10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

_______________

FORM 10-Q

_______________

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

For the quarterly period ended June 30, 2016

☐ 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.)

7377 E Doubletree Ranch Rd., Suite 260

Scottsdale, AZ 85258

(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.

☑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     ☐ 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 ☑

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

☐ Yes     ☑ No

As of August 16, 2016, there were 80,579,410 shares of the registrant’s $0.0001 par value common stock issued and outstanding.

 

AIRWARE LABS CORP.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	14
ITEM 4.	CONTROLS AND PROCEDURES	14
PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	15
ITEM 1A.	RISK FACTORS	15
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	16
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	16
ITEM 4.	MINE SAFETY DISCLOSURES	16
ITEM 5.	OTHER INFORMATION	16
ITEM 6.	EXHIBITS	16

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
Condensed Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and September 30, 2015	F-2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2016 and 2015 (Unaudited)	F-3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2016 and 2015 (Unaudited)	F-4
Notes to Condensed Consolidated Financial Statements (Unaudited)	F-5

F-1

AIRWARE LABS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
		June 30,			September 30,
		2016			2015
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	9,049		$	41,745
Accounts receivable		—			530
Inventory, net		25,540			45,457
Prepaid expenses		3,698			8,476
Total current assets		38,287			96,208
Other Assets:
Property and equipment, net		6,621			14,070
Deposits		2,387			2,387
Total Assets	$	47,295		$	112,665
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable	$	1,729,318		$	1,640,327
Accrued interest - related parties		110,226			38,849
Accrued interest		1,944			1,644
Accrued expenses		177,785			138,057
Notes payable to former officer		11,875			47,500
Convertible note payable		5,000			5,000
Convertible notes payable to related parties - current portion		20,000			20,000
Total current liabilities		2,056,148			1,891,377
Convertible notes payable to related parties, less current portion, net of unamortized debt discount of $149,481 and $0 at June 30, 2016 and September 30, 2015, respectively		3,256,519			3,206,000
Total liabilities		5,312,667			5,097,377
Commitments and Contingencies
Stockholders' Deficit:
Common stock, par value $.0001 per share, 200,000,000 shares authorized; 77,734,658 and 72,210,283 shares issued and outstanding at June 30, 2016 and September 30, 2015, respectively		7,773			7,221
Common stock to be issued, 133,916 and 290,000 shares at June 30, 2016 and September 30, 2015, respectively		14			29
Additional paid-in capital		33,993,372			31,843,635
Accumulated deficit		(39,266,531	)		(36,835,597	)
Total stockholders' deficit		(5,265,372	)		(4,984,712	)
Total Liabilities and Stockholders' Deficit	$	47,295		$	112,665

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

F-2

AIRWARE LABS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	Three Months Ended						Nine Months Ended
	June 30,			June 30,			June 30,			June 30,
	2016			2015			2016			2015
Revenues, net	$	64,466		$	14,106		$	182,297		$	117,877
Cost of products sold		51,833			15,635			117,220			80,435
Gross profit		12,633			(1,529	)		65,077			37,442
Operating expenses
General and administrative		159,428			188,061			546,730			660,652
Sales and marketing		10,179			49,689			40,311			205,428
Total expenses		169,607			237,750			587,041			866,080
Loss from operations		(156,974	)		(239,279	)		(521,964	)		(828,638	)
Other expense
Interest expense		(248,434	)		(603,451	)		(786,340	)		(1,935,819	)
Bad debt expense		(530	)		—			(530	)		—
Loss on extinguishment of debt		—			—			(1,122,100	)		—
Total other expense		(248,964	)		(603,451	)		(1,908,970	)		(1,935,819	)
Loss before income taxes		(405,938	)		(842,730	)		(2,430,934	)		(2,764,457	)
Income tax expense		—			—			—			—
Net loss	$	(405,938	)	$	(842,730	)	$	(2,430,934	)	$	(2,764,457	)
Basic and diluted net loss per common share	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.04	)
Basic and diluted weighted average common shares outstanding		77,684,738			66,818,701			75,062,843			65,154,828

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

F-3

AIRWARE LABS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Nine Months Ended
	June 30,			June 30,
	2016			2015
Operating Activities:
Net loss	$	(2,430,934	)	$	(2,764,457	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		7,449			51,047
Common stock issued for services		39,702			86,000
Options and warrants issued for services		61,340			55,406
Interest expense from amortization of debt discount		50,519			1,322,089
Stock issued for payment of interest on convertible notes - related party		663,732			544,057
Loss on extinguishment of debt		1,122,100			—
Exchange of sales proceeds for mold		—			(8,290	)
Changes in operating assets and liabilities:
Accounts receivable		530			2,607
Inventory		19,917			5,862
Prepaid expenses		4,778			36,165
Accounts payable		88,991			28,960
Accrued interest		71,677			69,081
Accrued expenses		39,728			26,927
Net Cash Used in Operating Activities		(260,471	)		(544,546	)
Investing Activities:
Purchases of equipment		—			(6,710	)
Net Cash Used in Investing Activities		—			(6,710	)
Financing Activities:
Stock and warrants issued for cash		63,400			68,800
Proceeds from convertible notes payable - related party		200,000			498,000
Repayment of notes payable to former officer		(35,625	)		—
Repayment of notes payable		—			(22,678	)
Net Cash Provided by Financing Activities		227,775			544,122
Net Decrease in Cash		(32,696	)		(7,134	)
Cash - Beginning of Period		41,745			42,582
Cash - End of Period	$	9,049		$	35,448
Supplemental disclosure of cash flow information:
Interest paid in cash	$	—		$	292
Income taxes paid in cash	$	—		$	—

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

F-4

AIRWARE LABS CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED 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 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 breathing solutions that address major respiratory challenges impacting human health.

Unaudited Interim Financial Statements

The interim condensed consolidated financial statements of the Company as of June 30, 2016 and 2015, and for the periods then ended, are prepared in accordance with the instructions to Form 10-Q. Accordingly, the accompanying condensed consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States (U.S. “GAAP”). 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 June 30, 2016 and the results of its operations and its cash flows for the periods ended June 30, 2016 and 2015. These results are not necessarily indicative of the results expected for the fiscal year ended September 30, 2016.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Airware Labs Corp and its wholly owned subsidiary, Airware Holdings, Inc. Intercompany balances and transactions have been eliminated.

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, deferred income taxes, accruals and contingencies, inventory reserves, estimates for customer returns, the fair value of common stock and the estimated fair value of stock options and warrants.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a remaining maturity of three months or less to be cash equivalents.

Inventory

Inventory is mostly held by a third party, consists of finished goods and is stated at the lower of cost, determined by the first-in, first-out method, or market. During the three months ended June 30, 2016, the Company established a reserve of $20,000 for inventory which will likely expire before we are able to sell it.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method, over the estimated useful lives of the assets. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Gains and losses on the disposition of property and equipment are recorded in the period incurred. Production molds owned by the Company are capitalized and are included in manufacturing equipment. Pre-production design and development costs are expensed as incurred.

