UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2015 

or

 

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________ to __________________________

 

Commission file number: 000-52524

 

THINSPACE TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

Delaware			43-2114545
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
12555 Orange Drive, Suite 216 Davie, FL				33331
(Address of principal executive offices)				(zip code)

 

(786) 763-3830

(Registrant's telephone number, including area code)

 

5535 S. Williamson Blvd, Unit 751 Port Orange, FL 32128

(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 þNo 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 (§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 þNo 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.

 

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o (Do not check if smaller reporting company)		Smaller reporting company þ

 

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

 

Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date, 104,488,675 shares of common stock are issued and outstanding as of May 12, 2015.

 

 

 

TABLE OF CONTENTS

 

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited).	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	16
Item 4	Controls and Procedures.	16
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	17
Item 1A.	Risk Factors.	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	17
Item 3.	Defaults Upon Senior Securities.	17
Item 4.	Mine Safety Disclosures.	17
Item 5.	Other Information.	17
Item 6.	Exhibits.	17

 

 

 

 

THINSPACE TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

  

		March 31,				December 31,
		2015				2014
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	166,191			$	135,965
Accounts receivable			516,016				158,329
Inventory			95,703				100,637
Prepaid expenses and other current assets			7,009				17,058
Total current assets			784,919				411,989
Fixed assets, net of accumulated depreciation of $75,133 and $73,396, respectively			25,737				31,272
Intangible assets, net of accumulated amortization of $481,837 and $489,221, respectively			122,701				142,799
Other assets			101,178				104,683
Total assets		$	1,034,535			$	690,743
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable and accrued expenses		$	2,089,488			$	1,627,641
Income taxes payable			29,000				29,000
Deferred revenue			673,697				773,163
Loans and notes payable, current portion			478,837				469,400
Convertible notes payable, net of discount of $243,647 and $0, respectively			317,284				-
Derivative liabilities			12,142,152				12,173,986
Total current liabilities			15,730,458				15,073,190
Deferred revenue, long term			190,903				202,826
Convertible notes payable, net of discount of $1,380,201 and $1,247,035, respectively			714,796				849,396
Loans payable			-				13,953
Total liabilities			16,636,157				16,139,365
Stockholders' deficit
Preferred stock, undesignated, authorized 49,253,000 shares, $0.001 par value,
no shares issued and outstanding, respectively			-				-
Preferred stock, Series B, authorized 75,000 shares, $0.001 par value,
75,000 shares issued and outstanding			75				75
Preferred stock, Series C, authorized 672,000 shares, $0.001 par value,
672,000 shares issued and outstanding			672				672
Common stock authorized 500,000,000 shares, $0.001 par value,
98,381,445 shares issued and outstanding			98,381				98,381
Additional paid in capital			6,991,204				6,890,970
Accumulated deficit			(22,684,907	)			(22,414,873	)
Accumulated other comprehensive income (loss)			(7,047	)			(23,847	)
Total stockholders' deficit			(15,601,622	)			(15,448,622	)
Total liabilities and stockholders' deficit		$	1,034,535			$	690,743

 

 

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

 

 

THINSPACE TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2015 AND 2014

(Unaudited)

		Three Months Ended March 31,
		2015				2014
Revenues		$	790,306			$	784,608
Cost of goods sold			362,266				115,679
Gross profit			428,040				668,929
Operating expense:
Selling, general and administrative			996,859				1,188,574
Depreciation and amortization			19,629				19,784
Total operating expense			1,016,488				1,208,358
Loss from operations			(588,448	)			(539,429	)
Gain (loss) on change in fair value of derivative liability			1,171,320				(21,752,944	)
Gain on conversion of debt			-				155,129
Interest expense			(852,906	)			(3,784,885	)
Loss before provision for income taxes			(270,034	)			(25,922,129	)
Provision for income taxes			-				-
Net loss			(270,034	)			(25,922,129	)
Preferred dividend			(1,875	)			(1,875	)
Net loss attributable to common shareholders		$	(271,909	)		$	(25,924,004	)
Basic and diluted loss per share		$	(0.00	)		$	(0.29	)
Weighted average shares outstanding,
Basic and diluted			98,381,445				89,934,196
Comprehensive loss:
Net loss		$	(270,034	)		$	(25,922,129	)
Foreign currency translation adjustments			16,800				(7,097	)
Comprehensive loss		$	(253,234	)		$	(25,929,226	)

