10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from:

Commission File Number 000-54730

AIRWARE LABS CORP.

(Exact name of registrant as specified in its charter)

Delaware	98-0665018
(State of incorporation)	(I.R.S. Employer Identification No.)

8399 E. Indian School Rd., Suite 202

Scottsdale, AZ 85251

(Address of principal executive offices)

(480) 463-4246

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X]Yes     [_] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [_]Yes     [X] No (Not required)

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

Large Accelerated Filer	[_]	Accelerated Filer	[_]
Non-Accelerated Filer	[_]	Smaller Reporting Company	[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

 [_] Yes  [X] No

As of May 15, 2014, there were 58,867,712 shares of the registrant’s $0.0001 par value common stock issued and outstanding.

AIRWARE LABS CORP. AND SUBSIDIARY

TABLE OF CONTENTS

		Page
PART I.                 FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	F-1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	12
ITEM 4.	CONTROLS AND PROCEDURES	12
PART II.               OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	13
ITEM 1A.	RISK FACTORS	13
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	13
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	14
ITEM 4.	MINE SAFETY DISCLOSURES	14
ITEM 5.	OTHER INFORMATION	14
ITEM 6.	EXHIBITS	14

Special Note Regarding Forward-Looking Statements

Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Airware Labs Corp. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

*Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," "AIRW," or “Airware” refers to Airware Labs Corp.

PART I - FINANCIAL INFORMATION

  ITEM 1.   CONDENSED FINANCIAL STATEMENTS

INDEX	F-1
Unaudited Consolidated Balance Sheet as of March 31, 2014 and Audited Consolidated Balance Sheet as of September 30, 2013	F-2
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2014 and 2013	F-3
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2014 and 2013	F-4
Notes to Condensed Financial Statements Unaudited	F-5

F-1

AIRWARE LABS CORP. AND SUBSIDIARY

(FORMERLY CROWN DYNAMICS CORP.)

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2014 AND SEPTEMBER 30, 2013

	As of			As of
	March 31,			September 30,
	2014			2013
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	80,335		$	19,942
Accounts receivable		27,676			35,019
Inventory		47,971			51,423
Deposits		41,920			—
Prepaid expenses		14,011			10,690
Total current assets		211,913			117,074
Other Assets:
Property and equipment, net		18,275			31,619
Intangible assets, net		273,877			291,072
Deposits		4,787			2,400
Investment in Breathe Active, LLC		290			290
Total Assets	$	509,142		$	442,455
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
Accounts payable	$	1,638,514		$	1,868,205
Accrued interest - related parties		23,080			12,793
Accrued interest		6,251			6,441
Accrued expenses		46,195			18,554
Customer deposit		80,437			—
Notes payable		—			18,178
Convertible notes payable - current portion		50,443			32,773
Convertible notes payable to related parties - current portion, net of discount		20,000			25,000
Total current liabilities		1,864,920			1,981,944
Accrued interest to related parties		42			1,267
Notes payable to former officer		47,500			47,520
Convertible notes payable, less current portion		—			22,227
Convertible notes payable to related parties, less current portion, net of discount		616,556			228,782
Warrant liability		—			1,098,566
Total liabilities		2,529,018			3,380,306
Commitments and Contingencies
Stockholders' (Deficit):
Common stock, par value $.0001 per share, 200,000,000 and 200,000,000 shares authorized; 58,323,721 and 38,129,100 shares issued and outstanding at March 31, 2014 and September 30, 2013, respectively		5,832			3,813
Additional paid-in capital		28,709,100			12,071,023
Accumulated (deficit)		(30,734,808	)		(15,012,687	)
Total stockholders' (deficit)		(2,019,876	)		(2,937,851	)
Total Liabilities and Stockholders' (Deficit)	$	509,142		$	442,455

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

F-2

AIRWARE LABS CORP. AND SUBSIDIARY

(FORMERLY CROWN DYNAMICS CORP.)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2014 AND 2013

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,			March 31,			March 31,			March 31,
	2014			2013			2014			2013
Revenues, net	$	44,633		$	119,616		$	55,340		$	198,814
Cost of products sold		39,062			45,474			43,607			93,003
Gross profit		5,571			74,142			11,733			105,811
Operating expenses
General and administrative		241,408			330,480			508,193			611,711
Sales and marketing		68,828			71,922			83,522			115,878
Total expenses		310,236			402,402			591,715			727,589
(Loss) from operations		(304,665	)		(328,260	)		(579,982	)		(621,778	)
Other income (expense)
Interest income		—			—			289			—
Forgiveness of debt		—			—			20			—
Induced note conversion expense		(2,697	)		—			(2,697	)		(9,300	)
Interest expense		(331,481	)		(118,848	)		(518,316	)		(200,661	)
Valuation (loss) - common stock warrants		—			—			(707,400	)		—
Loss on warrants exercised		(13,914,034	)		—			(13,914,034	)		—
Total other income (expense)		(14,248,212	)		(118,848	)		(15,142,138	)		(209,961	)
(Loss) before income taxes		(14,552,877	)		(447,108	)		(15,722,120	)		(831,739	)
Income tax expense		—			—			—			—
Net (loss)	$	(14,552,877	)	$	(447,108	)	$	(15,722,120	)	$	(831,739	)
Basic and diluted net (loss) per common share	$	(0.36	)	$	(0.01	)	$	(0.40	)	$	(0.03	)
Basic and diluted weighted average common
shares outstanding		40,953,071			33,231,681			39,281,951			31,874,811

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

F-3

AIRWARE LABS CORP. AND SUBSIDIARY

(FORMERLY CROWN DYNAMICS CORP.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED MARCH 31, 2014 AND 2013

(Unaudited)

	Six Months Ended
	March 31,			March 31,
	2014			2013
Operating Activities:
Net (loss)	$	(15,722,120	)	$	(831,739	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization		30,538			27,702
Common stock issued/obligated for services		375,722			10,000
Options and warrants issued for services		30,958			25,256
Interest expense from amortization of debt discount		387,773			80,041
Induced conversion expense		2,697			9,300
Stock issued for interest expense		107,982			89,106
Forgiveness of debt		(20	)		—
Loss on warrants exercised		13,914,034			—
Valuation (gain)/expense - common stock warrants		707,400			—
Changes in operating assets and liabilities:
Accounts receivable		7,343			475,086
Inventory		3,452			(101,482	)
Prepaid expenses		(3,321	)		99,918
Deposits		(44,307	)		(5,000	)
Accounts payable		(229,691	)		4,947
Accrued interest		8,872			(27,707	)
Customer deposit		80,437			—
Accrued expenses		27,641			4,228
Net Cash Provided by (Used in) Operating Activities		(314,610	)		(140,344	)
Investing Activities:
Purchases of property and equipment		—			(35,534	)
Net Cash (Used in) Investing Activities		—			(35,534	)
Financing Activities:
Stock issued for cash		—			228,750
Proceeds from convertible notes payable		1,002,000			585,000
Repayment of convertible notes payable		—			(400,000	)
Repayment of notes payable		(22,735	)		—
Options re-purchased		(2,500	)		—
Stock re-purchased		(601,762	)		—
Proceeds from factored accounts receivable		—			346,448
Repayment of factored accounts receivable note		—			(497,872	)
Net Cash Provided by (Used in) Financing Activities		375,003			262,326
Net (Decrease) Increase in Cash		60,393			86,448
Cash - Beginning of Period		19,942			1,400
Cash - End of Period	$	80,335		$	87,848
Supplemental disclosure of cash flow information:
Interest paid in cash	$	1,365		$	46,986
Non-cash investing and financing activities:
Stock issued for convertible notes		5,000			10,000
Debt discount on note payable, related party		—			1,500
Warrants issued to related party for convertible note modification		—			1,564

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

F-4

AIRWARE LABS CORP. AND SUBSIDIARY

(FORMERLY CROWN DYNAMICS CORP.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

1. Summary of Significant Accounting Policies and Use of Estimates

Basis of Presentation and Organization

Airware Labs Corp. (“Airware Labs” or the “Company”), formerly Crown Dynamics Corp., is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on June 15, 2010. On October 26, 2012, the Articles of Incorporation were amended to reflect a name change to Airware Labs Corp. On November 13, 2012, the Board approved a change in fiscal year end from December 31 to September 30.