The estimated useful lives of property and equipment are:

•	Manufacturing equipment	2-3 years
•	Office furniture and equipment	5-7 years

F-5

Revenue Recognition

The Company recognizes revenue on the sale of products at the time of delivery and acceptance. Delivery is generally FOB destination. At the time of delivery, the following have occurred:

• Evidence of delivery;

• A price per unit has been determined; and

• Collectability has been reasonably assured.

Revenues are recorded net of returns and co-operative advertising costs.

Income Taxes

The Company accounts for income taxes under FASB ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

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 June 30, 2016 and 2015, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

As of June 30, 2016, there were total shares of 54,139,483 issuable upon conversion of notes payable and the 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 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. The combination of these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to meet its cash requirements in the next year is dependent upon obtaining additional 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 as a result there is substantial doubt the Company will be able to continue as a going concern. The accompanying condensed consolidated 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 Note Payable

The Company has a convertible note payable with a principal balance of $5,000, which was due on August 22, 2012, is unsecured, carries an interest rate of 8% and is convertible to common stock at $.50 per share.

4. Note Payable to Former Officer

The Company has a note payable with an original principal balance of $47,500 due to a former officer, which was due on August 1, 2016, is unsecured and carries an interest rate of 0.27%. On December 5, 2013 the Company revised the terms of the Note calling for four equal payments to begin on November 1, 2015 and ending August 1, 2016. As part of this revision, the interest rate was reduced from 2% to 0.27%. The Company defaulted on the final payment due, see note 10. The following represents future minimum payments due on the outstanding balance:

Principal balance at June 30, 2016	$	11,875
Less current portion		(11,875	)
	$	—

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 $149,481, due September 30, 2017, convertible to common stock at $.08 per share, interest payments are due monthly and may be made in common stock with a conversion price of $.05 per share.  Debt is secured by substantially all of the assets of the Company.	$	3,256,519
The Company has a note payable due to a former advisory board member, which bears interest at 8%, was due August 26, 2012 and is convertible to common stock at $.50 per share. Interest payments were due at maturity and the note is unsecured.		20,000
Less current portion		(20,000	)
	$	3,256,519

On January 22, 2016, the Company entered into an Allonge to the convertible note held by our primary debt holder by which our line of credit was increased by $200,000 and the conversion price of the outstanding principal balance was adjusted to $.08 from $.10. In accordance with ASC 470-50, the Company evaluated the modification of the debt under the terms of the newest allonge and determined the revised terms resulted in an extinguishment of debt.  Accordingly, the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt was recognized in current income.  A loss in the amount of $1,122,100 was recorded on the debt extinguishment.

F-6

6. Related Party Transactions

As detailed in Notes 4 and 5, the Company has a note payable to its former President, a convertible note payable to a former advisory board member and another convertible note with an entity that owns a majority of our outstanding shares. The Company repaid $35,625 of the note payable to former officer during the nine months ended June 30, 2016.

During the nine months ended June 30, 2016, the Company recorded $59,055 in expense for fees due to a company owned by its CFO for her services as CFO. Of this amount¸ $44,472 has been paid.

During the nine months ended June 30, 2016, the Company recorded $93,744 in expense for fees due to a company owned by its President for his services as President. Of this amount, $52,080 has been paid.

During the nine months ended June 30, 2016, the Company paid zero cash for interest on the related party debt.

7. Commitments and Contingencies

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. During the nine months ended June 30, 2016, the Company issued a warrant to purchase 252,124 shares of common stock at $.08 per share to this distributor.

On January 6, 2014, the Company entered into a license agreement with Eastar Industries, Co. (“Eastar”), pursuant to which the Company granted Eastar an exclusive license to sell its products in China for a term of five years in exchange for a royalty equal to 18% of gross profits generated by the sales of products in China. Additionally, the Company and Eastar agreed to establish a joint venture company in Hong Kong or Shanghai which will be assigned Eastar’s rights under the agreement and of which 18% of the joint venture will be owned by the Company. As of June 30, 2016, the joint venture has yet to be established.

The Company entered into an office lease agreement commencing June 1, 2014 and expiring August 31, 2017. As part of the lease agreement, a concession of the first three months’ rent was provided. Total rent to be paid over the course of the lease is being expensed ratably over the period of the entire lease, creating a deferred rent liability of $3,065 as of June 30, 2016.

On August 17, 2015, the Company entered into an agreement with a company owned by its President for his services as President on a contract basis in exchange for a fixed monthly fee. A total of $93,744 was recorded as expense during the nine months ended June 30, 2016 per this agreement, of which $52,080 has been paid.

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 June 30, 2016. The likelihood that the Company’s estimate of the accrued product warranty claims will materially change in the near term is considered remote.

8. Stockholders’ Deficit

Common Stock

During the nine months ended June 30, 2016, the Company issued 4,534,887 shares of common stock in payment of September 2015 through March 2016 interest totaling $226,724 on the primary debt holders convertible note.

On December 31, 2015, the Company issued 200,000 shares of common stock per subscription agreements totaling $20,000. The Company received net proceeds of $18,000, net of issuance costs of $2,000 paid as a capital marketing fee. As part of these stock subscriptions, 100,000 warrants to purchase common stock at $.25 were also issued.

On December 31, 2015, the Company issued 96,071 shares of common stock for the payment of consulting services rendered to the Company between April 1, 2015 and September 30, 2015. The shares were valued at the average trading price over the period of service, which approximated fair value, in the amount of $12,750.

During the quarter ended December 31, 2015, the company received $45,500 towards the purchase of 227,500 shares of common stock. Net proceeds amounted to $36,400 after the issuance costs of $9,100 paid as a capital marketing fee. This was part of a subscription agreement totaling $375,000. These shares, as well as others paid for per the same subscription agreement totaling 517,500, were issued on March 15, 2016.

On March 15, 2016, the Company issued 100,000 shares of common stock per a subscription agreement for $10,000. The Company received net proceeds of $9,000, net of issuance costs of $1,000 paid as a capital marketing fee. As part of this stock subscription, 50,000 warrants to purchase common stock at $.25 were also issued.

On April 7, 2016, the Company issued 75,917 shares of common stock for the payment of services rendered to the Company between October 1, 2015 and February 29, 2016. The shares were valued at the closing price on the various vendor invoice dates, in the amount of $18,485.

F-7

Warrants

The balance of warrants outstanding for purchase of the Company’s common stock as of June 30, 2016 is as follows:

	Common Shares Issuable Upon Exercise of Warrants	Exercise Price of Warrants	Date Issued	Expiration Date
Balance of Warrants at September 30, 2015	4,988,002
Issued under a private placement memorandum (1)	50,000	$0.25	12/3/2015	12/3/2017
Issued under a private placement memorandum (1)	50,000	$0.25	12/14/2015	12/14/2017
Issued per distribution agreement (2)	252,124	$0.08	12/22/2015	12/22/2018
Issued under a private placement memorandum (1)	50,000	$0.25	1/28/2016	1/28/2018
Expired warrants	(125,464)
Balance of Warrants at June 30, 2016	5,264,662

(1) During the nine months ended June 30, 2016, the company issued stock purchase warrants as part of stock subscription agreements.

