Code Rebel Corp - FORM 10-Q

Attached files

file	filename
EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Code Rebel Corp	ex32-1.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULES 13A-14(A) AND 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Code Rebel Corp	ex31-2.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULES 13A-14(A) AND 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Code Rebel Corp	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

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

For the transition period from ___ to ___

Commission File Number 001-37377

CODE REBEL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		46-4825060
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

77 Ho’okele Street, Suite 102 Kahului, Hawaii		96732
(Address of principal executive offices)		(Zip Code)

(808) 871-6496

Registrant’s telephone number, including area code

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 x No o

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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

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

As of June 30, 2015, 12,682,714 shares of the registrant’s Common Stock, par value $0.0001 per share, were outstanding.

Table of Contents

CODE REBEL CORPORATION

Quarterly Report on Form 10-Q

For the Three Months Ended June 30, 2015

INDEX


		Page No.
Part I – Financial Information

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	1
	Condensed Consolidated Statements of Operations for the Three- and Six-Month Periods Ended June 30, 2015 and 2014	2
	Condensed Consolidated Statement of Stockholders’ Equity (Deficit) as of June 30, 2015	3
	Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June, 2015 and 2014	4
	Notes to Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	18

Part II – Other Information

Item 1	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	19

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CODE REBEL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF

JUNE 30, 2015 AND DECEMBER 31, 2014



			June 30, 2015 (Unaudited)
ASSETS			June 30, 2015 (Unaudited)			December 31, 2014
CURRENT ASSETS
	Cash and cash equivalents		$	4,428,018		$	632,316
	Accounts receivable			9,490			13,093
	Deposit and prepaid expense			32,014			2,152
		TOTAL CURRENT ASSETS		4,469,522			647,561

	Intangible assets, net		$	12,194		$	13,292
	Property and equipment, net			9,134			-
	TOTAL ASSETS		$	4,490,850		$	660,853

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
	Accounts payable and accrued expenses		$	217,208		$	212,297
	Interest payable			-			39,869
	Warrant liabilities			-			68,000
	Convertible note payables, net			-			718,658
	Payable to related party			113,653			444,405
	Other payable			10,000			-
		TOTAL CURRENT LIABILITIES	$	340,861		$	1,483,228

LONG TERM LIABILITIES
	Line of credit		$	-		$	49,629
	Convertible note payables, net			-			606,430
		TOTAL NON-CURRENT LIABILITIES		-			656,059

	TOTAL LIABILITIES		$	340,861		$	2,139,288

STOCKHOLDERS' EQUITY (DEFICIT)
	Common Stock, $0.0001 par value, 20,000,000 shares authorized, 12,682,714 and 10,000,000 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively		$	1,268		$	1,000
	Additional paid-in capital			6,150,317			109,378
	Accumulated deficit			(2,001,596	)		(1,588,813	)
		TOTAL STOCKHOLDERS' EQUITY (DEFICIT)	$	4,149,989		$	(1,478,435	)

	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	4,490,850		$	660,853

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

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CODE REBEL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2015 AND 2014

(UNAUDITED)


	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014

Net Revenues	$	44,723		$	79,856		$	81,423		$	124,218
Cost of revenues		81,795			25,376			142,915			44,899
Gross profit (loss)		(37,072	)		54,480			(61,492	)		79,319

Operating Expenses:
Depreciation and amortization expense		872			1,735			1,421			3,472
Advertising and promotion		6,000			297			9,047			11,380
Professional expenses		869			221,180			73,895			290,290
General and administration expenses		147,442			12,976			186,222			18,606
Total operating expenses		155,183			236,188			270,585			323,748
Loss from operations		(192,255	)		(181,708	)		(332,077	)		(244,429	)

Other Expenses:
Interest expense		13,512			2,243			33,293			3,107
Amortization of debt discount		44,615			799			47,413			799
Total Other Expense		58,127			3,042			80,706			3,906

Loss before income taxes		(250,382	)		(184,750	)		(412,783	)		(248,335	)

Provision for income taxes		-			-			-			-

Net loss	$	(250,382	)	$	(184,750	)	$	(412,783	)	$	(248,335	)

Net loss per share
Basic and Diluted:	$	(0.02	)	$	(0.02	)	$	(0.04	)	$	(0.02	)

Weighted average number of shares used in computing basic and diluted net loss per share:

Basic		11,238,176			10,000,000			10,622,508			10,000,000
Diluted		11,238,176			10,000,000			10,622,508			10,000,000

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

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CODE REBEL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE PERIOD ENDED JUNE 30, 2015

(UNAUDITED)

	Common Stock				Additional Paid in		Accumulated			Stockholders' Equity
	Shares		Amount		Capital		Deficit			(Deficit)
Balance as of December 31, 2014		10,000,000	$	1,000	$	109,378	$	(1,588,813	)	$	(1,478,435	)

Shares issued on note conversion		1,681,731		168		1,681,563		-			1,681,731

Sale of common stock in initial public offering, net of expenses		1,000,983		100		4,278,876		-			4,278,976

Reclassification of warrant liabilities		-		-		80,500		-			80,500

Net loss for the six month period ended June 30, 2015		-		-		-		(412,783	)		(412,783	)

Balance as of June 30, 2015		12,682,714	$	1,268	$	6,150,317	$	(2,001,596	)	$	4,149,989

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

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CODE REBEL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2015 AND 2014

(UNAUDITED)

	June 30, 2015			June 30, 2014
Net loss	$	(412,783	)	$	(248,335	)
Adjustments to reconcile net loss to net cash
used in operating activities:

Depreciation and amortization		1,421			3,472
Interest from discount on debt		47,413			799

(Increase) decrease in current assets:
Accounts receivable		3,603			(48,317	)
Deposit and prepaid expense		(29,862	)		-
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses		4,911			247,492
Other payable		10,000			-
Accrued interest		31,862			1,409
Net cash used in operating activities	$	(343,435	)	$	(43,480	)

CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired upon reorganization	$	-		$	3,323
Purchase of property, plant and equipment		(9,458	)		-
Net cash provided by (used in) investing activities	$	(9,458	)	$	3,323

