. To facilitate collection, the Secured Party may notify account debtors and obligors on any Collateral to make payments directly to the Secured Party. The foregoing power of attorney is a power coupled with an interest and shall be irrevocable until all Obligations are paid and performed in full. The Grantors agree that the powers conferred on the Secured Party hereunder are solely to protect the Secured Party’s interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers.
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3.2 Secured Party May Perform.
If a Grantor fails to perform any agreement contained herein, the Secured Party, at its option, may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be included in the Obligations secured hereby and payable by the Grantors under Section 8.4.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
4.1 Authorization: Enforceability.
Each of the parties hereto represents and warrants that it has taken all action necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and binding obligation of the respective party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights or by the principles governing the availability of equitable remedies.
4.2 Ownership of Collateral; Priority of Security Interest.
Each Grantor represents and warrants that it is the legal and beneficial owner of the Collateral free and clear of any lien, security interest, option or other charge or encumbrance (each, a “Lien”) except for the Permitted Liens. Except for the Permitted Liens, (i) the security interest granted to the Secured Party hereunder shall be a first priority security interest subject to no other Liens, and (ii) no financing statement covering any of the Collateral or any proceeds thereof is on file in any public office.
4.3 Location of Collateral.
The Collateral is or will be kept at the address(es) of each Grantor set forth on Schedule 4.3 attached hereto. Unless otherwise provided herein, the Grantors will not remove any Collateral from such locations without the prior written consent of the Secured Party.
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4.4 Location, State of Incorporation and Name of Grantors.
Each Grantor’s principal place of business; state of incorporation, organization or formation; organization id; and exact legal name is set forth on Schedule 4.4 attached hereto.
4.5 Solvency.
Each of the Companies is able to pay its debts as they mature, has capital sufficient to carry on its business, and the fair present saleable value of its assets, calculated on a going concern basis, is in excess of the amount of its liabilities (except for certain derivative liabilities related to the Convertible Debentures).
4.7 SEC Documents; Financial Statements.
CoroWare has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the two years preceding the date hereof (or such shorter period as CoroWare was required by law or regulation to file such material) (all of the foregoing filed prior to the date hereof or amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “SEC Documents”) on timely basis or has received a valid extension of such time of filing and has filed any such SEC Document prior to the expiration of any such extension. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of CoroWare included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of each Grantor as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).
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ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
5.1 Method of Realizing Upon the Collateral: Other Remedies.
If any Event of Default shall have occurred and be continuing:
(a) The Secured Party may exercise in respect of the Collateral, in addition to any other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Collateral), and also may (i) take absolute control of the Collateral, including, without limitation, transfer into the Secured Party’s name or into the name of its nominee or nominees (to the extent the Secured Party has not theretofore done so) and thereafter receive, for the benefit of the Secured Party, all payments made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act with respect thereto as though it were the outright owner thereof, (ii) require each Grantor to assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party at a place or places to be designated by the Secured Party that is reasonably convenient to both parties, and the Secured Party may enter into and occupy any premises owned or leased by a Grantor where the Collateral or any part thereof is located or assembled for a reasonable period in order to effectuate the Secured Party’s rights and remedies hereunder or under law, without obligation to such Grantor in respect of such occupation, and (iii) without notice except as specified below and without any obligation to prepare or process the Collateral for sale, (A) sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Secured Party’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Secured Party may deem commercially reasonable and/or (B) lease, license or dispose of the Collateral or any part thereof upon such terms as the Secured Party may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale or any other disposition of the Collateral shall be required by law, at least ten (10) days’ notice to such Grantor of the time and place of any public sale or the time after which any private sale or other disposition of the Collateral is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale or other disposition of any Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor hereby waives any claims against the Secured Party arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree, and waives all rights that such Grantor may have to require that all or any part of such Collateral be marshaled upon any sale (public or private) thereof. Each Grantor hereby acknowledges that (i) any such sale of the Collateral by the Secured Party may be made without warranty, (ii) the Secured Party may specifically disclaim any warranties of title, possession, quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and (ii) above shall not adversely affect the commercial reasonableness of any such sale of Collateral. In connection with such exercise of rights, the Secured Party shall have an irrevocable non-exclusive, royalty free license to use the Intellectual Property, which shall include a right for the Secured Party to grant one or more non-exclusive sublicenses to use the Intellectual Property.
(b) Any cash held by the Secured Party as Collateral and all cash proceeds received by the Secured Party in respect of any sale of or collection from, or other realization upon, all or any part of the Collateral may be applied (after payment of any amounts payable to the Secured Party pursuant to Section 8.4 hereof) by the Secured Party against, all or any part of the Obligations in such order as the Secured Party shall elect, consistent with the provisions of the Forbearance Agreement. Any surplus of such cash or cash proceeds held by the Secured Party and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct.
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(c) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Secured Party is legally entitled, the Grantors shall be liable for the deficiency, together with interest thereon at the rate specified in the Convertible Debentures for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Secured Party to collect such deficiency.
(d) Each Grantor hereby acknowledges that if the Secured Party complies with any applicable state, provincial, or federal law requirements in connection with a disposition of the Collateral, such compliance will not adversely affect the commercial reasonableness of any sale or other disposition of the Collateral.
(e) The Secured Party shall not be required to marshal any present or future collateral security (including, but not limited to, this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the Secured Party’s rights hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent permitted by applicable law, each Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Secured Party’s rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent permitted by applicable law, each Grantor hereby irrevocably waives the benefits of all such laws.
5.2 Duties Regarding Collateral.
The Secured Party shall have no duty as to the collection or protection of the Collateral or any income thereon or as to the preservation of any rights pertaining thereto, beyond the safe custody and reasonable care of any of the Collateral actually in the Secured Party’s possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
So long as any of the Obligations shall remain outstanding, unless the Secured Party shall otherwise consent in writing:
6.1 Existence, Properties, Etc.
Each Grantor (a) shall do, or cause to be done, all things, or proceed with due diligence with any actions or courses of action, that may be reasonably necessary (i) to maintain such Grantor’s due organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions in which the failure to do so could have a Material Adverse Effect; and (b) shall not do, or cause to be done, any act impairing the Grantor’s corporate power or authority (i) to carry on such Grantor’s business as now conducted, and (ii) to execute or deliver this Agreement or any other agreement or document delivered in connection herewith, including, without limitation, the other Financing Agreements to which it is or will be a party, or perform any of its obligations hereunder or thereunder.
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6.2 Financial Statements and Reports.
Each Grantor shall furnish to the Secured Party within a reasonable time such financial data as the Secured Party may reasonably request, including without limitation, an updated perfection certificate on the Secured Party’s then standard form to be executed and delivered by each of the Grantors to the Secured Party on or before the first business day in February of each calendar year.
6.3 Accounts and Reports.
Each Grantor shall maintain a standard system of accounting in accordance with GAAP and provide, at its sole expense, to the Secured Party the following:
(a) as soon as available, a copy of any notice or other communication alleging any nonpayment or other material breach or default, or any foreclosure or other action respecting any material portion of its assets and properties, received respecting any of the indebtedness of such Grantor in excess of $50,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in excess of $50,000; and
(b) within fifteen (15) days after the making of each submission or filing, a copy of any report, financial statement, notice or other document, whether periodic or otherwise, submitted to the shareholders of the Grantors, or submitted to or filed by the Grantors with any governmental authority involving or affecting (i) the Grantors that could reasonably be expected to have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the Collateral; or (iv) any of the transactions contemplated in this Agreement or the other Financing Agreements (except, in each case, to the extent any such submission, filing, report, financial statement, notice or other document is posted on EDGAR Online).
6.4 Maintenance of Books and Records: Inspection.
Each Grantor shall maintain its books, accounts and records in accordance with GAAP, and permit the Secured Party, its officers and employees and any professionals designated by the Secured Party in writing, at any time during normal business hours and upon reasonable notice to visit and inspect any of its properties (including but not limited to the collateral security described in the Financing Agreements), corporate books and financial records, and to discuss its accounts, affairs and finances with any employee, officer or director thereof (it being agreed that, unless an Event of Default shall have occurred and be continuing, there shall be no more than two (2) such visits and inspections in any fiscal year).
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6.5 Maintenance and Insurance.
(a) Each Grantor shall maintain or cause to be maintained, at its own expense, all of its material assets and properties in good working order and condition, ordinary wear and tear excepted, making all necessary repairs thereto and renewals and replacements thereof.
(b) The Grantors shall maintain or cause to be maintained, at their own expense, insurance in form, substance and amounts (including deductibles), which the Grantors deem reasonably necessary to the Grantors’ business, (i) adequate to insure all assets and properties of the Grantors of a character usually insured by persons engaged in the same or similar business against loss or damage resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and other tort claims that may be incurred by the Grantors; (iii) as may be required by the Financing Agreements and/or applicable law and (iv) as may be reasonably requested by Secured Party, all with financially sound and reputable insurers.
6.6 Contracts and Other Collateral.
Each Grantor shall perform all of its obligations under or with respect to each instrument, receivable, contract and other intangible included in the Collateral to which such Grantor is now or hereafter will be party on a timely basis and in the manner therein required, including, without limitation, this Agreement, except to the extent the failure to so perform such obligations would not reasonably be expected to have a Material Adverse Effect.
6.7 Defense of Collateral, Etc.
Each Grantor shall defend and enforce (a) its right, title and interest in and to any part of the Collateral; and (b) if not included within the Collateral, those assets and properties whose loss would reasonably be expected to have a Material Adverse Effect, each against all manner of claims and demands on a timely basis to the full extent permitted by applicable law (other than any such claims and demands by holders of Permitted Liens).
6.8 Taxes and Assessments.
Each Grantor shall (a) file all material tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency (taking into account any extensions of the original due date), (b) pay and discharge all material taxes, assessments and governmental charges or levies imposed upon a Grantor, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all material taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that the Grantors in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect thereto if and to the extent required by GAAP.
6.9 Compliance with Law and Other Agreements.
Each Grantor shall maintain its business operations and property owned or used in connection therewith in compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises, indentures and mortgages to which a Grantor is a party or by which such Grantor or any of its properties is bound, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect.
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6.10 Notice of Default.
The Grantors will immediately notify the Secured Party of any event causing a substantial loss or diminution in the value of all or any material part of the Collateral and the amount or an estimate of the amount of such loss or diminution. The Grantors shall promptly notify the Secured Party of any condition or event which constitutes, or would constitute with the passage of time or giving of notice or both, an Event of Default, and promptly inform the Secured Party of any events or changes in the financial condition of any Grantor occurring since the date of the last financial statement of such Grantor delivered to the Secured Party, which individually or cumulatively when viewed in light of prior financial statements, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of the Grantors.
6.11 Notice of Litigation.
Each Grantor shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings wherein the amount at issue is in excess of $50,000, instituted by any person against a Grantor, or affecting any of the assets of such Grantor, and (b)any dispute, not resolved within fifteen (15) days of the commencement thereof, between a Grantor on the one hand and any governmental or regulatory body on the other hand, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of such Grantor.
6.12 Future Subsidiaries.
If any Grantor shall hereafter create or acquire any Subsidiary, simultaneously with the creation or acquisition of such subsidiary, such Grantor shall cause such Subsidiary to become a party to this Agreement as an additional “Grantor” hereunder, and to duly execute and deliver a guaranty of the Obligations in favor of the Secured Party in form and substance reasonably acceptable to the Secured Party, and to duly execute and/or deliver such other documents, in form and substance reasonably acceptable to the Secured Party, as the Secured Party shall reasonably request with respect thereto, including, without limitation, a mortgage to the extent such Subsidiary owns any Real Estate.
6.13 Changes to Identity.
Each Grantor will (a) give the Secured Party at least 30 days’ prior written notice of any change in such Grantor’s name, identity or organizational structure, (b) maintain its jurisdiction of incorporation, organization or formation as set forth on Schedule 4.4 attached hereto, (c) immediately notify the Secured Party upon obtaining an organizational identification number, if on the date hereof such Grantor did not have such identification number.
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6.14 Perfection of Security Interests.
(a) Financing Statements. The Grantors hereby irrevocably authorize the Secured Party, at the sole cost and expense of the Grantors, at any time and from time to time to file in any filing office in any jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of the Grantors or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC of such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor, and (ii) in the case of a financing statement filed as a fixture filing, a sufficient description of real property to which the Collateral relates. The Grantors agree to furnish any such information to the Secured Party promptly upon request. The Grantors also ratify their authorization for the Secured Party to have filed in any jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof. The Grantors acknowledge that they are not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of the Secured Party and agree that they will not do so without the prior written consent of the Secured Party. The Grantors acknowledge and agree that this Agreement constitutes an authenticated record.
(b) Possession. The Grantors (i) shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where the Secured Party chooses to perfect its security interest by possession in addition to the filing of a financing statement; and (ii) will, where the Collateral is in the possession of a third party, join with the Secured Party in notifying the third party of the Secured Party’s security interest and obtaining an acknowledgment from the third party that it is holding the Collateral for the benefit of the Secured Party.
(c) Control. The Grantors will cooperate with the Secured Party in obtaining control with respect to the Collateral consisting of (i) Investment Property, (ii) Letters of Credit and Letter-of-Credit Rights and (iii) electronic Chattel Paper.
(d) Marking of Chattel Paper. The Grantors will not create any Chattel Paper without placing a legend on the Chattel Paper acceptable to the Secured Party indicating that the Secured Party has a security interest in the Chattel Paper.
6.15 Notice of Commercial Tort Claims. Attached as Schedule 6.15 is a list of all Commercial Tort Claims of the Grantors (as such Schedule may be amended, modified or supplemented from time to time). If any Grantor shall at any time acquire a Commercial Tort Claim, such Grantor shall immediately notify the Secured Party in a writing signed by such Grantor which shall (a) provide brief details of said claim and (b) grant to the Secured Party a security interest in said claim and in the proceeds thereof, all upon the terms of this Agreement, in such form and substance satisfactory to the Secured Party.
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6.16 Licenses.
(a) Grantors shall (i) promptly and faithfully observe and perform all of the material terms, covenants, conditions and provisions of the material License Agreements to be observed and performed by it, at the times set forth therein, if any, (ii) not do, permit, suffer or refrain from doing anything that could reasonably be expected to result in a default under or breach of any of the terms of any material License Agreement, (iii) not cancel, surrender, modify, amend, waive or release any material License Agreement in any material respect or any term, provision or right of the licensee thereunder in any material respect, or consent to or permit to occur any of the foregoing; except, that Grantors may cancel, surrender or release any material License Agreement in the ordinary course of the respective businesses of Grantors; provided, that, Grantors shall give Secured Party not less than thirty (30) days prior written notice of their intention to so cancel, surrender and release any such material License Agreement, (iv) give Secured Party prompt written notice of any material License Agreement entered into by any Grantor after the date hereof, together with a true, correct and complete copy thereof and such other information with respect thereto as Secured Party may request, (v) give Secured Party prompt written notice of any material breach of any obligation, or any default, by any party under any material License Agreement, and deliver to Secured Party (promptly upon the receipt thereof by any Grantor in the case of a notice to a Grantor, and concurrently with the sending thereof in the case of a notice from a Grantor) a copy of each notice of default and every other notice and other communication received or delivered by a Grantor in connection with any material License Agreement which relates to the right of any Grantor to continue to use the property subject to such License Agreement, and (vi) furnish to Secured Party, promptly upon the request of Secured Party, such information and evidence as Secured Party may require from time to time concerning the observance, performance and compliance by Grantors or the other party or parties thereto with the terms, covenants or provisions of any material License Agreement.
(b) Grantors will either exercise any option to renew or extend the term of each material License Agreement in such manner as will cause the term of such material License Agreement to be effectively renewed or extended for the period provided by such option and give prompt written notice thereof to Secured Party or give Secured Party prior written notice that a Grantor does not intend to renew or extend the term of any such material License Agreement or that the term thereof shall otherwise be expiring, not less than sixty (60) days prior to the date of any such non-renewal or expiration. In the event of the failure of any Grantor to extend or renew any material License Agreement, Secured Party shall have, and is hereby granted, the irrevocable right and authority, at its option, to renew or extend the term of such material License Agreement, whether in its own name and behalf, or in the name and behalf of a designee or nominee of Secured Party or in the name and behalf of Grantors, as Secured Party shall determine at any time that an Event of Default shall exist or have occurred and be continuing. Secured Party may, but shall not be required to, perform any or all of such obligations of any Grantors under any of the License Agreements, including, but not limited to, the payment of any or all sums due from any Grantor thereunder. Any sums so paid by Secured Party shall constitute part of the Obligations.
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ARTICLE 7.
NEGATIVE COVENANTS
So long as any of the Obligations shall remain outstanding, unless the Secured Party shall otherwise consent in writing, each Grantor covenants and agrees that it shall not:
7.1 Transfers; Liens and Encumbrances.
(a) Sell, assign (by operation of law or otherwise), lease, license, exchange or otherwise transfer or dispose of any of the Collateral, except the Grantors may (i) sell or dispose of Inventory in the ordinary course of business, and (ii) sell or dispose of assets the Grantors have determined, in good faith, not to be useful in the conduct of its business, and (iii) sell or dispose of accounts in the course of collection in the ordinary course of business consistent with past practice.
(b) Directly or indirectly make, create, incur, assume or permit to exist any Lien in, to or against any part of the Collateral other than Permitted Liens.
(c) The Grantors covenant and agree that they will not, without the express written consent of the Secured Party, grant any license (whether exclusive or non-exclusive) to use the Intellectual Property to any party other than another Grantor, except that prior to the occurrence of an Event of Default, the Grantors may, in the ordinary course of business, grant non-exclusive licenses to use the Intellectual Property to unrelated third parties which are customers of a Grantor in connection with arms-length transactions, provided that such non-exclusive licenses do not impair the value of the Intellectual Property. To the extent that the Grantors wish to seek the Secured Party’s consent to the granting of a license to use Intellectual Property other than as expressly permitted above, then the Grantors shall provide the Secured Party with a written request for such consent, which request shall be accompanied by a copy of the proposed license and any documents, instruments, and agreements related thereto or to be entered into in connection with such license, and such other information regarding the proposed license as the Secured Party may require. The Secured Party shall endeavor to respond to such request within ten (10) days of its receipt of such request, provided, however, that if the Secured Party does not reply within such ten (10) day period, then such request shall be deemed to have been denied by the Secured Party. Further, the Secured Party shall not have been deemed to have consented to any proposed license unless the Secured Party has provided such consent in a writing executed by a duly authorized representative of the Secured Party and delivered to the Grantors. The decision by the Secured Party on whether to grant or withhold its consent to a proposed license shall be made by the Secured Party in its sole and exclusive discretion, and the Secured Party shall have no obligation whatsoever to consent to any proposed license.
7.2 Restriction on Redemption and Cash Dividends
Directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on its capital stock without the prior express written consent of the Secured Party.
7.3 Incurrence of Indebtedness.
Directly or indirectly, incur or guarantee, assume or suffer to exist any indebtedness, other than the indebtedness evidenced by the Convertible Debentures and other Permitted Indebtedness.
7.4 Places of Business.
Change its state of organization or its principal place of business without the written consent of the Secured Party.
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ARTICLE 8.