 

 

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

 

 

THINSPACE TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2015 AND 2014

(Unaudited)

 

		Three Months Ended March 31,
		2015				2014
Cash flows from operating activities:
Net loss		$	(270,034	)		$	(25,922,129	)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization			19,629				19,784
Amortization of prepaid stock based compensation			-				312,500
Stock based compensation			102,109				-
Gain on conversion of debt			-				(155,130	)
Change in fair value of derivative liability			(1,171,320	)			21,752,944
Amortization of debt discount			773,920				3,756,944
Changes in operating assets and liabilities:
Accounts receivable			(371,145	)			75,032
Inventory			4,934				(10,579	)
Prepaid expenses and other current assets			9,735				(291,830	)
Other assets			(934	)			(7,000	)
Accounts payable and accrued expenses			481,228				(55,835	)
Deferred revenue			(97,294	)			(336,334	)
Net cash used in operating activities			(519,172	)			(861,633	)
Cash flows from investing activities:
Cash paid for fixed assets			-				(3,748	)
Net cash used in investing activities			-				(3,748	)
Cash flows from financing activities:
Proceeds from sale of preferred stock			-				472,000
Proceeds from notes payable			640,650				300,000
Repayments of notes payable			(92,400	)			-
Repayment of loan			(3,543	)			(3,735	)
Payment of accrued preferred dividends			(1,800	)			-
Repayments to related parties			-				(38,900	)
Net cash provided by financing activities			542,907				729,365
Effect of exchange rate changes on cash			6,491				(5,928	)
Net increase (decrease) in cash			30,226				(141,944	)
Cash, beginning of period			135,965				341,031
Cash, end of period		$	166,191			$	199,087
Supplemental Schedule of Cash Flow Information:
Cash paid for interest		$	17,475			$	334
Non-cash investing and financing activities:
Derivative liability of debt issued		$	1,139,486			$	2,729,757
Fair value of common stock issued upon conversion of notes			-				1,012,968
Note payable converted to common stock			-				191,184
Accrued interest converted to common stock			-				11,410
Derivative liability reclassified to equity upon conversion of debt			-				1,012,880
Common stock issued as payment of prepaid consulting fees			-				1,250,000

 

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

 

 

 

 

 

THINSPACE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 and 2014

(Unaudited)

 

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

 

COMPANY OVERVIEW

 

Nature of Operations

 

THINSPACE TECHNOLOGY, INC. (formerly Vanity Events Holding, Inc.)  (the “Company”, “Thinspace” “we”, “us” or “our”), was organized as a Delaware corporation on August 25, 2004, and is a holding company. We are a cloud computing company that  develops software productivity solutions that allow our customers secure access to centrally managed desktop or software applications  and to work and collaborate from anywhere, accessing enterprise apps and data on any of the latest devices, as easily as they would in their own office- simply and securely.

 

The Company’s principal activity is the development and sale of network software. The company has a desktop virtualization solution suite, named skySpace, offering 5 key products:

 

•	skyDesk - a simple management software solution for Microsoft remote desktop users.
•	skyGate – software solution that allows secure remote access to applications and data from outside of the corporate network.
•	skyView – provides access to applications or Windows desktops from a browser on any device, including iPad, iPhone or Android tablet or Smartphone.
•	skyDirect  – a virtual desktop infrastructure (VDI) software solution that allows secure fast access to hosted virtual desktops.
•	skyPoint – A branded hardware thin client endpoint aimed for the enterprise and corporate market.

 

We sell directly to independent software vendors and Application Service Providers (ASPs) and to end users through a chain of distributors and resellers. Our larger customers are predominantly large businesses based around the world, with a concentration in North America, the Far East and India.

 

Our operating subsidiaries are Thinspace Technology Ltd (“Thinspace UK”), organized and operating in the United Kingdom, and Thinspace Technology Ltd. (“Thinspace US”), a Nevada corporation formed on August 24, 2010 and operating in the states of Florida and Texas.

 

BASIS OF PRESENTATION AND GOING CONCERN

 

Basis of Presentation

 

We have incurred a net loss of $270,034 for the three months ended March 31, 2015. As of March 31, 2015 we have negative working capital of $14,945,539 and a stockholders’ deficit of $15,601,622. As a result, there is substantial doubt about the Company’s ability to continue as a going concern at March 31, 2015.

