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 December 31, 2015

 

☐ 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 March 28, 2016, there were 76,977,541 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	15
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 December 31, 2015 (Unaudited) and September 30, 2015		F-2
Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2015 and 2014 (Unaudited)		F-3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2015 and 2014 (Unaudited)		F-4
Notes to Condensed Consolidated Financial Statements (Unaudited)		F-5

 

 

 

 

 

 

 

 

 

 

 

 

AIRWARE LABS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
			December 31,				September 30,
			2015				2015
			(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	26,608			$	41,745
Accounts receivable			530				530
Inventory			32,602				45,457
Prepaid expenses and other current assets			3,072				8,476
Total current assets			62,812				96,208
Other Assets:
Property and equipment, net			11,579				14,070
Deposits			2,387				2,387
Total Assets		$	76,778			$	112,665
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable		$	1,680,089			$	1,640,327
Accrued interest - related parties			39,276				38,849
Accrued interest			1,744				1,644
Accrued expenses			130,912				138,057
Notes payable to former officer			35,625				47,500
Convertible note payable			5,000				5,000
Convertible notes payable to related parties - current portion			20,000				20,000
Total current liabilities			1,912,646				1,891,377
Convertible notes payable to related parties, less current portion			3,206,000				3,206,000
Total liabilities			5,118,646				5,097,377
Commitments and Contingencies
Stockholders' Deficit:
Common stock, par value $.0001 per share, 200,000,000 shares authorized; 74,429,954 and 72,210,283 shares issued and outstanding at December 31, 2015 and September 30, 2015, respectively			7,443				7,221
Common stock to be issued, 520,000 and 290,000 shares at December 31, 2015 and September 30, 2015, respectively			52				29
Additional paid-in capital			32,182,145				31,843,635
Accumulated deficit			(37,231,508	)			(36,835,597	)
Total stockholders' deficit			(5,041,868	)			(4,984,712	)
Total Liabilities and Stockholders' Deficit		$	76,778			$	112,665

 

 

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

 

 

AIRWARE LABS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		Three Months Ended
		December 31,				December 31,
		2015				2014
Revenues, net		$	104,874			$	93,284
Cost of products sold			56,185				56,757
Gross profit			48,689				36,527
Operating expenses
General and administrative			188,987				211,433
Sales and marketing			11,261				60,984
Total expenses			200,248				272,417
Loss from operations			(151,559	)			(235,890	)
Other expense
Interest expense			(244,352	)			(687,244	)
Total other expense			(244,352	)			(687,244	)
Loss before income taxes			(395,911	)			(923,134	)
Income tax expense			—				—
Net loss		$	(395,911	)		$	(923,134	)
Basic and diluted net loss per common share		$	(0.01	)		$	(0.01	)
Basic and diluted weighted average common shares outstanding			72,624,706				63,407,496

 

 

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

 

AIRWARE LABS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
		Three Months Ended
		December 31,				December 31,
		2015				2014
Operating Activities:
Net loss		$	(395,911	)		$	(923,134	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			2,491				16,182
Common stock issued for services			12,750				62,000
Options and warrants issued for services			27,949				16,435
Interest expense from amortization of debt discount			—				391,264
Stock issued for payment of interest on convertible notes - related party			243,656				292,192
Exchange of sales proceeds for mold			—				(8,290	)
Changes in operating assets and liabilities:
Accounts receivable			—				(83,225	)
Inventory			12,855				3,012
Prepaid expenses			5,404				(7,234	)
Accounts payable			39,762				35,719
Accrued interest			527				3,411
Accrued expenses			(7,145	)			5,303
Net Cash Used in Operating Activities			(57,662	)			(196,365	)
Investing Activities:
Purchases of property and equipment			—				(6,710	)
Net Cash Used in Investing Activities			—				(6,710	)
Financing Activities:
Stock and warrants issued for cash			54,400				—
Proceeds from convertible notes payable - related party			—				250,000
Repayment of notes payable			(11,875	)			(11,792	)
Net Cash Provided by Financing Activities			42,525				238,208
Net (Decrease)/Increase in Cash			(15,137	)			35,133
Cash - Beginning of Period			41,745				42,582
Cash - End of Period		$	26,608			$	77,715
Supplemental disclosure of cash flow information:
Interest paid in cash		$	—			$	208
Income taxes paid in cash		$	—			$	—

 

 

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

 

 

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.