On March 20, 2012, through an equity exchange agreement, the Company acquired all of the issued and outstanding stock of Airware Holdings, Inc., a Nevada corporation (“Airware”), in exchange for shares of the Company’s newly-issued common stock. Airware Holdings, Inc. was formed in February 2010 and is a non-prescription medical products company. The principal business purpose of the Company is to develop, manufacture and distribute nasal breathing devices. The Company targets prospective customers such as compassionate sleeping partners, individuals with allergies and athletic enthusiasts throughout the United States, Canada and Europe.

The share exchange has been accounted for as a recapitalization reverse merger between Airware Holdings, Inc. and Airware Labs Corp. Airware Holdings, Inc. is the accounting acquirer and Airware Labs Corp. is the accounting acquiree. Consequently, the historical pre-merger financial statements of Airware Holdings, Inc. are now those of the Company. The par value of the stock of Airware Holdings, Inc. of $.001 per share has been adjusted to that of the Company of $.0001 per share with the par value difference charged to paid-in capital. The pre-merger deficit is that of Airware Holdings, Inc. Airware Labs Corp’s pre-merger accumulated deficit has been charged to paid-in capital. The pre-merger Airware Holdings, Inc. outstanding shares have been adjusted to reflect the exchange. The pre-merger outstanding shares of Airware Labs Corp. were included in the issued and outstanding shares of the Company at the date of the merger.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Inter-company balances and transactions have been eliminated upon consolidation.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include accounting for depreciation and amortization, recoverability of intangible assets, deferred income taxes, accruals and contingencies, the imputed interest rate of the note payable to related party and the fair value of common stock, and the estimated fair value of stock options and warrants.

Unaudited Interim Financial Statements

The interim consolidated financial statements of the Company as of March 31, 2014 and 2013, and for the periods then ended, are unaudited. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2014 and the results of its operations and its cash flows for the periods ended March 31, 2014 and 2013. These results are not necessarily indicative of the results expected for the fiscal year ended September 30, 2014. The accompanying financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States (U.S. “GAAP”).

Net Loss per Share

Basic earnings per share does not include dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. Due to the net losses for the periods ended March 31, 2014 and 2013, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

F-5

As of March 31, 2014, there were total shares of 27,039,724 issuable upon conversion of notes payable, exercise of warrants and options that were not included in the earnings per share calculation as they were anti-dilutive.

2. Going Concern

The Company has incurred losses since inception and requires additional funds for future operating activities. The Company’s selling activity has not yet reached a level of revenue sufficient to fund its operating activities. These factors create an uncertainty as to how the Company will fund its operations and maintain sufficient cash flow to operate as a going concern.

In response to these financial difficulties, management is continuing to pursue financing from various sources, including private placements from investors and institutions. Management believes these efforts will contribute toward funding the Company’s activities until sufficient revenue can be earned from future operations. In addition, the Company is seeking additional distribution partners in both domestic and foreign markets. Management believes these combined efforts, if successful, will be sufficient to meet its working capital needs and its currently anticipated expenditure levels for the next year.

The Company’s ability to meet its cash requirements in the next year is dependent upon obtaining this financing and achieving improved sales levels. If this is not achieved, the Company may be unable to obtain sufficient cash flow to fund its operations and obligations, and therefore, may be unable to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, and accordingly, do not include any adjustments relating to the recoverability and classification of recorded asset amounts; nor do they include adjustments to the amounts and classification of liabilities that might be necessary should the Company be unable to continue operations or be required to sell its assets.

3. Convertible Notes Payable

Convertible notes payable consist of the following:

8.00% notes payable, due August 22, 2012, convertible to common stock at $.50 per share, interest payments are due at maturity, unsecured	$	5,000
6.50% note payable, due November 26, 2011, convertible to common stock at $2 per share, interest payments are due annually, unsecured. Terms amended in March 2013 to interest at 4.25%, with $4,000 monthly payments of principal and interest		45,443
		50,443
Less current portion		(50,443	)
	$	—

4. Notes Payable to Former Officer

Notes payable to former officer consists of the following:

0.27% note payable, due August 1, 2016, interest due at maturity, unsecured $ 47,500

On December 5, 2013, the Company entered into a revised promissory note with former officer David Dolezal calling for four equal payments to begin on November 1, 2015 and ending August 1, 2016. Interest was reduced from 2.0% to 0.27%.

5. Convertible Notes Payable to Related Parties

Convertible notes payable to related parties consist of the following:

12% note payable net of unamortized debt discount of $1,691,444, due September 30, 2015, convertible to common stock at $.10 per share, interest payments are due monthly.  Debt is secured by substantially all of the assets of the Company	$	616,556
8.00 % note payable due August 26, 2012, convertible to common stock at $.50 per share, interest payments are due at maturity, unsecured		20,000
		636,556
Less current portion		(20,000	)
	$	616,556

F-6

On August 21, 2013, the Company entered into a ninth allonge to a convertible secured bridge note with Stockbridge Enterprises, L.P. (“Stockbridge”) which provided for up to $3,206,000 principal and a maturity date of September 30, 2015. As of March 31, 2014, the Company has borrowed $2,308,000 against this line of credit.

6. Loss on Warrants Exercised

On March 5, 2014, the Company issued 22,457,143 shares of stock to Stockbridge for the cashless exercise of all of their 26,200,000 outstanding warrants. This transaction resulted in a loss of $13,914,034.

7. Related Party Transactions

As detailed in Notes Payable to Former Officer Footnote 4, the Company has a note payable to its former President and Executive Chairman, David Dolezal.

On December 5, 2013, the Company entered into a share re-purchase agreement with former officer Mr. David Dolezal to buy back 7,567,622 shares of common stock held by Mr. Dolezal and entities under his control.  Other outside investors were granted the opportunity to participate in this purchase, with 1,550,000 shares being purchased directly from Mr. Dolezal by others, and 6,017,622 being re-purchased by the Company.  Upon completion of this transaction on December 17, 2013, Mr. Dolezal no longer has any ownership in the Company.

As discussed in Convertible Notes Payable to Related Parties Footnote 5, the Company has a convertible secured bridge note with Stockbridge. During the six months ended March 31, 2014, the Company borrowed $1,002,000 against this note.

As noted in Stockholders’ Deficit Footnote 9 and Loss on Warrants Exercised Footnote 6, on March 5. 2014, the Company issued 22,457,143 shares of stock to Stockbridge for the cashless exercise of all of their 26,200,000 outstanding warrants.

8. Commitments and Contingencies

The Company has agreed to indemnify its officers and directors for certain events or occurrences that may arise as a result of the officers or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.

The Company enters into indemnification provisions under its agreements with other companies in its ordinary course of business, typically with business partners, customers, landlords, lenders and lessors. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities or, in some cases, as a result of the indemnified party’s activities under the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited.

The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2014.

On December 22, 2011, the Company entered into a distribution agreement that provides for the issuance of common stock warrants, with an expiration date of 3 years, for the purchase of the Company’s common stock in an amount equal to 15% of the total products purchased by the distributor from the Company at the invoice price against the previous year’s purchases of paid invoices. The warrant price will be equal to the closing price of Airware Labs Corp.’s stock price at the anniversary date of the agreement.

On December 27, 2011, the Company was named as a defendant in a lawsuit alleging a default on two notes payable totaling $75,000 plus accrued interest. Ultimately, a judgment for $92,001 was entered against the Company as a result of this lawsuit. Per a later settlement agreement, the Company has been making monthly payments of $4,000 against this judgment with interest due on the remaining balance of 4.25% per annum. The notes and accrued interest are reflected in the Company’s Balance Sheet as of March 31, 2014.

The Company is in default on a convertible note payable totaling $5,000 and a convertible note payable to a related party totaling $20,000. The Company has attempted communication with the note holders to request extensions or conversion.

F-7

On July 26, 2012, the Company was named as a Defendant in a lawsuit alleging patent infringement.  The Company believed the claims were without merit.  After the Company vigorously defended the action, the plaintiff moved to dismiss its own claims, and the Court entered judgment in the Company’s favor.  The Court also denied the Company’s request for reimbursement of its attorneys’ fees; the Company retains the right to appeal that decision.