 

Management has implemented its business plan to add new products, increase marketing activities and, as a result, increase revenue. Our ability to continue to implement our current business plan and continue as a going concern ultimately is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and to achieve profitable operations.

 

There can be no assurances that funds will be available to the Company when needed or, if available, that such funds will be available under favorable terms. In the event that the Company is unable to generate adequate revenues to cover expenses and cannot obtain additional funds in the near future, the Company may seek protection under bankruptcy laws.  To date, management has not considered this alternative, nor does management view it as a likely occurrence, since the Company is progressing with various potential sources of new capital and we anticipate a successful outcome from these activities. However, capital markets remain difficult and there can be no certainty of a successful outcome from these activities. 

  

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.   

 

 

 

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

PRINCIPLES OF CONSOLIDATION

 

The unaudited condensed consolidated financial statements include the accounts of Thinspace Technology, Inc. and its wholly-owned subsidiaries, Thinspace UK and Thinspace US. All material inter-company accounts and transactions have been eliminated.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

CASH AND CASH EQUIVALENTS

 

For the purpose of the statements of cash flows, we consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

 

ACCOUNTS RECEIVABLE

Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The Company evaluates receivables on a regular basis for potential reserve.   The accounts receivable balances of $516,016 and $158,329 as of March 31, 2015 and December 31, 2014, respectively, do not include an allowance for doubtful accounts as the Company anticipates payment on all accounts within the next fiscal year. The Company routinely evaluates accounts receivable for uncollectible amounts.

 

REVENUE RECOGNITION

 

The Company is party to certain volume licensing arrangements that include a perpetual license for current products combined with rights to receive unspecified future versions of software products, which the Company has determined are additional software products and are therefore accounted for as subscriptions, with billings recorded as unearned revenue and recognized as revenue ratably over the coverage period. Arrangements that include term based licenses for current products with the right to use unspecified future versions of the software during the coverage period are also accounted for as subscriptions, with revenue recognized ratably over the coverage period.

 

Revenue from cloud-based services arrangements that allow for the use of a hosted software product or service over a contractually determined period of time without taking possession of software are accounted for as subscriptions with billings recorded as unearned revenue and recognized as revenue ratably over the coverage period beginning on the date the service is made available to customers.

 

Some volume licensing arrangements include time-based subscriptions for cloud-based services and software offerings that are accounted for as subscriptions. These arrangements are considered multiple element arrangements. However, because all elements are accounted for as subscriptions and have the same coverage period and delivery pattern, they have the same revenue recognition timing.

 

DEFERRED REVENUE

 

Deferred revenue related to support and maintenance is recorded in a manner consistent with the Company’s revenue recognition policy. The Company typically enters into one-year upgrade and maintenance contracts with its customers. The upgrade and maintenance contracts are generally paid in advance but can be billed monthly or quarterly. The Company defers such payment and recognizes revenue ratably over the contract period.

 

INVENTORY

 

The Company values its inventory at the lower of cost (first-in, first-out) or market. The Company uses estimates and judgments regarding the valuation of inventory to properly value inventory. Inventory adjustments are made for the difference between the cost of the inventory and the estimated realizable value and charged to cost of goods sold in the period in which the facts that give rise to the adjustments become known.

 

 

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Our short-term financial instruments, including cash, accounts receivable and accounts payable and accrued expenses consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of our notes and advances payable is based on management estimates and reasonably approximates their book value based on their terms.

 

Fair value measurements

 

ASC 820 “Fair Value Measurements and Disclosure” establishes a framework for measuring fair value and expands disclosure about fair value measurements. 

 

ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  

 

In accordance with ASC 820, the following table represents the Company's fair value hierarchy for its financial assets and (liabilities) measured at fair value on a recurring basis as of March 31, 2015:

 

		Level 1				Level 2				Level 3				Total
Liabilities
Conversion derivative liabilities		$	-			$	-			$	12,142,152			$	12,142,152
Total Liabilities		$	-			$	-			$	12,142,152			$	12,142,152

 

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (conversion and warrant derivative liabilities) for the three months ended March 31, 2015.

 

		2015
Balance at beginning of year		$	12,173,986
Additions to derivative instruments			1,139,486
Change in fair value of derivative liabilities			(1,171,320	)
Balance at end of period		$	12,142,152

 

The following is a description of the valuation methodologies used for these items:

 

Conversion derivative liability — these instruments consist of certain of our notes which are convertible based on a discount to the market value of our common stock. These instruments were valued using pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.