(2) On December 22, 2015, the Company issued a three-year warrant at $.08 to purchase 252,124 shares of common stock per a distribution agreement.

Stock Options

The Company had the following options outstanding at June 30, 2016:

	Common Shares Issuable Upon Exercise of Options	Exercise Price of Options	Date Issued	Expiration Date
Balance of options at September 30, 2015	5,394,510
Options granted to consultant (1)	26,786	$0.25	11/1/2015	11/1/2025
Options granted to consultant (1)	75,000	$0.25	12/1/2015	12/1/2025
Options granted to consultant (1)	57,692	$0.25	1/1/2016	1/1/2026
Options granted to consultant (1)	50,000	$0.25	2/1/2016	2/1/2026
Options granted to consultant (1)	62,500	$0.25	3/1/2016	3/1/2026
Options granted to officers and board member (2)	583,333	$0.15	3/8/2016	3/8/2026
Balance of Options at June 30, 2016	6,249,821

(1) On October 15, 2015, the Company entered into an agreement with a patent attorney to provide intellectual property services as in-house patent counsel. Per the agreement, he received monthly stock option grants. He was to receive $7,500 per month in stock option grants, and the quantity of stock options issued monthly was determined by the closing price on the last day of the month. These services were suspended as of February 29, 2016.

(2) On March 8, 2016, the Company granted a total of 583,333 stock options for the purchase of the Company’s common stock. Included in this amount, 433,333 stock options were granted to corporate officers and 150,000 stock options to a Board member. The options are exercisable at $.15 per share of common stock over a ten year term. The options for the Board member vested immediately, all others vest equally over the next three years.

During the three and nine month periods ended June 30, 2016, $8,524 and $54,481, respectively, was expensed for the pro-rata vesting of stock-based compensation. As of June 30, 2016, the balance of unrecognized compensation cost related to non-vested stock-based compensation to be expensed in future periods was $65,461.

The Company determines the fair value of stock options issued on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for determining the fair value of the options granted during the nine months ended June 30, 2016:

Expected stock price volatility	32.96-33.53%
Expected dividend yield	0.00%
Risk-free interest rate	1.83-2.27%
Option life	10.00 years

F-8

9. Significant Customer

The Company generally sells through a limited number of large distributors. The Company invoices the distributors directly as opposed to the ultimate retail store. Consequently, the Company’s sales are to a small number of customers. For both the three and nine months ended June 30, 2016, sales to two distributors was approximately 92% of our total sales.

10. Subsequent Events

On July 28, 2016, the Company entered into an Allonge to the convertible note held by our primary debt holder by which our line of credit was increased by $100,000. The Company issued a warrant to purchase 2,000,000 shares of common stock at $.05 according to the terms of this Allonge.

As of August 1, 2016, the Company defaulted on the final $11,875 payment payable on the loan to a former officer.

On August 16, 2016, the Company issued 2,740,494 shares of common stock to our primary debt holder as payment for interest on loans to the Company for April through July 2016. The Company also issued 104,258 shares of common stock for the payment of consulting services rendered to the Company between October 1, 2015 and June 30, 2016. The shares were valued at the average trading price over the period of service, which approximated fair value, in the amount of $13,500.

End of Notes to Financial Statements

F-9

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, 2015.

Results of Operations

Total revenue for the three months ended June 30, 2016 was $64,466, as compared to $14,106 for the three months ended June 30, 2015. The increase in revenue is due to fulfilling a sizable order totaling $63,360 to one of our major distributors during the quarter ended June 30, 2016. Operating expenses in the quarter ended June 30, 2016 amounted to $169,607 as compared to $237,750 for the quarter ended June 30, 2015. The decrease in expenses is primarily due to a reduction in marketing expenditures. The net loss for the three months ended June 30, 2016 was $405,938 as compared to $842,730 for the quarter ended June 30, 2015. This is due to a significant decrease in interest expense from debt discount.

Total revenue for the nine months ended June 30, 2016 was $182,297, as compared to $117,877 for the nine months ended June 30, 2015. Operating expenses in the nine months ended June 30, 2016 amounted to $587,041 as compared to $866,080 for the nine months ended June 30, 2015. The decrease in expenses is primarily due to reductions in marketing expenditures and professional fees. The net loss for the nine months ended June 30, 2016 was $2,430,934 as compared to $2,764,457 for the nine months ended June 30, 2015. This is due to increased sales resulting from greater demand from one of our distributors, as well as decreased expenditures for marketing and professional fees.

Liquidity and Capital Resources

Our balance sheet as of June 30, 2016 reflects $9,049 in cash and cash equivalents as compared to $41,745 as of September 30, 2015. To date, the Company has incurred operating losses, has incurred negative cash flows from operations and has a working capital deficit of $2,017,861. 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. At this time, our Company does not have a commitment from any broker/dealer to provide additional financing, and does not have sufficient working capital to support operations for the next twelve months. There is no assurance that any additional financing will be available or if available, on terms that will be acceptable.  

12

Cash Flow from Operating Activities

During the nine months ended June 30, 2016, the Company’s operating activities used $260,471 in cash as compared to $544,546 used by operating activities for the nine months ended June 30, 2015. The decrease in cash used for operating activities is primarily due to accruing, rather than paying cash for, officer salaries during the nine months ended June 30, 2016, and reductions in cash payments for marketing activities.

Cash Flow from Investing Activities

During the nine month periods ended June 30, 2016 and 2015, the Company used $0 and $6,710 respectively, in cash for investing activities. The decrease in cash used for investing activities is due to there not having been any purchases of fixed assets during the nine months ended June 30, 2016.

Cash Flow from Financing Activities

During the nine months ended June 30, 2016, the Company received $227,775 in cash from financing activities, which consisted of $63,400 in stock and warrants issued for cash and $200,000 in proceeds from convertible notes payable to a related party, which was offset by $35,625 in repayment of notes payable to a former officer. This compares with $544,122 in cash from financing activities during the nine months ended June 30, 2015, which consisted of $68,800 in stock and warrants issued for cash, $498,000 in financing from notes payable, offset by $22,678 in repayment of notes payable.

Going Concern

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, there is substantial doubt that we will be able to continue as a going concern.

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.

13

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 of June 30, 2016.

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.

14

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 legal proceedings which were settled as of September 30, 2015 as reported in our annual report on Form 10-K filed with the SEC on March 4, 2016, 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.

15

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

1. Quarterly Issuances:

On April 7, 2016, the Company issued 681,200 restricted shares of common stock to a related party as payment for interest on loans to the Company for March 2016, at a cost basis of $0.05 per share. Additionally, the Company issued 75,917 restricted shares of common stock to two individuals as consideration for an invoice owed to their design company for services rendered to the Company at a cost basis of $0.15 per share.