MISCELLANEOUS
8.1 Notices.
All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery, if delivered in person or by nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the continental United States by certified mail, return receipt requested to the party entitled to receive the same:
| If to the Secured Party: | |||
| YA Global Investments, L.P. | |||
| 1012 Springfield Avenue | |||
| Mountainside, New Jersey 07302 | |||
| Attention: Mr. Troy Rillo | |||
| If to Grantors: | c/o CoroWare, Inc. | ||
| 601 108th Avenue NE, Suite 1900 | |||
| Bellevue, WA 98004 | |||
| Attn: Mr. Lloyd Spencer |
Any party may change its address by giving notice to the other party stating its new address. Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such party’s address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement.
8.2 Security Interest Absolute. All rights of the Secured Party hereunder, the security interest in the Collateral and all obligations of the Grantors hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of any of the Financing Agreements, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Financing Agreements or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations, (d) the existence of any claim, set-off or other right which any Grantor may have at any time against any other Grantor or the Secured Party, whether in connection herewith or any unrelated transaction.
8.3 Severability.
If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein.
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8.4 Expenses.
In the event of an Event of Default, the Grantors will pay to the Secured Party the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur in connection with: (i) the custody or preservation of, or the sale, collection from, or other realization upon, any of the Collateral; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by a Grantor to perform or observe any of the provisions hereof.
8.5 Waivers, Amendments, Etc.
The Secured Party’s delay or failure at any time or times hereafter to require strict performance by a Grantor of any undertakings, agreements or covenants shall not waive, affect, or diminish any right of the Secured Party under this Agreement to demand strict compliance and performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of a Grantor contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Secured Party in the case of any such waiver, and signed by the Secured Party and the Grantors in the case of any such amendment, change or modification.
8.6 Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall: (i) remain in full force and effect so long as any of the Obligations shall remain outstanding; (ii) be binding upon each Grantor and its successors and assigns; and (iii) inure to the benefit of the Secured Party and its successors and assigns. Upon the payment or satisfaction in full of the Obligations, this Agreement and the security interest created hereby shall terminate, and, in connection therewith, each Grantor shall be entitled to the return, at its expense, of such of the Collateral as shall not have been sold in accordance with this Agreement or otherwise applied pursuant to the terms hereof and the Secured Party shall deliver to the Grantors such documents as the Grantors shall reasonably request to evidence such termination.
8.7 Independent Representation.
Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and responsibilities with regard to the substance of this Agreement.
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8.8 Indemnification.
In addition to the indemnification provisions under the other Financing Agreements, each of the Grantors hereby covenants and agrees to indemnify, defend and hold harmless the Secured Party and its investment manager, and each of the foregoing parties’ respective agents, servants, attorneys, advisors, officers, directors, employees, affiliates, partners, members, managers, predecessors, successors, and assigns (each an “Indemnified Person”) of, to, and from any loss, judgment, liability, claim, cause of action, or demand, and all costs and expenses (including reasonable attorneys’ fees) which may be incurred, suffered, made, brought, threatened, or instituted by or against any person indemnified hereby for any reason whatsoever on account of, arising out of, or in any way relating to the actions or inactions of one or more of the Grantors, including without limitation (i) any matter, fact, event, or act or omission relating to the Collateral, and/or the Grantors’ maintenance and management of the Collateral, including any damage to the Collateral or claims threatened or brought against the Secured Party with respect to the Collateral and/or any of the Grantors’ acts and/or omissions in connection with the same, (ii) claims threatened or brought by one or more third parties against the Grantors, or any of its affiliates or subsidiaries, (iii) claims threatened or brought by any party against the Secured Party, or any of its affiliates concerning or arising from the actions or inactions of any of the Grantors, the Collateral, and the Financing Agreements. this Agreement, or otherwise; and/or (iv) this Agreement. The Secured Party may defend any such claim, cause of action, or demand at the sole cost and expense of the Grantors, with counsel designated by the Secured Party and to the exclusion of the Grantors, or the Secured Party may call upon the Grantors to defend such action at the Grantors’ sole cost and expense. the Secured Party may, in the Secured Party’s sole and exclusive discretion, adjust, settle, or compromise any such claim, cause of action, or demand made upon the Secured Party, and the Grantors shall indemnify the Secured Party for any such amount so adjusted, settled, or compromised, as well as all costs and expenses (including attorneys’ fees) incurred in connection therewith.
8.9 Applicable Law: Jurisdiction.
This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Union County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Union County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph, provided, however, that nothing herein shall prevent the Secured Party from enforcing its rights and remedies (including, without limitation, by filing a civil action) with respect to the Collateral and/or the Grantors in any other jurisdiction in which the Collateral and/or the Grantors may be located.
8.10 Non-Interference.
From and after the occurrence of an Event of Default, the Grantors agree:
(a) Not to interfere with the exercise by the Secured Party of any of its rights and remedies under this Agreement, the other Financing Agreements, and/or applicable law;
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(b) They shall not seek to distrain or otherwise hinder, delay, or impair the Secured Party’s efforts to realize upon any Collateral or otherwise to enforce its rights and remedies pursuant to this Agreement, the Financing Agreements, and/or applicable law, and shall at all times cooperate with the Secured Party’s exercise of its rights and remedies under this Agreement, the Financing Agreements, and/or applicable law; and
(c) The provisions of this Section shall be specifically enforceable by the Secured Party.
8.11 Automatic Stay.
The Grantors agree that upon the filing of any Petition for Relief by or against any of the Grantors under the United States Bankruptcy Code, the Secured Party shall be entitled to immediate and complete relief from the automatic stay with respect to such Grantor or Grantors, and Secured Party shall be permitted to proceed to protect and enforce its rights and remedies under applicable law. The Grantors hereby expressly assent to, and covenant and agree not to oppose, any motion filed by the Secured Party seeking relief from the automatic stay. The Grantors further hereby expressly WAIVE the protections afforded under Section 362 of the United States Bankruptcy Code with respect to the Secured Party.
8.12 Credit Bidding.
The Grantors hereby expressly acknowledge and agree, in further consideration for the Secured Party entering into this Agreement, that the Secured Party shall be permitted to credit bid the Obligations at any auction and/or sale, including without limitation, at any auction and/or other sale conducted under or in connection with any of the sections or chapters of the United States Bankruptcy Code. The Grantors hereby further acknowledge and agree that this provision is a material inducement to the Secured Party entering into this Agreement, and the Grantors have been represented by experienced counsel in connection with entering into this Agreement. The Secured Party, in turn, acknowledges that this paragraph shall not be construed as a restriction or prohibition on Grantors’ respective rights to file any voluntary petition or make application for or seek relief or protection under the United States Bankruptcy Code.
8.13 Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO MAKE FINANCIAL ACCOMMODATIONS TO THE COMPANIES OR ANY GRANTOR, EACH GRANTOR HEREBY WAIVES, TO THE FULLEST PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
8.14 Right of Set Off.
The Grantors hereby grant to the Secured Party, a lien, security interest and right of setoff as security for all liabilities and obligations to the Secured Party, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Secured Party or any of its affiliates, or any entity under the control of the Secured Party, or in transit to any of them. At any time, without demand or notice, the Secured Party may set off the same or any part thereof and apply the same to any liability or obligation of the Grantors even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE THE SECURED PARTY TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE GRANTORS, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
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8.15 Liability of Grantors.
Notwithstanding any provision herein or in any other Loan Instrument, the Grantors, and each of them, are and shall be jointly and severally liable for any and all Obligations (whether any such Obligation is specified as an obligation of the Grantors or of any of them).
8.16 Waiver of Claims.
The Grantors acknowledge and agree that they have no offsets, defenses, claims, or counterclaims against the Secured Party or its officers, directors, employees, attorneys, representatives, parents, affiliates, predecessors, successors, or assigns with respect to the Collateral, the Financing Agreements, the Obligations, or otherwise, and that if the Grantors now has, or ever did have, any offsets, defenses, claims, or counterclaims against the Secured Party or its officers, directors, employees, attorneys, representatives, affiliates, predecessors, successors, or assigns, whether known or unknown, at law or in equity, from the beginning of the world through this date and through the time of execution of this Agreement, all of them are hereby expressly WAIVED, and the Grantors hereby RELEASE the Secured Party and its officers, directors, employees, attorneys, representatives, affiliates, predecessors, successors, and assigns from any liability therefor.
8.17 Counterparts; Facsimile Signatures.
This Agreement may be executed and delivered by exchange of facsimile signatures of the Secured Party and the Grantors, and those signatures need not be affixed to the same copy. This Agreement may be executed in any number of counterparts.
8.18 Entire Agreement.
This Agreement and the other documents or agreements delivered in connection herewith contain the entire understanding among the parties and supersede any prior agreement or understanding among them with respect to the subject matter hereof.
8.19 Amended and Restated Agreement.
This Agreement shall amend and restate all prior security agreements in favor of Secured Party, including the two Security Agreements dated as of July 20, 2006, one by CoroWare and the other by CT, and the Security Agreement dated as of November 2, 2007 by CoroWare, CT, and the other parties identified therein (as amended and in effect, the “Existing Agreement”). This Agreement is not in any way intended to constitute a novation of the obligations and liabilities existing under the Existing Agreement or evidence payment of all or any portion of such obligations and liabilities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Global Security Agreement as of the date first above written.
| COROWARE, INC. | ||
| By: | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
| COROWARE TECHNOLOGIES, INC. | ||
| By: | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
| ROBOTIC WORKSPACE TECHNOLOGIES, INC. | ||
| By: | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Global Security Agreement as of the date first above written.
| SECURED PARTY: | ||
| YA GLOBAL INVESTMENTS, L.P. | ||
| By: | Yorkville Advisors, LLC, | |
| its Investment Manager | ||
| By: | ||
| Name: | ||
| Title: | ||
exhibit A
(Definition of Collateral)
For the purpose of securing prompt and complete payment and performance by the Grantors of all of the Obligations, each Grantor unconditionally and irrevocably hereby grants to the Secured Party a continuing security interest in and to, and lien upon, the following “Collateral” of the Grantors (all capitalized terms used herein and not defined in the Agreement shall have the respective meanings ascribed thereto in the UCC):
All personal property of each Grantor, wherever located and whether now or hereinafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible, including without limitation, all:
1. Goods;
2. Inventory, including, without limitation, all goods, merchandise and other personal property which are held for sale or lease, or are furnished or to be furnished under any contract of service or are raw materials, work-in-process, supplies or materials used or consumed in the Grantors’ business, and all products thereof, and all substitutions, replacements, additions or accessions therefor and thereto; and any cash or non-cash Proceeds of all of the foregoing;
3. Equipment, including, without limitation, all machinery, equipment, furniture, parts, tools and dies, of every kind and description, of the Grantors (including automotive equipment and motor vehicles), now owned or hereafter acquired by the Grantor, and used or acquired for use in the business of the Grantor, together with all accessions thereto and all substitutions and replacements thereof and parts therefor and all cash or non-cash Proceeds of the foregoing;
4. Fixtures, including, without limitation, all goods which are so related to particular real estate that an interest in them arises under real estate law and all accessions thereto, replacements thereof and substitutions therefor, including, but not limited to, plumbing, heating and lighting apparatus, mantels, floor coverings, furniture, furnishings, draperies, screens, storm windows and doors, awnings, shrubbery, plants, boilers, tanks, machinery, stoves, gas and electric ranges, wall cabinets, appliances, furnaces, dynamos, motors, elevators and elevator machinery, radiators, blinds and all laundry, refrigerating, gas, electric, ventilating, air-refrigerating, air-conditioning, incinerating and sprinkling and other fire prevention or extinguishing equipment of whatsoever kind and nature and any replacements, accessions and additions thereto, Proceeds thereof and substitutions therefor;
5. Instruments (including promissory notes);
6. Documents;
7. Accounts, including, without limitation, all Contract Rights and accounts receivable, health-care-insurance receivables, and license fees; any other obligations or indebtedness owed to the Grantor from whatever source arising; all rights of Grantor to receive any payments in money or kind; all guarantees of Accounts and security therefor; all cash or non-cash Proceeds of all of the foregoing; all of the right, title and interest of Grantors in and with respect to the goods, services or other property which gave rise to or which secure any of the accounts and insurance policies and proceeds relating thereto, and all of the rights of the Grantors as an unpaid seller of goods or services, including, without limitation the rights of stoppage in transit, replevin, reclamation and resale and all of the foregoing, whether now existing or hereafter created or acquired;
8. Contracts and Contract Rights, including, to the extent not included in the definition of Accounts, all rights to payment or performance under a contract not yet earned by performance and not evidenced by an Instrument or Chattel Paper;
9. Chattel Paper (whether tangible or electronic);
10. Deposit Accounts (and in and to any deposits or other sums at any time credited to each such Deposit Account);
11. Money, cash and cash equivalents;
12. Letters of Credit and Letter-of-Credit Rights (whether or not the Letter of Credit is evidenced by a writing);
13. Commercial Tort Claims;
14. Securities Accounts, Security Entitlements, Securities, Financial Assets and all other Investment Property, including, without limitation, all ownership or membership interests in any subsidiaries or affiliates (whether or not controlled by the Grantors);
15. General Intangibles, including, without limitation, all Payment Intangibles and Intellectual Property, tax refunds and other claims of the Grantors against any governmental authority, and all choses in action, insurance proceeds, goodwill customer lists, formulae, permits, research and literary rights, and franchises.
16. Farm Products;
17. All books and records and information (including all ledger sheets, files, computer programs, tapes and related data processing software) evidencing an interest in or relating to any of the foregoing and/or to the operation of the Grantors’ business, and all rights of access to such books and records, and information, and all property in which such books and records, and information are stored, recorded and maintained.
18. To the extent not already included above, all Supporting Obligations, and any and all cash and non-cash Proceeds, products, accessions, and/or replacements of any of the foregoing, including proceeds of insurance covering any or all of the foregoing.
SCHEDULE 1
(Subsidiaries and Affiliates)
CoroWare, Inc.
CoroWare Technologies, Inc.
Robotic Workspace Technologies, Inc.
SCHEDULE 4.3
(Addresses)
CoroWare, Inc.
601 108th Ave NE #1900
Bellevue, WA 98004
CoroWare Technologies, Inc.
601 108th Ave NE #1900
Bellevue, WA 98004
Robotic Workspace Technologies, Inc.
601 108th Ave NE #1900
Bellevue, WA 98004
SCHEDULE 4.4
(Location, State of Incorporation, Name)
CoroWare, Inc.
State of Incorporation: Delaware
601 108th Ave NE #1900
Bellevue, WA 98004
CoroWare Technologies, Inc.
State of Incorporation: Florida
601 108th Ave NE #1900
Bellevue, WA 98004
Robotic Workspace Technologies, Inc.
State of Incorporation: Florida
601 108th Ave NE #1900
Bellevue, WA 98004
Exhibit 10.5
GLOBAL GUARANTY AGREEMENT
This GLOBAL GUARANTY AGREEMENT dated as of February 5, 2016 (the “Guaranty”), is given by each of the entities listed on Schedule 1 attached hereto (jointly, severally, and collectively, the “Guarantors”) in favor of YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.) (the “Secured Party”). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Forbearance Agreement (as defined below).
WHEREAS:
(A) This Guaranty is being delivered as a condition of that Forbearance Agreement (the “Forbearance Agreement”) of even date herewith between CoroWare, Inc. (“CoroWare”) and the Secured Party. The Secured Party is the holder of a certain Amended, Restated and Consolidated Secured Convertible Debenture of even date herewith (as amended and in effect from time to time, the “Debenture”) issued by CoroWare to the Secured Party.
(B) Each of the Guarantors has executed and delivered (i) an Amended and Restated Global Security Agreement, dated as of the date hereof (as may be amended and supplemented from time to time, the “Security Agreement”), pursuant to which the Guarantors pledge and grant to the Secured Party a security interest in and to all of the Guarantors’ assets and personal property; the Secured Party; and (ii) an Amended and Restated Intellectual Property Security Agreement, dated as of the date hereof (the “IPSA”);
(C) The Forbearance Agreement, Debenture, Security Agreement, IPSA, and all other documents, instruments, and agreements executed in connection therewith, as amended and in effect from time to time, collectively, the “Financing Documents”).
(D) The Secured Party has extended financial accommodations to the Company pursuant to the Financing Agreement and the Debenture, and the Guarantors will directly benefit from the extension of such financial accommodation as part of the affiliated business operations of the Guarantors. Each Guarantor acknowledges that without this Guaranty, the Secured Party would not be willing to enter into the Financing Documents related to such financial accommodations.
NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, each Guarantor hereby agrees as follows:
1. Guaranty.
(a) Guaranty.
(i) Each Guarantor, as direct obligor and not merely as surety, hereby unconditionally, absolutely, and irrevocably guarantees to the Secured Party the full payment and prompt performance of all of the Obligations (as defined below). Without limiting the foregoing, the Guarantors hereby agree that upon any Event of Default, the Guarantors shall immediately pay or perform any Obligations without notice, demand or formality of any kind.
(ii) The term “Obligations” shall mean and include any and all debts, liabilities, obligations, covenants and duties owing by the Company and/or any Guarantor to the Secured Party, now existing or hereafter arising of every nature, type, and description, whether liquidated, unliquidated, primary, secondary, secured, unsecured, direct, indirect, absolute, or contingent, and whether or not evidenced by a note, guaranty or other instrument, and any amendments, extensions, renewals or increases thereof, including, without limitation, all those under (i) the Financing Documents; (ii) any agreement or document related to the Financing Documents; or (iii) any other or related documents, and including any interest accruing thereon after insolvency, reorganization or like proceeding relating to the Guarantors, whether or not a claim for post-petition interest is allowed in such proceeding, and all costs and expenses of the Secured Party incurred in the enforcement, collection or otherwise in connection with any of the foregoing, including, but not limited to, reasonable attorneys’ fees and expenses and all obligations of the Guarantors to the Secured Party to perform acts or refrain from taking any action.
(b) Continuing Guaranty.
(i) The Obligations under this Guaranty are continuing, absolute, unconditional and irrevocable irrespective of the validity, regularity, enforceability or value of any of the Obligations and notwithstanding any claim, defense or right of set-off which the Guarantors may have against the Secured Party, including any such claim, defense or right based on any present or future applicable law and irrespective of any other circumstances which might otherwise constitute a legal or equitable release, defense or discharge of a surety or a guarantor. Without limiting the generality of the foregoing, the Obligations of each Guarantor hereunder shall not be discharged or impaired or otherwise affected by:
(A) any rescission, waiver, amendment or modification of any terms or provisions of the Obligations or the documents evidencing the same.
(B) any fraudulent, illegal, or improper act by any Guarantor or any failure, omission or delay on the part of any Guarantor to conform or comply with any term of the Obligations or of this Guaranty;
(C) any failure of the Secured Party to assert a claim or demand or to enforce or exercise any right or remedy against any Guarantor or any other guarantor for any reason;
(D) any release or discharge by operation of law or otherwise of any Guarantor from any Obligation or the documents evidencing the same;
(E) any change in the existence, structure or ownership of any Guarantor or the legal incapacity of any Guarantor;
(F) any insolvency, bankruptcy, reorganization, arrangement, readjustment, composition, liquidation or other similar proceeding affecting any Guarantor or its/his assets or any resulting disallowance, release or discharge of all or any portion of the Obligations;
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(G) the failure by any Guarantor or any other person to sign this Guaranty; and
(H) any other occurrence, circumstance, happening or event, whether similar or dissimilar to the foregoing and whether foreseen or unforeseen, which otherwise might constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or which otherwise might limit recourse against any Guarantor.