 

CONCENTRATIONS OF CREDIT RISK

 

The Company performs ongoing credit evaluations of its customers. At March 31, 2015, one customer accounted for 77% of accounts receivable.

 

The Company maintains cash and cash equivalents with major financial institutions. Cash held in US bank accounts is insured up to $250,000 at each institution. Cash held in UK bank accounts is insured up to £85,000 (approximately $126,000 at March 31, 2015) at each institution for each entity.  At times, cash balances may exceed the insured limits. The Company has not experienced any loss on these accounts.  The balances are maintained in demand accounts to minimize risk.

 

 

RESEARCH AND DEVELOPMENT

 

Expenses related to present and future products are expensed as incurred.

  

FOREIGN CURRENCY TRANSLATION

 

The financial statements of the Company’s U.K. subsidiary, Thinspace UK, are measured using the British Pound as the functional currency. Assets, liabilities and equity accounts of the company are translated at exchange rates as of the balance sheet date or historical acquisition date, depending on the nature of the account. Revenues and expenses are translated at average rates of exchange in effect throughout the year. The resulting cumulative translation adjustments have been recorded as a separate component of stockholders' equity. The financial statements are presented in United States of America dollars.

 

LOSS PER SHARE

 

We use ASC 260, “Earnings Per Share” for calculating the basic and diluted income (loss) per share. We compute basic income (loss) per share by dividing net income (loss) and net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding.

 

Dilutive common stock equivalents consist of shares issuable upon conversion of debt and preferred stock and the exercise of our stock warrants. There were 290,158,353 common share equivalents at March 31, 2015 and 171,022,597 at March 31, 2014, which have been excluded from the computation of the weighted average diluted shares.   

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

Recent accounting pronouncements issued by the FASB and the SEC did not, or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

 

NOTE 3 – CONVERTIBLE NOTES PAYABLE

 

IBC Funds 2015 Financings

 

During January and February of 2015 the Company received additional funds, aggregating $167,000, pursuant to a Securities Purchase Agreement with IBC Funds, LLC (“IBC Funds”) dated May 29, 2014 in which the Company sold to IBC Funds an 8% convertible debenture in the principal amount of up to $617,500. The debenture matures on the third anniversary of the date of issuance and bears interest a rate of 8% per annum, payable semi-annually and on the maturity date. IBC Funds may convert, at any time, the outstanding principal and accrued interest on the debenture into shares of the Company’s common stock, at a conversion price per share at 40% of the lowest closing bid price for the Company’s common stock during the previous 20 trading days. The conversion price is subject to adjustment in the event of sales by the Company of common stock or securities convertible into common stock at a price per share lower than the then-effective conversion price, to such lower price, subject to certain exceptions. A total of $617,000 has been received pursuant to this debenture.

 

During March 2015 the Company received additional funds, aggregating $100,000, pursuant to a Securities Purchase Agreement originally entered into with Greystone Capital Partners, Inc. (“Greystone”) dated May 29, 2014 in which the Company sold to Greystone Funds an 8% convertible debenture in the principal amount of up to $617,500. Greystone has assigned $100,000 of this debenture to IBC Funds. The debenture matures on the third anniversary of the date of issuance and bears interest a rate of 8% per annum, payable semi-annually and on the maturity date. IBC Funds may convert, at any time, the outstanding principal and accrued interest on the debenture into shares of the Company’s common stock, at a conversion price per share at 40% of the lowest closing bid price for the Company’s common stock during the previous 20 trading days. The conversion price is subject to adjustment in the event of sales by the Company of common stock or securities convertible into common stock at a price per share lower than the then-effective conversion price, to such lower price, subject to certain exceptions. A total of $156,000 has been received pursuant to this debenture, $100,000 from IBC Funds in 2015 and $56,000 from Greystone in 2014.

 

 

LG Capital March 19, 2015 Financing

 

On March 20, 2015, the Company entered into and closed a securities purchase agreement with LG Capital Funding, LLC (“LG Capital”), pursuant to which the Company issued and sold to LG Capital an 8% convertible redeemable note in the principal amount of $137,500 for a purchase price of $131,250. The note matures on the one year anniversary of the date of issuance and bears interest a rate of 8% per annum, payable on the maturity date. LG Capital may convert, at any time, the outstanding principal and accrued interest on the note into shares of the Company’s common stock, at a conversion price equal to 70% of the average of the 5 lowest closing prices of the common stock for the twenty prior trading days including the day upon which a notice of conversion is received by the Company. 