2. Subsequent Issuances:

On August 16, 2016, the Company issued 2,740,494 shares of common stock to our primary debt holder as payment for interest on loans to the Company for April through July 2016. The Company also issued 104,258 shares of common stock for the payment of consulting services rendered to the Company between October 1, 2015 and June 30, 2016.

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
3.01a	Articles of Incorporation	Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
3.01b	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 as part of our Current Report 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 as part of our current report on Form 8-K.
10.04	Severance Agreement between Airware Labs Corp and Jeffrey Rassas, effective July 16, 2013	Filed with the SEC on July 19, 2013 as part of our Current Report on Form 8-K.
10.05	Share Re-Purchase Agreement between Airware Labs Corp. and DCI, LLC, Technoflex, LLC, and Viadox, LLC, dated December 5, 2013.	Filed with the SEC on December 24, 2013 as part of our Current Report on Form 8-K.
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.
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.

16

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: August 19, 2016	By:	/s/  Jeffrey Rassas
	Name:	Jeffrey Rasses
	Title:	Chief Executive Officer and Director
Date: August 19, 2016	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: August 19, 2016	By:	/s/  Jeffrey Rassas
	Name:	Jeffrey Rasses
	Title:	Chief Executive Officer and Director
Date: August 19, 2016	By:	/s/  Jessica Smith
	Name:	Jessica Smith
	Title:	Chief Accounting and Financial Officer

Date: August 19, 2016	By:	/s/  Ronald L. Miller
	Name:	Ronald L. Miller
	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 June 30, 2016;

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: August 19, 2016	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 June 30, 2016;

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: August 19, 2016	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 June 30, 2016, 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: August 19, 2016	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 June 30, 2016, 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: August 19, 2016	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

Document and Entity Information - shares	9 Months Ended
	Jun. 30, 2016	Aug. 16, 2016
Document And Entity Information
Entity Registrant Name	AIRWARE LABS CORP.
Entity Central Index Key	0001500123
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
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		80,579,410
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Jun. 30, 2016	Sep. 30, 2015
Current Assets:
Cash and cash equivalents	$ 9,049	$ 41,745
Accounts receivable		530
Inventory, net	25,540	45,457
Prepaid expenses	3,698	8,476
Total current assets	38,287	96,208
Other Assets:
Property and equipment, net	6,621	14,070
Deposits	2,387	2,387
Total Assets	47,295	112,665
Current Liabilities:
Accounts payable	1,729,318	1,640,327
Accrued interest - related parties	110,226	38,849
Accrued interest	1,944	1,644
Accrued expenses	177,785	138,057
Notes payable to former officer	11,875	47,500
Convertible notes payable	5,000	5,000
Convertible notes payable to related parties - current portion	20,000	20,000
Total current liabilities	2,056,148	1,891,377
Convertible notes payable to related parties, less current portion, net of unamortized debt discount of $149,481 and $0 at June 30, 2016 and September 30, 2015, respectively	3,256,519	3,206,000
Total liabilities	5,312,667	5,097,377
Stockholders' Deficit:
Common stock, par value $.0001 per share, 200,000,000 shares authorized; 77,734,658 and 72,210,283 shares issued and outstanding at June 30, 2016 and September 30, 2015, respectively	7,773	7,221
Common stock to be issued, 133,916 and 290,000 shares at June 30, 2016 and September 30, 2015, respectively	14	29
Additional paid-in capital	33,993,372	31,843,635
Accumulated deficit	(39,266,531)	(36,835,597)
Total stockholders' deficit	(5,265,372)	(4,984,712)
Total Liabilities and Stockholders' Deficit	$ 47,295	$ 112,665

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Jun. 30, 2016	Sep. 30, 2015
Statement of Financial Position [Abstract]
Unamortized debt discount of convertible notes payable to related parties	$ 149,481	$ 0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, authorized	200,000,000	200,000,000
Common stock, issued	77,734,658	72,210,283
Common stock, outstanding	77,734,658	72,210,283
Common stock to be issued, shares	133,916	290,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Statement [Abstract]
Revenues, net	$ 64,466	$ 14,106	$ 182,297	$ 117,877
Cost of products sold	51,833	15,635	117,220	80,435
Gross profit	12,633	(1,529)	65,077	37,442
Operating expenses
General and administrative	159,428	188,061	546,730	660,652
Sales and marketing	10,179	49,689	40,311	205,428
Total expenses	169,607	237,750	587,041	866,080
Loss from operations	(156,974)	(239,279)	(521,964)	(828,638)
Other expense
Interest expense	(248,434)	(603,451)	(786,340)	(1,935,819)
Bad debt expense	(530)		(530)
Loss on extinguishment of debt			(1,122,100)
Total other expense	(248,964)	(603,451)	(1,908,970)	(1,935,819)
Loss before income taxes	(405,938)	(842,730)	(2,430,934)	(2,764,457)
Income tax expense
Net loss	$ (405,938)	$ (842,730)	$ (2,430,934)	$ (2,764,457)
Basic and diluted net loss per common share	$ (0.01)	$ (0.01)	$ (0.03)	$ (0.04)
Basic and diluted weighted average common shares outstanding	77,684,738	66,818,701	75,062,843	65,154,828

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Operating Activities:
Net loss	$ (2,430,934)	$ (2,764,457)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	7,449	51,047
Common stock issued for services	39,702	86,000
Options and warrants issued for services	61,340	55,406
Interest expense from amortization of debt discount	50,519	1,322,089
Stock issued for payment of interest on convertible notes - related party	663,732	544,057
Loss on extinguishment of debt	1,122,100
Exchange of sales proceeds for mold		(8,290)
Changes in operating assets and liabilities:
Accounts receivable	530	2,607
Inventory	19,917	5,862
Prepaid expenses	4,778	36,165
Accounts payable	88,991	28,960
Accrued interest	71,677	69,081
Accrued expenses	39,728	26,927
Net Cash Used in Operating Activities	(260,471)	(544,546)
Investing Activities:
Purchases of equipment		(6,710)
Net Cash Used In Investing Activities		(6,710)
Financing Activities:
Stock and warrants issued for cash	63,400	68,800
Proceeds from convertible notes payable - related party	200,000	498,000
Repayments of notes payable to former officer	(35,625)
Repayment of notes payable		(22,678)
Net Cash Provided by Financing Activities	227,775	544,122
Net Decrease in Cash	(32,696)	(7,134)
Cash - Beginning of Period	41,745	42,582
Cash - End of Period	9,049	35,448
Supplemental disclosure of cash flow information:
Interest paid in cash		292
Income taxes paid in cash

XML

Summary of Significant Accounting Policies and Use of Estimates

9 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Summary of 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 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 breathing solutions that address major respiratory challenges impacting human health.