(ii) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment or performance of the Obligations, or any part thereof, to the Secured Party is rescinded or must otherwise be returned by the Secured Party upon the insolvency, bankruptcy or reorganization of the Guarantors, all as though such payment to the Secured Party has not been made.
(c) Guaranty of Payment and Not of Collection; Subordination.
(i) The liability of each Guarantor shall be continuing, direct and immediate and not conditional or contingent upon either the pursuit of any remedies against the Company, a Guarantor or any other person or foreclosure of any security interests or liens available to the Secured Party, its successors, endorsees or assigns. The Secured Party may accept any payment(s), plan for adjustment of debts, plan of reorganization or liquidation, or plan of composition or extension proposed by, or on behalf of, the Company or any Guarantor without in any way affecting or discharging the liability of any Guarantor. If the Obligations are partially paid, each Guarantor shall remain liable for any balance of such Obligations. Without limiting any other provision of, impairing or affecting this Guaranty, the Secured Party may, at any time and from time to time, take or refrain from taking, all or any actions whatsoever, including the following actions: (a) retain or obtain a Lien in any property to secure any of the Obligations; (b) amend, extend, renew, adjust, waive or release any Obligations or the terms thereof, (c) release or fail to perfect its interest in all or any property securing any of the Obligations or permit any substitution or exchange for any such property.
(ii) With respect to any sum paid or payable by a Guarantor hereunder or in connection herewith or otherwise, all rights of such Guarantor against any other Guarantor arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment or performance in full of all the Obligations. In addition, any indebtedness of any Guarantor now or hereafter held by any Guarantor is hereby subordinated in right of payment to the prior payment or performance in full of the Obligations and no Guarantor shall demand, sue for, or otherwise attempt to collect any such indebtedness, or prove any claim in competition with the Secured Party in respect of any payment hereunder in bankruptcy or insolvency proceedings of any nature. If any amount shall erroneously be paid to any Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of any Guarantor as borrower of a Guarantor, such amount shall be held in trust for the benefit of the Secured Party and shall forthwith be paid to the Secured Party to be credited against the payment of the Obligations.
(d) Discharge. Each Guarantor covenants and agrees that this Guaranty will not be discharged, except by complete performance of the Obligations.
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(e) Interest. Guarantors will pay on demand interest on all amounts due to the Secured Party under this Guaranty, or arising under any documents, instruments, or agreements relating to any collateral securing this Guaranty, from the time the Secured Party first demands payment of this Guaranty at a rate equal to the highest rate applicable to any of the Obligations after the earlier of (i) demand, or (ii) maturity, or (iii) the occurrence of any event of default under any instrument, document or agreement evidencing the Obligations (but in no event higher than the highest rate of interest which under the circumstances may be charged under applicable law).
(f) Costs and Expenses. Without limiting any obligation of any Guarantor hereunder, each Guarantor agrees, jointly and severally, to pay all reasonable fees and costs (including, without limitation, reasonable attorneys’ fees and expenses, whether or not involving litigation and/or appellate or bankruptcy proceedings) incurred by Secured Party in (i) collecting or securing or attempting to collect or secure this Guaranty or each Convertible Debenture; (ii) defending or prosecuting any actions or proceedings arising out of or relating to the Secured Party’s transactions with the Guarantors.
(g) Indemnification. For said good and valuable consideration, the Guarantors also shall indemnify, defend, and hold the Secured Party, or any agent, employee, officer, attorney, or representative of the Secured Party, harmless of and from any claim brought or threatened against the Secured Party or any such person so indemnified by: any Guarantor; any other obligor or endorser of the Obligations or any other person (as well as from attorneys’ fees and expenses in connection therewith) on account of the Secured Party’s relationship with the Guarantors, or any other obligor or endorser of the Obligations (each of which may be defended, compromised, settled, or pursued by the Secured Party with counsel of the Secured Party’s selection, but at the expense of the undersigned).
2. Additional Guarantors. Pursuant to Section 6.12 of the Security Agreement, each subsidiary of the Guarantors that is formed or acquired after the execution of this Guaranty is required to execute the Guaranty. Such subsidiary shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor herein. The execution and delivery of any instrument adding an additional Guarantor as a party to this Guaranty shall not require the consent of any other Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Guaranty.
3. Representations and Warranties. Each Guarantor hereby represents and warrants to the Secured Party as follows:
(a) each corporate Guarantor has full power, right and authority to enter into and perform its obligations under this Guaranty, and this Guaranty has been duly executed and delivered by each Guarantor and constitutes the valid and binding obligation of each Guarantor and is enforceable against each Guarantor in accordance with its terms.
(b) No permits, approvals or consents of or notifications to (i) any governmental entities, or (ii) any other persons or entities are necessary in connection with the execution, delivery and performance by any Guarantor of this Guaranty and the consummation by each Guarantor of the transactions contemplated hereby.
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(c) Neither the execution and delivery of this Guaranty by any Guarantor nor the performance by them of the transactions contemplated hereby will:
(d) violate or conflict with or result in a breach of any provision of any law, statute, rule, regulation, order, permit, judgment, ruling, injunction, decree or other decision of any court or other tribunal or any governmental entity or agency binding on a Guarantor or his properties, or conflict with or cause an event of default under any contract or agreement of a Guarantor; or
(e) require any authorization, consent, approval, exemption or other action by or notice to any court, administrative or governmental body, person, entity or any other third party.
(f) Each of the Guarantors is solvent, able to pay its debts as they mature, has capital sufficient to carry on its business, and the fair present saleable value of its assets, calculated on a going concern basis, is in excess of the amount of its liabilities (except for certain derivative liabilities related to the Debenture).
(g) Except as set forth on Schedule 3(g), the Guarantors have no pending or threatened litigation, arbitration, actions or proceedings which if adversely decided could reasonably be expected to result in a Material Adverse Effect, individually or in the aggregate.
(h) The Company is not engaged in any business or activity and does not own any asset or property other than (i) the direct or indirect ownership of all outstanding equity interests in the subsidiaries listed in Schedule 6.12 of the Security Agreement, (ii) maintaining its corporate existence, (iii) participating in tax, accounting and other administrative activities as the parent of the consolidated group of companies, (iv) the execution and delivery of the Financing Documents to which it is a party and the performance of its obligations thereunder, and (v) activities incidental to the businesses or activities described in clauses (i) through (iv) of this Section 3(h).
4. Event of Default.
(a) For purposes of this Guaranty, an event of default shall be deemed to have occurred upon an Event of Default under the Security Agreement.
(b) Upon an event of default, all of the obligations of each Guarantor hereunder shall be immediately due and payable without any action on the part of the Secured Party, and the Secured Party shall be entitled to seek and institute any and all remedies available to it.
5. Remedies, Other Obligations, Breaches and Injunctive Relief.
(a) No remedy conferred under this Guaranty upon the Secured Party is intended to be exclusive of any other remedy available to the Secured Party, pursuant to the terms of this Guaranty or otherwise, at law or in equity (including a decree of specific performance and/or other injunctive relief). No single or partial exercise by the Secured Party of any right, power or remedy hereunder shall preclude any other or further exercise thereof.
(b) The failure of the Secured Party to exercise any right or remedy under this Guaranty or otherwise, or delay in exercising such right or remedy, shall not operate as a waiver thereof.
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(c) Every right and remedy of the Guarantors under any document executed in connection with this transaction, including but not limited to this Guaranty, the Loan Instruments, and the Other Loan Documents or under applicable law may be exercised from time to time and as often as may be deemed expedient by the Secured Party.
(d) The Guarantors acknowledge that a breach by a Guarantor of its/his obligations hereunder will cause irreparable harm to the Secured Party and that the remedy at law for any such breach may be inadequate. The Guarantors therefore agree that, in the event of any such breach or threatened breach by the Guarantors, the Secured Party shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, and specific performance without the necessity of showing economic loss and without any bond or other security being required. Nothing herein shall limit Secured Party’s right to pursue actual damages for any failure by a Guarantor to comply with the terms of this Guaranty.
6. Maximum Liability. Notwithstanding any provision herein contained to the contrary, each Guarantor’s liability under this Guaranty shall be limited to an amount not to exceed as of any date of determination the amount which could be claimed by any Secured Party from such Guarantor under this Guaranty without rendering such claim voidable or avoidable under Section 548 of the Bankruptcy Code (11 U.S.C. §§ 101 et seq.) or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law (the “Avoidance Provisions”) after taking into account, among other things, such Guarantor’s right of contribution and indemnification from each other Guarantor, if any. To the end set forth above, but only to the extent that the Obligations of a Guarantor hereunder (the “Guaranty Obligations”) would otherwise be subject to avoidance under the Avoidance Provisions, if such Guarantor is not deemed to have received valuable consideration, fair value, fair consideration or reasonably equivalent value for the Guaranty Obligations, or if the Guaranty Obligations would render such Guarantor insolvent, or leave such Guarantor with an unreasonably small capital to conduct its business, or cause such Guarantor to have incurred debts (or to have intended to have incurred debts) beyond its ability to pay such debts as they mature, in each case as of the time any of the Guaranty Obligations is deemed to have been incurred for the purposes of the Avoidance Provisions, the maximum Guaranty Obligations for which such Guarantor shall be liable hereunder shall be reduced to that amount which, after giving effect thereto, would not cause the Guaranty Obligations as so reduced, to be subject to avoidance under the Avoidance Provisions.
7. Miscellaneous.
(a) Notices, Consents, etc. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) trading day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:
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| If to the Company or Guarantor, to: | c/o CoroWare, Inc. | |
| 601 108th Avenue NE, Suite 1900 | ||
| Bellevue, WA 98004 | ||
| Attn: Lloyd Spencer | ||
| Telephone: (800) 641-2676 | ||
| If to the Holder: | YA Global Investments, LP | |
1012 Springfield Avenue Mountainside, NJ 07092 |
| Attention: | Mark Angelo |
or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) trading days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
(b) Waiver of Presentment. To the fullest extent permitted by law and except as otherwise provided herein, the Guarantors waive demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold each Guarantor liable with respect to this Guaranty.
(c) Severability. If any provision of this Guaranty is, for any reason, invalid or unenforceable, the remaining provisions of this Guaranty will nevertheless be valid and enforceable and will remain in full force and effect. Any provision of this Guaranty that is held invalid or unenforceable by a court of competent jurisdiction will be deemed modified to the extent necessary to make it valid and enforceable and as so modified will remain in full force and effect.
(d) Amendment and Waiver. This Guaranty may be amended, or any provision of this Guaranty may be waived, provided that any such amendment or waiver will be binding on a party hereto only if such amendment or waiver is set forth in a writing executed by the parties hereto. The waiver by any such party hereto of a breach of any provision of this Guaranty shall not operate or be construed as a waiver of any other breach.
(e) Headings. The subject headings of Articles and Sections of this Guaranty are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions.
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(f) Assignment. This Guaranty will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but will not be assignable or delegable by the Guarantors. Except as otherwise provided herein, this Note shall bind and inure to the benefit of and be enforceable by the parties and their permitted successors and assigns.
(g) Further Assurances. Each party will execute all documents and take such other actions as the other parties may reasonably request in order to consummate the transactions provided for herein and to accomplish the purposes of this Guaranty.
(h) Third Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity, other than the stated beneficiaries of this Guaranty and their respective permitted successors and assigns, any rights or remedies under or by reason of this Guaranty.
(i) Liability of Guarantors. Notwithstanding any provision herein, the Guarantors, and each of them, are and shall be jointly and severally liable for any and all Obligations (whether any such Obligation is specified as an obligation of the Guarantors or of any of them).
(j) No Strict Construction. The language used in this Guaranty will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto.
(k) Governing Law; Jurisdiction. This Guaranty shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph, provided, however, that nothing herein shall prevent the Secured Party from enforcing its rights and remedies (including, without limitation, by filing a civil action) with respect to the Collateral and/or the Guarantors in any other jurisdiction in which the Collateral and/or the Guarantors may be located. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Guaranty and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.
(l) Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR THE SECURED PARTY TO MAKE FINANCIAL ACCOMMODATIONS TO THE COMPANY AND THE GUARANTORS, EACH GUARANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS GUARANTY AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
(m) Counterparts; Facsimile Signatures. This Guaranty may be executed and delivered by exchange of facsimile signatures of the Secured Party and the Guarantors, and those signatures need not be affixed to the same copy. This Guaranty may be executed in any number of counterparts.
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(n) Entire Agreement. This Guaranty (including the recitals hereto) and the other documents or agreements delivered in connection herewith set forth the entire understanding of the parties with respect to the subject matter hereof, and shall not be modified or affected by any offer, proposal, statement or representation, oral or written, made by or for any party in connection with the negotiation of the terms hereof, and may be modified only by instruments signed by all of the parties hereto.
(o) Collateral. The Guarantors’ obligations to the Secured Party hereunder shall be secured by all collateral heretofore or hereafter granted to the Secured Party by the Guarantors, whether in connection with this Guaranty or otherwise, including, without limitation, all collateral granted to the Secured Party pursuant to the Security Agreement, or the IPSA.
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IN WITNESS WHEREOF, each Guarantor has caused this Global Guaranty Agreement to be signed as of the date first written above.
| COROWARE TECHNOLOGIES, INC. | ||
| By | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
| ROBOTIC WORKSPACE TECHNOLOGIES, INC. | ||
| By | ||
| Name: | Lloyd Spencer | |
| Title: | President | |
SCHEDULE 1
(Subsidiaries and Affiliates)
CoroWare Technologies, Inc.
Robotic Workspace Technologies, Inc.
Exhibit 10.6
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
COROWARE, INC.
Amended, Restated and Consolidated
Secured Convertible Debenture
Principal Amount: $2,829,690
Debenture Issuance Date: February 5, 2016
Debenture Number: CORO-A&R-1
FOR VALUE RECEIVED, COROWARE, INC., a Delaware Corporation (the “Company”), hereby promises to pay to the order of YA GLOBAL INVESTMENTS, L.P. or registered assigns (the “Holder”) the amount set out above as the Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate from the date set out above as the Debenture Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Amended, Restated and Consolidated Secured Convertible Debenture (including all debentures issued in exchange, transfer or replacement hereof, this “Debenture”) is issued pursuant to the Forbearance Agreement and is the A&R Debenture referred to therein. Certain capitalized terms used herein are defined in Section 16.
(1) GENERAL TERMS
(a) Payment of Debenture. The Company shall make the payments under this Debenture in accordance with the terms and conditions of the Forbearance Agreement. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest, fees, and expenses, and all other amounts due under this Debenture. The “Maturity Date” shall be April 30, 2016, as may be extended at the option of the Holder provided that no Event of Default (as defined below) shall have occurred and be continuing on the Maturity Date or any event shall have occurred and be continuing on the Maturity Date that with the passage of time and the failure to cure would result in an Event of Default. Other than as specifically permitted by this Debenture, the Company may not prepay or redeem any portion of the outstanding Principal without the prior written consent of the Holder.
(b) Interest. Interest shall accrue on the outstanding principal balance hereof at an annual rate equal to six percent per annum (6%) (the “Interest Rate”), provided, however, that upon the occurrence of an Event of Default, at the Holder’s option, the Interest Rate shall be increased to eighteen percent (18%) per annum. Interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed, to the extent permitted by applicable law.
(c) Security. The Debenture is secured by a pledge of assets and guaranties pursuant to the Amended and Restated Global Security Agreement among the Company, the Holder, and other parties dated on or about the date hereof (as amended and in effect, the “Security Agreement”), the Amended and Restated Intellectual Property Security Agreement among the Company, the Holder, and other parties dated on or about the date hereof (as amended and in effect, the “IP Security Agreement”), and the Global Guaranty Agreement among the Company, the Holder, and other parties dated on or about the date hereof (as amended and in effect, the “Guaranty Agreement” and along with the Security Agreement, the IP Security Agreement, and any mortgages granted to the Holder, and all other documents, instruments, and agreements granted to the Holder to secure the obligations of the Company to the Holder, the “Security Documents”).
(2) EVENTS OF DEFAULT.
(a) An “Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body, except for the Stated Defaults as defined in the Forbearance Agreement):
(i) the Company’s failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this Debenture (including, without limitation, the Company’s failure to pay any redemption payments or amounts hereunder) or any other Financing Document (as defined in Section 16);
(ii) The Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary of the Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 65 days; or the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of forty-five (45) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing;
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(iii) The Company or any subsidiary of the Company shall default in any of its obligations under any other debenture or any mortgage, Forbearance Agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding $100,000, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable;
(iv) The Common Stock shall cease to be quoted or listed for trading on any Primary Market for a period of five (5) consecutive Trading Days;
(v) The Company or any subsidiary of the Company shall be a party to any Change of Control Transaction (as defined in Section 16) unless in connection with such Change of Control Transaction this Debenture is retired;
(vi) the Company’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five (5) Business Days after the applicable Conversion Failure or (B) notice, written or oral, to any holder of the Debentures, including by way of public announcement, at any time, of its intention not to comply with a request for conversion hereof into shares of Common Stock that is tendered in accordance with the provisions of this Debenture, other than pursuant to Section 4(c);
(vii) The Company shall fail for any reason to deliver the payment in cash pursuant to a Buy-In (as defined herein) within three (3) Business Days after such payment is due;
(viii) The Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach or default of any provision of this Debenture (except as may be covered by Section 2(a)(i) through 2(a)(ix) hereof) or any Financing Document which is not cured within the time prescribed; or
(ix) A default or Event of Default occurs under any of the Financing Documents.
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(b) During the time that any portion of this Debenture is outstanding, if any Event of Default has occurred, the full unpaid Principal amount of this Debenture, together with Interest and other amounts owing in respect thereof, to the date of acceleration shall become at the Holder’s election, immediately due and payable in cash. Furthermore, in addition to any other remedies, the Holder shall have the right (but not the obligation) to convert this Debenture at any time after (x) an Event of Default or (y) the Maturity Date at the Conversion Price. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, (other than required notice of conversion) and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
(3) CONVERSION OF DEBENTURE. This Debenture shall be convertible into shares of Common Stock in the Company, on the terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(c), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(b), at the Conversion Rate (as defined below). The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to this Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.
(i) “Conversion Amount” means the portion of the Principal and accrued Interest to be converted, redeemed or otherwise with respect to which this determination is being made.
(ii) “Conversion Price” means, as of any Conversion Date (as defined below) or other date of determination, the lesser of (a) $0.0003 (the “Fixed Conversion Price”) or (b) fifty percent (50%) of the lowest daily Volume Weighted Average Price of the Common Stock during the twenty (20) consecutive Trading Days immediately preceding the Conversion Date or other date of determination, as quoted by Bloomberg, LP (the “Market Conversion Price”). The Fixed Conversion Price and the Market Conversion Price are collectively referred to as the “Conversion Price”). The Conversion Price may be adjusted pursuant to the other terms of this Debenture.
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(b) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if required by Section 3(b)(iv), surrender this Debenture to a nationally recognized overnight delivery service for delivery to the Company (or an indemnification undertaking reasonably satisfactory to the Company with respect to this Debenture in the case of its loss, theft or destruction). On or before the third Business Day following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (X) if legends are not required to be placed on certificates of Common Stock pursuant to the Financing Documents and provided that the Transfer Agent is participating in the Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant to the Financing Documents. If this Debenture is physically surrendered for conversion and the outstanding Principal of this Debenture is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this Debenture and at its own expense, issue and deliver to the holder a new Debenture representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice.
(ii) Company’s Failure to Timely Convert. If within three (3) Trading Days after the Company’s receipt of the facsimile copy of a Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder’s conversion of any Conversion Amount (a “Conversion Failure”), and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out of pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the Conversion Date.