On April 8, 2013, the Company entered into an exclusive agency agreement with National United Trading and Investment FZ LLC. This is a performance-based agreement to develop new markets in the United Arab Emirates and other Middle Eastern markets of relevance.

On July 16, 2013, the Company entered into a Severance Agreement with Jeffrey Rassas, the Company’s Chief Executive Officer pursuant to which Mr. Rassas will be entitled to the following severance benefits: (i) the Company shall pay to Mr. Rassas his base salary for a period of 12 months following termination without cause; (ii) Mr. Rassas shall be paid any earned and unpaid bonus due; and, (iii) and all unvested stock-based compensation held by Mr. Rassas shall vest as of the date of termination.

On November 5, 2013, the Company entered into an agreement with Ramirez Advisors Inter-National, LLC to serve as an advisor to the Company as it pertains to the possible manufacturing of various Company products in Mexico as well as possible business opportunities for Company products in the Mexican market.  Additionally, Ramirez Advisors Inter-National, LLC will use its best efforts to locate distributors in Mexico City for the Company's filtration product line given the high levels of pollution in this region.

On January 28, 2014, the Company entered into an agreement (the “Acorn Agreement”) with Acorn Management Partners, LLC (“Acorn”) to perform certain financial advisory, business development and professional relations services (the “Acorn Services”). Under the terms of the Acorn Agreement and in exchange for the performance of the Acorn Services by Acorn, the Company shall pay to Acorn an aggregate of $115,000 USD in cash plus a variable number of shares of the restricted common stock of the Company. The Acorn Agreement shall expire on January 27, 2015, unless terminated earlier in accordance with its terms.

The Company sells the majority of its products through major distributors. The Company warrants to the distributors that the product will be free from defects in material and workmanship. The Company has determined its product warranty to be immaterial at March 31, 2014. The likelihood that the Company’s estimate of the accrued product warranty claims will materially change in the near term is considered remote.

9. Stockholders’ Deficit

Common Stock

During the six months ended March 31, 2014, the Company issued 2,143,655 shares of stock in payment of interest on the Stockbridge convertible note.

As further detailed in Related Party Transactions Footnote 7, on December 5, 2013, the Company entered into a share re-purchase agreement with former officer Mr. David Dolezal and re-purchased 6,017,622 shares of common stock held by Mr. Dolezal and entities under his control.

On January 21, 2014, the Company issued 102,916 shares of stock for the payment of consulting services. The shares were valued using the average closing price ($0.18) for the quarter.

As referenced in Commitments and Contingencies Footnote 8, on January 27, 2014, the Company issued 225,000 shares of stock for payment to Acorn Management Partners, LLC. The shares were valued using the closing price ($0.22) on the date the shares were issued with a 25% discount for the restricted trading.

On February 20, 2014, the Company issued 52,941 shares of stock for the payment of consulting services. The shares were valued using the closing price ($0.34) on the date the shares were issued.

On February 28, 2014, the Company issued 1,207,388 shares of stock to two vendors in satisfaction of accounts payable of $301,847.

On March 3, 2014, the Company issued 23,200 shares of stock for the conversion of a note payable to related party and interest.

On March 5, 2014, the Company issued shares of stock to Stockbridge as part of a warrant exercise. Stockbridge exercised 26,200,000 warrants to purchase stock.  They elected to use the cashless exercise formula, which resulted in the issuance of 22,457,143 shares of common stock of the Company.

F-8

Warrants

The balance of warrants outstanding for purchase of the Company’s common stock as of March 31, 2014 is as follows:

	Common Shares Issuable Upon Exercise of Warrants	Exercise Price of Warrants	Date Issued	Expiration Date
Issued under a private placement memorandum	250,000	$1.00	4/26/2011	4/25/2014
Issued under a private placement memorandum	50,000	$1.00	4/27/2011	4/26/2014
Issued under a private placement memorandum	25,000	$1.00	4/28/2011	4/27/2014
Issued under a private placement memorandum	200,000	$1.00	5/03/2011	5/02/2014
Issued for financing expense	20,000	$0.25	3/08/2012	3/07/2017
Issued under a consultant settlement agreement	40,000	$0.50	4/30/2012	4/29/2015
Issued per distribution agreement	125,464	$0.75	12/22/2012	12/21/2015
Issued under a private placement memorandum	140,000	$0.40	6/25/2013	6/25/2015
Issued under a private placement memorandum	120,000	$0.40	6/26/2013	6/26/2015
Issued per distribution agreement	172,028	$0.14	12/22/2013	12/22/2016
Balance of Warrants at March 31, 2014	1,142,492

Stock Options

The Company had the following options outstanding at March 31, 2014:

	Common Shares Issuable Upon Exercise of Options	Exercise Price of Options	Date Issued	Expiration Date
Options granted to former officer & two former senior advisory board members	775,000	$0.50	4/20/2011	4/19/2021
Options granted to former employee and three consultants	700,000	$0.50	7/19/2011	7/18/2016
Options granted under a consultant agreement settlement	52,844	$0.25	4/30/2012	4/29/2022
Options granted to Board member	150,000	$0.30	1/25/2013	1/24/2023
Options granted to employee and two consultants	1,550,000	$0.30	1/25/2013	1/24/2023
Options granted to medical advisory board member	250,000	$0.26	5/20/2013	5/19/2016
Options granted to consultant	250.000	$0.28	9/5/2013	9/4/2016
Options issued for investment in Breathe Active, LLC	500,000	$0.25	9/28/2013	12/31/2014
Options issued for investment in Breathe Active, LLC	500,000	$0.50	9/28/2013	12/31/2014
Options re-purchased by Company (1)	(200,000)
Options granted to Board member (2)	150,000	$0.11	10/4/2013	10/3/2023
Options granted to Officers (3)	433,333	$0.11	10/4/2013	10/3/2023
Balance of Options at March 31, 2014	5,111,177

F-9

(1) On December 5, 2013, per an Agreement and Mutual Release of Claims with a former consultant, the Company paid $2,500 in return for the relinquishment of the consultant’s stock options.

(2) On October 4, 2013, the Company granted stock options to a Board member. These options are immediately vested, have an exercise price of $.11 and have a term of 10 years.

(3) On October 4, 2013, the Company granted stock options to two officers. These options have an exercise price of $.11 and a term of 10 years. The options vest evenly over the next three years on the anniversary of the grant date, unless there is a change in corporate control, then the options vest immediately.

10. Customer Rebates

As part of an agreement with its domestic distributor, the Company agreed to provide free product to assist in promotional efforts by the distributor. This free product would be recognized as credits on future orders as they are placed. During the six months ended March 31, 2014, this resulted in $66,989 being recognized as customer credits against revenue and $12,777 in samples expense. An additional $7,659 in credit remains to be granted against future orders as they are placed per this agreement.

11. Subsequent Events

Subsequent to March 31, 2014, the Company borrowed an additional $100,000 against the convertible secured note with Stockbridge to fund marketing efforts. The total currently drawn on the note is $2,408,000.

On April 23, 2014, the Company entered into a product development agreement with Dan Pool of Designer Products. As compensation, the Company will pay $1,500 in stock accrued monthly and issued quarterly. Additionally, the Company will pay a monthly royalty of 5% of net sales of any products created by Dan Pool as inventor.

End of Notes to Financial Statements

F-10

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis should be read in conjunction with Airware Labs Corp. financial statements and the related notes thereto. The Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Report on Form 10-Q. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report on Form 10-Q.

The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes and other financial data included elsewhere in this report. See also the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended September 30, 2013.

Results of Operations

Total revenue for the three months ended March 31, 2014 was $44,633, as compared to $119,616 for the three months ended March 31, 2013. Operating expenses in the quarter ended March 31, 2014 amounted to $310,236 as compared to $402,402 for the quarter ended March 31, 2013. The decrease in expenses is the result of a reduction in legal fees.

The net loss for the quarter ended March 31, 2014 was $14,552,877 as compared to $447,108 for the quarter ended March 31, 2013. This is primarily due to the loss on warrants exercised of $13,914,034 for the quarter ended March 31, 2014, compared to $0 for the quarter ended March 31, 2014.