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock from the IPO	$	5,004,915		$	-
IPO costs		(725,939	)		-
Proceeds from notes payable		250,000			735,000
Procceds from (repayment to) related party, net		(330,752	)		(154,491	)
Procceds from (repayment of) line of credit, net		(49,629	)		(208	)
Net cash provided by financing activities	$	4,148,595		$	580,301

Net increase in cash and cash equivalents	$	3,795,702		$	540,144

Cash and cash equivalents, at the beginning of the period		632,316			-

Cash and cash equivalents, at the end of the period	$	4,428,018		$	540,144

SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Income tax payments	$	-		$	-
Interest payments	$	-		$	7,218

Non- cash investing and financing activities:
Sale of office condominium as payment to related party	$	-		$	117,041
Assumption of mortgage by related party on sale of building	$	-		$	329,837
Conversion of notes payable and accrued interest	$	1,681,731			-
Warrants granted on note payables	$	12,500		$	36,750

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

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CODE REBEL CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2015

Note 1 – BASIS OF PRESENTATION AND ORGANIZATION

Organization

Code Rebel Corporation (the “Company”, “Code Rebel”, “we”, “our”) was organized under the laws of the State of Delaware on May 8, 2014.

Code Rebel, LLC was organized under the laws of the State of Hawaii on April 27, 2007. The idea behind Code Rebel was to create a new remote access protocol that would allow the user to access a specific application on a remote Mac computer. After two years of development, the protocol concept was extended to enable the merging of a remote Mac desktop with a local Windows desktop. Finally, the Company developed the full iRAPP Protocol specification, multi-user terminal server for Mac (iRAPP TS), client-side application for Windows (iRAPP Client for Windows) and client-side application for Mac (iRAPP Client for Mac). After multiple requests from customers in 2008 and 2009, the support for Microsoft's Remote Desktop Protocol (RDP) was added. Today, customers can connect to remote Macs using iRAPP Client or any existing RDP Client. Also, Code Rebel is distributing iRAPP Terminal Server under single-user license as "iRAPP." The iRAPP TS provides a wide range of usage cases. Our customers are using iRAPP TS to build OSX/iOS applications, access and print corporate documents, run shared business applications, perform quality assurance and control and maintain servers and personal computers remotely. Code Rebel's Load Balancing solution (free addition to iRAPP TS) allows customers to create a cluster of terminal servers, so multiple users can access multiple servers, using a single entry point.

Reorganization

On May 20, 2014, the Company and the Members of Code Rebel, LLC entered into a securities exchange agreement (Agreement) for 10,000,000 common shares of Code Rebel Corporation. Upon consummation of the agreement, Code Rebel, LLC became a wholly owned subsidiary of Code Rebel Corporation (“Reorganization”) and the members of Code Rebel, LLC became 100% owners of Code Rebel Corporation.

The Reorganization transaction was accounted for as a roll-up of entities under common control. As such, the Company recognized the assets and liabilities of the entities acquired in the Reorganization at their historical carrying amounts. As such, the Reorganization date of January 1, 2014 was used as inception for the financial statements.

Initial Public Offering

The Company closed an initial public offering (“IPO”), of 1,000,983 shares of common stock at a price of $5.00 per share on May 19, 2015. The Company received aggregate net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses, of approximately $4.3 million.

Burnham Securities, Inc. acted as the sole underwriter for our IPO. The Company issued the underwriter a 5-year warrant to purchase 40,039 shares of common stock at an exercise price of $5.00 per share, which we refer to as the Underwriting Warrant. The Underwriting Warrant is not exercisable until November 7, 2015 (180-days from the date of the underwriting agreement).

The Company’s convertible notes, including accrued interest of $71,731 were converted into 1,681,731 shares of common stock effective upon the completion of the IPO.

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited interim condensed financial statements have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements. The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results. These unaudited interim condensed financial statements should be read in conjunction with the Company’s December 31, 2014 financial statements and notes thereto included in the Company’s Registration Statement on Form S-1, (Registration No. 333-203089), declared effective on May 11, 2015 by the Securities and Exchange Commission (“SEC”). The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

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Principles of Consolidation

The consolidated financial statements include the accounts of Code Rebel Corporation and its wholly owned subsidiary Code Rebel, LLC. All inter-company accounts and transactions have been eliminated in the preparation of these consolidated statements.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined.

Cash and Cash Equivalents

Cash and equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. We maintain cash deposits at banks located in Hawaii and New York. Deposits at these banks are insured by the Federal Deposit Insurance Corporation up to $250,000. We have not experienced any losses in such accounts and believe we are not exposed to any significant risk on cash and cash equivalents.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes". Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities.

The Company has significant income tax net operating losses; however, due to the uncertainty of the realizability of the related deferred tax asset and other deferred tax assets, a valuation allowance equal to the amount of deferred tax assets has been established at June 30, 2015 and 2014.

FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merit.

The Company’s federal and state income tax returns for the tax years 2011, 2012, 2013 and 2014 remain subject to examination for federal and state taxes.

Property& Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows:

Computer software 3 to 10 years

Computer hardware 5 to 15 years

Furniture and equipment 3 to 5 years

Description	June 30, 2015			December 31, 2014
Furniture and equipment	$	9,457		$	-
Total Property and equipment		9,457			-

Less: Accumulated depreciation		(323	)		-
	$	9,134		$	-

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On December 31, 2014, fixed assets valued at $7,828 that were fully depreciated were disposed.

For the three-month periods ended June 30, 2015 and 2014, depreciation expense was $323 and $239, respectively.

For the six-month periods ended June 30, 2015 and 2014, depreciation expense was $323 and $477, respectively.

Earnings per Share (EPS)

We utilize FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods of operating loss for which no common share equivalents are included because their effect would be anti-dilutive.

	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Net loss	$	(250,382	)	$	(184,750	)	$	(412,783	)	$	(248,335	)

Net loss per share
Basic and Diluted:	$	(0.02	)	$	(0.02	)	$	(0.04	)	$	(0.02	)

Weighted average number of shares used in computing basic and diluted net loss per share:

Basic		11,238,176			10,000,000			10,622,508			10,000,000
Diluted		11,238,176			10,000,000			10,622,508			10,000,000

Recently Issued Accounting Pronouncements

The Company has considered recent accounting pronouncements and believes that these recent pronouncements will not have a material effect on the Company’s financial statements.