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(iii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Debenture in accordance with the terms hereof, the Holder shall not be required to physically surrender this Debenture to the Company unless (A) the full Conversion Amount represented by this Debenture is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Debenture upon physical surrender of this Debenture. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Debenture upon conversion.
(c) Limitations on Conversions.
(i) Beneficial Ownership. The Company shall not effect any conversions of this Debenture and the Holder shall not have the right to convert any portion of this Debenture hereunder to the extent that after giving effect to such conversion, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Debenture is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a Conversion Amount of this Debenture that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with Section 3(a) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Debenture. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not less than 65 days prior notice to the Company. Other Holders shall be unaffected by any such waiver.
(d) Other Provisions.
(i) The Company shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Debenture; and within three (3) Business Days following the receipt by the Company of a Holder’s notice that such minimum number of Underlying Shares is not so reserved, the Company shall promptly reserve a sufficient number of shares of Common Stock to comply with such requirement.
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(ii) All calculations under this Section 3 shall be rounded to the nearest $0.0001 or whole share.
(iii) The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder, not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Company as to reservation of such shares set forth in this Debenture and the Financing Documents) be issuable (taking into account the adjustments and restrictions set forth herein) upon the conversion of the outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Underlying Shares Registration Statement has been declared effective under the Securities Act, registered for public sale in accordance with such Underlying Shares Registration Statement.
(iv) Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 2 herein for the Company’s failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
(4) Adjustments to Conversion Price
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If the Company, at any time while this Debenture is outstanding, issues or sells, or in accordance with this Section 4(a) is deemed to have issued or sold, any shares of Common Stock, excluding shares of Common Stock deemed to have been issued or sold by the Company in connection with any Excluded Securities, (i) for a consideration per share (the “New Issuance Price”) less than a price equal to the Fixed Conversion Price in effect immediately prior to such issue or sale (such price the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance the Fixed Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price, or (ii) with a price that is based on the market price at some time in the future and the formula for determining the price (the “Variable Issuance Price”) is more favorable to the Holder, in the Holder’s reasonable interpretation, than the Market Conversion Price, then immediately after such issuance the Market Conversion Price then in effect shall be changed to reflect the pricing mechanism used in such issuance. For purposes of determining the adjusted Conversion Price under this Section 4(a), the following shall be applicable:
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(i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section, the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange or exercise of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section, the “lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section, no further adjustment of the Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section, if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect.
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(iv) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for the difference of (x) the aggregate fair market value of such Options and other securities issued or sold in such integrated transaction, less (y) the fair market value of the securities other than such Option, issued or sold in such transaction and the other securities issued or sold in such integrated transaction will be deemed to have been issued or sold for the balance of the consideration received by the Company. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the gross amount raised by the Company; provided, however, that such gross amount is not greater than 110% of the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Bid Price of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
(b) Adjustment of Conversion Price upon Subdivision of Common Stock. If the Company, at any time while this Debenture is outstanding, shall (a) pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock, (b) subdivide outstanding shares of Common Stock into a larger number of shares, or (c) issue by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. The Fixed Conversion Price shall not be adjusted for any combination of outstanding shares of Common Stock into a smaller number of shares (such as a reverse stock split or anything having a similar effect).
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(c) Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without taking into account any limitations or restrictions on the convertibility of this Debenture) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(d) Other Events. If any event occurs of the type contemplated by the provisions of this Section 4 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Debenture; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 4.
(e) Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Debenture, at the Holder’s option, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Debenture) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Debenture initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Required Holders. The provisions of this Section shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Debenture.
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(f) Whenever the Conversion Price is adjusted pursuant to Section 4 hereof, the Company shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
(g) In case of any (1) merger or consolidation of the Company or any subsidiary of the Company with or into another Person, or (2) sale by the Company or any subsidiary of the Company of more than one-half of the assets of the Company in one or a series of related transactions, a Holder shall have the right to (A) exercise any rights under Section 2(b), (B) convert the aggregate amount of this Debenture then outstanding into the shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such merger, consolidation or sale, and such Holder shall be entitled upon such event or series of related events to receive such amount of securities, cash and property as the shares of Common Stock into which such aggregate principal amount of this Debenture could have been converted immediately prior to such merger, consolidation or sales would have been entitled, or (C) in the case of a merger or consolidation, require the surviving entity to issue to the Holder a convertible Debenture with a principal amount equal to the aggregate principal amount of this Debenture then held by such Holder, plus all accrued and unpaid interest and other amounts owing thereon, which such newly issued convertible Debenture shall have terms identical (including with respect to conversion) to the terms of this Debenture, and shall be entitled to all of the rights and privileges of the Holder of this Debenture set forth herein and the agreements pursuant to which this Debentures were issued. In the case of clause (C), the conversion price applicable for the newly issued shares of convertible preferred stock or convertible Debentures shall be based upon the amount of securities, cash and property that each share of Common Stock would receive in such transaction and the Conversion Price in effect immediately prior to the effectiveness or closing date for such transaction. The terms of any such merger, sale or consolidation shall include such terms so as to continue to give the Holder the right to receive the securities, cash and property set forth in this Section upon any conversion or redemption following such event. This provision shall similarly apply to successive such events.
(5) REISSUANCE OF THIS DEBENTURE.
(a) Transfer. If this Debenture is to be transferred, the Holder shall surrender this Debenture to the Company, whereupon the Company will, subject to the satisfaction of the transfer provisions of the Financing Documents, forthwith issue and deliver upon the order of the Holder a new Debenture (in accordance with Section 5(d)), registered in the name of the registered transferee or assignee, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Debenture (in accordance with Section 5(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of Section 3(b)(iii) following conversion or redemption of any portion of this Debenture, the outstanding Principal represented by this Debenture may be less than the Principal stated on the face of this Debenture.
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(b) Lost, Stolen or Mutilated Debenture. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Debenture, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Debenture, the Company shall execute and deliver to the Holder a new Debenture (in accordance with Section 5(d)) representing the outstanding Principal.
(c) Debenture Exchangeable for Different Denominations. This Debenture is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Debenture or Debentures (in accordance with Section 5(d)) representing in the aggregate the outstanding Principal of this Debenture, and each such new Debenture will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.
(d) Issuance of New Debentures. Whenever the Company is required to issue a new Debenture pursuant to the terms of this Debenture, such new Debenture (i) shall be of like tenor with this Debenture, (ii) shall represent, as indicated on the face of such new Debenture, the Principal remaining outstanding (or in the case of a new Debenture being issued pursuant to Section 5(a) or Section 5(c), the Principal designated by the Holder which, when added to the principal represented by the other new Debentures issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Debenture immediately prior to such issuance of new Debentures), (iii) shall have an issuance date, as indicated on the face of such new Debenture, which is the same as the Issuance Date of this Debenture, (iv) shall have the same rights and conditions as this Debenture, and (v) shall represent accrued and unpaid Interest from the Issuance Date.
(6) NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:
| If to the Company, to: | CoroWare, Inc. |
| 601 108th Avenue NE, Suite 1900 | |
| Bellevue, WA 98004 | |
| Attn: Lloyd Spencer | |
| Telephone: (800) 641-2676 | |
| If to the Holder: | YA Global Investments, LP |
| 1012
Springfield Avenue Mountainside, NJ 07092 | |
| Attention: Mark Angelo |
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or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (iii) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
(7) Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligations of the Company, which are absolute and unconditional, to pay the principal of, interest and other charges (if any) on, this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct obligation of the Company. As long as this Debenture is outstanding, the Company shall not and shall cause their subsidiaries not to, without the consent of the Holder, (i) amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares of its Common Stock or other equity securities other than as to the Underlying Shares to the extent permitted or required under the Financing Documents; or (iii) enter into any agreement with respect to any of the foregoing.
(8) This Debenture shall not entitle the Holder to any of the rights of a stockholder of the Company, including without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Company, unless and to the extent converted into shares of Common Stock in accordance with the terms hereof.
(9) No indebtedness of the Company is senior to this Debenture in right of payment, whether with respect to interest, damages or upon liquidation or dissolution or otherwise. Without the Holder’s consent, the Company will not and will not permit any of their subsidiaries to, directly or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits there from that is senior in any respect to the obligations of the Company under this Debenture.
(10) This Debenture shall be governed by and construed in accordance with the laws of the State of New Jersey, without giving effect to conflicts of laws thereof. Each of the parties consents to the jurisdiction of the Superior Courts of the State of New Jersey sitting in Hudson County, New Jersey and the U.S. District Court for the District of New Jersey sitting in Newark, New Jersey in connection with any dispute arising under this Debenture and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens to the bringing of any such proceeding in such jurisdictions.
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(11) If the Company fails to strictly comply with the terms of this Debenture, then the Company shall reimburse the Holder promptly for all fees, costs and expenses, including, without limitation, reasonable attorneys’ fees and expenses incurred by the Holder in any action in connection with this Debenture, including, without limitation, those incurred: (i) during any workout, attempted workout, and/or in connection with the rendering of legal advice as to the Holder’s rights, remedies and obligations, (ii) collecting any sums which become due to the Holder, (iii) defending or prosecuting any proceeding or any counterclaim to any proceeding or appeal; or (iv) the protection, preservation or enforcement of any rights or remedies of the Holder.
(12) Any waiver by the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver must be in writing.
(13) If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
(14) Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
(15) THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEBENTURE OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS DEBENTURE.
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(16) CERTAIN DEFINITIONS For purposes of this Debenture, the following terms shall have the following meanings:
(a) “Approved Stock Plan” means a stock option plan that has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued only to any employee, officer, or director for services provided to the Company.
(b) “Bloomberg” means Bloomberg Financial Markets.
(c) “Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions are authorized or required by law or other government action to close.
(d) “Change of Control Transaction” means the occurrence of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty percent (50%) of the voting securities of the Company (except that the acquisition of voting securities by the Holder or any other current holder of convertible securities of the Company shall not constitute a Change of Control Transaction for purposes hereof), (b) a replacement at one time or over time of more than one-half of the members of the board of directors of the Company which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of the assets of the Company or any subsidiary of the Company in one or a series of related transactions with or into another entity, or (d) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (a), (b) or (c).
(e) “Closing Bid Price” means the price per share in the last reported trade of the Common Stock on a Primary Market or on the exchange which the Common Stock is then listed as quoted by Bloomberg.
(f) “Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for Common Stock.
(g) “Commission” means the Securities and Exchange Commission.
(h) “Common Stock” means the common stock, par value $0.0001, of the Company and stock of any other class into which such shares may hereafter be changed or reclassified.
(i) “Forbearance Agreement” shall mean that certain Forbearance Agreement of even date herewith by and between the Company and the Holder.
(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
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(k) “Excluded Securities” means, (a) shares issued or deemed to have been issued by the Company pursuant to an Approved Stock Plan (b) shares of Common Stock issued or deemed to be issued by the Company upon the conversion, exchange or exercise of any right, option, obligation or security outstanding on the date prior to date of the Financing Documents, provided that the terms of such right, option, obligation or security are not amended or otherwise modified on or after the date of the Financing Documents, and provided that the conversion price, exchange price, exercise price or other purchase price is not reduced, adjusted or otherwise modified and the number of shares of Common Stock issued or issuable is not increased (whether by operation of, or in accordance with, the relevant governing documents or otherwise) on or after the date hereof, (c) shares issued in connection with any acquisition by the Company, whether through an acquisition of stock or a merger of any business, assets or technologies, leasing arrangement or any other transaction the primary purpose of which is not to raise equity capital, and (d) the shares of Common Stock issued or deemed to be issued by the Company upon conversion of this Debenture.
(l) “Financing Documents” shall have the meaning ascribed to it in the Forbearance Agreement.
(m) “Fundamental Transaction” means any of the following: (1) the Company effects any merger or consolidation of the Company with or into another Person and the Company is the non-surviving company (other than a merger or consolidation with a wholly owned subsidiary of the Company for the purpose of redomiciling the Company), (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property.
(n) “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.
(o) “Person” means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.
(p) “Primary Market” shall mean any of (a) the NYSE Amex, (b) New York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital Market, or (e) OTCQX, (f) OTCQB, or (g) OTC Pink.
(q) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(r) “Trading Day” means a day on which the shares of Common Stock are quoted or traded on a Primary Market on which the shares of Common Stock are then quoted or listed; provided, that in the event that the shares of Common Stock are not listed or quoted, then Trading Day shall mean a Business Day.
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(s) “Underlying Shares” means the shares of Common Stock issuable upon conversion of this Debenture or as payment of interest in accordance with the terms hereof.
(t) “Volume Weighted Average Price” means, for any security as of any date, the daily dollar volume-weighted average price for such security on the Primary Market as reported by Bloomberg through its “Historical Prices – Px Table with Average Daily Volume” functions, or, if no dollar volume-weighted average price is reported for such security by Bloomberg, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by Pink Sheets LLC.
(17) Amended and Restated Debenture. As set forth in the Forbearance Agreement, this Debenture, shall amend, restate and consolidate those certain Notes and Debentures (as such terms are defined in the Forbearance Agreement). This Debenture is not in any way intended to constitute a novation of the obligations and liabilities existing under the Notes and Debentures or evidence payment of all or any portion of such obligations and liabilities.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Amended and Restated Secured Convertible Debenture to be duly executed by a duly authorized officer as of the date set forth above.
| COMPANY: | |
| COROWARE, INC. |
| By: | ||
| Name: | Lloyd Spencer | |
| Title: | President |
[Signature Page to Amended and Restated Secured Convertible Debenture]
EXHIBIT I
CONVERSION NOTICE
(To be executed by the Holder in order to Convert the Debenture)
| TO: |
The undersigned hereby irrevocably elects to convert $ of the amounts outstanding under Debenture No. CORO-A&R-1 into Shares of Common Stock of COROWARE, INC., according to the conditions stated therein, as of the Conversion Date written below.
| Conversion Date: |
| Conversion Amount to be converted: | $ | ||
| Conversion Price: | $ |
| Number of shares of Common Stock to be issued: |
Please issue the shares of Common Stock in the following name and to the following address:
| Issue to: |
| Authorized Signature: | ||
| Name: | ||
| Title: | ||
| Broker DTC Participant Code: | ||
| Account Number: |
Exhibit 10.7
CONSULTING AGREEMENT
This Consulting Agreement (the “Agreement”) is made and entered into as of this 10th day of June 2021, by and between CoroWare, Inc. a Delaware corporation whose address is 13110 NE 177th Place, #293, Woodinville, WA 98072 (the “Company”) and Global Technologies, Ltd (the “Consultant”), a Delaware corporation whose address is 501 1st Ave N., Suite 900, St. Petersburg, FL 33701, (individually, a “Party”; collectively, the “Parties”). This Agreement is non-exclusive.
RECITALS
WHEREAS, Consultant has significant experience in the preparation of reports to be filed with the Securities and Exchange Commission (“SEC”); including, but not limited to Registration Statements, Quarterly Reports, Annual Reports, Current Reports, preparation of consolidated financial statements, and filings of other accounting and financial reporting forms to regulatory agencies.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the Parties hereto hereby agree as follows:
1. CONDITIONS. This Agreement will not take effect, and Consultant will have no obligation to provide any service whatsoever, unless and until the Company sends a signed copy of this Agreement to Consultant (either by mail, email or facsimile copy). The Company shall be truthful with Consultant in regard to any relevant material regarding the Company, verbally or otherwise, or this entire Agreement will terminate and all consideration paid shall be forfeited without further notice.
Upon execution of this Agreement, the Company agrees to cooperate with Consultant in carrying out the purposes of this Agreement, keep Consultant informed of any developments of importance pertaining to the Company’s business and abide by this Agreement in its entirety.
2. TERM OF AGREEMENT. This Agreement shall be in full force and effect commencing on June 10, 2021 and shall remain in effect for one (1) year or until the Company’s Annual Report for the year ended December 31, 2021 is filed with OTC Markets or the SEC. Either Party shall have the right to terminate this Agreement without notice in the event of the bankruptcy, insolvency, or assignment for the benefit of creditors of the other Party. Either Party shall have the right to terminate this Agreement with notice, and the effective date of termination shall be the date such notice is received (by mail, overnight delivery, or fax) by the terminated Party.
3. CONSULTING SERVICES. During the term of this Agreement, Consultant will perform the services described below (the “Consulting Services”) for the Company.
(a) Transactional Business
(i) Preparation of the Company’s Registration Statement(s);
(ii) Preparation of the Company’s Quarterly Reports for the periods ended March 31, 2021, June 30, 2021 and September 30, 2021; and
(iv) Preparation of the Company’s Annual Reports for the periods ended December 31, 2020 and 2021.
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4. STANDARD OF PERFORMANCE. Consultant shall devote such time and efforts to the affairs of the Company as is reasonably necessary to render the services contemplated by this Agreement. Consultant is not responsible for the performance of any services that may be rendered hereunder if the Company fails to provide the requested information in writing prior thereto. The services of Consultant shall not include the rendering of any legal opinions or the performance of any work that is in the ordinary purview of a certified public accountant. Consultant cannot guarantee results on behalf of the Company but shall use commercially reasonable efforts in providing the services listed above. Consultant’s duty is to identify prospective acquisition/joint venture companies for the Company. Consultant will in no way act as a “broker-dealer” under state securities laws. Because all final decisions pertaining to any particular investment are to be made by the Company, the Company may be required to communicate directly with potential acquisition/joint venture prospective companies.
5. COMPENSATION TO CONSULTANT. As Consultant’s entire compensation for its performance under this Agreement, the Company shall pay Consultant a total of $45,000 payable in three (3) equal tranches as follows: (i) $15,000 payable upon the Company’s first capital raise; (ii) $15,000 payable upon the Company’s second capital raise; and (iii) $15,000 payable on or before October 31, 2021. In the event the Company is not successful in completing any capital raises during the term of this Agreement, the Consultant may elect to receive shares of common stock at a 50% discount to the Closing stock price on the day the shares are issued to the Consultant. The Consultant will be solely responsible for all tax returns and payments required to be filed with or made to any federal, state or local tax authority with respect to the Consultant’s performance of services and receipt of fees under this Agreement. The Company will regularly report amounts paid, if any, to the Consultant by filing Form 1099-MISC and/or other appropriate form with the Internal Revenue Service as required by law. Because the Consultant is an independent contractor, the Company will not withhold or make payments for social security; make consulting contract insurance or disability insurance contributions; or obtain worker’s compensation insurance on the Consultant’s behalf. The Consultant agrees to accept exclusive liability for complying with all applicable state and federal laws governing self-employed individuals, including obligations such as payment of taxes, social security, disability and other contributions based on fees paid to the Consultant under this Agreement. The Consultant hereby agrees to indemnify and defend the Company against any and all such taxes or contributions, including penalties and interest.
6. CONFIDENTIAL INFORMATION. The Consultant and the Company acknowledge that each will have access to proprietary information regarding the business operations of the other and agree to keep all such information secret and confidential and not to use or disclose any such information to any individual or organization without the non-disclosing Parties prior written consent. It is hereby agreed that from time-to-time Consultant and the Company may designate certain disclosed information as confidential for purposes of this Agreement.