Unaudited Interim Financial Statements

The interim condensed consolidated financial statements of the Company as of June 30, 2016 and 2015, and for the periods then ended, are prepared in accordance with the instructions to Form 10-Q. Accordingly, the accompanying condensed consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States (U.S. “GAAP”). 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 June 30, 2016 and the results of its operations and its cash flows for the periods ended June 30, 2016 and 2015. These results are not necessarily indicative of the results expected for the fiscal year ended September 30, 2016.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Airware Labs Corp and its wholly owned subsidiary, Airware Holdings, Inc. Intercompany balances and transactions have been eliminated.

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, deferred income taxes, accruals and contingencies, inventory reserves, estimates for customer returns, the fair value of common stock and the estimated fair value of stock options and warrants.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a remaining maturity of three months or less to be cash equivalents.

Inventory

Inventory is mostly held by a third party, consists of finished goods and is stated at the lower of cost, determined by the first-in, first-out method, or market. During the three months ended June 30, 2016, the Company established a reserve of $20,000 for inventory which will likely expire before we are able to sell it.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method, over the estimated useful lives of the assets. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Gains and losses on the disposition of property and equipment are recorded in the period incurred. Production molds owned by the Company are capitalized and are included in manufacturing equipment. Pre-production design and development costs are expensed as incurred.

The estimated useful lives of property and equipment are:

•	Manufacturing equipment	2-3 years
•	Office furniture and equipment	5-7 years

Revenue Recognition

The Company recognizes revenue on the sale of products at the time of delivery and acceptance. Delivery is generally FOB destination. At the time of delivery, the following have occurred:

• Evidence of delivery;

• A price per unit has been determined; and

• Collectability has been reasonably assured.

Revenues are recorded net of returns and co-operative advertising costs.

Income Taxes

The Company accounts for income taxes under FASB ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

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 June 30, 2016 and 2015, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

As of June 30, 2016, there were total shares of 54,139,483 issuable upon conversion of notes payable and the exercise of warrants and options that were not included in the earnings per share calculation as they were anti-dilutive.

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Going Concern

9 Months Ended

Jun. 30, 2016

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 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. The combination of these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to meet its cash requirements in the next year is dependent upon obtaining additional 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 as a result there is substantial doubt the Company will be able to continue as a going concern. The accompanying condensed consolidated 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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Convertible Notes Payable

9 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Convertible Notes Payable

3. Convertible Note Payable

The Company has a convertible note payable with a principal balance of $5,000, which was due on August 22, 2012, is unsecured, carries an interest rate of 8% and is convertible to common stock at $.50 per share.

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Notes Payable to Former Officer

9 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Notes Payable to Former Officer

4. Note Payable to Former Officer

The Company has a note payable with an original principal balance of $47,500 due to a former officer, which was due on August 1, 2016, is unsecured and carries an interest rate of 0.27%. On December 5, 2013 the Company revised the terms of the Note calling for four equal payments to begin on November 1, 2015 and ending August 1, 2016. As part of this revision, the interest rate was reduced from 2% to 0.27%. The Company defaulted on the final payment due, see note 10. The following represents future minimum payments due on the outstanding balance:

Principal balance at June 30, 2016	$	11,875
Less current portion		(11,875	)
	$	—

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Convertible Notes Payable to Related Parties

9 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

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 $149,481, due September 30, 2017, convertible to common stock at $.08 per share, interest payments are due monthly and may be made in common stock with a conversion price of $.05 per share.  Debt is secured by substantially all of the assets of the Company.	$	3,256,519
The Company has a note payable due to a former advisory board member, which bears interest at 8%, was due August 26, 2012 and is convertible to common stock at $.50 per share. Interest payments were due at maturity and the note is unsecured.		20,000
Less current portion		(20,000	)
	$	3,256,519

On January 22, 2016, the Company entered into an Allonge to the convertible note held by our primary debt holder by which our line of credit was increased by $200,000 and the conversion price of the outstanding principal balance was adjusted to $.08 from $.10. In accordance with ASC 470-50, the Company evaluated the modification of the debt under the terms of the newest allonge and determined the revised terms resulted in an extinguishment of debt.  Accordingly, the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt was recognized in current income.  A loss in the amount of $1,122,100 was recorded on the debt extinguishment.

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Related Party Transactions

9 Months Ended

Jun. 30, 2016

Related Party Transactions [Abstract]

Related Party Transactions

6. Related Party Transactions

As detailed in Notes 4 and 5, the Company has a note payable to its former President, a convertible note payable to a former advisory board member and another convertible note with an entity that owns a majority of our outstanding shares. The Company repaid $35,625 of the note payable to former officer during the nine months ended June 30, 2016.

During the nine months ended June 30, 2016, the Company recorded $59,055 in expense for fees due to a company owned by its CFO for her services as CFO. Of this amount¸ $44,472 has been paid.

During the nine months ended June 30, 2016, the Company recorded $93,744 in expense for fees due to a company owned by its President for his services as President. Of this amount, $52,080 has been paid.

During the nine months ended June 30, 2016, the Company paid zero cash for interest on the related party debt.

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Commitments and Contingencies

9 Months Ended

Jun. 30, 2016

Commitments and Contingencies

Commitments and Contingencies

7. Commitments and Contingencies

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. During the nine months ended June 30, 2016, the Company issued a warrant to purchase 252,124 shares of common stock at $.08 per share to this distributor.

On January 6, 2014, the Company entered into a license agreement with Eastar Industries, Co. (“Eastar”), pursuant to which the Company granted Eastar an exclusive license to sell its products in China for a term of five years in exchange for a royalty equal to 18% of gross profits generated by the sales of products in China. Additionally, the Company and Eastar agreed to establish a joint venture company in Hong Kong or Shanghai which will be assigned Eastar’s rights under the agreement and of which 18% of the joint venture will be owned by the Company. As of June 30, 2016, the joint venture has yet to be established.

The Company entered into an office lease agreement commencing June 1, 2014 and expiring August 31, 2017. As part of the lease agreement, a concession of the first three months’ rent was provided. Total rent to be paid over the course of the lease is being expensed ratably over the period of the entire lease, creating a deferred rent liability of $3,065 as of June 30, 2016.

On August 17, 2015, the Company entered into an agreement with a company owned by its President for his services as President on a contract basis in exchange for a fixed monthly fee. A total of $93,744 was recorded as expense during the nine months ended June 30, 2016 per this agreement, of which $52,080 has been paid.

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 June 30, 2016. 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

9 Months Ended

Jun. 30, 2016

Equity [Abstract]

Stockholders' Deficit

8. Stockholders’ Deficit

Common Stock

During the nine months ended June 30, 2016, the Company issued 4,534,887 shares of common stock in payment of September 2015 through March 2016 interest totaling $226,724 on the primary debt holders convertible note.