Note 3 – INTANGIBLE ASSETS

Intangible assets consisted of the following at June 30, 2015 and December 31, 2014:

Description	June 30, 2015			December 31, 2014
Microsoft License	$	10,000		$	10,000
Development Costs		33,951			33,951
Trademark		6,714			6,714
Total intangible assets		50,665			50,665

Less: Accumulated amortization		(38,471	)		(37,373	)

Intangible Assets, net	$	12,194		$	13,292

Development costs are amortized over 3 years. Licenses are amortized over 5 years.

Trademarks for $6,714 were deemed to have indefinite lives and are not amortized but are tested for impairment annually. As of June 30, 2015, the Company concluded there was no impairment.

Amortization expense was $549 and $1,496 for the three months ended June 30, 2015 and 2014, respectively,

Amortization expense was $1,098 and $2,995 for the six month periods ended June 30, 2015 and 2014, respectively.

Amortization for the Company’s intangible assets over the next three fiscal years from June 30, 2015 is estimated to be:

2016	$	2,196
2017		2,196
2018		1,088
	$	5,480

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Note 4 – RELATED-PARTY TRANSACTIONS

As of June 30, 2015 and 2014, the Company contracted services from a related company controlled by a member and officers of this Company. Contracted services included development, rent and administrative services that amounted to $94,826 and $29,599, respectively, during the three-month periods ended June 30, 2015 and 2014.

Contracted services included development, rent and administrative services that amounted to $174,999 and $51,046, respectively, during the six-month periods ended June 30, 2015 and 2014.

As of June 30, 2015 and December 31, 2014, respectively, the Company had amounts payable to the related company of $113,653 and $444,405.

Note 5 – LINE OF CREDIT

Code Rebel, LLC obtained a line of credit with First Hawaiian Bank on May 21, 2012 for $50,000 with an adjustable interest rate. The terms of the current line of credit are interest at 6.4635% per annum, minimum monthly payments of $263.38 for interest with final payment due by May 31, 2016. The line of credit is guaranteed by an officer of the Company. As of June 30, 2015, the Company had paid off the line of credit. The Company paid interest of $1,266 and $1,592 for the six-month periods ended June 30, 2015 and 2014, respectively, on the line of credit.

Note 6 – NOTE PAYABLES

Convertible Note Payables

In 2014 and during the six-month period ended June 30, 2015, the Company made an offering to several institutional and accredited investors up to an aggregate of $4,000,000 of Company notes in exchange for a payment of $4,000,000 of consideration to the Company. The notes entitled the holders to purchase shares of the Company’s equity securities. The notes were unsecured and were convertible into conversion shares on the happening of the earlier of the following transactions:

·	Next Equity Financing: The principal and accrued interest would be automatically converted into conversion shares upon the closing of the Next Equity Financing. Notwithstanding the foregoing, the interest accrued on the notes may be paid in cash upon the option of the Company.

Corporate Transaction: In the event of a Corporate Transaction prior to the full payment of the notes or prior to a time when the notes could be converted, at the note holder’s election, (i) all outstanding principal and unpaid accrued interest due on the notes shall be converted into conversion shares; or (ii) the noteholder would be paid an amount equal to all accrued and unpaid interest due on such notes plus the outstanding principal amount of such note.

Since the notes were convertible subject to the occurrence of a contingent event, no beneficial conversion feature was recorded on the notes. There was no minimum aggregate amount of consideration that must be received by the Company to complete the offering and sale of up to $4,000,000. In return for the consideration paid by the lender, simultaneous with the sale and issuance of the note, the Company also had to issue to the lender a warrant entitling the lender or other holder thereof to purchase that number of share of common stock as was to be determined by (a) dividing 5% of the consideration paid by the lender, by (b) the exercise price. The exercise price of the warrant was equal to:

Except for the Fundamental transaction, the lower of (a) 80% of the price per share paid for Equity Securities by the investors in the Next Equity Financing, or (b) the quotient resulting from dividing (x) $10,000,000 by (y) the number of shares of fully diluted common stock of the Company immediately prior to the closing of the Next Equity Financing; or

·	With respect to the Fundamental Transaction, the quotient resulting from dividing (x) $10,000,000 by (y) the number of shares of fully diluted common stock of the Company immediately prior to the closing of the Fundamental Transaction.

On May 19, 2015, all the notes plus the accrued interest were converted into 1,681,731 shares of common stock in exchange for the principal amount of $1,610,000 and the accrued interest of $71,731 on the same. The shares were issued at $1 per share in the equity financing and the notes were also converted at the rate of $1 per share. As of June 30, 2015, there are no outstanding notes payable. During the six-month period ended June 30, 2015 and 2014, the interest expense on the convertible notes was $31,862 and $1,409, respectively.

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Note 7 – STOCK WARRANTS

The Company had $80,500 in stock warrant liabilities from the eight notes payables discussed in note 6. In return for the consideration paid by the lender, simultaneous with the sale and issuance of the note, the Company issued to the lender a warrant entitling the lender or other holder thereof to purchase that number of shares of common stock as determined by (a) dividing 5% of the consideration paid by the lender, by (b) the exercise price. The exercise price of the warrant was equal to:

●

●	With respect to the Fundamental Transaction, the quotient resulting from dividing (x) $10,000,000 by (y) the number of shares of fully diluted common stock of the Company immediately prior to the closing of the Fundamental Transaction.

The stock warrants were not exercised with the IPO on May 19, 2015 and the exercise price was fixed at $1 per share. The warrant liability for $80,500 was reclassified to paid-in capital.

