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AIRW > SEC Filings for AIRW > Form 10-Q/A on 25-Oct-2012All Recent SEC Filings

Show all filings for CROWN DYNAMICS CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q/A for CROWN DYNAMICS CORP


25-Oct-2012

Quarterly Report


ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following Management's Discussion and Analysis should be read in conjunction with Crown Dynamic's 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 December 31, 2011.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with the Company's Board of Directors, management has identified the following accounting policies that it believes are integral to understanding its financial statements. These are important accounting policies that require management's most difficult, subjective judgments.

Discussion of Acquirer for Accounting Purposes

On March 20, 2012 Crown Dynamics Corp. ("Crown") and AirWare Holdings, Inc. ("Airware") executed a share exchange agreement (the "Exchange") to effectively merge the two entities. Management originally believed that Crown was the accounting acquirer, but upon further review of the facts at the time of the merger and subsequent events, management now believes that based on the analysis under ASC 805-10-55-12 as detailed below that Airware is the accounting acquirer.

ASC 805-10-55-12 states in part that in business combination effected primarily by exchanging equity interest (as is the case in the instant combination) the acquirer usually is the entity that issues the equity interest. . However, in some business combinations, commonly called reverse acquisitions, the issuing entity is the acquiree. In our combination, Crown is the entity that issued the equity interest, pursuant to the Exchange.

ASC 805-10-55-12 further indicates that all pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by or through an exchange of equity interest. Particularly those in ASC 805-10-55-12(a) through 12(e) and that additional facts and circumstances that may be pertinent should be considered as well as the relative size of the combining entities.

In the instant case, there are facts that would support either party as being the accounting acquirer; however a preponderance of the facts supports Airware as the acquirer. Specifically, as follows:

ASC 805-10-55 section 12(a)- The relative voting rights in the combined entity after the business combination.

The acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights of the combined entity. Here, the Exchange leaves the existing Crown shareholders with 22,725,000 shares and Airware shareholders with 21,844,136 shares before taking into account Airware's options, warrants and convertible securities. There are no unusual voting arrangements. Airware options and warrants would add another 2,540,000 for Airware. In addition there are convertible notes that would result in issuance of another 6,022,500 shares for Airware. Since all of the warrants and options are "in the money" ultimately the Airware shareholders could have the controlling shares. If all of the options, warrants and notes converted Airware shareholders would have a total of 30,406,636 shares compared to Crown shareholders of 22,725,000.

ASC 805-10-55 section 12(b)- The existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest.

The acquirer usually is the combining entity whose owners or organized group of owners holds the largest minority voting interest in the combined entity.

The officers and Board members of Airware collectively, directly or indirectly, control 15,913,436 shares, when convertible notes are included. The holdings of this group exceed the largest holding of a single shareholder or group of Crown.

ASC 805-10-55 section 12(c)- The composition of the governing body of the combined entity.

The acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity. At the time of Exchange, the Board of Directors was composed of three Board Members from the Crown group and three from the Airware group. Airware would have the ability to gain control of the Board as noted in 12(a) and 12(b) above.

ASC 805-10-55 section 12(d)- The composition of senior management of the combined entity.

The acquirer usually is the combining entity whose former management dominates the management of the combined entity. At the date of Exchange, the management consisted of Steve Aninye as CEO (Crown) and Jeffry Rassas, President (Airware). Steve Aninye resigned from both the Board and as an officer subsequent to the transaction.

ASC 805-10-55 section 12(e)- The terms of the exchange of equity interest.

The acquirer usually is the combining entity that pays a premium over the pre-combination fair value of the equity interest of the other combining entity. Crown paid a premium for the equity interest in Airware. Airware fair value at the time of the combination was equal to $.50 per share, taking into account the 2 - 1 exchange. Crown shares were publicly trading at that time for $2.40.

ASC 805-10-55-13 states that, "The acquirer usually is the combining entity whose relative size is significantly larger than that of the other combining entity." Airware was the larger entity at the time of the transaction. Based upon this analysis, the preponderance of the facts noted above support management's conclusion that Airware is the accounting acquirer.