Liquidity and Capital Resources

Our balance sheet as at March 31, 2014 reflects $80,335 in cash and cash equivalents as compared to $19,942 as at September 30, 2013. We intend to raise the balance of our cash requirements for the next 12 months from private placements or a registered public offering (either self-underwritten or through a broker-dealer). Additionally, we have the Stockbridge secured bridge note to draw from, which as of May 15, 2014 has an available balance of $798,000. If we are unsuccessful in raising enough money through future capital-raising efforts, we may review other financing possibilities such as bank loans. At this time, our Company does not have a commitment from any broker/dealer to provide additional financing. There is no assurance that any additional financing will be available or if available, on terms that will be acceptable.

Cash Flow from Operating Activities

During the six months ended March 31, 2014, the Company’s operating activities used $314,610 in cash as compared to $140,344 used by operating activities for the six months ended March 31, 2013. The increase in cash used for operating activities is primarily due to decreased revenue resulting in limited receivables and related collections.

Cash Flow from Investing Activities

During the six month periods ended March 31, 2014 and 2013, the Company used $0 and $35,534 respectively, in cash for investing activities. The decrease in cash used for investing activities is primarily due to there not being any purchases of fixed assets in the six months ended March 31, 2014.

Cash Flow from Financing Activities

During the six months ended March 31, 2014, the Company received $375,003 in cash from financing activities. This consisted of $979,265 in net financing from notes payable less $604,262 in payments for the re-purchase of common stock and options. This compares with $262,326 provided during the six months ended March 31, 2013 which consisted of $185,000 in net financing from notes payable, $228,750 in proceeds from the issuance of stock for cash and ($151,424) in net repayments from factoring accounts payable and accounts receivable.

11

Going Concern

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.

Future Financings

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as March 31, 2014, due to the material weaknesses resulting from controls not being designed and in place to ensure that all disclosures required were originally addressed in our financial statements.

12

Changes in Internal Control over Financial Reporting

Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.

The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments.

Other than those certain events as reported in our Annual Report on Form 10-K filed with the Commission on January 13, 2014, we know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

  ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

1. Quarterly Issuances:

On January 21, 2014, the Company issued 382,094 restricted shares of common stock as payment for interest on loans to the Company for December 2013, at a cost basis of $0.05 per share.

On January 21, 2014, the Company issued 102,916 restricted shares of common stock as payment for consulting services rendered to the Company, at a cost basis of $0.18 per share.

On January 27, 2014, the Company issued 225,000 restricted shares of common stock as payment for consulting services rendered to the Company, at a cost basis of $0.165 per share.

On February 20, 2014, the Company issued a total of 52,941 restricted shares of common stock as payment for consulting services rendered to the Company, at a cost basis of $0.34 per share.

On February 28, 2014, the Company issued 1,207,388 shares of restricted common stock as payment to settle debts with two parties, eliminating a total of $301,846.92 USD debt.

On February 28, 2014, the Company received a Warrant Exercise Notice from Stockbridge Enterprises L.P., a Nevada limited partnership (“Stockbridge”), to purchase 26,200,000 shares of its common stock, par value $0.0001. Stockbridge acquired the warrants pursuant to a Senior Secured Convertible Note (the “Note”), dated December 14, 2009, by and between Stockbridge and the Company. Pursuant to the terms of the warrants, Stockbridge elected to use a cashless exercise formula which resulted in the issuance of 22,457,143 shares of restricted common stock of the Company.

On March 3, 2014, the Company issued 23,200 restricted shares of common stock pursuant to a conversion notice dated February 27, 2014 at a cost basis of $0.25 per share.

13

On March 7, 2014, the Company issued 920,587 restricted shares of common stock as payment for interest on loans to the Company for January and February 2014, at a cost basis of $0.05 per share.

2. Subsequent Issuances:

On April 25, 2014, the Company issued 461,600 shares of restricted common stock as payment for interest on loans to the Company for March 2014, at a cost basis of $0.05 per share.

On April 25, 2014, the Company issued a total of 82,391 restricted shares of common stock as payment for consulting services rendered to the Company, at a cost basis of $0.33 per share.

  ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

N/A.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit
Number	Description of Exhibit
3.01(a)	Articles of Incorporation	Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
3.01(b)	Certificate of Amendment to Articles of Incorporation dated October 26, 2012	Filed with the SEC on November 13, 2012 as part of our Current Report on Form 8-K
3.02	Bylaws	Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
10.01	Patent Sale Agreement	Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
10.02	License Agreement between Crown Dynamics Corp. and Zorah LLC	Filed with the SEC on January 20, 2012 on Form 8-K.
10.03	Share Exchange Agreement between Crown Dynamics Corp. and Airware Dated March 20, 2012	Filed with the SEC on March 26, 2012 on Form 8-K.
10.04	Professional Relations and Consulting Agreement between Acorn Management Partners, LLC and Airware Labs Corp. dated January 28, 2014	Filed herewith.
31.01	Certification of Principal Executive Officer Pursuant to Rule 13a-14	Filed herewith.
31.02	Certification of Principal Financial Officer Pursuant to Rule 13a-14	Filed herewith.
32.01	CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith.
32.02	CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith.
99.1	Crown Dynamics Corp. Subscription Agreement	Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
101.INS*	XBRL Instance Document	Filed herewith.

14

101.SCH*	XBRL Taxonomy Extension Schema Document	Filed herewith.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document	Filed herewith.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith.

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AIRWARE LABS CORP.
Date: May 15, 2014	By:	/s/  Jeffrey Rassas
	Name:	Jeffrey Rassas
	Title:	Chief Executive Officer and Director
Date: May 15, 2014	By:	/s/  Jessica Smith
	Name:	Jessica Smith
	Title:	Chief Accounting and Financial Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date:  May 15, 2014	By:	/s/  Jeffrey Rassas
	Name:	Jeffrey Rassas
	Title:	Chief Executive Officer and Director
Date:   May 15, 2014	By:	/s/  Jessica Smith
	Name:	Jessica Smith
	Title:	Chief Accounting and Financial Officer
Date:   May 15, 2014	By:	/s/  Ron L. Miller
	Name:	Ronald L. Miller, Jr.
	Title:	Director

EX-31.01

EXHIBIT 31.01

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey Rassas, certify that:

1.      I have reviewed this Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 2014;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.      As the Registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.      Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.      Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.      As the Registrant’s certifying officer, I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):

a.      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b.      Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 15, 2014	Airware Labs Corp.
	By:	/s/  Jeffrey Rassas
	Name:	Jeffrey Rassas
	Title:	Chief Executive Officer

EX-31.02

EXHIBIT 31.02

CERTIFICATION OF

PRINCIPAL ACCOUNTING OFFICER

PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Jessica Smith, certify that:

1.      I have reviewed this Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 2014;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.      As the Registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.      Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.      Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.      As the Registrant’s certifying officer, I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):

a.      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

  b.      Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 15, 2014	Airware Labs Corp.
	By:	/s/  Jessica Smith
	Name:	Jessica Smith
	Title:	Chief Accounting and Financial Officer

EX-32.01

EXHIBIT 32.01

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey Rassas, the Chief Executive Officer of Airware Labs Corp., certify, under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 2014, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and  results of operations of the Registrant.

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: May 15, 2014	Airware Labs Corp.
	By:	/s/  Jeffrey Rassas
	Name:	Jeffrey Rassas
	Title:	Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.02

EXHIBIT 32.02

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jessica Smith, the Chief Accounting and Financial Officer of Airware Labs Corp., certify, under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 2014, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and  results of operations of the Registrant.

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: May 15, 2014	Airware Labs Corp.
	By:	/s/  Jessica Smith
	Name:	Jessica Smith
	Title:	Chief Accounting and Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Subsequent Events (Details Narrative) (USD $)	3 Months Ended	4 Months Ended
	Mar. 31, 2014	May 14, 2014	May 15, 2014
Subsequent Events [Abstract]
Additional borrowing on Stockbridge note subsequent to quarter end		$ 100,000
Total amount currently drawn on Stockbridge note			2,408,000
Product development agreement with Dan Pool	$ 1,500

XML

Notes Payable to Former Officer (Details Narrative)	Dec. 05, 2013
Debt Disclosure [Abstract]
Original promissory note interest rate	2.00%
Revised promissory note interest rate	0.27%

XML

Notes Payable to Former Officer

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Notes Payable to Former Officer

4. Notes Payable to Former Officer

Notes payable to former officer consists of the following:

0.27% note payable, due August 1, 2016, interest due at maturity, unsecured  $            47,500

On December 5, 2013, the Company entered into a revised promissory note with former officer David Dolezal calling for four equal payments to begin on November 1, 2015 and ending August 1, 2016. Interest was reduced from 2.0% to 0.27%.