In connection with the closing of our IPO, the Company also issued the Underwriting Warrant to Burnham Securities, Inc. in consideration of their role as the sole underwriter for our IPO. The Underwriting Warrant is a 5-year warrant to purchase 40,039 shares of common stock at an exercise price of $5.00 per share. The Underwriting Warrant is not exercisable until November 7, 2015 (180-days from the date of the underwriting agreement) and expires on May 11, 2020. The Company estimated the fair value of the Underwriting Warrant at issuance date to be $47,246 using the Black-Scholes option valuation model with the following assumptions: market price of the stock of $5.00 per share, time to maturity of 5 years, volatility of 23%, zero expected dividend rate and a risk free rate of 1.59%.

	Issued and Outstanding Warrants as of January 1, 2015		Warrants Issued		Warrants Exercised/ Expired		Issued and Outstanding Warrants as of June 30, 2015
Convertible Notes		80,500		-		-		80,500
Underwriter Warrants		-		40,039		-		40,039
		80,500		40,039		-		120,539

Note 8 –STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

The Company has 20,000,000 shares of Common Stock authorized at a par value of $0.0001 as of June 30, 2015. There were 10,000,000 shares issued and outstanding from the Reorganization on May 20, 2014. Each Common shareholder has one (1) vote.

On May 19, 2015, the Company closed the initial public offering whereby 1,000,983 shares of common stock were sold at $5.00 per share. The Company paid $725,939 for consulting and legal charges directly related to the public offering. These expenses were adjusted against the selling price of the common stock.

Simultaneously with the close of the initial public offering, the Company also issued 1,681,731 shares in exchange for the conversion of the convertible notes and accrued interest on the same (Note 6).

As of June 30, 2015, the Company had 12,682,714 outstanding shares of common stock. In addition, the Company granted 375,000 shares of restricted stock on June 2, 2015 which vest commencing on December 2, 2015.

Dividend Policy

The Company has not yet adopted a policy regarding the payment of dividends and no dividends have been declared.

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Note 9 – INCOME TAX

The following is the income tax expense reflected in the Statement of Operations for the three- and six- month periods ended June 30, 2015 and 2014:

Income Tax Expense

Three months ended

Six months ended

June 30, 2015

June 30, 2014

June 30, 2015

June 30, 2014

Current

Deferred

Total

The following are the components of loss before income tax reflected in the Statement of Operations for the three- and six- month periods ended June 30, 2015 and 2014:

Components Of Loss Before Income Tax	Three months ended						Six months ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Loss before income tax	$	(250,382	)	$	(184,750	)		(412,783	)		(248,335	)

Income tax	$	-		$	-			-			-

Effective tax rate		0	%		0	%		0	%		0	%

The following is a reconciliation of the provision for income taxes at the US federal income tax rate to the income taxes reflected in the Statement of Operations for the three- and six- month periods ended June 30, 2015 and 2014:

Income Tax Rate Reconciliation	Three months ended						Six months ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
US statutory rates		34	%		34	%		34	%		34	%
Loss from operations		(34	) %		(34	) %		(34	) %		(34	) %
Tax expense at actual rate		-	%		-	%		-	%		-	%

Note 10 –SUBSEQUENT EVENTS

Management has evaluated subsequent events and/or transactions occurring through the date the financial statements were issued.

On July 31, 2015, we acquired 100% of the membership interests of ThinOps Resources LLC , a Texas limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement (“Purchase Agreement”) among Code Rebel, ThinOps and Thomas M. Moreno, the sole member of ThinOps Resources LLC (the “Member”). ThinOps Resources LLC is a management and technology consulting services firm based in Houston, Texas, which had revenue of over $2 million in 2014. The consideration paid by us to the Member in the transaction at closing was $9.25 million in cash and stock. On July 31, 2015, the Company issued approximately 667,511 shares of its common stock with an agreed upon value of $8.5 million (based on the volume weighted average closing price of the Company’s common stock on the Nasdaq Capital Market for the ten trading days immediately preceding the closing date of the Purchase Agreement or an effective price of approximately $12.73 per share).

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect our current expectations of the future results of our operations, performance and achievements. Forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have tried, wherever possible, to identify these statements by using words such as “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends” and similar expressions. These statements reflect our management’s current beliefs and are based on information now available to us. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause our actual results, performance or achievements in 2015 and in future periods to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this Form 10-Q relating to our business, financial performance, business strategy, recently announced transactions and capital outlook. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: a decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the ability to protect our intellectual property rights; the impact of any litigation or infringement actions brought against us; competition from other providers and products; risks in product development; changes in government regulation; the ability to complete customer transactions: the inability to raise additional capital if and when needed; and, other factors relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these or other risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Additional risks, uncertainties and other factors are set forth under “Risk Factors” in the Company’s initial public offering prospectus, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 13, 2015 and in future reports we file with the SEC. Readers of this Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, we undertake no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

You should read the following discussion and analysis of the financial condition and results of operations of our company together with the financial statements and the related notes presented in Part I, Item I of this Form 10-Q.

Overview

As used in this report, the terms “we,” “us,” “our,” “Code Rebel” or the “Company” mean Code Rebel Corporation and its subsidiary (unless the context indicates a different meaning).

We develop, market and license our proprietary iRAPP® terminal services products that allow users of Windows-based personal computers (“PCs”) and Apple Inc. computers (“Macs”) to simultaneously access programs on their PCs and Macs through a single device using a single monitor, mouse and keyboard. Our software provides the seamless interaction of a remote or locally networked Mac OS X server in a merged PC/Mac desktop environment. Our business strategy is closely tied to the continuing development and market penetration of Mac products into the enterprise and commercial business environments. We recently completed our product development phase and are currently commercially marketing and licensing multiple software products grouped into three product families: client-side products; terminal server products; and, access products. We have one operating and reportable business segment.

Our revenue model is based on the sale of software licenses and support and maintenance subscriptions. Enterprise customers currently pay a base license fee of $179 per user, per server. Single-user customers pay a flat license fee of $79. iRAPP and iRAPP TS may be licensed by customers and immediately downloaded from our corporate ecommerce website. Customers also have the option to download our 14-day free trial via Apple’s office website.

Support and maintenance subscriptions are charged at 20% of the customer’s license fee, recurring annually. Subscribed customers receive the latest version of iRAPP with a valid support and maintenance contract in place. We offer a 25% discount on license fees for resellers, educational institutions and non-profit organizations.