 

Principles of Consolidation

The accompanying 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, 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.

 

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.

 

Unaudited Interim Financial Statements

 

The interim condensed consolidated financial statements of the Company as of December 31, 2015 and 2014, and for the periods then ended, are unaudited. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company’s financial position as of December 31, 2015 and the results of its operations and its cash flows for the periods ended December 31, 2015 and 2014. These results are not necessarily indicative of the results expected for the fiscal year ended September 30, 2016. 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”).

 

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 December 31, 2015 and 2014, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

 

As of December 31, 2015, there were total shares of 42,820,958 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 yet reached a level of revenue sufficient to fund its operating activities. These factors create an uncertainty as to how the Company will fund its operations and maintain sufficient cash flow to operate as a going concern.

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 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 is 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 following represents future minimum payments due on the outstanding balance:

 

Principal balance at December 31, 2015		$	35,625
Less current portion			(35,625	)
		$	—

 

5.

Convertible Notes Payable to Related Parties

 

Convertible notes payable to related parties consist of the following:

 

12% note payable due September 30, 2017, convertible to common stock at $.10 per share, interest payments are due monthly.  Debt is secured by substantially all of the assets of the Company.		$	3,206,000
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	)
		$	3,206,000

 

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 $11,875 of the note payable during the three months ended December 31, 2015.

The Company paid $15,305 during the three months ended December 31, 2015 to a company owned by its CFO for her services as CFO.

The Company paid $31,248 during the three months ended December 31, 2015 to a company owned by its President for his services as President.

During the three months ended December 31, 2015, 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 three months ended December 31, 2015, 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 December 31, 2015, 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 $4,120 as of December 31, 2015.

 

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. $31,248 was paid during the three months ended December 31, 2015 per this agreement.

 

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 December 31, 2015. 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 three months ended December 31, 2015, the Company issued 1,923,600 shares of common stock in payment of September through November 2015 interest totaling $96,180 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. The shares were not issued as of the end of the quarter.

 

Warrants

 

The balance of warrants outstanding for purchase of the Company’s common stock as of December 31, 2015 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
Expired warrants			(125,464	)
Balance of Warrants at December 31, 2015			5,214,662

 

(1) During the quarter ended December 31, 2015, 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 December 31, 2015:

 

			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
Balance of Options at June 30, 2015			5,496,296

 

(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 receives monthly stock option grants. He is to receive $7,500 per month in stock option grants, and the quantity of stock options issued monthly is determined by the closing price on the last day of the month.

 

During the three months ended December 31, 2015, $21,091 was expensed for the pro-rata vesting of stock-based compensation. As of December 31, 2015, the balance of unrecognized compensation cost related to non-vested stock-based compensation to be expensed in future periods was $57,388.

 

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 three months ended December 31, 2015:

 

Expected stock price volatility	32.96-33.09%
Expected dividend yield	0.00%
Risk-free interest rate	2.15-2.20%
Option life	10.00 years

 

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 the three months ended December 31, 2015, sales to two distributors was approximately 95% of our total sales.

 

10.

Subsequent Events

 

On January 22, 2016, the Company entered into an Allonge to the convertible note held by our primary debt holder, who is a related party, 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.

On March 8, 2016, the Company granted 433,333 stock options to corporate officers and 150,000 stock options to a Board member. The options are exercisable at $.15 per share with a ten year term. The options for the Board member vested immediately, the others vest equally over three years.