XML

Related Party Transactions (Details Narrative) (USD $)	3 Months Ended	6 Months Ended
	Mar. 31, 2013	Mar. 31, 2014	Mar. 05, 2014	Dec. 17, 2013	Dec. 05, 2013
Related Party Transactions [Abstract]
Common stock avaliable under repurchase agreement					7,567,622
Portion repurchased by outside investors				1,550,000
Portion repurchased by the Company				6,017,622	6,017,622
Amount borrowed against Stockbridge note		$ 1,002,000
CommonStockSharesIssued			22,457,143
Cashless exercise	26,200,000

XML

Loss on Warrants Exercised (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 05, 2014
Guarantees [Abstract]
Shares issued to Stockbridge		22,457,143
Cashless exercise	$ 26,200,000
Loss	$ (13,914,034)

XML

Commitments and Contingencies (Details Narrative) (USD $)	Mar. 31, 2014	Jan. 28, 2014	Dec. 27, 2011	Dec. 22, 2011
Commitments and Contingencies
Expiration date of stock warrants issued				3 years
Amount of notes payable in default			$ 75,000
Final judgment as result of lawsuit			92,001
Monthly payments on lawsuit judgement			4,000
Annual interest rate on balance of lawsuit judgement			4.25%
Amount of convertible note payable in default	5,000
Amount of convertible note payable to related party in default	20,000
Amount owed to Acorn Management Partners		$ 115,000

XML

Stockholders Deficit (Details Narrative) (USD $)	6 Months Ended
	Mar. 31, 2014	Mar. 05, 2014	Mar. 03, 2014	Feb. 28, 2014	Feb. 20, 2014	Jan. 27, 2014	Jan. 21, 2014	Dec. 17, 2013	Dec. 05, 2013	Oct. 04, 2013
Equity [Abstract]
Common stock issued for payment of interest on Stockbridge note	2,143,655
Shares re-purchased from Mr. David Dolezal								6,017,622	6,017,622
Shares issued as payment for services			23,200	1,207,388	52,941		102,916
Shares issued as payment for consulting services, per share value					$ 0.34		$ 0.18
Shares issued as payment to Acorn Management Partners, LLC						225,000
Shares issued as payment to Acorn Management Partners, LLC, per share value						$ 0.22
Accounts payable satisfied				$ 301,847
Warrants exercised by Stockbridge		26,200,000
Shares of common stock issed to Stockbridge		22,457,143
Paid to consultant for return of stock options									$ 2,500
Stock options granted, exercise price per share										$ 0.11

XML

Convertible Notes Payable

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

Convertible Notes Payable

3. Convertible Notes Payable

Convertible notes payable consist of the following:

8.00% notes payable, due August 22, 2012, convertible to common stock at $.50 per share, interest payments are due at maturity, unsecured	$                5,000
6.50% note payable, due November 26, 2011, convertible to common stock at $2 per share, interest payments are due annually, unsecured. Terms amended in March 2013 to interest at 4.25%, with $4,000 monthly payments of principal and interest	45,443
	50,443
Less current portion	(50,443)
	$                       -

XML

Customer Rebates (Details Narrative) (USD $)	6 Months Ended
	Mar. 31, 2014
Accounting Policies [Abstract]
Customer credits against revenue	$ 66,989
Samples expense	12,777
Remaining credit to be granted against future orders per promotional agreement	$ 7,659

XML

Consolidated Balance Sheets (Unaudited) (USD $)	Mar. 31, 2014	Sep. 30, 2013
ASSETS
Cash and cash equivalents	$ 80,335	$ 19,942
Accounts receivable	27,676	35,019
Inventory	47,971	51,423
Deposits	41,920
Prepaid expenses	14,011	10,690
Total current assets	211,913	117,074
Other Assets:
Property and equipmnet, net	18,275	31,619
Intangible assets, net	273,877	291,072
Deposits	4,787	2,400
Investment in Breathe Active, LLC	290	290
Total Assets	509,142	442,455
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Accounts payable	1,638,514	1,868,205
Accrued interest - related parties	23,080	12,793
Accrued interest	6,251	6,441
Accrued expenses	46,195	18,554
Customer deposit	80,437
Notes payable		18,178
Convertible notes payable - current portion	50,443	32,773
Convertible notes payable to related parties - current portion, net of discount	20,000	25,000
Total current liabilities	1,864,920	1,981,944
Accrued interest to related parties	42	1,267
Notes payable to former officer	47,500	47,520
Convertible notes payable, less current portion		22,227
Convertible notes payable to related parties, less current portion, net of discount	616,556	228,782
Warrant liablility		1,098,566
Total liabilities	2,529,018	3,380,306
Stockholders' (Deficit):
Common stock, par value $.0001 per share, 200,000,000 and 200,000,000 shares authorized; 58,323,721 and 38,129,100 shares issued and outstanding at March 31, 2014 and September 30, 2013, respectively	5,832	3,813
Additional paid-in capital	28,709,100	12,071,023
Accumulated (deficit)	(30,734,808)	(15,012,687)
Total stockholders' (deficit)	(2,019,876)	(2,937,851)
Total Liabilities and Stockholders' (Deficit)	$ 509,142	$ 442,455

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Summary Significant Accounting Policies and Use of Estimates

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Summary Significant Accounting Policies and Use of Estimates

1. Summary of Significant Accounting Policies and Use of Estimates

Basis of Presentation and Organization

Airware Labs Corp. (“Airware Labs” or the “Company”), formerly Crown Dynamics Corp., is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on June 15, 2010. On October 26, 2012, the Articles of Incorporation were amended to reflect a name change to Airware Labs Corp. On November 13, 2012, the Board approved a change in fiscal year end from December 31 to September 30.

On March 20, 2012, through an equity exchange agreement, the Company acquired all of the issued and outstanding stock of Airware Holdings, Inc., a Nevada corporation (“Airware”), in exchange for shares of the Company’s newly-issued common stock. Airware Holdings, Inc. was formed in February 2010 and is a non-prescription medical products company. The principal business purpose of the Company is to develop, manufacture and distribute nasal breathing devices. The Company targets prospective customers such as compassionate sleeping partners, individuals with allergies and athletic enthusiasts throughout the United States, Canada and Europe.

The share exchange has been accounted for as a recapitalization reverse merger between Airware Holdings, Inc. and Airware Labs Corp. Airware Holdings, Inc. is the accounting acquirer and Airware Labs Corp. is the accounting acquiree. Consequently, the historical pre-merger financial statements of Airware Holdings, Inc. are now those of the Company. The par value of the stock of Airware Holdings, Inc. of $.001 per share has been adjusted to that of the Company of $.0001 per share with the par value difference charged to paid-in capital. The pre-merger deficit is that of Airware Holdings, Inc. Airware Labs Corp’s pre-merger accumulated deficit has been charged to paid-in capital. The pre-merger Airware Holdings, Inc. outstanding shares have been adjusted to reflect the exchange. The pre-merger outstanding shares of Airware Labs Corp. were included in the issued and outstanding shares of the Company at the date of the merger.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Inter-company balances and transactions have been eliminated upon consolidation.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include accounting for depreciation and amortization, recoverability of intangible assets, deferred income taxes, accruals and contingencies, the imputed interest rate of the note payable to related party and the fair value of common stock, and the estimated fair value of stock options and warrants.

Unaudited Interim Financial Statements

The interim consolidated financial statements of the Company as of March 31, 2014 and 2013, and for the periods then ended, are unaudited. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2014 and the results of its operations and its cash flows for the periods ended March 31, 2014 and 2013. These results are not necessarily indicative of the results expected for the fiscal year ended September 30, 2014. The accompanying financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States (U.S. “GAAP”).

Net Loss per Share

Basic earnings per share does not include dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. Due to the net losses for the periods ended March 31, 2014 and 2013, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

As of March 31, 2014, there were total shares of 27,039,724 issuable upon conversion of notes payable, exercise of warrants and options that were not included in the earnings per share calculation as they were anti-dilutive.