 

 

 

 

Iconic Holdings March 23, 2015 Financing

 

On March 23, 2015, the Company entered into and closed a securities purchase agreement with Iconic Holdings, LLC (“Iconic”), pursuant to which the Company issued and sold to Iconic a 6% convertible debenture in the principal amount of $50,000 for a purchase price of $50,000. The note matures on the one year anniversary of the date of issuance and bears interest a rate of 6% per annum, payable on the maturity date. Iconic may convert, at any time, the outstanding principal and accrued interest on the note into shares of the Company’s common stock, at a conversion price equal to 70% of the average of the 5 lowest closing prices of the common stock for the twenty prior trading days including the day upon which a notice of conversion is received by the Company. 

Black Mountain March 23, 2015 Financing
 

On March 23, 2015, the Company entered into, and on March 25, 2015, the Company closed a securities purchase agreement with Black Mountain Equities, Inc. (“Black Mountain”), pursuant to which the Company sold to Black Mountain a 10% convertible note in the principal amount of $105,000 for a purchase price of $100,000. The note matures on the two year anniversary of the date of issuance and bears interest a rate of 10% of principal, payable on the maturity date. Black Mountain may convert, at any time, the outstanding principal and accrued interest on the note into shares of the Company’s common stock, at a conversion price equal to the lesser of (a) $0.17 or (b) 70% of the average of the three lowest closing bids occurring during the twenty consecutive trading days immediately preceding the applicable conversion date.

  

The conversion features of the debentures described above contain a variable conversion rate. As a result, we have classified the conversion features as derivative liabilities in the financial statements. Upon issuance, we have recorded conversion feature liabilities of $993,260. The value of the conversion feature liabilities was determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rates of between 0.265 - 0.50%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of between 168% - 210%; and (4) expected lives of 1 - 2 years. The Company has allocated $546,077 to debt discount, to be amortized over the life of the debt, with the balance of $447,183 being charged to expense at issue. 

  

NOTE 4 –DERIVATIVE LIABILITIES

 

The Company has identified certain embedded derivatives related to its convertible debentures, convertible preferred stock and a debt purchase agreement. Since certain of the debentures, the preferred stock and the debt settlement agreement are convertible into a variable number of shares, the conversion features of those debentures are recorded as derivative liabilities. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to adjust to fair value as of each subsequent balance sheet date. 

 

Convertible Debentures and Debt Settlement Agreement

 

At March 31, 2015, we recalculated the fair value of the embedded conversion feature of our notes and debt settlement agreement subject to derivative accounting and have determined that their fair value at March 31, 2015 was $9,739,180. The value of the conversion liabilities was determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rate of 0.265% - 0.50%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of between 168% - 214% and (4) an expected life of 1 - 2.16 years. We recorded income of $830,970 during the three months ended March 31, 2015 related to the change in fair value.  

 

During the three months ended March 31, 2015 we recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest accrued during the period. These additions aggregated $146,226 for the three months ended March 31, 2015, which has been charged to interest expense.

 

Convertible Preferred Stock

 

At March 31, 2015, we recalculated the fair value of the embedded conversion feature of our Series B and Series C preferred stock subject to derivative accounting and have determined that the fair value at March 31, 2015 was $2,365,679. The value of the conversion liabilities was determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.265%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 170% and (4) an expected life of 1.03 years. We recorded income of $337,233 during the three months ended March 31, 2015 related to the change in fair value.    

 

 

  

Derivative liability activity for the three months ended March 31, 2015 is summarized as follows:

 

 

		Balance at December 31, 2014				Additions				Modifications				Conversions				Reclassifications				Change in Value				Balance at March 31, 2015
Convertible notes, interest and debt settlement		$	9,471,074			$	1,139,486			$	-			$	-			$	-			$	(834,087	)		$	9,776,473
Convertible preferred stock			2,702,912				-				-				-				-				(337,233	)			2,365,679
		$	12,173,986			$	1,139,486			$	-			$	-			$	-			$	(1,171,320	)		$	12,142,152

 

 

  

NOTE 5 – STOCKHOLDERS’ EQUITY

  

Preferred Stock

 

The Company is authorized to issue 50,000,000 shares of preferred stock, with par value of $0.001 per share, of which 75,000 shares have been designated as Series B 10% Convertible preferred stock, with par value of $0.001 per share, and 672,000 shares have been designated as Series C Convertible preferred stock. There were 75,000 Series B shares and 672,000 Series C shares issued and outstanding as of March 31, 2015.