We market and distribute our software products through direct sales and our reseller program. We currently have a network of seventeen resellers located in nine countries. As of June 30, 2015, we had issued a total of 19,808 licenses for the use of our iRAPP terminal services products. These licenses included 2,242 paid customer licenses and 17,566 free-of-charge licenses for trial use of our products. Substantially all of our paid licenses began as free-of-charge trial licenses that were subsequently converted by licensees to our payment terms (and are counted only once as paid licenses in the breakdown above). Based on experience, we believe approximately 10% of all new trial licenses are ultimately converted into paid licenses. As of June 30, 2015, our paid licenses were held by 1,866 single-user licensees, as well as 376 corporate licensees supporting 58 individual users each on average, totaling approximately 23,822 paid users. Our five largest customers (by revenue) are Bloomberg L.P., Wells Fargo & Co., Morgan Stanley, United Services Automobile Association and International Business Machines Corp. We have also licensed our software to educational institutions such as the University of California, University of Texas and University of Missouri.

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Matters that May or Are Currently Affecting Our Business

The main challenges and trends that could affect or are affecting our financial results include:

·	our ability to enter into additional license agreements, to expand and diversify our customer base, and to extend the geographic areas we serve;

·	our ability to attract competent, skilled technical and marketing professionals and sub-contractors for our operations at acceptable prices to manage our overhead;

·	our ability to raise additional equity capital, if and when needed; and

·	our ability to control our costs of operations as we expand our infrastructure and capabilities.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined.

We believe that, of the significant accounting policies discussed in Note 2 of Notes to Unaudited Condensed Financial Statements, the following accounting policy requires our most difficult, subjective or complex judgments in the preparation of our financial statements.

Revenue Recognition. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

Results of Operations for the Three- and Six- Month Periods Ended June 30, 2015 and June 30, 2014

The following discussion of our results of operations constitutes managements’ review of the factors that affected our financials and operating performance for the three- and six- months ended June 30, 2015 and 2014. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this report.

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The Three Months Ended June 30, 2015 Compared to the Three Months Ended June 30, 2014

Set forth below are the results of our operations for the three months ended June 30, 2015 and 2014:

	Three Months Ended						$ Increase (Decrease)			% Increase (Decrease)
	June 30, 2015			June 30, 2014			$ Increase (Decrease)			% Increase (Decrease)

Net Revenues	$	44,723		$	79,856		$	(35,133	)		(44	) %
Cost of revenues		81,795			25,376			56,419			222	%
Gross profit (loss)	$	(37,072	)	$	54,480		$	(91,552	)		(168	) %

Operating Expenses:
Depreciation and amortization expense	$	872		$	1,735		$	(863	)		(50	) %
Advertising and promotion		6,000			297			5,703			1,920	%
Professional expenses		869			221,180			(220,311	)		(100	) %
General and administration expenses		147,442			12,976			134,466			1,036	%
Total operating expenses		155,183			236,188			(81,005	)		(34	) %
Loss from operations	$	(192,255	)	$	(181,708	)	$	(10,547	)		6	%

Other Expenses:
Interest expense	$	13,512		$	2,243		$	11,269			502	%
Amortization of debt discount		44,615			799			43,816			5,484	%
Total Other Expense	$	58,127		$	3,042		$	55,085			1,811	%

Loss before income taxes		(250,382	)		(184,750	)		(65,632	)		36	%

Provision for income taxes	$	-		$	-		$	-			-	%

Net loss	$	(250,382	)	$	(184,750	)	$	(65,632	)		36	%

Revenue

We reported a net loss of $250,382 for the three months ended June 30, 2015 as compared to a net loss of $184,750 in the three months ended June 30, 2014. Our revenues decreased by 44% to $44,723 for the three months ended June 30, 2015, from $79,856 in the three months ended June 30, 2014. The decline in revenue was primarily attributable to a decrease in sales through resellers. All of our revenue during the three months ended June 30, 2015 and 2014 was attributable to licenses for our iRAPP products. Our resellers accounted for 34%, or $14,998, of all license sales for the three months ended June 30, 2015 and direct online sales through our website accounted for 66%, or $29,725, of license sales. For the same period of 2014, 70%, or $55,994, of all license sales were through our resellers in the second quarter of 2014 and 30%, or $23,862, were through direct online sales.

Cost of Revenue

Cost of revenue was $81,795 for the three months ended June 30, 2015 compared to $25,376 for the three months ended June 30, 2014, an increase of $56,419, or 222%. Research and development expenditures were $79,781 for the three months ended June 30, 2015, compared to $22,460 for the three months ended June 30, 2014. The $57,321, or 255%, increase in research and development expense was attributed to developing new features in our licensing system that allows direct access by resellers, releasing a new remote printing feature for Windows and replacing the web portal and integrating it with the iRAPP product’s accounting software. Also included in cost of revenue were technological infrastructure costs, web hosting costs and merchant fees. For the three-month period ended June 30, 2015, technological infrastructure costs, web hosting costs and merchant fees were $2,014, compared to $2,916 for the three months ended June 30, 2014.

Operating Expenses

Our operating expenses primarily consist of depreciation and amortization, advertising and promotion, professional and general and administrative expenses. Our expenses may fluctuate from period to period based on the extent of our marketing efforts.

Depreciation and Amortization Expenses

Our depreciation and amortization expenses primarily consist of office equipment, corporate trademarks, our Microsoft license and initial software development costs, which totaled $872 during the three-month period ended June 30, 2015, compared to $1,735 for the same period in 2014. The decrease in depreciation and amortization expenses was primarily due to our office equipment and our Microsoft license being fully depreciated in 2014.

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Advertising and Promotion Expenses

Our advertising and promotion expenses were $6,000 during the three months ended June 30, 2015, compared to $297 for the three months ended June 30, 2014. The increase in advertising and promotion expenses of $5,703, or 1920%, was a direct result of the Company starting an optimized “Google clicks” campaign.