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Summary Significant Accounting Policies and Use of Estimates (Details Narrative) (USD $)	Mar. 31, 2014
Accounting Policies [Abstract]
Original par value of company stock	$ 0.001
Modified par value of company stock	$ 0.0001
Total anti-dilutive shares outstanding	27,039,724

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Notes Payable to Former Officer - Notes payable to former officer (Details) (USD $)	Mar. 31, 2014
Debt Disclosure [Abstract]
0.27% note payable, due August 1, 2016, interest due at maturity, unsecured	$ 47,500

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Going Concern

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Going Concern

2. Going Concern

The Company has incurred losses since inception and requires additional funds for future operating activities. The Company’s selling activity has not yet reached a level of revenue sufficient to fund its operating activities. These factors create an uncertainty as to how the Company will fund its operations and maintain sufficient cash flow to operate as a going concern.

In response to these financial difficulties, management is continuing to pursue financing from various sources, including private placements from investors and institutions. Management believes these efforts will contribute toward funding the Company’s activities until sufficient revenue can be earned from future operations. In addition, the Company is seeking additional distribution partners in both domestic and foreign markets. Management believes these combined efforts, if successful, will be sufficient to meet its working capital needs and its currently anticipated expenditure levels for the next year.

The Company’s ability to meet its cash requirements in the next year is dependent upon obtaining this financing and achieving improved sales levels. If this is not achieved, the Company may be unable to obtain sufficient cash flow to fund its operations and obligations, and therefore, may be unable to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, and accordingly, do not include any adjustments relating to the recoverability and classification of recorded asset amounts; nor do they include adjustments to the amounts and classification of liabilities that might be necessary should the Company be unable to continue operations or be required to sell its assets.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2014	Sep. 30, 2013
Statement of Financial Position [Abstract]
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, authorized	200,000,000	200,000,000
Common stock, issued	58,323,721	38,129,100
Common stock, outstanding	58,323,721	38,129,100

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Summary Significant Accounting Policies and Use of Estimates (Policies)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Basis of Presentation and Organization

Basis of Presentation and Organization

Airware Labs Corp. (“Airware Labs” or the “Company”), formerly Crown Dynamics Corp., is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on June 15, 2010. On October 26, 2012, the Articles of Incorporation were amended to reflect a name change to Airware Labs Corp. On November 13, 2012, the Board approved a change in fiscal year end from December 31 to September 30.

On March 20, 2012, through an equity exchange agreement, the Company acquired all of the issued and outstanding stock of Airware Holdings, Inc., a Nevada corporation (“Airware”), in exchange for shares of the Company’s newly-issued common stock. Airware Holdings, Inc. was formed in February 2010 and is a non-prescription medical products company. The principal business purpose of the Company is to develop, manufacture and distribute nasal breathing devices. The Company targets prospective customers such as compassionate sleeping partners, individuals with allergies and athletic enthusiasts throughout the United States, Canada and Europe.

The share exchange has been accounted for as a recapitalization reverse merger between Airware Holdings, Inc. and Airware Labs Corp. Airware Holdings, Inc. is the accounting acquirer and Airware Labs Corp. is the accounting acquiree. Consequently, the historical pre-merger financial statements of Airware Holdings, Inc. are now those of the Company. The par value of the stock of Airware Holdings, Inc. of $.001 per share has been adjusted to that of the Company of $.0001 per share with the par value difference charged to paid-in capital. The pre-merger deficit is that of Airware Holdings, Inc. Airware Labs Corp’s pre-merger accumulated deficit has been charged to paid-in capital. The pre-merger Airware Holdings, Inc. outstanding shares have been adjusted to reflect the exchange. The pre-merger outstanding shares of Airware Labs Corp. were included in the issued and outstanding shares of the Company at the date of the merger.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Inter-company balances and transactions have been eliminated upon consolidation.

Accounting Estimates

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include accounting for depreciation and amortization, recoverability of intangible assets, deferred income taxes, accruals and contingencies, the imputed interest rate of the note payable to related party and the fair value of common stock, and the estimated fair value of stock options and warrants.

Unaudited Interim Financial Statements

Unaudited Interim Financial Statements

The interim consolidated financial statements of the Company as of March 31, 2014 and 2013, and for the periods then ended, are unaudited. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2014 and the results of its operations and its cash flows for the periods ended March 31, 2014 and 2013. These results are not necessarily indicative of the results expected for the fiscal year ended September 30, 2014. The accompanying financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States (U.S. “GAAP”).

Net Loss per Share

Net Loss per Share

Basic earnings per share does not include dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. Due to the net losses for the periods ended March 31, 2014 and 2013, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

As of March 31, 2014, there were total shares of 27,039,724 issuable upon conversion of notes payable, exercise of warrants and options that were not included in the earnings per share calculation as they were anti-dilutive.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Feb. 10, 2014
Document And Entity Information
Entity Registrant Name	AIRWARE LABS CORP.
Entity Central Index Key	0001500123
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		58,867,712
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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Convertible Notes Payable (Tables)

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

Convertible notes payable

8.00% notes payable, due August 22, 2012, convertible to common stock at $.50 per share, interest payments are due at maturity, unsecured	$                5,000
6.50% note payable, due November 26, 2011, convertible to common stock at $2 per share, interest payments are due annually, unsecured. Terms amended in March 2013 to interest at 4.25%, with $4,000 monthly payments of principal and interest	45,443
	50,443
Less current portion	(50,443)
	$                       -

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Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Income Statement [Abstract]
Revenues, net	$ 44,633	$ 119,616	$ 55,340	$ 198,814
Cost of products sold	39,062	45,474	43,607	93,003
Gross profit	5,571	74,142	11,733	105,811
Operating expenses
General and administrative	241,408	330,480	508,193	611,711
Sales and marketing	68,828	71,922	83,522	115,878
Total expenses	310,236	402,402	591,715	727,589
(Loss) from operations	(304,665)	(328,260)	(579,982)	(621,778)
Other income (expense)
Interest income			289
Forgiveness of debt			20
Induced note conversion expense	(2,697)		(2,697)	(9,300)
Interest expense	(331,481)	(118,848)	(518,316)	(200,661)
Valuation (loss) - common stock warrants			(707,400)
Loss on warrants exercised	(13,914,034)		(13,914,034)
Total other income (expense)	(14,248,212)	(118,848)	(15,142,138)	(209,961)
(Loss) before income taxes	(14,552,877)	(447,108)	(15,722,120)	(831,739)
Income tax expense
Net (loss)	$ (14,552,877)	$ (447,108)	$ (15,722,120)	$ (831,739)
Basic and diluted net (loss) per common share	$ (0.36)	$ (0.01)	$ (0.40)	$ (0.03)
Basic and diluted weighted average common shares outstanding	40,953,071	33,231,681	39,281,951	31,874,811

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Related Party Transactions

3 Months Ended

Mar. 31, 2013

Related Party Transactions [Abstract]

Related Party Transactions

7. Related Party Transactions

As detailed in Notes Payable to Former Officer Footnote 4, the Company has a note payable to its former President and Executive Chairman, David Dolezal.

On December 5, 2013, the Company entered into a share re-purchase agreement with former officer Mr. David Dolezal to buy back 7,567,622 shares of common stock held by Mr. Dolezal and entities under his control.  Other outside investors were granted the opportunity to participate in this purchase, with 1,550,000 shares being purchased directly from Mr. Dolezal by others, and 6,017,622 being re-purchased by the Company.  Upon completion of this transaction on December 17, 2013, Mr. Dolezal no longer has any ownership in the Company.

As discussed in Convertible Notes Payable to Related Parties Footnote 5, the Company has a convertible secured bridge note with Stockbridge. During the six months ended March 31, 2014, the Company borrowed $1,002,000 against this note.

As noted in Stockholders’ Deficit Footnote 9 and Loss on Warrants Exercised Footnote 6, on March 5. 2014, the Company issued 22,457,143 shares of stock to Stockbridge for the cashless exercise of all of their 26,200,000 outstanding warrants.

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Loss on Warrants Exercised

3 Months Ended

Mar. 31, 2013

Guarantees [Abstract]

Loss on Warrants Exercised

6. Loss on Warrants Exercised

On March 5, 2014, the Company issued 22,457,143 shares of stock to Stockbridge for the cashless exercise of all of their 26,200,000 outstanding warrants. This transaction resulted in a loss of $13,914,034.