 

Common Stock

 

The Company is authorized to issue 500,000,000 shares of common stock, with par value of $0.001 per share. As of March 31, 2015 and December 31, 2014, there were 98,381,445 shares of common stock issued and outstanding.

  

During May 2014 we issued a stock grant to an employee in the amount of 200,000 shares of common stock, valued at $34,000. The grant vests upon the two year anniversary, on May 29, 2016. The expense will be recorded over that two year period. We have recorded an expense of $4,250 for the three month ended March 31, 2015.

 

Options Outstanding

 

We have recorded an expense for employee options of $97,859 for the three months ended March 31, 2015.

  

NOTE 6 - COMMITMENTS AND CONTINGENCIES

 

LEASE

 

We currently occupy office space pursuant to various short term leases expiring in 2015.

 

Rent expense for the three months ended March 31, 2015 and 2014 was $20,458 and $37,283, respectively.

 

LITIGATION

 

From time to time, the Company and its subsidiaries may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company and its subsidiaries are currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.  

 

 

 

NOTE 7 - SUBSEQUENT EVENTS

 

Common Shares Issued

 

During the month of April 2015, we issued 4,509,112 shares of common stock upon the conversion of $106,000 of note principal and $16,534 of accrued interest.

During the month of May 2015, we issued 1,598,120 shares of common stock upon the conversion of $15,000 of note principal and $7,022 of accrued interest.

 

 

Debt Financings

 

On April 6, 2015, the Company issued and sold to RDW Capital , LLC (“RDW”) a 6% convertible debenture in the principal amount of $105,000 for a purchase price of $100,000. The debenture is convertible into the Company’s common stock at a conversion price equal to 65% of the average of the 3 lowest closing prices of the common stock for the twenty trading days prior to conversion. Repayment of the debenture is due one year from the date of issuance.

 

On April 9, 2015, the Company entered into and closed a securities purchase agreement with St. George Investments LLC (“St. George”), pursuant to which the Company issued and sold to St. George a 8% convertible promissory note in the principal amount of $107,500 for a purchase price of $100,000. The note is convertible into the Company’s common stock at a conversion price equal to 65% of the lowest closing bid price of the common stock for the twenty trading days prior to conversion. Repayment of the note is due one year from the date of issuance.

 

On April 10, 2015, the Company entered into and closed a securities purchase agreement with Blue Citi PR (“Blue Citi”), pursuant to which the Company issued and sold to Blue Citi a 8% convertible debenture in the principal amount of up to $535,000 for a purchase price of $500,000 payable as follows: (i) $200,000 was paid upon issuance; (ii) $200,000 is payable at Blue Citi’s discretion at any time within 60 days of issuance provided that, if Blue Citi does not make such payment prior to the date this is 60 days from the date of issuance, Blue Citi will be required to make such payment on the date that is 60 days from the date of issuance, subject to the condition that the average trading price for the Company’s common stock for the five trading days prior to the date that is 60 days from the date of issuance is equal to or greater than 50% of the 5 day average trading price prior to the date of issuance, and (iii) $100,000 at the sole discretion of Blue Citi within 365 days of the date of issuance provided that, if Blue Citi does not make the second $200,000 payment under the debenture within 60 days of the date of issuance, Blue Citi will not have the right to make such $100,000 payment. The debenture is convertible into the Company’s common stock at a conversion price equal to 65% of the average of the three lowest trading prices for the common stock for the twenty trading days prior to conversion. Repayment of the debenture is due two years from the date of issuance.

 

On May 14, 2015 the Company entered into an Amendment with Blue Citi PR whereby the terms were adjusted as follows: i) Two Hundred Thousand Dollars ($200,000) payable to the Company on the Effective Date; (ii) Two Hundred Thousand Dollars ($200,000) payable to the Company on June 10, 2015; and One Hundred Thousand Dollars ($100,000) payable to the Company on July 10, 2015; and Each such payment of Consideration reflect a 7% original issue discount (“OID”) added to the principal amount at time of payment to Borrower (up to $14,000).