7. INDEMNIFICATION. Each Party (the “Indemnifying Party”) agrees to indemnify, defend, and hold harmless the other Party (the “Indemnified Party”) from and against any and all claims, damages, and liabilities, including any and all expense and costs, legal or otherwise, caused by the negligent act or omission of the Indemnifying Party, its subcontractors, agents, or employees, incurred by the Indemnified Party in the investigation and defense of any claim, demand, or action arising out of the work performed under this Agreement; including breach of the Indemnifying Party of this Agreement. The Indemnifying Party shall not be liable for any claims, damages, or liabilities caused by the sole negligence of the Indemnified Party, its subcontractors, agents, or employees.
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The Indemnified Party shall notify promptly the Indemnifying Party of the existence of any claim, demand, or other matter to which the Indemnifying Party’s indemnification obligations would apply, and shall give them a reasonable opportunity to settle or defend the same at their own expense and with counsel of their own selection, provided that the Indemnified Party shall at all times also have the right to fully participate in the defense. If the Indemnifying Party, within a reasonable time after this notice, fails to take appropriate steps to settle or defend the claim, demand, or the matter, the Indemnified Party shall, upon written notice, have the right, but not the obligation, to undertake such settlement or defense and to compromise or settle the claim, demand, or other matter on behalf, for the account, and at the risk, of the Indemnifying Party.
The rights and obligations of the Parties under this Article shall be binding upon and inure to the benefit of any successors, assigns, and heirs of the Parties.
8. COVENANTS OF CONSULTANT. Consultant covenants and agrees with the Company that, in performing Consulting Services under this Agreement, Consultant will:
(a) Comply with all federal and state laws;
(b) Not make any representations other than those authorized by the Company; and
(c) Not publish, circulate or otherwise use any materials or documents other than materials provided by or otherwise approved by the Company.
9. COVENANTS OF THE COMPANY. The Company covenants, represents and warrants to Consultant as follows:
(a) Authorization. The Company and its signatories herein have full power and authority to enter into this Agreement and to carry out the transactions contemplated hereby.
(b) No Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate any provision of the charter or by-laws of the Company or violate any terms of provision of any other material agreement to which the Company is a party or any applicable statute or law.
(c) Contracts in Full Force and Effect. All contracts, agreements, plans, policies and licenses to which the Company is a party are valid and in full force and effect.
(d) Consents. No consent of any person, other than the signatories hereto, is necessary to the consummation of the transactions contemplated hereby, including, without limitation, consents from parties to loans, contracts, lease or other agreements and consents from governmental agencies, whether federal, state, or local.
(e) Consultant Reliance. Consultant has and will rely upon the documents, instruments and written information furnished to Consultant by the Company’s officers or designated employees.
(f) Company’s Material. All representations and statements provided herein about the Company are true and complete and accurate. The Company agrees to indemnify, hold harmless, and defend Consultant, its officers, directors, agents and employees, at the Company’s expense for any proceeding or suit which may rise out of any inaccuracy or incompleteness of any such material or written information supplied to Consultant.
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10. MISCELLANEOUS PROVISIONS
(a) Amendment and Modification. This Agreement may be amended, modified and supplemented only by written agreement of the Company and Consultant.
(b) Waiver of Compliance. Any failure of Consultant, on the one hand, or the Company, on the other, to comply with any obligation, agreement, or condition herein may be expressly waived in writing, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
(c) Expenses, Transfer Taxes, Etc. Other than as expressly set forth in this Agreement, the Parties shall bear their own costs and expenses in carrying out the provisions of this Agreement.
(d) Compliance with Regulatory Agencies. Each Party agrees that all actions, direct or indirect, taken by it and its respective agents, employees and affiliates in connection with this Agreement and any financing or underwriting hereunder shall conform to all applicable Federal and State securities laws.
(e) Notices. Any notices to be given hereunder by any Party to the other may be effected either by personal delivery in writing, by a reputable, national overnight delivery service, by facsimile transmission or by mail, registered or certified, postage prepaid with return receipt requested. Notices shall be addressed to the “Contact Person” at the addresses appearing on the signature page of this Agreement, but any Party may change his address or “Contact Person” by written notice in accordance with this subsection. Notices delivered personally shall be deemed delivered as of actual receipt, notices sent by facsimile shall be deemed delivered one (1) day after electronic confirmation of receipt, notices sent by overnight delivery service shall be deemed delivered one (1) day after delivery to the service, mailed notices shall be deemed delivered as of five (5) days after mailing.
(f) Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.
(g) Delegation. Neither Party shall delegate the performance of its duties under this Agreement without the prior written consent of the other Party.
(h) Publicity. Neither Consultant nor the Company shall make or issue or cause to be made or issued, any announcement or written statement concerning this Agreement or the transactions contemplated hereby for dissemination to the general public without the prior consent of the other Party. This provision shall not apply, however, to any announcement or written statement required to be made by law or the regulations of any Federal or State governmental agency, except that the Party required to disclose shall consult with and make reasonable efforts to accommodate changes to the required disclosure and the timing of such announcement suggested by the other Party.
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(i) Arbitration and Governing Law. If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Commercial Mediation Procedures before resorting to arbitration, litigation, or some other dispute resolution procedure. If they do not reach such solution within a period of 60 days, then, upon notice by either party to the other, all disputes, claims, questions, or differences shall be finally settled by arbitration administered by the American Arbitration Association in accordance with the provisions of its Commercial Arbitration Rules. This Agreement and the legal relations among the Parties hereto shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its conflict of law doctrine. The Parties agree that the venue for the resolution of all disputes arising under the terms of this Agreement and the transactions contemplated herein will be the County of Pinellas, State of Florida.
(j) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(k) Headings. The heading of the sections of this Agreement are inserted for convenience only and shall not constitute a part hereto or affect in any way the meaning or interpretation of this Agreement.
(l) Entire Agreement. This Agreement including any Exhibits hereto, and the other documents and certificates delivered pursuant to the terms hereto, set forth the entire agreement and understanding of the Parties hereto in respect of the subject matter contained herein, and supersedes all prior agreements, promise, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officers employee or representative of any Party hereto.
(m) Third Parties. Except as specifically set forth or referred to herein, nothing herein express or implied is intended or shall be construed to confer upon or give to any person or entity other than the Parties hereto and their successors or assigns, any rights or remedies under or by reason of this Agreement.
(n) Attorneys’ Fees and Costs. If any action is necessary to enforce and collect upon the terms of this Agreement, the prevailing Party shall be entitled to reasonable attorneys’ fees and costs, in addition to any other relief to which that Party may be entitled. This provision shall be construed as applicable to the entire Agreement.
(o) Survivability. If any part of this Agreement is found or deemed by a court of competent jurisdiction to be invalid or unenforceable, that part shall be severable from the remainder of the Agreement.
(p) Further Assurances. Each of the Parties agrees that it shall from time-to-time take such actions and execute such additional instruments as may be reasonably necessary or convenient to implement and carry out the intent and purposes of this Agreement.
(q) Relationship of the Parties. Nothing contained in this Agreement shall be deemed to constitute either Party becoming the partner of the other, the agent or legal representative of the other, nor create any fiduciary relationship between them, except as otherwise expressly provided herein. It is not the intention of the Parties to create nor shall this Agreement be construed to create any commercial relationship or other partnership. Neither Party shall have any authority to act for or to assume any obligation or responsibility on behalf of the other Party, except as otherwise expressly provided herein. The rights, duties, obligations and liabilities of the Parties shall be separate, not joint or collective. Each Party shall be responsible only for its obligations as herein set out and shall be liable only for its share of the costs and expenses as provided herein.
(r) No Authority to Obligate the Company. Without the consent of the Board of Directors of the Company, Consultant shall have no authority to take, nor shall it take, any action committing or obligating the Company in any manner, and it shall not represent itself to others as having such authority.
11. Non-Circumvention. In and for valuable consideration, the Company hereby agrees that Consultant may introduce (whether by written, oral, data, or other form of communication) the Company to one or more opportunities, including, without limitation, existing or potential investors, lenders, borrowers, trusts, natural persons, corporations, limited liability companies, partnerships, unincorporated businesses, sole proprietorships and similar entities (an “Opportunity” or “Opportunities”). The Company further acknowledges and agrees that the identity of the subject Opportunities, and all other information concerning an Opportunity (including without limitation, all mailing information, phone and fax numbers, email addresses and other contact information) introduced hereunder are the property of Consultant, and shall be treated as confidential information by the Company, it affiliates, officers, directors, shareholders, employees, agents, representatives, successors and assigns. The Company shall not use such information, except in the context of any arrangement with Consultant in which Consultant is directly and actively involved, and never without Consultant’s prior written approval. The Company further agrees that neither it nor its employees, affiliates or assigns, shall enter into, or otherwise arrange (either for it/him/herself, or any other person or entity) any business relationship, contact any person regarding such Opportunity, either directly or indirectly, or any of its affiliates, or accept any compensation or advantage in relation to such Opportunity except as directly though Consultant, without the prior written approval of Consultant. Consultant is relying on the Company’s assent to these terms and their intent to be bound by the terms by evidence of their signature. Without the Company’s signed assent to these terms, Consultant would not introduce any Opportunity or disclose any confidential information to the Company as herein described.
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IN WITNESS, WHEREOF, the Parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written.
| COMPANY: | CONSULTANT: | |||
| COROWARE, INC. | GLOBAL TECHNOLOGIES, LTD | |||
| 13100 NE 177th Place, #293 | 501 First Ave N, Suite 901 | |||
| Woodinville, WA 98072 | St. Petersburg, FL 33701 | |||
| By: | By: | |||
| Lloyd Spencer | Jimmy Wayne Anderson | |||
| Its: | President and CEO | Its: | President | |
| Date: | June 10, 2021 | Dated: | June 10, 2021 | |
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Exhibit 10.8
Note: July 19, 2021
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL SUM REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL SUM AND ACCRUED INTEREST SET FORTH BELOW.
10% FIXED CONVERTIBLE PROMISSORY NOTE
OF
COROWARE, INC.
Issuance Date: July 19, 2021
Principal Sum: $105,000
This Note is a duly authorized Fixed Convertible Promissory Note of CoroWare, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the “Company”), designated as the Company’s 10% Fixed Convertible Promissory Note due July 19, 2022 (“Maturity Date”) in the face amount of $105,000 (the “Note”).
For Value Received, the Company hereby promises to pay to the order of Tangiers Investment Group, LLC or its registered assigns or successors-in-interest (the “Holder”) the Principal Sum of $105,000 (the “Principal Sum”) and to pay “guaranteed” interest on the principal balance hereof at an amount equivalent to 10% of the Principal Sum, to the extent such Principal Sum and “guaranteed” interest and any other interest, fees, liquidated damages and/or items due to Holder herein have not been repaid or converted into the Company’s Common Stock (the “Common Stock”), in accordance with the terms hereof. The sum of $100,000 shall be remitted and delivered to the Company, and $5,000 shall be retained by the Holder through an original issue discount (the “OID”) for due diligence and legal bills related to this transaction. The OID is set at 5% of any consideration paid. The Company covenants that within __________ months of the Effective Date of the Note, it shall utilize approximately $100,000 of the proceeds in the manner set forth on Schedule 1, attached hereto (the “Use of Proceeds”), and shall promptly provide evidence thereof to Holder, in sufficient detail as reasonably requested by Holder.
In addition to the “guaranteed” interest referenced above, and upon the occurrence of an Event of Default (as defined in Section 3.00(a)), additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 20% per annum or the highest rate permitted by law (the “Default Rate”).
This Note will become effective only upon the execution by both parties, including the execution of Exhibits B, C, D, E, Schedule 1 (collectively, the “Exhibits”), and the Irrevocable Transfer Agent Instructions (the “Date of Execution”) and delivery of the initial payment of consideration by the Holder (the “Effective Date”). The Company acknowledges and agrees the Exhibits are material provisions of this Note.
For purposes hereof the following terms shall have the meanings ascribed to them below:
“Business Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York are authorized or required by law or executive order to remain closed.
“Fixed Conversion Price” shall be equal to $0.001.
“Principal Amount” shall refer to the sum of (i) the original principal amount of this Note (including the original issue discount, prorated if the Note has not been funded in full), (ii) all guaranteed and other accrued but unpaid interest hereunder, (iii) any fees due hereunder, (iv) liquidated damages, and (v) any default payments owing under the Note, in each case previously paid or added to the Principal Amount.
“Principal Market” shall refer to the primary exchange or trading platform on which the Company’s common stock is traded or quoted.
“Trading Day” shall mean a day on which there is trading or quoting for any security on the Principal Market.
“Underlying Shares” means the shares of Common Stock into which the Note is convertible (including interest, fees, liquidated damages and/or principal payments in common stock as set forth herein) in accordance with the terms hereof.
The following terms and conditions shall apply to this Note:
Section 1.00 Repayment.
(a) The Company may pay this Note, in whole or in part, in cash or in other good funds, according to the following schedule:
| Days Since Effective Date | Payment Amount | |
| Under 60 | 120% of Principal Amount so paid | |
| 61-120 | 130% of Principal Amount so paid | |
| 121-180 | 140% of Principal Amount so paid |
(b) After 180 days from the Effective Date, the Company may not pay this Note, in whole or in part, in cash or in other good funds, without prior written consent from Holder, which consent may be withheld, delayed, denied, or conditioned in Holder’s sole and absolute discretion. Whenever any amount expressed to be due by the terms of this Note is due on any day that is not a Business Day, the same shall instead be due on the next succeeding day that is a Business Day. Upon the occurrence of an Event of Default, the Company may not pay the Note, in whole or in part, in cash or in other good funds without written consent of the Holder, which consent may be withheld, delayed, denied, or conditioned in Holder’s sole and absolute discretion. Further, the Company shall provide the Holder with two weeks’ prior written notice of the Company’s determination to pay any or all of its obligations hereunder. During such two-week period, the Holder may exercise any or all of its conversion rights hereunder. In the event that the Holder does not exercise its conversion rights in respect of any or all of such noticed, prospective payment, the Company shall tender the full amount set forth in such notice (less any amount in respect of which the Holder has exercised its conversion rights) to the Holder within 2 Business Days following the Holder’s exercise (or notification to the Company of non-exercise) of the Holder’s conversion rights in respect of the amount set forth in such notice. Any such payment by the Company in connection with this provision shall be deemed to have been made on the date that the Holder first receives the above-referenced notice.
Section 2.00 Conversion.
(a) Conversion Right. Subject to the terms hereof and restrictions and limitations contained herein, the Holder shall have the right, at the Holder’s sole option, at any time and from time to time to convert in whole or in part the outstanding and unpaid Principal Amount under this Note into shares of Common Stock at the Conversion Price (defined below), but not to exceed the Restricted Ownership Percentage, as defined in Section 2.00(f). The date of any conversion notice (“Conversion Notice”) hereunder shall be referred to herein as the “Conversion Date”.
(b) Stock Certificates or DWAC. The Company will deliver to the Holder, or Holder’s authorized designee, no later than 2 Trading Days after the Conversion Date, a certificate or certificates (which certificate(s) shall be free of restrictive legends and trading restrictions if the shares of Common Stock underlying the portion of the Note being converted are eligible under a resale exemption pursuant to Rule 144(b)(1)(ii) and Rule 144(d)(1)(ii) of the Securities Act of 1933, as amended (the “1933 Act”) representing the number of shares of Common Stock being acquired upon the conversion of this Note. In lieu of delivering physical certificates representing the shares of Common Stock issuable upon conversion of this Note, provided the Company’s transfer agent is participating in Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer (“FAST”) program, the Company shall instead use commercially reasonable efforts to cause its transfer agent to electronically transmit such shares issuable upon conversion to the Holder (or its designee), by crediting the account of the Holder’s (or such designee’s) broker with DTC through its Deposits and Withdrawal at Custodian (“DWAC”) program (provided that the same time periods herein as for stock certificates shall apply).
(c) Charges and Expenses. Issuance of Common Stock to Holder, or any of its assignees, upon the conversion of this Note shall be made without charge to the Holder for any issuance fee, transfer tax, legal opinion and related charges, postage/mailing charge or any other expense with respect to the issuance of such Common Stock. Company shall pay all transfer agent fees incurred from the issuance of the Common Stock to Holder, as well as any and all other fees and charges required by the transfer agent as a condition to effectuate such issuance. Any such fees or charges, as noted in this Section that are paid by the Holder (whether from the Company’s delays, outright refusal to pay, or otherwise), will be automatically added to the Principal Sum of the Note and tack back to the Effective Date for purposes of Rule 144.
(d) Delivery Timeline. If the Company fails to deliver to the Holder such certificate or certificates (or shares through the DWAC program) pursuant to this Section (free of any restrictions on transfer or legends, if eligible) prior to 3 Trading Days after the Conversion Date, the Company shall pay to the Holder as liquidated damages an amount equal to $2,000 per day, until such certificate or certificates are delivered. The Company acknowledges that it would be extremely difficult or impracticable to determine the Holder’s actual damages and costs resulting from a failure to deliver the Common Stock and the inclusion herein of any such additional amounts are the agreed upon liquidated damages representing a reasonable estimate of those damages and costs. Such liquidated damages will be automatically added to the Principal Sum of the Note and tack back to the Effective Date for purposes of Rule 144.
(e) Reservation of Underlying Securities. The Company covenants that it will at all times reserve and keep available for Holder, out of its authorized and unissued Common Stock solely for the purpose of issuance upon conversion of this Note, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder, one time the number of shares of Common Stock as shall be issuable (taking into account the adjustments under this Section 2.00, but without regard to any ownership limitations contained herein) upon the conversion of this Note (consisting of the Principal Amount) to Common Stock (the “Required Reserve”). The Company covenants that all shares of Common Stock that shall be issuable will, upon issue, be duly authorized, validly issued, fully-paid, non-assessable and freely-tradable (if eligible). If the amount of shares on reserve in Holder’s name at the Company’s transfer agent for this Note shall drop below the Required Reserve, the Company will, within 2 Trading Days of notification from Holder, instruct the transfer agent to increase the number of shares so that the Required Reserve is met. In the event that the Company does not instruct the transfer agent to increase the number of shares so that the Required Reserve is met, the Holder will be allowed, if applicable, to provide this instruction as per the terms of the Irrevocable Transfer Agent Instructions attached to this Note. The Company agrees that the maintenance of the Required Reserve is a material term of this Note and any breach of this Section 2.00(e) will result in a default of the Note.
(f) Conversion Limitation. The Holder will not submit a conversion to the Company that would result in the Holder beneficially owning more than 9.99% of the then total outstanding shares of the Company (“Restricted Ownership Percentage”).
(g) Conversion Delays. If the Company fails to deliver shares in accordance with the timeframe stated in Section 2.00(c), the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares. The rescinded conversion amount will be returned to the Principal Sum with the rescinded conversion shares returned to the Company, under the expectation that any returned conversion amounts will tack back to the Effective Date.
(h) Shorting and Hedging. Holder may not engage in any “shorting” or “hedging” transaction(s) in the Common Stock of the Company prior to conversion.
(i) Conversion Right Unconditional. If the Holder shall provide a Conversion Notice as provided herein, the Company’s obligations to deliver Common Stock shall be absolute and unconditional, irrespective of any claim of setoff, counterclaim, recoupment, or alleged breach by the Holder of any obligation to the Company.
Section 3.00 Defaults and Remedies.