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Convertible Notes Payable - Convertible notes payable (Details) (USD $)	Mar. 31, 2014
Notes to Financial Statements
8.00% notes payable, due August 22, 2012, convertible to common stock at $.50 per share, interest payments are due at maturity, unsecured	$ 5,000
6.50% note payable, due November 26, 2011, convertible to common stock at $2 per share, interest payments are due annually, unsecured. Terms amended in March 2013 to interest at 4.25%, with $4,000 monthly payments of principal and interest	45,443
Total convertible notes payable	50,443
Less current portion	(50,443)
Convertible notes payable - long term

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Notes Payable to Former Officer (Tables)

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Notes payable to former officer

0.27% note payable, due August 1, 2016, interest due at maturity, unsecured  $            47,500

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Customer Rebates

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

CUSTOMER REBATES

10. Customer Rebates

As part of an agreement with its domestic distributor, the Company agreed to provide free product to assist in promotional efforts by the distributor. This free product would be recognized as credits on future orders as they are placed. During the six months ended March 31, 2014, this resulted in $66,989 being recognized as customer credits against revenue and $12,777 in samples expense. An additional $7,659 in credit remains to be granted against future orders as they are placed per this agreement.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies

Commitments and Contingencies

8. Commitments and Contingencies

The Company has agreed to indemnify its officers and directors for certain events or occurrences that may arise as a result of the officers or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.

The Company enters into indemnification provisions under its agreements with other companies in its ordinary course of business, typically with business partners, customers, landlords, lenders and lessors. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities or, in some cases, as a result of the indemnified party’s activities under the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited.

The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2014.

On December 22, 2011, the Company entered into a distribution agreement that provides for the issuance of common stock warrants, with an expiration date of 3 years, for the purchase of the Company’s common stock in an amount equal to 15% of the total products purchased by the distributor from the Company at the invoice price against the previous year’s purchases of paid invoices. The warrant price will be equal to the closing price of Airware Labs Corp.’s stock price at the anniversary date of the agreement.

On December 27, 2011, the Company was named as a defendant in a lawsuit alleging a default on two notes payable totaling $75,000 plus accrued interest. Ultimately, a judgment for $92,001 was entered against the Company as a result of this lawsuit. Per a later settlement agreement, the Company has been making monthly payments of $4,000 against this judgment with interest due on the remaining balance of 4.25% per annum. The notes and accrued interest are reflected in the Company’s Balance Sheet as of March 31, 2014.

The Company is in default on a convertible note payable totaling $5,000 and a convertible note payable to a related party totaling $20,000. The Company has attempted communication with the note holders to request extensions or conversion.

On July 26, 2012, the Company was named as a Defendant in a lawsuit alleging patent infringement.  The Company believed the claims were without merit.  After the Company vigorously defended the action, the plaintiff moved to dismiss its own claims, and the Court entered judgment in the Company’s favor.  The Court also denied the Company’s request for reimbursement of its attorneys’ fees; the Company retains the right to appeal that decision.

On April 8, 2013, the Company entered into an exclusive agency agreement with National United Trading and Investment FZ LLC. This is a performance-based agreement to develop new markets in the United Arab Emirates and other Middle Eastern markets of relevance.

On July 16, 2013, the Company entered into a Severance Agreement with Jeffrey Rassas, the Company’s Chief Executive Officer pursuant to which Mr. Rassas will be entitled to the following severance benefits: (i) the Company shall pay to Mr. Rassas his base salary for a period of 12 months following termination without cause; (ii) Mr. Rassas shall be paid any earned and unpaid bonus due; and, (iii) and all unvested stock-based compensation held by Mr. Rassas shall vest as of the date of termination.

On November 5, 2013, the Company entered into an agreement with Ramirez Advisors Inter-National, LLC to serve as an advisor to the Company as it pertains to the possible manufacturing of various Company products in Mexico as well as possible business opportunities for Company products in the Mexican market.  Additionally, Ramirez Advisors Inter-National, LLC will use its best efforts to locate distributors in Mexico City for the Company's filtration product line given the high levels of pollution in this region.

On January 28, 2014, the Company entered into an agreement (the “Acorn Agreement”) with Acorn Management Partners, LLC (“Acorn”) to perform certain financial advisory, business development and professional relations services (the “Acorn Services”). Under the terms of the Acorn Agreement and in exchange for the performance of the Acorn Services by Acorn, the Company shall pay to Acorn an aggregate of $115,000 USD in cash plus a variable number of shares of the restricted common stock of the Company. The Acorn Agreement shall expire on January 27, 2015, unless terminated earlier in accordance with its terms.

The Company sells the majority of its products through major distributors. The Company warrants to the distributors that the product will be free from defects in material and workmanship. The Company has determined its product warranty to be immaterial at March 31, 2014. The likelihood that the Company’s estimate of the accrued product warranty claims will materially change in the near term is considered remote.

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Stockholders Deficit

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

Stockholders Deficit

9. Stockholders’ Deficit

Common Stock

During the six months ended March 31, 2014, the Company issued 2,143,655 shares of stock in payment of interest on the Stockbridge convertible note.

As further detailed in Related Party Transactions Footnote 7, on December 5, 2013, the Company entered into a share re-purchase agreement with former officer Mr. David Dolezal and re-purchased 6,017,622 shares of common stock held by Mr. Dolezal and entities under his control.

On January 21, 2014, the Company issued 102,916 shares of stock for the payment of consulting services. The shares were valued using the average closing price ($0.18) for the quarter.

As referenced in Commitments and Contingencies Footnote 8, on January 27, 2014, the Company issued 225,000 shares of stock for payment to Acorn Management Partners, LLC. The shares were valued using the closing price ($0.22) on the date the shares were issued with a 25% discount for the restricted trading.

On February 20, 2014, the Company issued 52,941 shares of stock for the payment of consulting services. The shares were valued using the closing price ($0.34) on the date the shares were issued.

On February 28, 2014, the Company issued 1,207,388 shares of stock to two vendors in satisfaction of accounts payable of $301,847.

On March 3, 2014, the Company issued 23,200 shares of stock for the conversion of a note payable to related party and interest.

On March 5, 2014, the Company issued shares of stock to Stockbridge as part of a warrant exercise. Stockbridge exercised 26,200,000 warrants to purchase stock.  They elected to use the cashless exercise formula, which resulted in the issuance of 22,457,143 shares of common stock of the Company.

Warrants

The balance of warrants outstanding for purchase of the Company’s common stock as of March 31, 2014 is as follows:

	Common Shares Issuable Upon Exercise of Warrants	Exercise Price of Warrants	Date Issued	Expiration Date
Issued under a private placement memorandum	250,000	$1.00	4/26/2011	4/25/2014
Issued under a private placement memorandum	50,000	$1.00	4/27/2011	4/26/2014
Issued under a private placement memorandum	25,000	$1.00	4/28/2011	4/27/2014
Issued under a private placement memorandum	200,000	$1.00	5/03/2011	5/02/2014
Issued for financing expense	20,000	$0.25	3/08/2012	3/07/2017
Issued under a consultant settlement agreement	40,000	$0.50	4/30/2012	4/29/2015
Issued per distribution agreement	125,464	$0.75	12/22/2012	12/21/2015
Issued under a private placement memorandum	140,000	$0.40	6/25/2013	6/25/2015
Issued under a private placement memorandum	120,000	$0.40	6/26/2013	6/26/2015
Issued per distribution agreement	172,028	$0.14	12/22/2013	12/22/2016
Balance of Warrants at March 31, 2014	1,142,492

Stock Options

The Company had the following options outstanding at March 31, 2014:

	Common Shares Issuable Upon Exercise of Options	Exercise Price of Options	Date Issued	Expiration Date
Options granted to former officer & two former senior advisory board members	775,000	$0.50	4/20/2011	4/19/2021
Options granted to former employee and three consultants	700,000	$0.50	7/19/2011	7/18/2016
Options granted under a consultant agreement settlement	52,844	$0.25	4/30/2012	4/29/2022
Options granted to Board member	150,000	$0.30	1/25/2013	1/24/2023
Options granted to employee and two consultants	1,550,000	$0.30	1/25/2013	1/24/2023
Options granted to medical advisory board member	250,000	$0.26	5/20/2013	5/19/2016
Options granted to consultant	250.000	$0.28	9/5/2013	9/4/2016
Options issued for investment in Breathe Active, LLC	500,000	$0.25	9/28/2013	12/31/2014
Options issued for investment in Breathe Active, LLC	500,000	$0.50	9/28/2013	12/31/2014
Options re-purchased by Company (1)	(200,000)
Options granted to Board member (2)	150,000	$0.11	10/4/2013	10/3/2023
Options granted to Officers (3)	433,333	$0.11	10/4/2013	10/3/2023
Balance of Options at March 31, 2014	5,111,177

(1) On December 5, 2013, per an Agreement and Mutual Release of Claims with a former consultant, the Company paid $2,500 in return for the relinquishment of the consultant’s stock options.