On December 31, 2015, the Company issued 200,000 shares of common stock per subscription agreements totaling $20,000. The Company received net proceeds of $18,000, net of issuance costs of $2,000 paid as a capital marketing fee. As part of these stock subscriptions, 100,000 warrants to purchase common stock at $.25 were also issued.

On December 31, 2015, the Company issued 96,071 shares of common stock for the payment of consulting services rendered to the Company between April 1, 2015 and September 30, 2015. The shares were valued at the average trading price over the period of service, which approximated fair value, in the amount of $12,750.

During the quarter ended December 31, 2015, the company received $45,500 towards the purchase of 227,500 shares of common stock. Net proceeds amounted to $36,400 after the issuance costs of $9,100 paid as a capital marketing fee. This was part of a subscription agreement totaling $375,000. These shares, as well as others paid for per the same subscription agreement totaling 517,500, were issued on March 15, 2016.

On March 15, 2016, the Company issued 100,000 shares of common stock per a subscription agreement for $10,000. The Company received net proceeds of $9,000, net of issuance costs of $1,000 paid as a capital marketing fee. As part of this stock subscription, 50,000 warrants to purchase common stock at $.25 were also issued.

On April 7, 2016, the Company issued 75,917 shares of common stock for the payment of services rendered to the Company between October 1, 2015 and February 29, 2016. The shares were valued at the closing price on the various vendor invoice dates, in the amount of $18,485.

Warrants

The balance of warrants outstanding for purchase of the Company’s common stock as of June 30, 2016 is as follows:

	Common Shares Issuable Upon Exercise of Warrants	Exercise Price of Warrants	Date Issued	Expiration Date
Balance of Warrants at September 30, 2015	4,988,002
Issued under a private placement memorandum (1)	50,000	$0.25	12/3/2015	12/3/2017
Issued under a private placement memorandum (1)	50,000	$0.25	12/14/2015	12/14/2017
Issued per distribution agreement (2)	252,124	$0.08	12/22/2015	12/22/2018
Issued under a private placement memorandum (1)	50,000	$0.25	1/28/2016	1/28/2018
Expired warrants	(125,464)
Balance of Warrants at June 30, 2016	5,264,662

(1) During the nine months ended June 30, 2016, the company issued stock purchase warrants as part of stock subscription agreements.

(2) On December 22, 2015, the Company issued a three-year warrant at $.08 to purchase 252,124 shares of common stock per a distribution agreement.

Stock Options

The Company had the following options outstanding at June 30, 2016:

	Common Shares Issuable Upon Exercise of Options	Exercise Price of Options	Date Issued	Expiration Date
Balance of options at September 30, 2015	5,394,510
Options granted to consultant (1)	26,786	$0.25	11/1/2015	11/1/2025
Options granted to consultant (1)	75,000	$0.25	12/1/2015	12/1/2025
Options granted to consultant (1)	57,692	$0.25	1/1/2016	1/1/2026
Options granted to consultant (1)	50,000	$0.25	2/1/2016	2/1/2026
Options granted to consultant (1)	62,500	$0.25	3/1/2016	3/1/2026
Options granted to officers and board member (2)	583,333	$0.15	3/8/2016	3/8/2026
Balance of Options at June 30, 2016	6,249,821

(1) On October 15, 2015, the Company entered into an agreement with a patent attorney to provide intellectual property services as in-house patent counsel. Per the agreement, he received monthly stock option grants. He was to receive $7,500 per month in stock option grants, and the quantity of stock options issued monthly was determined by the closing price on the last day of the month. These services were suspended as of February 29, 2016.

(2) On March 8, 2016, the Company granted a total of 583,333 stock options for the purchase of the Company’s common stock. Included in this amount, 433,333 stock options were granted to corporate officers and 150,000 stock options to a Board member. The options are exercisable at $.15 per share of common stock over a ten year term. The options for the Board member vested immediately, all others vest equally over the next three years.

During the three and nine month periods ended June 30, 2016, $8,524 and $54,481, respectively, was expensed for the pro-rata vesting of stock-based compensation. As of June 30, 2016, the balance of unrecognized compensation cost related to non-vested stock-based compensation to be expensed in future periods was $65,461.

The Company determines the fair value of stock options issued on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for determining the fair value of the options granted during the nine months ended June 30, 2016:

Expected stock price volatility	32.96-33.53%
Expected dividend yield	0.00%
Risk-free interest rate	1.83-2.27%
Option life	10.00 years

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Significant Customer

9 Months Ended

Jun. 30, 2016

Risks and Uncertainties [Abstract]

Significant Customer

9. Significant Customer

The Company generally sells through a limited number of large distributors. The Company invoices the distributors directly as opposed to the ultimate retail store. Consequently, the Company’s sales are to a small number of customers. For both the three and nine months ended June 30, 2016, sales to two distributors was approximately 92% of our total sales.

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Subsequent Events

9 Months Ended

Jun. 30, 2016

Subsequent Events [Abstract]

Subsequent Events

10. Subsequent Events

On July 28, 2016, the Company entered into an Allonge to the convertible note held by our primary debt holder by which our line of credit was increased by $100,000. The Company issued a warrant to purchase 2,000,000 shares of common stock at $.05 according to the terms of this Allonge.

As of August 1, 2016, the Company defaulted on the final $11,875 payment payable on the loan to a former officer.

On August 16, 2016, the Company issued 2,740,494 shares of common stock to our primary debt holder as payment for interest on loans to the Company for April through July 2016. The Company also issued 104,258 shares of common stock for the payment of consulting services rendered to the Company between October 1, 2015 and June 30, 2016. The shares were valued at the average trading price over the period of service, which approximated fair value, in the amount of $13,500.

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Summary of Significant Accounting Policies and Use of Estimates (Policies)

9 Months Ended

Jun. 30, 2016

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 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 breathing solutions that address major respiratory challenges impacting human health.

Unaudited Interim Financial Statements

Unaudited Interim Financial Statements

The interim condensed consolidated financial statements of the Company as of June 30, 2016 and 2015, and for the periods then ended, are prepared in accordance with the instructions to Form 10-Q. Accordingly, the accompanying condensed consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States (U.S. “GAAP”). 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 June 30, 2016 and the results of its operations and its cash flows for the periods ended June 30, 2016 and 2015. These results are not necessarily indicative of the results expected for the fiscal year ended September 30, 2016.

Principles of Consolidation

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Airware Labs Corp and its wholly owned subsidiary, Airware Holdings, Inc. Intercompany balances and transactions have been eliminated.

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, deferred income taxes, accruals and contingencies, inventory reserves, estimates for customer returns, the fair value of common stock and the estimated fair value of stock options and warrants.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a remaining maturity of three months or less to be cash equivalents.

Inventory

Inventory

Inventory is mostly held by a third party, consists of finished goods and is stated at the lower of cost, determined by the first-in, first-out method, or market. During the three months ended June 30, 2016, the Company established a reserve of $20,000 for inventory which will likely expire before we are able to sell it.