(a) Events of Default. An “Event of Default” is: (i) a default in payment of any amount due hereunder; (ii) a default in the timely issuance of underlying shares upon and in accordance with terms of Section 2.00, which default continues for 2 Trading Days after the Company has failed to issue shares or deliver stock certificates within the 3rd Trading Day following the Conversion Date; (iii) if the Company does not issue the press release or file the Supplemental Information statement with www.otcmarkets.com in accordance with the provisions and the deadlines referenced Section 6.00(j); (iv) failure by the Company for 3 days after notice has been received by the Company to comply with any material provision of this Note; (iv) any representation or warranty of the Company in this Note that is found to have been incorrect in any material respect when made, including, without limitation, the Exhibits; (vi) failure of the Company to remain compliant with DTC, thus incurring a “chilled” status with DTC; (vii) any default of any mortgage, indenture or instrument which may be issued, or by which there may be secured or evidenced any indebtedness, for money borrowed by the Company or for money borrowed the repayment of which is guaranteed by the Company, whether such indebtedness or guarantee now exists or shall be created hereafter; (viii) if the Company is subject to any Bankruptcy Event; (ix) any failure of the Company to satisfy its “filing” obligations under Securities Exchange Act of 1934, as amended (the “1934 Act”) and the rules and guidelines issued by OTC Markets News Service, OTCMarkets.com and their affiliates; (x) failure of the Company to remain in good standing under the laws of its state of domicile; (xi) any failure of the Company to provide the Holder with information related to its corporate structure including, but not limited to, the number of authorized and outstanding shares, public float, etc. within 1 Trading Day of request by Holder; (xii) the Company’s filing with the United States Securities and Exchange Commission (the “SEC”) a Certification and Notice of Termination of Registration Under Section 12(g) of The Securities Exchange Act of 1934 or Suspension of Duty to File Reports Under Sections 13 and 15(d) of The Securities Exchange Act of 1934 on Form 15; (xiii) failure by the Company to maintain the Required Reserve in accordance with the terms of Section 2.00(e); (xiv) failure of Company’s Common Stock to maintain a closing bid price in its Principal Market for more than 3 consecutive Trading Days; (xv) any delisting from a Principal Market for any reason; (xvi) failure by Company to pay any of its transfer agent fees in excess of $2,000 or to maintain a transfer agent of record; (xvii) failure by Company to notify Holder of a change in transfer agent within 24 hours of such change; (xviii) any trading suspension or revocation of the registration of Company’s class of Common Stock imposed by the SEC under Sections 12(j) or 12(k) of the 1934 Act; (xix) failure by the Company to meet all requirements necessary to satisfy the availability of Rule 144 to the Holder or its assigns, including but not limited to the timely fulfillment of its filing obligations under Section 13 or 15(d) of the 1934 Act, requirements for XBRL filings, and requirements for disclosure of financial statements on its website; (xx) failure of the Company to abide by the Use of Proceeds or failure of the Company to inform the Holder of a change in the Use of Proceeds; or (xxi) failure of the Company to abide by the terms of the right of first refusal contained in Section 6.00(l).
(b) Remedies. If an Event of Default occurs, the outstanding Principal Amount of this Note owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the “Mandatory Default Amount”. The Mandatory Default Amount means 40% of the outstanding Principal Amount of this Note will be automatically added to the Principal Sum of the Note and tack back to the Effective Date for purposes of Rule 144. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Note, this Note shall accrue additional interest, in addition to the Note’s “guaranteed” interest, at a rate equal to the lesser of 20% per annum or the maximum rate permitted under applicable law. In connection with such acceleration described herein, the Holder need not provide, and the Issuer hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by the Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the note until such time, if any, as the Holder receives full payment pursuant to this Section 3.00(b). No such rescission or annulment shall affect any subsequent event of default or impair any right consequent thereon. Nothing herein shall limit the Holder’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of the Note as required pursuant to the terms hereof.
Section 4.00 Representations and Warranties of Holder.
Holder hereby represents and warrants to the Company that:
(a) Holder is an “accredited investor,” as such term is defined in Regulation D of the 1933 Act, and will acquire this Note and the Underlying Shares (collectively, the “Securities”) for its own account and not with a view to a sale or distribution thereof as that term is used in Section 2(a)(11) of the 1933 Act, in a manner which would require registration under the 1933 Act or any state securities laws. Holder has such knowledge and experience in financial and business matters that such Holder is capable of evaluating the merits and risks of the Securities. Holder can bear the economic risk of the Securities, has knowledge and experience in financial business matters and is capable of bearing and managing the risk of investment in the Securities. Holder recognizes that the Securities have not been registered under the 1933 Act, nor under the securities laws of any state and, therefore, cannot be resold unless the resale of the Securities is registered under the 1933 Act or unless an exemption from registration is available. Holder has carefully considered and has, to the extent Holder believes such discussion necessary, discussed with its professional, legal, tax and financial advisors, the suitability of an investment in the Securities for its particular tax and financial situation and its advisers, if such advisors were deemed necessary, and has determined that the Securities are a suitable investment for it. Holder has not been offered the Securities by any form of general solicitation or advertising, including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine, or other similar media or television or radio broadcast or any seminar or meeting where, to Holders’ knowledge, those individuals that have attended have been invited by any such or similar means of general solicitation or advertising. Holder has had an opportunity to ask questions of and receive satisfactory answers from the Company, or any person or persons acting on behalf of the Company, concerning the terms and conditions of the Securities and the Company, and all such questions have been answered to the full satisfaction of Holder. The Company has not supplied Holder any information regarding the Securities or an investment in the Securities other than as contained in this Agreement, and Holder is relying on its own investigation and evaluation of the Company and the Securities and not on any other information.
(b) The Holder is a limited liability company duly organized, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted. The Holder is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.
(c) All limited liability company action has been taken on the part of the Holder, its officers, directors, managers and members necessary for the authorization, execution and delivery of this Note. The Holder has taken all limited liability company action required to make all of the obligations of the Holder reflected in the provisions of this Note, valid and enforceable obligations.
(d) Each certificate or instrument representing Securities will be endorsed with the following legend (or a substantially similar legend), unless or until registered under the 1933 Act or exempt from registration:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES WHICH IS REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Section 5.00 Representations, Warranties and Amendments.
The Company, for itself, and for its affiliates, successors and assigns, hereby acknowledges, represents, warrants and agrees as follows:
(a) The Company has full power and authority to enter into this Note and to incur and perform all obligations and covenants contained herein, all of which have been duly authorized by all proper and necessary action. No consent, approval, filing or registration with or notice to any governmental authority is required as a condition to the validity of this Note or the performance of any of the obligations of the Company hereunder.
(b) All understandings, representations, warranties and recitals contained or expressed in this Note are true, accurate, complete, and correct in all respects. The Company acknowledges and agrees that Holder has been induced in part to enter into this Note based upon Holder’s justifiable reliance on the truth, accuracy, and completeness of all understandings, representations, warranties, and recitals contained in the Note.
(c) No Bad Actor. No officer or director of the Company would be disqualified under Rule 506(d) of the 1933 Act, on the basis of being a “bad actor” as that term is established in the September 13, 2013 Small Entity Compliance Guide published by the SEC.
(d) The Company hereby acknowledges that it has freely and voluntarily entered into the Note after an adequate opportunity and sufficient period of time to review, analyze, and discuss (i) all terms and conditions of this the Note, (ii) any and all other documents executed and delivered in connection with the transactions contemplated by the Note, and (iii) all factual and legal matters relevant to the Note and/or any and all such other documents, with counsel freely and independently selected by the Company (or had the opportunity to be represented by counsel). The Company further acknowledges and agrees that it has actively and with full understanding participated in the negotiation of the Note and all other documents executed and delivered in connection with the Note after consultation and review with its counsel (or had the opportunity to be represented by counsel), that all of the terms and conditions of the Note and the other documents executed and delivered in connection with the Note have been negotiated at arm’s-length, and that the Note and all such other documents have been negotiated, prepared, and executed without fraud, duress, undue influence, or coercion of any kind or nature whatsoever having been exerted by or imposed upon any party by any other party. No provision of the Note or such other documents shall be construed against or interpreted to the disadvantage of any party by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, dictated, or drafted such provision.
Section 6.00 General.
(a) Payment of Expenses. The Company agrees to pay all reasonable charges and expenses, including attorneys’ fees and expenses, which may be incurred by the Holder in successfully enforcing this Note and/or collecting any amount due under this Note.
(b) Assignment, Etc. The Holder may assign or transfer this Note to any transferee at its sole discretion. This Note shall be binding upon the Company and its successors and shall inure to the benefit of the Holder and its successors and permitted assigns.
(c) Amendments. This Note may not be modified or amended, or any of the provisions of this Note waived, except by written agreement of the Company and the Holder.
(d) Funding Window. The Company agrees that it will not enter into a convertible debt financing transaction, including 3(a)(9) and 3(a)(10) transactions, with any party other than the Holder for a period of 90 Trading Days following the Effective Date. The Company agrees that this is a material term of this Note and any breach of this will result in a default of the Note.
(e) Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Company or any of its subsidiaries of any convertible debt security (whether such debt begins with a convertible feature or such feature is added at a later date) with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Note, then the Company shall notify the Holder of such additional or more favorable term and such term, at the Holder’s option, shall become a part of this Note and its supporting documentation.. The types of terms contained in the other security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, terms addressing maturity, conversion look back periods, interest rates, original issue discount percentages and warrant coverage.
(f) Governing Law; Jurisdiction.
(i) Governing Law. This Note will be governed by, and construed and interpreted in accordance with, the laws of the state of New York without regard to any conflicts of laws or provisions thereof that would otherwise require the application of the law of any other jurisdiction.
(ii) Jurisdiction and Venue. Any dispute, claim, suit, action or other legal proceeding arising out of or relating to this Note or the rights and obligations of each of the parties shall be brought only in the state of New York or in the federal courts of the United States of America located in the state of New York.
(iii) No Jury Trial. The Company hereto knowingly and voluntarily waives any and all rights it may have to a trial by jury with respect to any litigation based on, or arising out of, under, or in connection with, this Note.
(iv) Delivery of Process by the Holder to the Company. In the event of an action or proceeding by the Holder against the Company, and only by the Holder against the Company, service of copies of summons and/or complaint and/or any other process that may be served in any such action or proceeding may be made by the Holder via U.S. Mail, overnight delivery service such as FedEx or UPS, email, fax, or process server, or by mailing or otherwise delivering a copy of such process to the Company at its last known attorney as set forth in its most recent SEC filing.
(v) Notices. Any notice required or permitted hereunder (including Conversion Notices) must be in writing and either personally served, sent by facsimile or email transmission, or sent by overnight courier. Notices will be deemed effectively delivered at the time of transmission if by facsimile or email, and if by overnight courier the business day after such notice is deposited with the courier service for delivery
(h) Counterparts. The Note may be executed in any number of counterparts with the same effect as if all signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument. The exchange of copies of the Note and of signature pages by facsimile transmission or other electronic transmission (including email) shall constitute effective execution and delivery of the Note as to the parties and may be used in lieu of the original Note for all purposes. Signatures of the parties transmitted by facsimile transmission or other electronic transmission (including email) shall be deemed to be their original signatures for all purposes.
(i) Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates any applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it will not seek to claim or take advantage of any law that would prohibit or forgive the Company from paying all or a portion of the principal, fees, liquidated damages or interest on this Note.
(j) Securities Laws Disclosure; Publicity. The Company shall (a) by 9:30 a.m. Eastern Time on the Trading Day immediately following the Date of Execution, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Supplemental Information statement with www.otcmarkets.com within the 4 days following the Effective Date. From and after the filing of such statement, the Company represents to the Holder that it shall have publicly disclosed all material, non-public information delivered to the Holder by the Company, or any of its officers, directors, employees, or agents in connection with the transactions contemplated by this Note. The Company and the Holder shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor the Holder shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of the Holder, or without the prior consent of the Holder, with respect to any press release of the Company, none of which consents shall be unreasonably withheld, delayed, denied, or conditioned except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Holder, or include the name of the Holder in any filing with the SEC or any regulatory agency or Principal Market, without the prior written consent of the Holder, except to the extent such disclosure is required by law or Principal Market regulations, in which case the Company shall provide the Holder with prior notice of such disclosure permitted hereunder.
The Company agrees that this is a material term of this Note and any breach of this Section 6.00(j) will result in a default of the Note.
(k) Attempted Below-par Issuance. In the event that the Holder delivers a Conversion Notice to the Company and, if as of such date, (i) the Conversion Price would be less than par value of the Company’s Common Stock and (ii) within three business days of the delivery of the Conversion Notice, the Company shall not have reduced its par value such that all of the requested conversion transaction may then be accomplished, then the Company and the Holder shall utilize the following conversion protocol for Par Value Adjustment. The Holder shall transmit to the Company: (X) a “preliminary” Conversion Notice for the full number of shares of Common Stock that would be issued at the Conversion Price without regard to any below-par value conversion issues; followed by (Y) a “par value” Conversion Notice for the number of shares of Common Stock with the Conversion Price increased from the “preliminary” Conversion Price to a Conversion Price at par value; and, finally, (Z) a “liquidated damages” Conversion Notice for that number of shares of Common Stock that represents the difference between the “preliminary” Conversion Notice full number of shares and the “par value” Conversion Notice limited number of shares. The Conversion Price of such “liquidated damages Common Shares” would be the par value of the Common Stock. Accordingly, through this protocol, the Company would issue, in two transactions, an amount of shares of its Common Stock equivalent to the full number of shares of Common Stock that would have been issued in accordance with the “preliminary” Conversion Notice without regard to any below-par value conversion issues. In the event that the Holder is precluded from exercising any or all of its conversion rights hereunder as a result of a proposed “below par” conversion, the Company agrees that, in lieu of actual damages for such failure, liquidated damages may be assessed and recovered by the Holder without being required to present any evidence of the amount or character of actual damages sustained by reason thereof. The amount of such liquidated damages shall be an amount equivalent to the trading price utilized in the “preliminary” Conversion Notice multiplied by the number of shares calculated on the “liquidated damages” Conversion Notice. Such amount shall be assessed and become immediately due and payable to the Holder (at its election) in the form of a (i) cash payment, (ii) an addition to the Principal Sum of this Note, or (iii) the immediate issuance of that number of shares of Common Stock as calculated on the “liquidated damages” Conversion Notice. Such liquidated damages are intended to represent estimated actual damages and are not intended to be a penalty, but, by virtue of their genesis and subject to the election of the Holder (as set forth in the immediately preceding sentence), will be automatically added to the Principal Sum of the Note and tack back to the Effective Date for purposes of Rule 144, as the Company’s failure to maintain the par value of its Common Stock at an amount that would not result in a “below par” conversion failure is equivalent to a default as of the Issuance Date of the Note.
(l) Right of First Refusal. From and after the date of this Note and at all times hereafter while the Note is outstanding, the Parties agree that, in the event that the Company receives any written or oral proposal (the “Proposal”) containing one or more offers to provide additional capital or equity or debt financing (the “Financing Amount”), the Company agrees that it shall provide a copy of all documents received relating to the Proposal together with a complete and accurate description of the Proposal to the Holder and all amendments, revisions, and supplements thereto (the “Proposal Documents”) no later than 3 business days from the receipt of the Proposal Documents. Following receipt of the Proposal Documents from the Company, the Holder shall have the right (the “Right of First Refusal”), but not the obligation, for a period of 5 business days thereafter (the “Exercise Period”), to invest, at similar or better terms to the Company, an amount equal to or greater than the Financing Amount, upon written notice to the Company that the Holder is exercising the Right of First Refusal provided hereby. In furtherance of the Right of First Refusal, the Company agrees that it will cooperate and assist the Holder in conducting a due diligence investigation of the Company and its corporate and financial affairs and promptly provide the Holder with information and documents that the Holder may reasonably request so as to allow the Holder to make an informed investment decision. However, the Company and the Holder agree that the Holder shall have no more than 5 business days from and after the expiration of the Exercise Period to exercise its Right of First Refusal hereunder. This Right of First Refusal shall extend to all purchases of debt held by, or assigned to or from, current stockholders, vendors, or creditors, all transactions under Sections 3(a)(9) and/or 3(a)(10) or the 1933 Act, as amended, and all equity line-of-credit transactions. In the event that the Company does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(10) Transaction while this note is outstanding, without giving Right of First Refusal to the Holder, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than $25,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note. Such liquidated damages will be automatically added to the Principal Sum of the Note and tack back to the Effective Date for purposes of Rule 144.
[Signature Page to Follow.]
IN WITNESS WHEREOF, the Company has caused this Fixed Convertible Promissory Note to be duly executed on the day and in the year first above written.
| COROWARE, INC. | ||
| By: | ||
| Name: | Lloyd T. Spencer | |
| Title: | President and CEO | |
| Email: ceo@coroware.com | ||
| Address: 13110 NE 177th Place, Woodinville, WA 98072 | ||
This Fixed Convertible Promissory Note of July 19, 2021 is accepted this 19th day of July, 2021 by
TANGIERS INVESTMENT GROUP, LLC
| By: | ||
| Name: | ||
| Title: | Managing Member |
EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the Holder in order to convert all or part of that certain $105,000 Fixed Convertible Promissory Note identified as the Note)
| DATE: | |||
| FROM: | Tangiers Investment Group, LLC |
| Re: | $105,000 Fixed Convertible Promissory Note (this “Note”) originally issued by CoroWare, Inc., a Nevada corporation, to Tangiers Investment Group, LLC on July 19, 2021. |
The undersigned, on behalf of Tangiers Investment Group, LLC, hereby elects to convert $_______________________ of the aggregate outstanding Principal Amount (as defined in the Note) indicated below of this Note into shares of Common Stock, $0.0001 par value per share, of CoroWare, Inc. (the “Company”), according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any. The undersigned represents as of the date hereof that, after giving effect to the conversion of this Note pursuant to this Conversion Notice, the undersigned will not exceed the “Restricted Ownership Percentage” contained in this Note.
| Conversion information: | |
| Date to Effect Conversion | |
| Aggregate Principal Sum of Note Being Converted | |
| Aggregate Interest/Fees of Principal Amount Being Converted | |
| Remaining Principal Balance | |
| Number of Shares of Common Stock to be Issued | |
| Applicable Conversion Price | |
| Signature | |
| Name | |
| Address |
EXHIBIT B
WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF
COROWARE, INC.
The undersigned, being directors of CoroWare, Inc., a Delaware corporation (the “Company”), acting pursuant to the Bylaws of the Corporation, do hereby consent to, approve and adopt the following preamble and resolutions:
Convertible Note with Tangiers Investment Group, LLC
The board of directors of the Company has reviewed and authorized the following documents relating to the issuance of a Fixed Convertible Promissory Note in the amount of $105,000 with Tangiers Investment Group, LLC.
The documents agreed to and dated July 19, 2021 are as follows:
10% Fixed Convertible Promissory Note of CoroWare, Inc.
Irrevocable Transfer Agent Instructions
Certificate of Corporate Secretary
Disbursement Instructions
Schedule 1 – Use of Proceeds
The board of directors further agree to authorize and approve the issuance of shares to the Holder at Conversion prices that are below the Company’s then current par value.
IN WITNESS WHEREOF, the undersign member(s) of the board of the Company executed this unanimous written consent as of July 19, 2021.
| By: | Lloyd T. Spencer |
| Its: | Chairman and Sole Member of the Board of Directors |
EXHIBIT C
NOTARIZED CERTIFICATE OF CORPORATE SECRETARY OF
COROWARE, INC.
(Two Pages)
The undersigned, Lloyd T. Spencer is the duly elected Corporate Secretary of CoroWare, Inc., a Delaware corporation (the “Company”).