Professional Expenses

Our professional expenses primarily consist of legal, accounting and consulting fees. Our professional expenses decreased from $221,180 for the three months ended June 30, 2014 to $869 for the three months ended June 30, 2015. Due to the resolution of the legal matter with Aqua Connect in August 2014 and legal costs for the IPO being recorded as paid-in-capital, our legal fees were $(29,768) during the three months ended June 30, 2015, compared to $185,008 for the three months ended June 30, 2015. $163,733 of the legal expenses incurred during the three months ended June 30, 2014 related to a lawsuit filed by Aqua Connect for reverse engineering, breach of contract, false promise, unjust enrichment and violation of the California Business and Professional Code. The case was dismissed and a judgment in our favor was entered in August 2014, and a related federal action was settled in September 2014. Accounting expenditures were $14,637 for the three months ended June 30, 2015, compared to $36,172 for the three months ended June 30, 2014, a decrease of $21,534, or 60% The 2014 accounting expense included full audits for 2012, 2013 and 2014 as well as tax return preparations for a converted fiscal year end. Consulting expenditures were $16,000 during the three months ended June 30, 2015, compared to $0 during the same 2014 period as the Company expended financial resources to establish an investor relations presence following the second quarter’s initial public offering.

General and Administrative Expenses

Our general and administrative expenses primarily consist of the salaries and other costs of employment of our executive, finance and administration staff, insurance premiums, filing fees and office rental expenses. General and administrative expenditures were $147,442 for the three months ended June 30, 2015, compared to $12,976 for the three months ended June 30, 2014, an increase of 1036%, or $134,466. The increase in general and administrative expenditures was primarily the result of additional management costs of $50,695 that were required for the preparation of our initial public offering and the ongoing management of a public company, NASDAQ filing fees of $55,933 and an initial $19,800 premium for the Company’s new Directors’ and Officers’ insurance policy. In addition, our rent and utilities increased by $3,787 for the three months ended June 30, 2015, as we moved into larger offices.

Interest and Debt Amortization Expenses

Our interest and amortization of debt discount expenses totaled approximately $58,127 for the three months ended June 30, 2015, compared to $3,042 for the three months ended June 30, 2014. For the three months ended June 30, 2015, interest expenses were primarily attributable to interest of $13,033 on our 6% unsecured convertible promissory notes payable, our amortization of debt discount expense was $44.615 and interest on the business line of credit was $479. During the three months ended June 30, 2014, we incurred interest expenses of $1,409 on our convertible notes payable, $799 from our line of credit with First Hawaii Bank, $799 for amortization of our discount debt and $35 from our business credit card.

The Six Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014

Set forth below are the results of our operations for the six months ended June 30, 2015 and 2014:

	Six Months Ended
	June 30, 2015			June 30, 2014			$ Increase (Decrease)			% Increase (Decrease)

Net Revenues	$	81,423		$	124,218		$	(42,795	)		(34	) %
Cost of revenues		142,915			44,899			98,016			218	%
Gross profit (loss)	$	(61,492	)	$	79,319		$	(140,811	)		(178	) %

Operating Expenses:
Depreciation and amortization expense	$	1,421		$	3,472		$	(2,051	)		(59	) %
Advertising and promotion		9,047			11,380			(2,333	)		(21	) %
Professional expenses		73,895			290,290			(216,395	)		(75	) %
General and administration expenses		186,222			18,606			167,616			901	%
Total operating expenses		270,585			323,748			(53,163	)		(16	) %
Loss from operations	$	(332,077	)	$	(244,429	)	$	(87,648	)		36	%

Other Expenses:
Interest expense	$	33,293		$	3,107		$	30,186			972	%
Amortization of debt discount		47,413			799			46,614			5,834	%
Total Other Expense	$	80,706		$	3,906		$	76,800			1,966	%

Loss before income taxes	$	(412,783	)	$	(248,335	)	$	(164,448	)		66	%

Provision for income taxes		-			-			-			-	%

Net loss	$	(412,783	)	$	(248,335	)	$	(164,448	)		66	%

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Revenue

During the six months ended June 30, 2015, we reported a net loss of $412,783 as compared to a net loss of $248,335 for the six months ended June 30, 2014. The Company’s revenues decreased by 34% to $81,423 for the six months ended June 30, 2015 from $124,218 in the six months ended June 30, 2014. During the six months ended June 30, 2015, 21%, or $17,021, of all license sales were through resellers and 79%, or $64,402, were direct online sales through the Company’s website. During the six months ended June 30, 2014, 58%, or $72,251, of all license sales were through resellers and 42% or $51,967, were direct online sales through the company’s website.

Cost of Revenue

For the six months ended June 30. 2015, cost of revenue was $142,915 compared to $44,899 for the six months ended June 30, 2014, or an increase of $98,016, or 218%. Research and development expenditures were $138,241 for the six months ended June 30, 2015 as compared to $38,928 for the six months ended June 30, 2014. The $99,313 increase, or 255%, was attributable to developing new features in our licensing system that allows direct access by resellers, releasing a new remote printing feature for windows and replacing the web portal and integrating it with our accounting software. For the six months ended June 30, 2015, tech infrastructure costs, hosting costs and merchant fees were $4,674 compared to $5,971 for the six months ended June 30, 2014.

Operating Expenses

Depreciation and Amortization Expenses

During the six months ended June 30, 2015, depreciation and amortization expenses totaled $1,421 compared to $3.472 in the same 2014 period. The decrease in depreciation and amortization expenses was primarily due to our office equipment and our Microsoft license being fully depreciated in 2014.

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Advertising and Promotion Expenses

During the six months ended June 30, 2015, advertising and promotion expenses were $9.047 compared to $11,380 for the same 2014 period. The $2,333, or 21%, decline in advertising and promotion expenses is attributable to the Company’s optimized Google advertising campaign.