Corporate Background

We were incorporated in Delaware on June 15, 2010 and are a development stage company. On July 15, 2010, we entered into an exclusive worldwide patent sale agreement (the "Patent Transfer and Sale Agreement ") with Illanit Appelfeld, (the "Seller") in relation to a patented technology (U.S. Patent Number:
5,799,354) (the "Patent") for a toothbrush having a handle and a brush head. The brush head comprises two sides with one central bristle of tufted bundles, each mounted to a respective separate base. The patent and technology were transferred to us in exchange of payment to Illanit Appelfeld (the Seller) of US $9,000 (Nine thousands United States Dollars), according to the terms and conditions specified in the Patent Transfer and Sale Agreement related to the U.S. Patent Number: 5,799,354.

Since 2010, we have migrated from dental technology to greater applications in home medical technology. On January 20th, the company entered into a Technology License Agreement (the "Agreement") with Zorah LLC ("Zorah").

Now, the Company has non-exclusive rights to Zorah's Technology for development and distribution worldwide of Zorah's technologies. These technologies include a wireless technology to remotely monitor senior citizens and special needs adults and the development of a transdermal blood sugar monitoring unit, which will allow people to take their blood sugar levels without pricking themselves.

On March 20, 2012, Crown Dynamics Corp., a Delaware Corporation (the "Company or CDYY"), executed a Share Exchange Agreement (the "Agreement") with Airware Holdings, Inc., a Nevada corporation ("AirWare"). Under the Terms of the Agreement, Crown would acquire Airware and their business for operating and accounting purposes.

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Transfer Agent

We have engaged Nevada Agency and Trust as our stock transfer agent. Nevada Agency and Trust is located at 50 West Liberty Street, Reno, Nevada 89501. Their telephone number is (775) 322-0626 and their fax number is (775) 322-5623. The transfer agent is responsible for all record-keeping and administrative functions in connection with our issued and outstanding common stock.

Liquidity and Capital Resources

For the Six Months Ended June 30, 2012

During the six months ended June 30, 2012, net cash used in the Company's operating activities totaled $334,075. Net cash used in investing activities during the six month period ended June 30, 2012 totaled $40,000. Net Cash provided from financing activities was $380,000 for the six month period ended June 30, 2012. For the six month period ended June 30, 2012, the Company's cash balance decreased during the year by $5,925.

At June 30, 2012, the Company had cash of $14,111, accounts receivable of $25,000 and inventory of $22,393 that comprised the Company's total current assets totaling $68,116. The Company's property and equipment at June 30, 2012 had a net book value of $46,595. The Company also had intangible assets totaling $334,061 and security deposits of $2,400 at June 30, 2012, while the Company's total assets at June 30, 2012 were $ 451,172.

At June 30, 2012, the Company had total current liabilities totaling $2,833,848 including $658,315 in convertible notes payable to related parties.

At June 30, 2012, the Company had total liabilities of $2,997,416. At the date of this filing the Company has released its new product line and has been successful in securing $1.2 million in purchase orders to date and anticipates a continued increase in sales of the new product. The Company anticipates that it will be able to handle its cash requirements through future sales as well as through future debt and equity funding.

RESULTS OF OPERATIONS

For the Six Months Ended June 30, 2012 versus June 30, 2011

Revenues and Gross Profit (Loss)

The Company's had no induced note conversion expense for the three month ended June 30, 2012 as compared to a $439,771 expense for the three month period ended June 30, 2011. The number of convertible notes available for conversion has decreased for the 2012 period over the 2011 period. The company moved the location of its operations and reduced the amount of office space occupied during the six month period ended June 30, 2012. Consequently much of its office equipment and furniture was disposed of resulting in a loss on disposition of $64,238 compared to no loss for the three month period ended June 30, 2011.

The Company's general and administrative expense for the six month ended June 30, 2012 was $2,560,353 compared to $404,368 for the six months ended June 30, 2011. The $2,155,985 increase in 2012 over the 2011 expense is primarily the result of stock compensation expense to Company officers of $1,638,369 and stock compensation to directors of $220,000. The Company's interest expense for the six months ended June 30, 2012 was $114,398 compared to $381,393 for the six months ended June 30, 2011. The decrease in interest expense of $266,995 was primarily the result of the reduction in the amount of convertible notes payable from 2011 to 2012.

Going Concern Consideration

Our auditors have issued an opinion on our annual financial statements which includes a statement describing our going concern status. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations because we have not generated any revenues and no revenues are anticipated until we begin marketing the product. Accordingly, we must raise capital from sources other than the actual sale of the product. We must raise capital to implement our project and stay in business.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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