COROWARE, INC, - 10-Q/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may" "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms, or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors. Although we believe that the expectations reflected in the forward-looking statements are reasonable, they should not be regarded as a representation by CoroWare, Inc., or any other person, that such expectations will be achieved. The business and operations of CoroWare, Inc. are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report.

BACKGROUND CoroWare, Inc ("CoroWare" or "the Company") is a public holding company whose principal subsidiary, CoroWare Technologies, Inc. ("CTI"), has expertise in information technology consulting, mobile robotics, and affordable telepresence. Through its subsidiary, the Company delivers custom engineering services, hardware and software products, and subscription services that benefit customers in North America, Europe, Asia and the Middle East. Their customers span multiple industry sectors and are comprised of universities, software and hardware product development companies, and non-profit organizations. The company also maintains a Near Shore practice which is comprised of multiple subcontracting companies with whom the company maintains close working relationships. Through these relationships, the Company is able to provide services in South America.

COROWARE TECHNOLOGIES, INC.

CTI is a software professional services company with a strong focus on Information Technology integration and robotics integration, business automation solutions, and unmanned systems solutions to its customers in North America and Europe.

CTI's expertise includes the deployment and integration of computing platforms and applications, as well as the development of unmanned vehicle software and solutions for customers in the research, commercial, and homeland security market segments. CTI shall continue to offer its high value software systems development and integration services that complement the growing trend in outsourced software development services in Asia, Latin America, and Eastern Europe.

CoroWare Technologies comprises three separately managed lines of business: · CoroWare Business Solutions: IT and lab management; software architecture, design and development; content delivery; partner and program management.

· Robotics and Automation: Custom engineering such as visualization, simulation and software development; and mobile robot platforms for university, government and corporate researchers.

· Telepresence: High definition video conferencing products, solutions and subscription services.

The Company's revenues are principally derived from standing contracts that include Microsoft (partner management and IT professional services), a European auto manufacturer (simulation software custom development), and other customers whose product development groups require custom software development and consulting companies. Existing contract revenues vary month by month based on the demands of the clients. The Company's telepresence effort is in the early stages of growth and will require additional working capital to compete effectively against new entrants in this rapidly growing market.

-22- --------------------------------------------------------------------------------RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2010: During the three-month period ended September 30, 2011 (the "2011 Period") revenues were $389,089 compared to revenues of $376,648 during the three-month period ended September 30, 2010 (the "2010 Period"). Our revenues were flat compared to the previous year as customers reduced spending on software development services for billing integration, custom engineering, and IT consulting projects in the summer months; purchased CoroCall hosted services instead of videoconferencing infrastructure and room systems; and delayed spending on mobile robotics projects until later in the calendar year.

Cost of revenues was $289,945 for the 2011 Period compared to $243,621 for the 2010 Period. Cost of revenues represents primarily labor and labor-related costs in addition to overhead costs. Gross profit on these 2011 revenues amounted to $99,144 (25.5% gross profit percentage) compared to $133,027 (35.3% gross profit percentage) for the 2010 Period. The reduced gross profit percentage resulted from additional personal time off (PTO) and unanticipated project warranty expenses.

Research and development was $20,372 (5.2% of gross revenues) for the 2011 Period compared to $51,097 (13.6% of gross revenues) in the 2010 Period. The decreased research and development investment resulted from completing our software development and testing initiatives, including CoroCall Communications Cloud Service and CoroWare Billing Integration Framework.

Operating expenses were $274,784 during the 2011 Period compared to $479,376 during the 2010 Period. Sales and marketing were lower in the 2011 Period as the Company adjusted sales compensation plans to bring them in line with the Company's cost of sales objectives. Loss from operations was $175,640 during the 2011 Period compared to $346,349 in the 2010 Period.

Total other expense was $2,760,329 during the 2011 Period compared to a loss of $1,061,716 in the 2010 Period. Other income (expense) is comprised primarily of derivative income and amortization of debt discount and deferred finance costs. Derivative expense in the 2011 Period was $2,561,925 compared to derivative expense of $923,670 in the 2010 Period. Derivative expense increased in the 2011 period with the addition of new convertible debentures in addition to the modifications made to certain notes payable which triggered derivative treatment. Interest expense for the three month 2011 Period is $198,518 compared to $142,061 for the three month 2010 Period. The debt discount was amortized using the effective interest method. Under this method, the amount of amortization increased exponentially as the underlying carrying value of the amortized debt increased.