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method, over the estimated useful lives of the assets. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Gains and losses on the disposition of property and equipment are recorded in the period incurred. Production molds owned by the Company are capitalized and are included in manufacturing equipment. Pre-production design and development costs are expensed as incurred.

The estimated useful lives of property and equipment are:

•	Manufacturing equipment	2-3 years
•	Office furniture and equipment	5-7 years

Revenue Recognition

Revenue Recognition

The Company recognizes revenue on the sale of products at the time of delivery and acceptance. Delivery is generally FOB destination. At the time of delivery, the following have occurred:

• Evidence of delivery;

• A price per unit has been determined; and

• Collectability has been reasonably assured.

Revenues are recorded net of returns and co-operative advertising costs.

Income Taxes

Income Taxes

The Company accounts for income taxes under FASB ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

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 June 30, 2016 and 2015, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

As of June 30, 2016, there were total shares of 54,139,483 issuable upon conversion of notes payable and the exercise of warrants and options that were not included in the earnings per share calculation as they were anti-dilutive.

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Notes Payable to Former Officer (Tables)

9 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Future minimum payments due on the outstanding balance

Principal balance at June 30, 2016	$	11,875
Less current portion		(11,875	)
	$	—

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Convertible Notes Payable to Related Parties (Tables)

9 Months Ended

Jun. 30, 2016

Convertible Notes Payable To Related Parties Tables

Convertible notes payable to related parties

12% note payable net of unamortized debt discount of $149,481, due September 30, 2017, convertible to common stock at $.08 per share, interest payments are due monthly and may be made in common stock with a conversion price of $.05 per share.  Debt is secured by substantially all of the assets of the Company.	$	3,256,519
The Company has a note payable due to a former advisory board member, which bears interest at 8%, was due August 26, 2012 and is convertible to common stock at $.50 per share. Interest payments were due at maturity and the note is unsecured.		20,000
Less current portion		(20,000	)
	$	3,256,519

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Stockholders' Deficit (Tables)

9 Months Ended

Jun. 30, 2016

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
Balance of Warrants at September 30, 2015	4,988,002
Issued under a private placement memorandum (1)	50,000	$0.25	12/3/2015	12/3/2017
Issued under a private placement memorandum (1)	50,000	$0.25	12/14/2015	12/14/2017
Issued per distribution agreement (2)	252,124	$0.08	12/22/2015	12/22/2018
Issued under a private placement memorandum (1)	50,000	$0.25	1/28/2016	1/28/2018
Expired warrants	(125,464)
Balance of Warrants at June 30, 2016	5,264,662

Options outstanding

	Common Shares Issuable Upon Exercise of Options	Exercise Price of Options	Date Issued	Expiration Date
Balance of options at September 30, 2015	5,394,510
Options granted to consultant (1)	26,786	$0.25	11/1/2015	11/1/2025
Options granted to consultant (1)	75,000	$0.25	12/1/2015	12/1/2025
Options granted to consultant (1)	57,692	$0.25	1/1/2016	1/1/2026
Options granted to consultant (1)	50,000	$0.25	2/1/2016	2/1/2026
Options granted to consultant (1)	62,500	$0.25	3/1/2016	3/1/2026
Options granted to officers and board member (2)	583,333	$0.15	3/8/2016	3/8/2026
Balance of Options at June 30, 2016	6,249,821

Fair value assumptions of options granted

Expected stock price volatility	32.96-33.53%
Expected dividend yield	0.00%
Risk-free interest rate	1.83-2.27%
Option life	10.00 years

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Summary of Significant Accounting Policies and Use of Estimates (Details Narrative) - USD ($)	3 Months Ended	9 Months Ended
	Jun. 30, 2016	Jun. 30, 2016
Reserve for inventory	$ 20,000
Anti-dilutive shares issuable not included in earnings per share calculation		54,139,483
Manufacturing equipment - minimum life
Estimated useful lives of property and equipment		2 years
Manufacturing equipment - maximum life
Estimated useful lives of property and equipment		3 years
Office furniture and equipment - minimum life
Estimated useful lives of property and equipment		5 years
Office furniture and equipment - maximum life
Estimated useful lives of property and equipment		7 years

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Convertible Notes Payable - Convertible notes payable (Details) - Convertible Notes Payable A	9 Months Ended
	Jun. 30, 2016 USD ($) $ / shares
Notes payable, amount | $	$ 5,000
Notes payable, interest rate	8.00%
Notes payable, due date	Aug. 22, 2012
Notes payable, conversion to common stock price per share | $ / shares	$ 0.50

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Notes Payable to Former Officer - Future minimum payments due on the outstanding balance (Details)	Jun. 30, 2016 USD ($)
Notes payable to former officer
Notes payable to former officer, amount	$ 11,875
Less Current Portion
Notes payable to former officer, amount	(11,875)
Balance
Notes payable to former officer, amount

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Notes Payable to Former Officer (Details Narrative) - USD ($)		9 Months Ended
	Dec. 05, 2013	Jun. 30, 2016
Original principal balance of note payable due to former officer		$ 47,500
Due date		Aug. 01, 2016
Interest rate information
Notes payable to former officer, original interest rate	2.00%
Notes payable to former officer, reduced interest rate	0.27%

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Convertible Notes Payable to Related Parties - Convertible notes payable to related parties (Details)	9 Months Ended
	Jun. 30, 2016 USD ($) $ / shares
Convertible notes payable to related parties A
Note payable, amount	$ 3,256,519
Note payable, interest rate	12.00%
Note payable, due date	Sep. 30, 2017
Note payable, conversion to common stock price per share | $ / shares	$ 0.08
Note payable, unamortized debt discount	$ 149,481
Convertible notes payable to related parties B
Note payable, amount	$ 20,000
Note payable, interest rate	8.00%
Note payable, due date	Aug. 26, 2012
Note payable, conversion to common stock price per share | $ / shares	$ 0.50
Convertible notes payable to related parties - Less current portion
Note payable, amount	$ (20,000)
Convertible notes payable to related parties - Total
Note payable, amount	$ 3,256,519

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Convertible Notes Payable to Related Parties (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Jan. 22, 2016
Convertible Notes Payable To Related Parties Details Narrative
Allonge entered into with primary debt holder of convertible note, line of credit increase					$ 200,000
Allonge entered into with primary debt holder of convertible note, original conversion price					$ 0.08
Allonge entered into with primary debt holder of convertible note, adjusted conversion price					$ 0.10
Loss on extinguishment of debt			$ (1,122,100)

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Related Party Transactions (Details Narrative) - USD ($)	9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Repayments of notes payable to former officer	$ (35,625)
Cash paid for interest on related party debt
CFO
Expenses in fees to companies owned be related parties for services	59,055
Amounts paid to companies owned by related parties for services	44,472
President
Expenses in fees to companies owned be related parties for services	93,744
Amounts paid to companies owned by related parties for services	$ 52,080