(2) On October 4, 2013, the Company granted stock options to a Board member. These options are immediately vested, have an exercise price of $.11 and have a term of 10 years.

(3) On October 4, 2013, the Company granted stock options to two officers. These options have an exercise price of $.11 and a term of 10 years. The options vest evenly over the next three years on the anniversary of the grant date, unless there is a change in corporate control, then the options vest immediately.

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Subsequent Events

3 Months Ended

Mar. 31, 2013

Subsequent Events [Abstract]

Subsequent Events

11. Subsequent Events

Subsequent to March 31, 2014, the Company borrowed an additional $100,000 against the convertible secured note with Stockbridge to fund marketing efforts. The total currently drawn on the note is $2,408,000.

On April 23, 2014, the Company entered into a product development agreement with Dan Pool of Designer Products. As compensation, the Company will pay $1,500 in stock accrued monthly and issued quarterly. Additionally, the Company will pay a monthly royalty of 5% of net sales of any products created by Dan Pool as inventor.

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Stockholders Deficit (Tables)

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

Balance of warrants outstanding for purchase of Company's common stock

	Common Shares Issuable Upon Exercise of Warrants	Exercise Price of Warrants	Date Issued	Expiration Date
Issued under a private placement memorandum	250,000	$1.00	4/26/2011	4/25/2014
Issued under a private placement memorandum	50,000	$1.00	4/27/2011	4/26/2014
Issued under a private placement memorandum	25,000	$1.00	4/28/2011	4/27/2014
Issued under a private placement memorandum	200,000	$1.00	5/03/2011	5/02/2014
Issued for financing expense	20,000	$0.25	3/08/2012	3/07/2017
Issued under a consultant settlement agreement	40,000	$0.50	4/30/2012	4/29/2015
Issued per distribution agreement	125,464	$0.75	12/22/2012	12/21/2015
Issued under a private placement memorandum	140,000	$0.40	6/25/2013	6/25/2015
Issued under a private placement memorandum	120,000	$0.40	6/26/2013	6/26/2015
Issued per distribution agreement	172,028	$0.14	12/22/2013	12/22/2016
Balance of Warrants at March 31, 2014	1,142,492

Balance of options outstanding

	Common Shares Issuable Upon Exercise of Options	Exercise Price of Options	Date Issued	Expiration Date
Options granted to former officer & two former senior advisory board members	775,000	$0.50	4/20/2011	4/19/2021
Options granted to former employee and three consultants	700,000	$0.50	7/19/2011	7/18/2016
Options granted under a consultant agreement settlement	52,844	$0.25	4/30/2012	4/29/2022
Options granted to Board member	150,000	$0.30	1/25/2013	1/24/2023
Options granted to employee and two consultants	1,550,000	$0.30	1/25/2013	1/24/2023
Options granted to medical advisory board member	250,000	$0.26	5/20/2013	5/19/2016
Options granted to consultant	250.000	$0.28	9/5/2013	9/4/2016
Options issued for investment in Breathe Active, LLC	500,000	$0.25	9/28/2013	12/31/2014
Options issued for investment in Breathe Active, LLC	500,000	$0.50	9/28/2013	12/31/2014
Options re-purchased by Company (1)	(200,000)
Options granted to Board member (2)	150,000	$0.11	10/4/2013	10/3/2023
Options granted to Officers (3)	433,333	$0.11	10/4/2013	10/3/2023
Balance of Options at March 31, 2014	5,111,177

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Convertible Notes Payable to Related Parties - Convertible Notes Payable to Related Parties (Details) (USD $)	Mar. 31, 2014
Notes to Financial Statements
12% note payable net of unamortized debt discount of $1,691,444, due September 30, 2015, convertible to common stock at $.10 per share, interest payments are due monthly. Debt is secured by substantially all of the assets of the Company	$ 616,556
8.00 % note payable due August 26, 2012, convertible to common stock at $.50 per share, interest payments are due at maturity, unsecured	20,000
Total convertible notes payable to related parties	636,556
Less current portion	$ (20,000)

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Operating Activities:
Net (loss)	$ (15,722,120)	$ (831,739)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization	30,538	27,702
Common stock issued obligated for services	375,722	10,000
Options and warrants issued for services	30,958	25,256
Interest expense from amortization of debt discount	387,773	80,041
Induced conversion expense	2,697	9,300
Stock issued for interest expense	107,982	89,106
Forgiveness of debt	(20)
Loss on warrants exercised	13,914,034
Valuation (gain) expense - common stock warrants	707,400
Changes in operating assets and liabilities:
Accounts receivable	7,343	475,086
Inventory	3,452	(101,482)
Prepaid expenses	(3,321)	99,918
Deposits	(44,307)	(5,000)
Accounts payable	(229,691)	4,947
Accrued interest	8,872	(27,707)
Customer Deposit	80,437
Accrued expenses	27,641	4,228
Net Cash (Used in) Operating Activities	(314,610)	(140,344)
Investing Activities:
Purchases of property and equipment		(35,534)
Net Cash (Used In) Investing Activities		(35,534)
Financing Activities:
Stock issued for cash		228,750
Proceeds from convertible notes payable	1,002,000	585,000
Repayment of convertible notes payable		(400,000)
Repayment of notes payable	(22,735)
Options re-purchased	(2,500)
Stock re-purchased	(601,762)
Proceeds from factored accounts receivable		346,448
Repayment of factored accounts receivable note		(497,872)
Net Cash Provided by Financing Activities	375,003	262,326
Net (Decrease) Increase in Cash	60,393	86,448
Cash - Beginning of Year	19,942	1,400
Cash - End of Year	80,335	87,848
Interest paid in cash	1,365	46,986
Non-cash investing and financing activities:
Stock issued for convertible notes	5,000	10,000
Debt discount on note payable, related party		1,500
Warrants issued to related party for convertible note modification		$ 1,564

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Convertible Notes Payable to Related Parties

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

Convertible Notes Payable to Related Parties

5. Convertible Notes Payable to Related Parties

Convertible notes payable to related parties consist of the following:

12% note payable net of unamortized debt discount of $1,691,444, due September 30, 2015, convertible to common stock at $.10 per share, interest payments are due monthly.  Debt is secured by substantially all of the assets of the Company	$            616,556
8.00 % note payable due August 26, 2012, convertible to common stock at $.50 per share, interest payments are due at maturity, unsecured	20,000
	636,556
Less current portion	(20,000)
	$            616,556

On August 21, 2013, the Company entered into a ninth allonge to a convertible secured bridge note with Stockbridge Enterprises, L.P. (“Stockbridge”) which provided for up to $3,206,000 principal and a maturity date of September 30, 2015. As of March 31, 2014, the Company has borrowed $2,308,000 against this line of credit.

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Convertible Notes Payable to Related Parties (Details Narrative) (USD $)	Mar. 31, 2014	Aug. 21, 2013
Notes to Financial Statements
Modified note payable amount after additional borrowings		$ 3,206,000
Additional borrowings from Stockbridge Enterprise	$ 2,308,000

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Convertible Notes Payable to Related Parties (Tables)

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

Convertible Notes Payable to Related Parties

12% note payable net of unamortized debt discount of $1,691,444, due September 30, 2015, convertible to common stock at $.10 per share, interest payments are due monthly.  Debt is secured by substantially all of the assets of the Company	$            616,556
8.00 % note payable due August 26, 2012, convertible to common stock at $.50 per share, interest payments are due at maturity, unsecured	20,000
	636,556
Less current portion	(20,000)
	$            616,556