Professional Expenses

During the six months ended June 30, 2015, our professional expenses amounted to $73,895, a decrease of 75% from the $290,290 expended during the same period of 2014. Legal expenditures were $28,705 during the six months ended June 30, 2015 compared to $253,094 during the same six-month period of 2014, a decrease of $224,389, or 88%. $231,819 of the recorded 2014 legal expenses was attributable to the Aqua Connect lawsuit, which was ultimately decided in the Company’s favor in August 2014. The legal expenses incurred during the first six months of 2015 were primarily attributable to being a public company. Accounting expenditures amounted to $29,190 for the six months ended June 30, 2015 compared to $37,196 for the six months ended June 30, 2014, a decrease of $8,004, or 22%. The 2014 accounting expenditures included the audit for prior year results and the preparation of an additional tax return. Investor Relations consulting expenses of $16,000 were incurred during the six months ended June 30, 2015 following the Company’s initial public offering compared to $0 expenditures during the same six months of 2014.

General and Administrative Expenses

For the six months ended June 30, 2015, general and administrative expenditures were $186,222 compared to $18,606 during the six months ended June 30, 2014, an increase of 901%, or $167,616. The increase is primarily attributable to an additional management expense of $75,473 due to the preparation for our initial public offering, the management of our new public entity and the outsourcing of several key management functions, $64,863 spent for NASDAQ and other filing fees and a $7,353 increase in rent and utility expenditures.

Interest and Debt Amortization Expenses

Our interest and amortization of debt discount expenses totaled approximately $80,706 for the six months ended June 30, 2015, compared to $3,906 for the six months ended June 30, 2014. For the six months ended June 30, 2015, interest expenses were primarily attributable to interest of $32,027 on our 6% unsecured convertible promissory notes payable, our amortization of debt discount expense was $47,413 and interest on the business line of credit was $1,266. During the six months ended June 30, 2014, we incurred interest expenses of $1,409 on our convertible notes payable, $1,592 from our line of credit with First Hawaiian Bank, $799 for amortization of our debt discount and $106 from our business credit card.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Liquidity and Capital Resources

To finance our transition from a privately held company to a publicly traded corporation, we obtained funding from the issuance of 6% unsecured convertible promissory notes. Effective as of September 30, 2014, we completed a private placement of $1,360,000 in aggregate principal amount of our 6% unsecured promissory notes and warrants to purchase 68,000 shares of common stock to seven unaffiliated institutional and individual accredited investors. In February 2015, we issued an additional promissory note for $250,000, on the same terms as our 2014 6% unsecured promissory notes, together with warrants to purchase 12,500 shares of common stock, to an unaffiliated accredited investor. All of our 6% unsecured promissory notes were converted into 1,681,731 shares of our common stock contemporaneously with the closing of our initial public offering on May 19, 2015. Pursuant to the terms of the 6% unsecured promissory note and warrant agreements with the investors, upon completion of a “net equity financing” in the amount of $750,000 or more (including an initial public offering), all of the principal and accrued interest under the notes were to automatically convert into shares of our common stock at a conversion price equal to the lower of (i) 80% of the sale or implied price of our common stock in such net equity financing (in the case of the public offering of shares of our common stock at $5.00 per share, the conversion price would be $4.00 per share) or (ii) a price based on dividing $10,000,000 by the number of our outstanding shares of common stock immediately prior to such net equity financing (in this case, the conversion price would be $1.00 per share, because as of the date of our initial public offering there were 10,000,000 outstanding shares of common stock). If not earlier converted, the notes were to mature 18 months after the date of their issuance. The terms of the convertible note financing were negotiated with the lead unaffiliated institutional investor and were significantly impacted by the then current legal proceedings involving our company.

The warrants included in the private placement entitle the investors to purchase shares of our common stock in a number determined by dividing 5% of the principal amount of their notes by the exercise price of the warrants, which is stated to be the same price as the conversion price of the notes when determinable. The warrants are exercisable for three years after their issuance date and may be exercised on a cashless basis at any time following 180 days after the date of their issuance in the event the underlying shares have not been registered for resale with the SEC.

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In the six months ended June 30, 2015, the net proceeds of the private placement were used for our working capital and capital expenditure requirements. We did not use the services of a placement agent or other financial intermediary in connection with the private placement. The notes, together with the revenue generated from licenses of our software products and our business line of credit of $50,000 noted below, are providing us with sufficient working capital to fund our current operations and product development.

Our wholly-owned subsidiary, Code Rebel LLC, is indebted to First Hawaiian Bank under a $50,000 line of credit issued in 2012 and due on May 31, 2016, bearing interest at 6.4635% per annum. At June 30, 2015, the outstanding balance under the line of credit was $0. Arben Kryeziu, our Chairman and Chief Executive Officer, personally guaranteed the line of credit.

On May 19, 2015, we sold a total of 1,000,983 shares of our common stock in an initial public offering at a price of $5 per share, raising $5,004,915 in gross proceeds. We are using or plan to use the net proceeds of the offering primarily to expand and increase our marketing efforts to promote the sale of our iRAPP products to both enterprise and consumer users, hire additional technical and marketing personnel, build our infrastructure and engage in collaborative development efforts to expand our terminal services offerings to both PC and Mac enterprise and retail customers. Pursuant to the terms of our 6% unsecured convertible promissory notes described above, all of the outstanding notes, and all accrued interest under such notes, converted into 1,681,731 shares of our common stock. The effect of the conversion of the notes on our financial statements was to reduce our debt by $1,610,000 and to increase our stockholders’ equity by $1,610,000, as a result of the issuance of the additional shares of common stock. As of June 30, 2015, 12,682,714 shares of our common stock were outstanding.

Cash, Cash Equivalents and Investments

As of June 30, 2015, we had $4,428,018 in cash and cash equivalents and a working capital surplus of $4,128,661. Subsequent to June 30, 2015, we used $725,000 of cash in partial consideration for the purchase of the outstanding membership interests of ThinOps Resources LLC.

Cash Flows from Operating Activities

We used $343,345 of cash to fund operating activities during the six months ended June 30, 2015, compared to $43,480 in the six months ended June 30, 2014. More cash was used to fund operating activities during the first six months of 2015 due to increased losses generated by our company and the increase in accrued interest and interest from the discount on our indebtedness.

Cash Flows from Investing and Financing Activities

We generated $4,139,137 of cash from investing and financing activities in the six months ended June 30, 2015, compared to having generated $583,624 of cash from investing and financing activities in the comparable prior year period. The increase in cash from investing and financing activities was attributable to our initial public offering in May 2015.