I hereby warrant and represent that I have undertaken a complete and thorough review of the Company’s corporate and financial books and records, including, but not limited to, the Company’s records relating to the following:
| (A) | The issuance of that certain convertible promissory note dated July 19, 2021 (the “Note Issuance Date”) issued to Tangiers Investment Group, LLC (the “Holder”) in the stated original principal amount of $105,000 (the “Note”); | |
| (B) | The Company’s Board of Directors duly approved the issuance of the Note to the Holder; | |
| (C) | The Company has not received and does not contemplate receiving any new consideration from any persons in connection with any later conversion of the Note and the issuance of the Company’s Common Stock upon any said conversion; | |
| (D) | To my best knowledge and after completing the aforementioned review of the Company’s stockholder and corporate records, I am able to certify that the Holder (and the persons affiliated with the Holder) are not officers, directors, or directly or indirectly, ten percent (10.00%) or more stockholders of the Company and none of said persons has had any such status in the one hundred (100) days immediately preceding the date of this Certificate; | |
| (E) | The Company’s Board of Directors have approved duly adopted resolutions approving the Irrevocable Instructions to the Company’s Stock Transfer Agent dated July 19, 2021; | |
| (F) | Mark the appropriate selection: | |
| ___ The Company represents that it is not a “shell company,” as that term is defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, and has never been a shell company, as so defined; or | ||
| _x_ The Company represents that (i) it is a “shell company,” as that term is defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended. |
| (G) | I understand the constraints imposed under Rule 144 on those persons who are or may be deemed to be “affiliates,” as that term is defined in Rule 144(a)(1) of the Securities Act of 1933, as amended. | |
| (H) | I understand that all of the representations set forth in this Certificate will be relied upon by counsel to Tangiers Investment Group, LLC in connection with the preparation of a legal opinion. |
I hereby affix my signature to this Notarized Certificate and hereby confirm the accuracy of the statements made herein.
| Signed: | Date: | ||||
| Name: | Title | : |
SUBSCRIBED AND SWORN TO BEFORE ME ON THIS ________ DAY OF ____________________ 2021.
| Commission Expires:______________ | ||
| ___________________________________________ | ||
| Notary Public |
EXHIBIT D
| TO: | Tangiers Investment Group, LLC |
| FROM: | CoroWare, Inc. |
| DATE: | July 19, 2021 |
| RE: | Disbursement of Funds |
Pursuant to that certain Fixed Convertible Promissory Note between the parties listed above and dated July 19, 2021, a disbursement of funds will take place in the amount and manner described below:
| Please disburse to: | |
| Amount to disburse: | $100,000 |
| Form of distribution | Wire |
| Name | CoroWare Treasury, Inc. (a wholly owned subsidiary of CoroWare, Inc.) |
| Company Address |
970 W Broadway, Suite E, #457 Jackson, WY 83001
|
| Wire Instructions: | Bank: U.S. Bank ABA Routing Number: 307070115 Account Number: 147491002696 SWIFT Code: Account Name: CoroWare Treasury Inc. Phone: (307) 732-9880 |
TOTAL: $100,000
For: CoroWare, Inc. and CoroWare Treasury, Inc.
| By: | Dated: July 19, 2021 | ||
| Name: | Lloyd T. Spencer | ||
| Its: | President and CEO |
EXHIBIT E
COMPANY CAPITALIZATION TABLE AS OF JULY 19, 2021
COMMON STOCK AND COMMON STOCK EQUIVALENTS
ISSUED, OUTSTANDING AND RESERVED
| DESCRIPTION | AMOUNT | |||
| Authorized Common Stock | 35,000,000,000 | |||
| Authorized Capital Stock | ||||
| Authorized Common Stock | ||||
| Issued Common Stock | 14,102,057,165 | |||
| Outstanding Common Stock | 14,102,057,165 | |||
| Treasury Stock | 0 | |||
| *Authorized, but unissued | 20,897,942,835 | |||
| Authorized Preferred Stock | 10,000,000 | |||
| Issued Preferred Stock | 2,159,973 | |||
| Reserved for Equity Incentive Plans | 7,500,000,000 | |||
| Reserved for Convertible Debt | 2,512,857,143 | |||
| Reserved for Options and Warrants | ||||
| Reserved for Other Purposes | 11,285,400,792 | |||
| TOTAL COMMON STOCK AND COMMON STOCK EQUIVALENTS OUTSTANDING | 14,102,057,165 | |||
* This number includes all shares reserved for Convertible Debt
Note: If not applicable, enter “n/a” or “zero” in Column 2.
CURRENT DEBT AND LIABILITIES TABLE
CONVERTIBLE PROMISSORY NOTE BALANCES AND PROMISSORY NOTE
BALANCES
| DESCRIPTION | ISSUANCE DATE | AMOUNT | ||
| Convertible Promissory Note | ||||
| Please refer to attached OTC Markets Disclosure Form | ||||
| Promissory Note | ||||
| Please refer to attached CoroWare OTC Annual Report for FY-2020 | ||||
| Other Debt and Liabilities | ||||
| Please refer to attached CoroWare OTC Annual Report for FY-2020 | ||||
Note: If not applicable, enter “n/a” or “zero” in Column 2.
To my best knowledge and after completing the aforementioned review of the Company’s stockholder and corporate records, I am able to certify the accuracy of the statements made herein.
COROWARE, INC.
| By: | Dated: July 19, 2021 | ||
| Name: | |||
| Title: |
SCHEDULE 1
USE OF PROCEEDS
Pursuant to that certain Fixed Convertible Promissory Note between the parties listed above and dated July 19, 2021, the Company covenants that it will within, 6 month(s) of the Effective Date of the Note, it shall use approximately $100,000 of the proceeds in the manner set forth below (the “Use of Proceeds”):
Remaining $37,500 shall be used for working capital
COROWARE, INC.
| By: | Dated: July 19, 2021 |
| Name: | Lloyd T. Spencer |
| Title: | President and CEO |
Exhibit 10.9
SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT (this “Agreement”) is dated as of July ___, 2021, by and among (i) COROWARE, INC. (“CoroWare”), (ii) COROWARE TECHNOLOGIES, INC. (“CT”), (iii) ROBOTIC WORKSPACE TECHNOLOGIES, INC. (“RWT”) (CoroWare, CT and RWT shall be collectively referred to herein as the “Obligors”), and (ii) YA GLOBAL INVESTMENTS, L.P., formerly known as Cornell Capital Partners, LP, a Cayman Island exempt limited partnership (“YA”), and having offices located at 1012 Springfield Avenue, Mountainside, New Jersey 07092.
Background
Reference is made to certain financing arrangements entered into by and among the Obligors and YA evidenced by, among other things, the documents, instruments, and agreements listed in the attached Schedule 1 (collectively, together with all other documents, instruments, and agreements executed in connection therewith or related thereto, the “Financing Documents”), including, without limitation, that certain Amended, Restated and Consolidated Secured Convertible Debenture (the “Convertible Debenture”) dated as of February 5, 2016 in the original principal balance of $2,829,690.
The Obligors acknowledge and agree that one or more Defaults and/or Events of Default (collectively, the “Stated Defaults”) have occurred under the Financing Documents prior to the date hereof as a result of the Obligors’ failure to pay amounts due under the Financing Documents as and when due and failure to reserve and issue to YA shares of CoroWare’s common stock. As of July 19, 2021, the Obligors are indebted to YA under the Convertible Debenture for an aggregate of $5,192,491.50 (the “Outstanding Balance”).
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The Parties hereto have agreed to resolve all issues among them and have reached a compromise, and settlement as to all disputes or claims existing and potentially existing between themselves, subject to YA receiving the full Settlement Amount set forth in Paragraph 1 below.
Accordingly, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and among the Obligors and YA as follows:
RELEASE
In consideration of the mutual execution of this Agreement and the releases and promises made in the Agreement by the Parties, the sufficiency of which is acknowledged, the Parties agree as follows:
1. Settlement.
| a. | Settlement Amount. CoroWare hereby agrees to issue to YA on one or more occasions an aggregate of 2,250,000,000 shares of CoroWare’s common stock (the “Common Shares”), in full and final settlement of all claims YA may have against the Obligors, its subsidiaries, directors, officers, employees, successors or assigns (the “Settlement Amount”). YA shall be entitled to the issuance of the number Common Shares specified in one or more Conversion Notices (which such Conversion Notices shall not exceed an aggregate of 2,250,000,000 Common Shares) within three (3) business days after the date specified in each Conversion Notice. Conversion Notices shall be substantially in the form of Exhibit “A,” and CoroWare shall cause its transfer agent, Empire Stock Transfer, or any subsequent transfer agent, to issue such Common Shares in accordance with YA’s written instructions, which may be set forth on the Conversion Notices. As a condition of this Agreement, CoroWare, Empire Stock Transfer and YA are entering into Irrevocable Transfer Agent Instructions governing the issuance of the Common Shares in accordance with this Agreement. |
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| b. | No Restrictive Legends. All Common Shares to be issued to YA hereunder shall be issued without restrictive legends in reliance on the legal opinion of YA’s legal counsel being delivered on the date hereof to CoroWare’s transfer agent. CoroWare covenants and agrees that it has consulted with its own legal counsel in connection with this Agreement, its obligations to issue the Common Shares to YA without restrictive legends, and that YA may freely sell any Common Shares issued to it. After such consultation, CoroWare is satisfied that such issuances of Common Shares to YA are, and will be, in compliance with applicable securities laws and SEC rules and regulations promulgated thereunder. Accordingly, CoroWare agrees and covenants that it shall not take any position (legal or otherwise) inconsistent with the foregoing. |
| c. | The outstanding balance owed by the Obligors to YA as set forth in the recitals hereto (with no interest accruing thereon so long as there is no default by an Obligor under this Agreement) shall be credited by the amounts converted into Common Shares under the Convertible Debenture as specified in each Conversions Notice; provided that any outstanding balance remaining after the issuance by CoroWare to YA of an aggregate of 2,250,000,000 Common Shares shall be released in accordance with Paragraph 3 hereof. |
| d. | Ownership Cap. Notwithstanding anything to the contrary in this Agreement, YA’s right to convert any part of the Outstanding Balance shall be subject to the limitations set forth in Section 3(c)(i) of the Convertible Debenture. |
| e. | Default. Any failure by CoroWare or any Obligor to strictly comply with the terms of this Agreement (including, without limitation, the failure to timely issue any Common Shares, the failure to issue Common Shares without restrictive legends, or interfering with YA’s ability to sell the Common Shares) shall constitute a default. Upon such a default, YA shall be excused from performing any obligations under this Agreement or the Financing Documents (except for the limitations set forth in Section 3(c)(i) of the Convertible Debenture) and may enforce any provisions set forth in this Agreement and/or any Financing Documents, including, without limitation, seeking specific performance without the necessity of posting any bond or security of any nature and/or seeking to collect the full outstanding balance owed by the Obligors to YA as set forth in the recitals hereto, plus interest accruing after the date hereof at a rate of 18% per year from the date of any default. |
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2. Release by CoroWare: In consideration for the covenants of YA as set forth in this Agreement, effective on the date hereof, each Obligor and each of their respective subsidiaries, representatives, attorneys, executors, administrators, successors, and assigns (collectively the “CoroWare Affiliates”) release, acquit, and forever discharge YA and all of its current and former affiliates, subsidiaries and parent entities, and its and their owners, officers, directors, servants, vendors, agents, customers, employees and former employees, insurers, contractors, representatives, and attorneys past, present and future, and all persons acting under, by, through, or in concert with any of them (collectively “YA Releasees”) from any and all claims, demands, judgments, damages, expenses, actions, or causes of action, known or unknown, from the beginning of time to the Effective Date, including, without limitation, any and all claims arising under, in connection with or related to, the Financing Documents or the trading by YA or the YA Releasees in CoroWare’s common stock.
3. Release by YA: In consideration for the covenants of CoroWare as set forth in this Agreement, and effective upon YA’s timely receipt of the full Settlement Amount (provided that no Obligor has defaulted hereunder), YA, and its subsidiaries, representatives, attorneys, executors, administrators, successors, and assigns (collectively the “YA Affiliates”) release, acquit, and forever discharge the Obligors and all of its current and former affiliates, subsidiaries and parent entities, and its and their owners, officers, directors, servants, vendors, agents, customers, employees and former employees, insurers, contractors, representatives, and attorneys past, present and future, and all persons acting under, by, through, or in concert with any of them (collectively “CoroWare Releasees”) from any and all claims, demands, judgments, damages, expenses, actions, security interests, or causes of action, known or unknown, from the beginning of time to the Effective Date, including, without limitation, any and all obligations they may have to one another under any of the Financing Documents. Only after the effectiveness of the release set forth in Paragraph 3, each Obligor is authorized to file any UCC-3 termination statements evidencing the termination of any security interests held by any YA Affiliates. Notwithstanding the foregoing, this Paragraph 3 shall not apply to any claims against YA in connection with any bankruptcy or insolvency proceeding of CoroWare or any other Obligor if and to the extent any part of the Settlement Amount is avoided or otherwise rescinded, so that each Obligor is required pursuant to any final order of a court of competent jurisdiction to repay such payment or transfer.
4. Change of Facts/Mistakes: The Parties acknowledge that other new or supplemental information that either may now exist or may arise or become known in the future could cause them to evaluate the underlying facts or their positions regarding their relationship, any claims they may have against one another or the Financing Documents differently than they have been evaluated as of the date of this Agreement. The Parties expressly agree, and specifically assume the risk, that if facts with respect to the matters covered by this Agreement are found hereafter to be other than, in addition to, or different from, the facts now believed or assumed by either Parties, this Agreement shall nonetheless remain in full force and effect.
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5. Adequate Consideration – Denial of Liability: The Parties agree and acknowledges that the covenants set forth herein constituted a complete, final and binding compromise and satisfaction of matters involving disputed issues. The Parties further agree that their execution of this Agreement shall not be considered an admission by either party of wrongdoing, and that each party specifically denies any liability, fault, or responsibility to the other.
6. Representation of Comprehension of Document: In entering into this Agreement, the Parties represent that they enter it on their own free will and that they are aware of the legal and income tax consequences of this Agreement, that the terms of this Agreement have been completely read by them and/or their attorneys; that the terms of this Agreement are fully understood and voluntarily accepted by the Parties; that they have had the opportunity to consult with their attorneys, if desired, with respect to this Agreement; and that they are executing this Agreement of their own free act and deed. The Parties acknowledge that they have had the opportunity to request any change in language necessary or desirable to effectuate their intent and expectations so that the rule of construction of contracts construing ambiguities against the drafting party shall be inapplicable.
7. Covenant Not To Sue. A “covenant not to sue” is a legal term which means a person promises not to file a lawsuit in court. It is different from the release contained in Paragraphs 2 or 3. In addition to waiving and releasing the claims covered by Paragraphs 2 above, CoroWare agrees never to sue one any of the YA Releasees in any forum for any claims, laws, or theories covered by the release language in Paragraph 2 above, which arose prior to the Effective Date. In addition to waiving and releasing the claims covered by Paragraphs 3 above, and so long as the full Settlement Amount is received by YA in strict compliance with the terms of this Agreement, YA agrees never to sue one any of the CoroWare Releasees in any forum for any claims, laws, or theories covered by the release language in Paragraph 3 above, which arose prior to the Effective Date.
8. Good Faith: The Parties agree to act in good faith and to cooperate fully with each other in carrying out the intent of this Agreement, and for that purpose agree to execute all additional documents as may prove reasonably necessary to accomplish that intent.
9. Fees/Costs: The Parties shall each bear their own costs and attorney fees incurred in connection with this Agreement, and each waives the right to make a claim against the other for such costs, attorney fees, or any other expenses associated with the matters being settled here.
10. Mutual Warranties: The Parties agree and warrant that they have taken all actions and obtained all authorizations, consents, and approvals as are conditions precedent to their authority to execute this Agreement; and thus warrant that they are fully authorized to bind the Party for which they execute this Agreement; and the Parties represent and warrant that no other person or entity or third-party beneficiary has or has had any interest in the claims, demands, obligations, or causes of action referred to in this Agreement. There has been and will be no assignment or other transfer of any of the claims, or any part thereof, and each party agrees to defend, indemnify and hold harmless the other party from any claims, obligations, or other liabilities, including specifically attorney’s fees and costs incurred, which result from the assertion by any third party of a right to any claim which is released by this Agreement. The foregoing warranties and representations shall survive the execution and delivery of this Agreement.
11. Warranties of YA. As a material inducement to CoroWare to enter into this Agreement, YA represents and warrants to the Obligors that YA has not conveyed, nor is it obligated to convey, any of its rights under the Financing Documents to any third party and that no third party has any interest in, or lien rights against, any rights of YA under the Financing Documents.
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12. Warranties of CoroWare. As a material inducement to YA to enter into this Agreement, each Obligor represents and warrants to YA that none of them has not conveyed, nor is it obligated to convey, any of its rights under the Financing Documents to any third party and that no third party has any interest in, or lien rights against, any rights of any Obigor under the Financing Documents.
13. No Admission: The Parties agree that this Agreement may not be offered or used as evidence in any proceeding to establish an admission or concession by the any of the Parties that they are in any way responsible for or liable for claims or damages which have been or could have been asserted relating to the claims or the subject matter of this Agreement.
14. Entire Agreement: This Agreement contains the entire understanding and agreement between the Parties to this Agreement with respect to the matters referred to herein. No other representations, covenants, undertakings, or other prior or contemporaneous agreements, oral or written, respecting such matters, which are not specifically incorporated herein, shall be deemed in any way to exist or bind any of the Parties to this Agreement. The Parties to this Agreement acknowledge that each party has not executed this Agreement in reliance on any such promise, representation, or warranty. The Parties expressly understand that all terms of this Agreement are contractual and not merely a recital.
15. Modification by Writing Only: The Parties agree that this Agreement may be modified only by a writing signed by all Parties to the Agreement and that any oral agreements are not binding until reduced to writing and signed by the Parties to the Agreement.
16. Binding Upon Successors and Assigns: The Parties to this Agreement agree that it is binding upon the Parties’ successors, assigns, and heirs.
17. Severability: The Parties to this Agreement agree that if any provision of this Agreement should become inconsistent with present or future law having jurisdiction over and otherwise properly governing the subject matter of the provision, such provision shall be deemed to be rescinded or modified in accordance with any such law. In all other respects, the Parties to this Agreement agree that the other provisions of this Agreement shall continue and remain in full force and effect.
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18. Execution in Counterparts: This Agreement may be executed in multiple counterparts, each of which shall be deemed an original agreement, and all of which shall constitute one agreement to be effective as of the Effective Date. Photocopies or facsimile copies of executed copies of this Agreement may be treated as an original. A duly authorized attorney may sign on behalf of a corporate entity.