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Commitments and Contingencies (Details Narrative) - USD ($)		9 Months Ended	27 Months Ended
	Dec. 23, 2011	Jun. 30, 2016	Jun. 30, 2016
Distribution Agreement
Expiration of common stock warrants made available for issuance by agreement	3 years
Amount of common stock available for purchase, percentage of total products purchased by distributor at invoice price against previous year's purchase of paid invoices	15.00%
Warrant issued to purchase common stock, shares		252,124
Warrant issued to purchase common stock, price per share		$ 0.08
License Agreement with Eastar Industries, Co.
Sales license term			5 years
Royalty to Company, percentage of gross profits generated by sales of products in China			18.00%
Percentage of joint venture company established with Eastar owned by Company			18.00%
Office Lease Agreement
Lease expiration date		Aug. 31, 2017
Deferred rent liability		$ 3,065	$ 3,065
President
Service Agreement with Company Owned by President
Expenses in fees to companies owned be related parties for services		93,744
Amounts paid to companies owned by related parties for services		$ 52,080

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Stockholders' Deficit - Balance of warrants outstanding for purchase of Company's common stock (Details) - $ / shares	9 Months Ended
	Jun. 30, 2016	Sep. 30, 2015
Balance of Warrants
Common shares issued upon exercise of warrants	5,264,662	4,988,002
Issued under a private placement memorandum (a)
Common shares issued upon exercise of warrants	50,000
Exercise price of warrants	$ .25
Date issued	Dec. 03, 2015
Expiration date	Dec. 03, 2017
Issued under a private placement memorandum (b)
Common shares issued upon exercise of warrants	50,000
Exercise price of warrants	$ .25
Date issued	Dec. 14, 2015
Expiration date	Dec. 14, 2017
Issued per distribution agreement (a)
Common shares issued upon exercise of warrants	252,124
Exercise price of warrants	$ .08
Date issued	Dec. 22, 2015
Expiration date	Dec. 22, 2018
Issued under a private placement memorandum (c)
Common shares issued upon exercise of warrants	50,000
Exercise price of warrants	$ 0.25
Date issued	Jan. 28, 2016
Expiration date	Jan. 28, 2018
Expired warrants
Common shares issued upon exercise of warrants	(125,464)

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Stockholders' Deficit - Options outstanding (Details) - $ / shares	9 Months Ended
	Jun. 30, 2016	Sep. 30, 2015
Balance of Options
Common shares issuable upon exercise of options	6,249,821	5,394,510
Options granted to consultant (a)
Common shares issuable upon exercise of options	26,786
Exercise price of options	$ .25
Date issued	Nov. 01, 2015
Expiration date	Nov. 01, 2025
Options granted to consultant (b)
Common shares issuable upon exercise of options	75,000
Exercise price of options	$ .25
Date issued	Dec. 01, 2015
Expiration date	Dec. 01, 2025
Options granted to consultant (c)
Common shares issuable upon exercise of options	57,692
Exercise price of options	$ 0.25
Date issued	Jan. 01, 2016
Expiration date	Jan. 01, 2026
Options granted to consultant (d)
Common shares issuable upon exercise of options	50,000
Exercise price of options	$ .25
Date issued	Feb. 01, 2016
Expiration date	Feb. 01, 2026
Options granted to consultant (e)
Common shares issuable upon exercise of options	62,500
Exercise price of options	$ .25
Date issued	Mar. 01, 2016
Expiration date	Mar. 01, 2026
Options granted to officers and board member
Common shares issuable upon exercise of options	583,333
Exercise price of options	$ .15
Date issued	Mar. 08, 2016
Expiration date	Mar. 08, 2026

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Stockholders' Deficit - Fair value assumptions of options granted (Details)	9 Months Ended
	Jun. 30, 2016
Stockholders Deficit - Fair Value Assumptions Of Options Granted Details
Expected stock price volatility, minimum	32.96%
Expected stock price volatility, maximum	33.53%
Expected dividend yield	0.00%
Risk-free interest rate, minimum	1.83%
Risk-free interest rate, maximum	2.27%
Option life	10 years

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Stockholders' Deficit - Common Stock (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2016	Mar. 15, 2016
Equity [Abstract]
Stock issued in payment of interest on primary debt holders convertible note, shares			4,534,887
Stock issued in payment of interest on primary debt holders convertible note, amount			$ 226,724
Subscription agreements, shares issued		200,000		100,000
Subscription agreements, amount		$ 20,000		$ 10,000
Subscription agreements, net proceeds received		18,000		9,000
Subscription agreements, issuance costs paid		$ (2,000)		$ (1,000)
Subscription agreements, warrants issued		100,000		50,000
Subscription agreements, warrant purchase price per share		$ 0.25		$ 0.25
Shares issued for payment of consulting services, shares	75,917	96,071
Shares issued for payment of consulting services, value	$ 18,485	$ 12,750
Sale of stock, gross proceeds received		45,500
Sale of stock, net proceeds received		$ 36,400
Sale of stock, total shares to be issued		227,500
Sale of stock, issuance costs paid as capital marketing fee		$ (9,100)
Subscription agreement total shares issued				517,500

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Stockholders' Deficit - Warrants (Details Narrative)	Dec. 22, 2015 $ / shares shares
Stockholders Deficit - Warrants Details Narrative
Warrant issued per distribution agreement (a), term	3 years
Warrant issued per distribution agreement (a), purchase price | $ / shares	$ 0.08
Warrant issued per distribution agreement (a), shares | shares	252,124

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Stockholders' Deficit - Stock Options (Details Narrative) - USD ($)		3 Months Ended	9 Months Ended
	Mar. 08, 2016	Jun. 30, 2016	Jun. 30, 2016
Monthly stock option grants for intellectual property services, amount			$ 7,500
Expenses for pro-rata vesting of stock-based compensation		$ 8,524	54,481
Balance of unrecognized compensation cost related to non-vested stock-based compensation to be expensed in future periods		$ 65,461	$ 65,461
Corporate Officers
Stock options granted	433,333
Stock options granted, exercise price	$ 0.15
Stock options granted, term	10 years
Board member
Stock options granted	150,000
Stock options granted, exercise price	$ 0.15
Stock options granted, term	10 years

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Significant Customer (Details Narrative)	3 Months Ended	9 Months Ended
	Jun. 30, 2016	Jun. 30, 2016
Significant Customer Details Narrative
Percentage of total sales to distributors	92.00%	92.00%

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Subsequent Events (Details Narrative) - USD ($)	Aug. 16, 2016	Jul. 28, 2016	Aug. 01, 2016
Line of credit increase per terms of Allonge		$ 100,000
Warrant issued to purchase common stock per terms of Allonge		2,000,000
Warrant issued to purchase common stock per terms of Allonge, price per share		$ 0.05
Defaulted final payment payable on loan to former officer			$ 11,875
Issued to primary debt holder as payment for interest on loans
Common stock issued, shares	2,740,494
Issued for payment of consulting services
Common stock issued, shares	104,258
Common stock issued, amount	$ 13,500