Operating Capital and Capital Expenditure Requirements

We believe our operating revenue and the remaining proceeds from our private placement of 6% unsecured promissory notes, as well as the proceeds from our initial public offering, will be sufficient to meet our anticipated cash, operational and liquidity requirements for at least the next 12 months.

We may need to obtain additional financing to take advantage of unexpected opportunities that may arise. The sale of additional equity or convertible debt securities could result in ownership percentage dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. Any additional financing may not be available in amounts or on terms acceptable to us. If we fail to obtain additional funding when needed, we may not be able to execute our business plans and our business may suffer.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex and, consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition, impairment of goodwill and other intangible assets, impairment of long-lived assets, share-based earnings and income taxes (including uncertain tax positions). Since June 30, 2015, there have been no changes in our critical accounting policies or significant changes to the assumptions and estimates related to them.

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Recently Issued Accounting Pronouncements

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. ASU 2015-01 eliminates the separate presentation of extraordinary items but does not change the requirement to disclose material items that are unusual or infrequent in nature. Eliminating the concept of extraordinary items will allow the entity to no longer have to assess whether a particular event or transaction is both unusual in nature and infrequent in occurrence. The Company does not expect the provision of ASU 2015-01 to have a material impact on its consolidated financial statements. This update will be effective for the Company beginning with its annual period ending August 26, 2017.

Effects of Governmental Regulations and Inflation

The federal Patient Protection and Affordable Care Act (“PPACA”) that became law in March 2010, and similar state legislation, which mandates minimum employee health care coverage could significantly increase our employee health benefit costs or require us to alter the benefits we provide to our employees. We continue to assess the potential impact the PPACA will have on our business. If our employee health benefit costs increase, we cannot provide assurance that we will be able to offset these costs through increased revenue or reductions in other costs, which could have an adverse effect on our results of operations and financial condition.

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. This means that an “emerging growth company” can make an election to delay the adoption of certain accounting standards until those standards would apply to private companies. We are an “emerging growth company” that has elected to delay such adoption of new or revised accounting standards and, as a result, we may not comply with new or revised accounting standards at the same time as other public reporting companies that are not “emerging growth companies.” This exemption will apply for a period of five years following our first sale of common equity securities under an effective registration statement or until we no longer qualify as an “emerging growth company” as defined under the JOBS Act, whichever is earlier.

We do not believe that general inflation materially impacted our earnings for the three and six month periods ended June 30, 2015.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We currently have no material exposure to interest rate risk. In the future, we intend to invest our excess cash primarily in money market funds, debt instruments of the U.S. government and its agencies and in high quality corporate bonds and commercial paper. Due to the short-term nature of these investments, we do not believe that there will be material exposure to interest rate risk arising from our investments.

We currently have no material exposure to risks related to changes in commodity cost or the value of foreign currencies.

ITEM 4.

CONTROLS AND PROCEDURES

Based on an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2015.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2015 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

PART II - OTHER INFORMATION

ITEM 1. None.	LEGAL PROCEEDINGS
ITEM 1A.	RISK FACTORS

Not applicable.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

As previously disclosed in a Form 8-K filed on July 31, 2015, we issued 667,511 shares of common stock at an effective price of approximately $12.73 in connection with the acquisition of the outstanding membership interests of ThinOps Resources LLC pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933. In addition, on June 2, 2015, we granted to James Canton, a director of the company, 375,000 shares of restricted stock under our 2014 Equity Incentive Award Plan pursuant to a Restricted Stock Award Agreement. Under the terms of such agreement, the shares will vest in three equal increments as follows: (a) as to the first 125,000 restricted shares, on December 2, 2015, (b) as to the next 125,000 restricted shares, on June 2, 2016, and (c) as to the remaining 125,000 restricted shares, on December 2, 2016.

The issuances of the securities described above were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act of 1933.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

On July 31, 2015, we acquired 100% of the membership interests of ThinOps Resources LLC , a Texas limited liability company pursuant to the terms of a Membership Interest Purchase Agreement (“Purchase Agreement”) among Code Rebel, ThinOps and Thomas M. Moreno, the sole member of ThinOps Resources LLC (the “Member”). ThinOps Resources LLC is a management and technology consulting services firm based in Houston, Texas, which had revenue of over $2 million in 2014. The consideration paid by us to the Member in the transaction at closing was $9.25 million in cash and stock. On July 31, 2015, the Company issued approximately 667,511 shares of its common stock with an agreed upon value of $8.5 million (based on the volume weighted average closing price of the Company’s common stock on the Nasdaq Capital Market for the ten trading days immediately preceding the closing date of the Purchase Agreement or an effective price of approximately $12.73 per share).

ITEM 6.

EXHIBITS

Exhibit Number		Description

3.1		Certificate of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 No. 333- 203089.)

3.2		Amended and Restated Certificate of Incorporation of the Company. (Incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 No. 333- 203089.)

3.3		Bylaws of the Company. (Incorporated by reference to Exhibit 3.3 to Registration Statement on Form S-1 No. 333- 203089.)

4.1		Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1 No. 333- 203089.)

10.1		Underwriter’s Warrant Agreement. (Incorporated by reference to Exhibit 1.1 to Form 8-K dated May 11, 2015.)

10.2		Employment Agreement with Arben Kryeziu. (Incorporated by reference to Exhibit 10.4 to Registration Statement on Form S-1 No. 333- 203089.)

10.3		Employment Agreement with Reid Dabney. (Incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-1 No. 333- 203089.)

31.01*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**		Interactive Data Files.

_________________

*	Furnished herewith.

In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CODE REBEL CORPORATION

August 14, 2015	By:	/s/ Arben Kryeziu
		Arben Kryeziu Chairman and Chief Executive Officer (Principal Executive Officer)

August 14, 2015	By:	/s/ Reid Dabney
		Reid Dabney Chief Financial Officer (Principal Financial and Accounting Officer)

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Code Rebel Corp - FORM 10-Q - August 14, 2015

Attached files

Code Rebel Corp Reports