 

During the month of April 2015 the Company received funds, aggregating $100,000, pursuant to a Securities Purchase Agreement originally entered into with Greystone Capital Partners, Inc. (“Greystone”) dated May 29, 2014 in which the Company sold to Greystone Funds an 8% convertible debenture in the principal amount of up to $617,500.

 

During the month of May 2015 the Company received additional funds, aggregating $50,000, pursuant to a Securities Purchase Agreement originally entered into with Greystone Capital Partners, Inc. (“Greystone”) dated May 29, 2014 in which the Company sold to Greystone Funds an 8% convertible debenture in the principal amount of up to $617,500. Greystone has assigned an aggregate of $250,000 of the May 29, 2014 debenture to IBC Funds. A total of $306,000 has been received pursuant to this debenture, $250,000 from IBC Funds in 2015 and $56,000 from Greystone in 2014.

 

 

 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview

 

Thinspace Technology Inc. is a hardware and software cloud computing company specifically focused on desktop virtualization. Our solutions deliver and manage centralized desktop computing from a pool of shared computing resources (‘the Cloud’) to the end users. This allows our customers secure access to centrally managed Desktops or Software Applications and to work and collaborate from anywhere, accessing enterprise apps and data on any of the latest devices, as easily as they would in their own office- simply and securely. 

 

Our cloud computing solutions help IT and service providers build both private and public clouds, leveraging virtualization and networking technologies to deliver high-performance, elastic and cost-effective services for mobile workstyles.

 

Our products have been designed to suit the needs of all sizes of organizations from 5 to 50,000+ users. Customers have found our products to be easier to use, faster to implement and cheaper to maintain than other similar software, which is important to small and medium sized companies and governmental offices as well as large enterprise organizations that are looking to reduce their IT infrastructure costs. We market and license our products directly to systems integrators, or SIs, in addition to indirectly through value-added resellers, or VARs, value-added distributors, or VADs, and original equipment manufacturers, or OEMs. 

 

Our operating subsidiaries are Thinspace Technology Ltd (“Thinspace UK”), organized and operating in the United Kingdom, and Thinspace Technology Ltd. (“Thinspace US”), a Nevada corporation formed on August 24, 2010 and operating in the states of Florida and Texas.

 

In this report, the terms the “Company”, “we”, “us”, and “our” refer to Thinspace Technology, Inc., a Delaware corporation, and its operating subsidiaries, Thinspace UK and Thinspace US, unless the context otherwise requires.

 

 Critical Accounting Policies

 

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

 

Use of Estimates - The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Going Concern - The financial statements have been prepared on a going concern basis, and do not reflect any adjustments related to the uncertainty surrounding our recurring losses or accumulated deficit

 

Revenue Recognition - We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605 “Revenue Recognition”. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and title has transferred or services have been rendered, the price is fixed and determinable and collectability is reasonably assured. Revenue is not recognized on product sales transacted on a test or pilot basis. Instead, receipts from these types of transactions offset marketing expenses.

 

Deferred Revenue -Deferred revenue related to support and maintenance is recorded in a manner consistent with the Company’s revenue recognition policy. The Company typically enters into one-year upgrade and maintenance contracts with its customers. The upgrade and maintenance contracts are generally paid in advance but can be billed monthly or quarterly. The Company defers such payment and recognizes revenue ratably over the contract period.

 

 

 

Fair Value of Financial Instruments -     Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of the Company’s derivative instruments is determined using option pricing models.

 

Results of Operations

 

Three Months ended March 31, 2015 as compared to the Three Months ended March 31, 2014

 

Revenues:

 

Net sales were $790,306 for the three months ended March 31, 2015 compared to net sales of $784,608 for the three months ended March 31, 2014.

 

Cost of goods sold

 

Cost of goods sold as a percent of revenue was 46% for the three months ended March 31, 2015 and 15% for the three months ended March 31, 2014. Cost of revenue consists of software development, purchased hardware and software costs and shipping costs. Cost of revenue as a percentage of revenue varies based on the various costs incurred, relative to the timing of the recognition of revenue.

 

Operating expense:

 

Operating expense decreased by $191,870, or16%, for the three months ended March 31, 2015, compared to the three months ended March 31, 2014, primarily as a result of a decrease in stock based compensation of approximately $210,000. Included in our operating expenses for the first quarter of 2015 and 2014 were $102,000 and $312,500 of non-cash expense for stock based compensation, respectively. The balance of our other operating expenses includes salaries, consulting, marketing, professional fees and general overhead expenses.