19. Notices. In the event any party desires or is required to give notice to the other party in connection with this Agreement, the same shall be in writing and shall be deemed to have been given when delivered in person, by recognized overnight air courier service, by confirmed facsimile transaction, by electronic mail (otherwise known as “e-mail”), or deposited with the United States Postal Service, postage prepaid, or certified mail, return receipt requested, addressed to YA or CoroWare at the appropriate address as set forth below:
| A. | If to YA: | |
| YA Global Investments, LP | ||
| 1012 Springfield Ave | ||
| Mountainside, New Jersey 07092 | ||
| Attn: Troy J. Rillo, Senior Managing Director | ||
| Email: trillo@yorkvilleadvisors.com | ||
| B. | If to CoroWare: | |
| CoroWare, Inc. | ||
| Attn: Lloyd Spencer, CEO | ||
| Email: | ||
| with copy to: | ||
| Law Offices of Gary L. Blum | ||
| 3278 Wilshire Blvd., Ste. 603 | ||
| Los Angeles, California 90010 | ||
| Attn: Gary Blum, Esq. | ||
| Email: gblum@gblumlaw.com |
20. Severability: The Parties hereto expressly agree that it is not the intention of the Parties hereto to violate any public policy, statutory or common law rules, regulations, treaties or decisions of any government or agency thereof. If any provision of this Agreement is judicially or administratively interpreted or construed as being in violation of any such provision, such articles, sections, sentences, words, clauses or combinations thereof shall be inoperative in such jurisdiction and the remainder of this agreement shall remain binding upon the Parties hereto and in full force and effect.
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21. Successors and Assigns: This Agreement shall be binding upon and shall enure to the benefit of the Parties hereto and their respective heirs, executors, administrators, personal representatives, successors and assigns.
22. Counterparts: This Agreement may be executed in two or more counterparts, each of which shall be deemed and original, but all of which shall constitute one and the same document.
23. Cooperation: The Parties agree to cooperate fully and to execute any and all supplementary documents and to take all additional actions that may be necessary or appropriate to give full force and effect to the terms, conditions and intent of this Agreement.
IN WITNESS WHEREOF, the Parties hereto executed this Agreement as of the Effective Date.
| AS TO YA: | ||
| YA GLOBAL INVESTMENTS, LP | ||
| By: | ||
| Print Name: | ||
| Title: | ||
| AS TO THE OBLIGORS: | ||
| COROWARE, INC. | ||
| By: | ||
| Lloyd Spencer, CEO | ||
| COROWARE TECHNOLOGIES, INC. | ||
| By: | ||
| Lloyd Spencer, CEO | ||
| ROBOTIC WORKSPACE TECHNOLOGIES, INC. | ||
| By: | ||
| Lloyd Spencer, CEO | ||
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Schedule 1
(Financing Documents)
Forbearance Agreement dated as of February 5, 2021 among CoroWare, Inc., CoroWare Technologies, Inc., Robotic Workspace Technologies, Inc. and YA Global Investments, L.P.
Amended, Restated and Consolidated Secured Convertible Debenture dated as of February 5, 2021 among CoroWare, Inc., CoroWare Technologies, Inc., Robotic Workspace Technologies, Inc. and YA Global Investments, L.P.
Amended and Restated Global Security Agreement dated as of February 5, 2021 among CoroWare, Inc., CoroWare Technologies, Inc., Robotic Workspace Technologies, Inc. and YA Global Investments, L.P.
Amended and Restated Intellectual Security Agreement dated as of February 5, 2021 among CoroWare, Inc., CoroWare Technologies, Inc., Robotic Workspace Technologies, Inc. and YA Global Investments, L.P.
Global Guaranty Agreement dated as of February 5, 2021 given by CoroWare Technologies, Inc. and Robotic Workspace Technologies, Inc. in favor of YA Global Investments, L.P.
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Exhibit “A”
(Form of Conversion Notice)
(To be executed by the Holder in order to Convert the Debenture)
TO: CoroWare, Inc.
Via Email: lspencer@coroware.com
The undersigned hereby irrevocably elects to convert a portion of the outstanding and unpaid Principal Amount of Debenture No. CORO-A&R-1 into ordinary shares of Common Stock of COROWARE, INC. according to the conditions stated therein, as of the Conversion Date written below.
| Conversion Date: | July 13, 2021 | |||
| Principal Amount to be Converted: | $ | 0 | ||
| Accrued Interest to be Converted: | $ | 75,000 | ||
| Total Conversion Amount to be converted: | $ | 75,000 | ||
Fixed Conversion Price: | $ | 0.0003 | ||
| Lowest Daily VWAP: | $ | 0.0013 | ||
Variable Conversion Price (50% of 20-Day Low VWAP): | $ | 0.00065 | ||
| Applicable Conversion Price: | $ | 0.0003 | ||
| Number of shares of Common Stock to be issued: | 250,000,000 | |||
| Remaining Principal Balance After Conversion: | $ | 2,715,990 | ||
| Please issue the shares of Common Stock in the following name: | ||
| YA Global Investments, L.P. |
|
| Authorized Signature: | ||
| Name: | Mark Angelo | |
| Title: | President & Managing Member | |
| Broker DTC Participant Code: | DTC # 0595 Vision Financial Markets A/C # A/C Name: YA Global Investments, LP
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Exhibit 12.1
August 30, 2021
CoroWare, Inc.
13110 NE 177th Place, Suite 293
Woodinville, WA 98072
Re: Regulation A Offering Statement on Form 1-A
Ladies and Gentlemen:
I am counsel for Coroware, Inc., a Delaware corporation (the “Company”), in connection with the proposed public offering of up to 5,000,000,000 shares of the common stock, $0.0001 par value per share (“Common Stock”), of the Company under the Securities Act of 1933, as amended, through a Regulation A Offering Statement on Form 1-A (the “Offering Statement”) as to which this opinion is a part, to be filed with the Securities and Exchange Commission on or about August 30, 2021.
In connection with rendering my opinion as set forth below, I have reviewed and examined originals or copies identified to my satisfaction of the following:
(1) Articles of Incorporation, of the Company as filed with the Secretary of State of Delaware;
(2) By-laws of the Company;
(3) Corporate minutes containing the written resolutions of the Board of Directors of the Company;
(4) The Offering Statement and the prospectus contained within the Offering Statement; and
(5) The other exhibits of the Offering Statement.
I have examined such other documents and records, instruments and certificates of public officials, officers and representatives of the Company, and have made such other investigations as I have deemed necessary or appropriate under the circumstances.
In my examination, I have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to me as original documents and the conformity to original documents of all documents submitted to me as certified, conformed, facsimile, electronic or photostatic copies. I have relied upon the statements contained in the Offering Statement and certificates of officers of the Company, and I have made no independent investigation with regard thereto.
Based upon the foregoing and in reliance thereon, it is my opinion that the 5,000,000,000 shares of common stock that are issuable and being offered by the Company will be legally issued, fully paid and non-assessable when offered under the Offering Statement, pursuant to the laws of the State of Delaware and the laws of the United States of America.
I hereby consent to this opinion being included as an exhibit to the Offering Statement and to the use of my name under the caption “EXPERTS” in the offering circular constituting a part thereof.
| Law Offices of Gary L. Blum | |
| /s/ Gary L. Blum, Esq. | |
| Gary L. Blum, Esq. |
Exhibit 14.1
CODE
OF BUSINESS CONDUCT and ETHICS
for
COROWARE, INC.
2021
COROWARE, Inc. and all of the group’s subsidiaries, (together, the “Company”) is committed to the highest standards of legal and ethical conduct. This Code of Business Conduct and Ethics (the “Code”) sets forth the Company’s policies with respect to the way we conduct ourselves individually and operate our business. The provisions of this Code are designed to deter wrongdoing and to promote honest and ethical conduct among our employees, officers and directors.
In the course of performing our various roles in the Company, each of us will encounter ethical questions in different forms and under a variety of circumstances. Moments of ethical uncertainty may arise in our dealings with fellow employees of the Company, with customers, or with other parties such as government entities or members of our community. In achieving the high ground of ethical behavior, compliance with governmental laws is not enough. Our employees should never be content with simply obeying the letter of the law, but must also strive to comport themselves in an honest and ethical manner. This Code provides clear rules to assist our employees, directors and officers in taking the proper actions when faced with an ethical dilemma.
The reputation of the Company is our greatest asset and its value relies on the character of its employees. In order to protect this asset, the Company will not tolerate unethical behavior by employees, officers or directors. Those who violate the standards in this Code will be subject to disciplinary action. If you are concerned about taking an action that may violate the Code or are aware of a violation by another employee, an officer or a director, follow the guidelines set forth in Sections 10 and 11 of this Code.
This Code applies equally to all employees, officers and directors of the Company. All references to employees contained in this Code should be understood as referring to officers and directors as well.
1. Compliance with Laws, Rules and Regulations
Company policy requires that the Company, as well as all employees, officers and directors of the Company, comply fully with both the spirit and the letter of all laws, rules and regulations. Whenever an applicable law, rule or regulation is unclear or seems to conflict with either another law or any provision of this Code, all employees, officers and directors are urged to seek clarification from their supervisor, the appropriate compliance official or the Chief Executive Officer. See Section 11 for contact information. Beyond mere compliance with the law, we should always conduct our business with the highest standards of honesty and integrity – wherever we operate.
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2. Conflicts of Interest
Every employee has a primary business responsibility to the Company and must avoid conflicts of interest. A conflict of interest arises when an employee takes actions or enters into relationships that oppose the interests of the Company, harm the Company’s reputation or interfere with the employee’s performance or independent judgment when carrying out any actions on behalf of the Company. The Company strictly prohibits its employees from taking any action or entering into any relationship, personal or professional, that creates, or even appears to create, a conflict of interest.
A conflict situation can arise when a director, officer or employee takes actions or has interests that may make it difficult to perform his or her work for the Company objectively and effectively. Conflicts of interests may also arise when a director, officer or employee, or a member of his or her family, receives an improper personal benefit as a result of his or her position with the Company. It may be a conflict of interest for a director, officer or employee to work simultaneously for a competitor, customer or supplier. The best policy is to avoid any direct or indirect business connection with our customers, suppliers or competitors, except on our behalf. Employees must be sensitive to potential conflicts of interest that may arise and use their best efforts to avoid the conflict.
In particular, except as provided below, no director, officer or employee shall:
| ○ | be a consultant to, or a director, officer or employee of, or otherwise operate an outside business that: | |||
| ○ | markets products or services in competition with our current or potential products and services; | |||
| ○ | supplies products or services to the Company; or | |||
| ○ | purchases products or services from the Company; | |||
| ○ | accept any personal loan or guarantee of obligations from the Company, except to the extent such arrangements have been approved by the Chief Executive Officer and are legally permissible; or | |||
| ○ | conduct business on behalf of the Company with immediate family members, which include your spouse, children, parents, siblings and persons sharing your same home whether or not legal relatives. | |||
Directors, officers and employees must notify the Chief Executive Officer of the existence of any actual or potential conflict of interest. With respect to officers or directors, the Board may make a determination that a particular transaction or relationship will not result in a conflict of interest covered by this policy. With respect to all other employees or agents, the Chief Executive Officer, acting alone, or the Board may make such a determination. Any waivers of this policy as to an officer or director may only be approved by the Board of Directors.
Any employee, officer or director who is aware of a transaction or relationship that could reasonably be expected to give rise to a conflict of interest in violation of this section must inform the appropriate personnel in accordance with the procedures set forth in Section 12 of this Code. If an employee has any questions regarding the Company’s policy on conflicts of interest or needs assistance in avoiding a potential conflict of interest, he or she is urged to seek the advice of a supervisor or the Chief Executive Officer.
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3. Corporate Opportunities
Employees, officers and directors are prohibited from taking for themselves personally opportunities that are discovered through the use of Company property, Company information or their position in the Company. Furthermore, employees may not use Company property, information or influence or their position in the Company for improper personal gain. Finally, employees have a duty to advance the Company’s legitimate interests when the opportunity to do so arises. Consequently, employees are not permitted to compete with the Company.
4. Confidentiality
Employees must maintain the confidentiality of confidential information entrusted to them by the Company or its customers or suppliers, except when disclosure is authorized by the Company or required by applicable laws or regulations. Confidential information includes proprietary information of the Company, as well as all non-public information that might be of use to competitors, or harmful to the Company or its customers, if disclosed. This confidentiality requirement is in additional to any other obligations imposed by the Company to keep information confidential.
5. Insider Trading
Employees, officers and directors will frequently become aware of confidential non-public information concerning the Company and the parties with which the Company does business. As set forth in more detail in the Company’s Insider Trading Policy, the Company prohibits employees from using such confidential information for personal financial gain, such as for purposes of stock trading, or for any other purpose other than the conduct of our business. Employees must maintain the confidentiality of such information and may not make disclosures to third parties, including members of the employee’s family. All non-public information about the Company should be treated as confidential information. To use non-public information for personal financial benefit or to “tip” others who may make stock trades on the basis of this information is not only unethical but also illegal. This policy also applies to trading in the securities of any other company, including our customers or suppliers, if employees have material, non-public information about that company which the employee obtained in the course of their employment by the Company. In addition to possible legal sanctions, any employee, officer or director found to be in violation of the Company’s insider trading policy will face decisive disciplinary action. Employees are encouraged to contact the Company’s Chief Executive Officer with any questions concerning this policy.
6. Protection and Proper Use of Company Assets
All Company assets should be used for legitimate business purposes and all employees, officers and directors must make all reasonable efforts to protect the Company’s assets and ensure their efficient use. Theft, carelessness, and waste have a direct impact on the Company’s profitability and must therefore be avoided. The suspected occurrence of fraud or theft should be immediately reported to the appropriate person in accordance with the procedures set forth in Section 11 of this Code.
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An employee’s obligation to protect the Company’s assets extends to the Company’s proprietary information. Proprietary information includes intellectual property such as patents, trademarks, copyrights and trade secrets. An employee who uses or distributes such proprietary information without the Company’s authorization will be subject to disciplinary measures as well as potential legal sanctions.
7. Fair Dealing
Although the success of our Company depends on our ability to outperform our competitors, the Company is committed to achieving success by fair and ethical means. We seek to maintain a reputation for fair dealing among our competitors and the public alike. In light of this aim, the Company prohibits employees from engaging in any unethical or illegal business practices. An exhaustive list of unethical practices cannot be provided. Instead, the Company relies on the judgment of each individual employee to avoid such practices. Furthermore, each employee should endeavor to deal fairly with the Company’s customers, suppliers, competitors and employees. No employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair business practice.
8. Disclosures
It is Company policy to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws, rules and regulations in all reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in all other public communications made by the Company. Employees shall endeavor in good faith to assist the Company in such efforts.
9. Waivers
The Company expects all employees, officers and directors to comply with the provisions of this Code. Any waiver of this Code for executive officers, directors or employees may be made only by the Board of Directors or a Board committee and will be promptly disclosed to the public as required by law and stock exchange regulations.
10. Compliance Guidelines and Resources
In some situations, our employees may not be certain how to proceed in compliance with this Code. This uncertainty may concern the ethical nature of the employee’s own acts or the employee’s duty to report the unethical acts of another. When faced with this uncertainty, the employee should carefully analyze the situation and make use of Company resources when determining the proper course of action. The Company also encourages employees to talk to their supervisors, or other personnel identified below, when in doubt about the best course of action.
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1. Gather all the facts. Do not take any action that may violate the Code until you have gathered all the facts that are required to make a well-informed decision and, if necessary, you have consulted with your supervisor, or the Chief Executive Officer, or the Chairman of the Audit/Compliance Committee.
2. Is the action illegal or contrary to policy? If the action is illegal or contrary to the provision of this Code, you should not carry out the act. If you believe that the Code has been violated by an employee, an officer or a director, you must promptly report the violation in accordance with the procedures set forth in Section 11.
3. Discuss the problem with your supervisor. It is your supervisor’s duty to assist employees in complying with this Code. Feel free to discuss a situation that raises ethical issues with your supervisor if you have any questions. You will suffer no retaliation for seeking such guidance.
4. Additional resources. The Human Resources Manager is available to speak with you about problematic situations if you do not feel comfortable approaching your direct supervisor. If you prefer, you may request assistance in writing by sending a request to the Chief Executive Officer.
11. Reporting Procedures
All employees have a duty to report any violations of this Code, as well as violations of any laws, rules, or regulations. The Company does not permit retaliation of any kind against employees for good faith reports of ethical violations.
If you believe that the Code has been violated by an employee you must promptly report the violation to your direct supervisor, Human Resources Manager or the Chief Executive Officer. If a report is made to a supervisor, the supervisor must in turn report the violation to the Chief Executive Officer. All violations by an officer or director of the Company must be reported directly to the entire Board of Directors.
Contact Information
Reports may be made in person, by telephone or in writing by sending a description of the violation and the names of the parties involved to the appropriate personnel mentioned in the preceding paragraph. The contact information is as follows:
Lloyd Spencer
Chief Executive Officer
CoroWare, Inc.
13110 NE 177th Place, #293
Woodinville, WA 98072
12. Disciplinary Action
Employees, officers and directors of the Company will be held accountable for adherence to this Code. The penalty for a particular violation of this Code will be decided on a case-by-case basis and will depend on the nature and severity of the violation as well as the employee’s history of non-compliance and cooperation in the disciplinary process. Significant penalties will be imposed for violations resulting from intentional or reckless behavior. Penalties may also be imposed when an employee fails to report a violation due to the employee’s indifference, deliberate ignorance or reckless conduct. All violations of this Code will be treated seriously and will result in the prompt imposition of penalties which may include (1) an oral or written warning, (2) a reprimand, (3) suspension, (4) termination and/or (5) restitution.
13. No Rights Created
This Code is a statement of certain fundamental principles, policies and procedures that govern the Company’s officers, directors and employees in the conduct of the Company’s business. It is not intended to and does not create any rights in any employee, supplier, competitor, shareholder or any other person or entity.
| 5 | Page |
CODE OF BUSINESS CONDUCT and ETHICS
ACKNOWLEDGEMENT FORM
| PLEASE READ, SIGN & RETURN | I acknowledge that I have received and read a copy of the COROWARE Code of Business Conduct & Ethics (2021). | |
| I understand that this Code contains certain policies of the Company and I intend to comply as an employee of the Company in accordance with these policies. I know that if I have questions concerning my obligations under the provisions of the Code, or supplements or procedures related to the Code, I should promptly ask my supervisor or the Human Resources Department for appropriate answers. | ||
| I understand my obligations to report to the Company any suspected violations of Code that I now know of or which may come to my attention in the future, and to cooperate with investigations regarding possible Code violations. |
________________________________________________
Name (Please Print)
________________________________________________
Signature/Date
________________________________________________
Department/Location
Return a signed copy of this acknowledgement form to the attention of ___________________.
| 6 | Page |
CODE OF BUSINESS CONDUCT and ETHICS
DISCLOSURE FORM
| COMPLIANCE | In conjunction with the acknowledgement form that I have signed regarding the COROWARE Code of Business Conduct & Ethics (2021), I wish to disclose the awareness of certain facts or suspicions that I am obliged to bring to the attention of my supervisor, the Human Resources department, and/or the CEO of the Company. | |
| I understand that this disclosure is being made without repercussion, and that if necessary, I will comply with an investigation into any alleged violation of the Code |
| DISCLOSURE | ||
________________________________________________
Name of Employee (Please Print)
________________________________________________
Signature/Date
________________________________________________
Department/Location
________________________________________________
Name of Supervisor, Audit Committee Chair, or CEO to whom this was disclosed
________________________________________________
Signature/Date
________________________________________________
Department/Location
Return a signed copy of this disclosure form to the attention of the Company CEO
| 7 | Page |
Exhibit 21.1
List of Subsidiaries
| Name | State of Incorporation | |
| CoroWare Technologies, Inc. | Florida | |
| CoroWare Robotics Solutions, Inc. | Texas | |
| CoroWare Robotics Solutions, Inc. | Texas | |
| Robotic Workspace Technologies, Inc. | Florida | |
| Carbon Source, Inc | Wyoming | |
| CoroWare Treasury, Inc. | Wyoming | |
| CarbonMeta Research Ltd. | England and Wales |