Net Loss for the 2011 Period was $2,935,969 compared to a net loss of $1,408,065 for the 2010 Period.

NINE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2010: During the nine-month period ended September 30, 2011 (the "2011 Period") revenues were $1,277,358 compared to revenues of $1,555,270 during the nine-month period ended September 30, 2010 (the "2010 Period"). Our revenues decreased compared to the previous year as sales of videoconferencing infrastructure and room systems shifted toward CoroCall hosted services; and delayed spending on software development services for billing integration, custom engineering, and IT consulting projects.

Cost of revenues was $849,347 for the 2011 Period compared to $1,176,497 for the 2010 Period. Cost of revenues represents primarily labor and labor-related costs in addition to overhead costs. Gross profit on these 2011 revenues amounted to $428,011 (33.5% gross profit percentage) compared to $378,773 (24.4% gross profit percentage) for the 2010 Period.

-23- --------------------------------------------------------------------------------Research and development was $106,562 (8.3% of gross revenues) for the 2011 Period compared to $86,904 (5.6% of gross revenues) in the 2010 Period.

Operating expenses were $1,036,048 during the 2011 Period compared to $1,120,619 during the 2010 Period. Sales and marketing expenses were slightly lower in the 2011 Period as the Company invested in sales and marketing initiatives in the first 6 months of the year to help increase major account sales of CoroCall and CoroWare's telepresence product sales in the coming months, and then adjusted sales compensation plans in the 3rd quarter to bring them in line with the Company's cost of sales objectives Loss from operations was $608,037 during the 2011 Period compared to $741,846 in the 2010 Period.

Total other expense was $3,590,548 during the 2011 Period compared to total other expense of $416,112 in the 2010 Period. Other income expense is comprised primarily of derivative income (expense) and amortization of debt discount and deferred finance costs. Derivative expense in the 2011 Period was $3,021,883 compared to a derivative income of $76,772 in the 2010 Period. The embedded conversion features associated with our convertible debentures are valued based on the number of shares that are indexed to that liability. Keeping the number of shares constant, the liability associated with the embedded conversion features increases as our share price increases and, likewise, decreases when our share price decreases. Derivative income (expense) displays the inverse relationship. Derivative expense increased in the 2011 period with the addition of new convertible debentures in addition to the modifications made to certain notes payable which triggered derivative treatment. Interest expense for the 2011 Period was $567,600 compared to $559,615 for the 2010 Period.

Net Loss for the 2011 Period was $4,198,586 compared to a net loss of $1,157,958 for the 2010 Period.

Basic weighted average shares outstanding were 498,096,006 during the 2011 Period compared to 15,356,860 in the 2010 Period. There is no fully diluted calculation for the 2011 Period or the 2010 Period as the effect would be anti-dilutive.

LIQUIDITY AND CAPITAL RESOURCES At September 30, 2011, we had current assets of $186,880, current liabilities of $13,532,153, negative working capital of ($13,345,273) and an accumulated deficit of $29,636,555. For the nine months ending September 30, 2011, we had net cash flows used in operating activities of ($57,922) and net cash flows provided by financing activities of $78,162.

We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding. We will still need additional capital in order to continue operations until we are able to achieve positive operating cash flow. Additional capital is being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. If we do not obtain additional capital, we may cease operations.

However, even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

OFF-BALANCE SHEET ARRANGEMENTS We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

-24- --------------------------------------------------------------------------------CONTRACTUAL OBLIGATIONS The following table sets forth the contractual obligations of the Company as of December 31, 2010: Payments due by Period Less than 1 More than 5Contractual Obligations Total year 1-3 years 3-5 years years Convertible debt, net $ 2,292,410 $ 2,292,410 $ - $ - $ - Notes payable 263,133 263,133 - - - Notes payable, related parties 292,812 292,812 - - - Operating leases 235,305 46,065 101,094 88,146 - Long -term debt 982,450 982,450 - - - Total $ 4,066,110 $ 3,876,870 $ 101,094 $ 88,146 $ - EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS Refer to Form 10-K for the year ended December 31, 2010.

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