 

We expect that our operating expenses will increase as our business grows and we devote additional resources towards promoting that growth, most notably reflected in anticipated increases in salaries for sales personnel and technical resources.

 

Other income (expense):

 

We had a gain from the change in the fair value of our derivative liabilities of $1,171,320 during the three months ended March 31, 2015 compared with expense of $21,752,944 for the three months ended March 31, 2014. The change in the fair value of our derivative liabilities resulted primarily from the changes in our stock price and the volatility of our common stock during the reported periods. Refer to Note 4 to the financial statements for further discussion of our derivative liabilities.

 

We reported a gain from the conversion of debt of $155,129 during the three months ended March 31, 2014, with no comparable item for the three months ended March 31, 2015. The gain on debt conversion resulted from the issuance of shares of common stock to pay off debt, based on the fair value of the shares issued as compared to the carrying value of the related debt. The closing price on the date of conversion is used to compute the actual fair market value of our common stock in determining the amount of the gain or loss.

 

We reported interest expense of $852,906 during the three months ended March 31, 2015 as compared with expense of $3,784,885 during the three months ended March 31, 2014. Interest expense during the 2015 period consists primarily of derivative liabilities issued during the period whose fair values exceeded the proceeds of the debt, aggregating $593,409. The balance of the expense for the 2015 period relates to the amortization of debt discount and interest accrued on the debt.

 

 

Interest expense during the 2014 period consists primarily of derivative liabilities issued during the period whose fair values exceeded the proceeds of the debt, aggregating $2,694,915, and the expense associated with the price resets of certain of our derivative instruments, aggregating $1,033,365. The balance of the expense for the 2014 period relates to the amortization of debt discount and interest accrued on the debt.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. As of March 31, 2015 we had approximately $166,000 in cash and cash equivalents and a working capital deficit of $14,945,539 (resulting primarily from derivative liabilities aggregating $12,142,152), as compared to cash and cash equivalents of approximately $136,000 and a working capital deficit of $14,661,201 at December 31, 2014. Our recent sources of operating capital have been debt financings. In the first quarter of 2015 we raised $548,250 from the sale of convertible securities.

 

Net Cash Provided by Operating Activities

 

We used $519,172 of cash in our operating activities during the three months ended March 31, 2015 compared to $861,633 used by our operating activities for the three months ended March 31, 2014. The decrease in net cash used results primarily from an increase in accounts payable and deferred revenue of $776,103, partially offset by an increase in net loss of $310,609 (after adjusting for non-cash expenses) and a net increase in accounts receivable, prepayments and other assets of $123,033.

 

Net Cash Used in Investing Activities

 

We used $3,748 for the purchase of furniture and equipment during the three months ended March 31, 2014, with none used during the three months ended March 31, 2015.

 

Net Cash Provided by Financing Activities

 

During the three months ended March 31, 2015, we received $640,650 from the sale of notes and convertible securities. We repaid $95,943 of notes payable and paid $1,800 of accrued preferred stock dividends. During the three months ended March 31, 2014, we received $472,000 from the sale of our preferred stock and $300,000 from the sale of convertible debentures. We repaid $3,735 of a note payable and repaid $38,900 of shareholder advances.

 

We presently do not have any available credit, bank financing or other external sources of liquidity. We will 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. However, the trading price of our common stock and a downturn in the equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, we may 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 have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required for a smaller reporting company.

 

Item 4. Controls and Procedures.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's (the “SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (principal executive and financial officer), of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer concluded that the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and also are not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer, to allow timely decisions regarding required disclosure, due to the material weaknesses in our internal control over financial reporting discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 31, 2015, which continue to exist as of March 31, 2015.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not party to any material legal proceedings and no property of the Company is subject to any material legal proceedings.

 

Item 1A. Risk Factors.

 

Not required for a smaller reporting company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

 Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

No.		Description
31.1		Rule 13a-14(a)/ 15d-14(a) Certification of Principal Executive and Financial Officer
32.1		Section 1350 Certification of Principal Executive and Financial Officer
EX-101.INS		XBRL INSTANCE DOCUMENT
EX-101.SCH		XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EX-101.LAB		XBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

 

 

 

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.

 

	Thinspace Technology, Inc.
Date: May 15, 2015	By:	/s/ Jay Christopher Bautista
		Jay Christopher Bautista
		Chief Executive Officer (principal executive, financial and accounting officer)

 

 

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