On March 15, 2016, the Company issued 1,930,087 shares of common stock to a related party as payment for interest on loans to the Company for December 2015 through February 2016 totaling $97,504. Additionally, the Company issued 100,000 shares of common stock at a cost basis of $.10 per share pursuant to a subscription agreement dated January 29, 2016. The Company also issued 517,500 shares of common stock at a cost basis of $.20 per share pursuant to a subscription agreement dated April 10, 2015.

 

 

 

 

 

 

 

 

 

End of Notes to Financial Statements

 

 

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 December 31, 2015 was $104,874, as compared to $93,284 for the three months ended December 31, 2014. Operating expenses in the quarter ended December 31, 2015 amounted to $200,248 as compared to $272,417 for the quarter ended December 31, 2014. The decrease in expenses is primarily due to a reduction in marketing expenses.

 

The net loss for the quarter ended December 31, 2015 was $395,911 as compared to $923,134 for the quarter ended December 31, 2014, this is due to a significant decrease in interest expense from debt discount.

 

Liquidity and Capital Resources

 

Our balance sheet as at December 31, 2015 reflects $26,608 in cash and cash equivalents as compared to $41,745 as at 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 $1,849,834. 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.  

 

Cash Flow from Operating Activities

 

During the three months ended December 31, 2015, the Company’s operating activities used $57,662 in cash as compared to $196,365 used by operating activities for the three months ended December 31, 2014. The decrease in cash used for operating activities is primarily due to accruing for officer salaries and reductions in cash payments for marketing activities.

 

Cash Flow from Investing Activities

 

During the three-month periods ended December 31, 2015 and 2014, the Company used $NIL 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 in the three months ended December 31, 2015.

 

Cash Flow from Financing Activities

 

During the three months ended December 31, 2015, the Company received $42,525 in cash from financing activities, which consisted of $54,400 in stock and warrants issued for cash offset by $11,875 in repayment of notes payable. This compares with $238,208 in cash from financing activities during the three months ended December 31, 2014, which consisted of $250,000 in financing from notes payable, offset by $11,792 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, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.

 

Future Financings

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

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies

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

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

Recently Issued Accounting Pronouncements

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2015.

 

Changes in Internal Control over Financial Reporting

 

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

 

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

 

PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

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

 

Other than those certain 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.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

1.

Quarterly Issuances:

On November 5, 2015, the Company issued 641,200 restricted shares of common stock to a related party as payment for interest on loans to the Company for September 2015, at a cost basis of $0.05 per share.

 

On December 31, 2015, the Company issued 1,282,400 restricted shares of common stock to a related party as payment for interest on loans to the Company for October and November 2015, at a cost basis of $0.05 per share. Additionally, the Company issued an aggregate 200,000 restricted shares of common stock to two shareholders at a cost basis of $0.10 per share pursuant to two subscription agreements dated between December 3, 2015 and December 14, 2015, and 96,071 restricted shares of common stock as compensation to a consultant for 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.

 

2.

Subsequent Issuances:

 

On March 15, 2016, the Company issued 1,930,087 restricted shares of common stock to a related party as payment for interest on loans to the Company for December 2015, January 2016, and February 2016, at a cost basis of $0.05 per share. Additionally, the Company issued 100,000 restricted shares of common stock to a shareholder at a cost basis of $0.10 per share pursuant to a subscription agreement dated January 29, 2016. The Company also issued 517,500 restricted shares of common stock to a shareholder at a cost basis of $0.20 per share pursuant to a Subscription Agreement dated April 10, 2015.

 

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.

 

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: March 28, 2016	By:	/s/  Jeffrey Rassas
	Name:	Jeffrey Rasses
	Title:	Chief Executive Officer and Director
Date: March 28, 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: March 28, 2016	By:	/s/  Jeffrey Rassas
	Name:	Jeffrey Rasses
	Title:	Chief Executive Officer and Director
Date: March 28, 2016	By:	/s/  Jessica Smith
	Name:	Jessica Smith
	Title:	Chief Accounting and Financial Officer

Date: March 28, 2016	By:	/s/  Ronald L. Miller
	Name:	Ronald L. Miller
	Title:	Director

 

 

 

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