NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 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
The
accompanying condensed consolidated financial statements are unaudited. The unaudited interim consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant
to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures
normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
These
interim consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 are unaudited;
however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary
to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results
for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the year
ending December 31, 2015 or for any future period. All references to September 30, 2015 and 2014 in these footnotes are unaudited.
These
unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements
and the notes thereto for the year ended December 31, 2014, included in the Company's annual report on Form 10-K filed with the
SEC on March 31, 2015.
The
condensed consolidated balance sheet as of December 31, 2014 has been derived from the audited consolidated financial statements
at that date but does not include all disclosures required by the accounting principles generally accepted in the United States
of America.
Going
Concern
As
of September 30, 2015 we have negative working capital of $7,871,309 and a stockholders’ deficit of $7,818,926. Although
we had net income of $4,660,037 for the nine months ended September 30, 2015, this was primarily the result of a noncash gain
of approximately $9 million from the change in value of our derivative liabilities. As a result, there is substantial doubt about
the Company’s ability to continue as a going concern at September 30, 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.
As
disclosed in Note 7, Subsequent Events, the Company has continued to fund its operations with proceeds from the sale of convertible
debt.
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
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 $68,205 and $158,329 as of September 30, 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 payments 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 September 30, 2015:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion derivative liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,869,620
|
|
|
$
|
3,869,620
|
|
Total Liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,869,620
|
|
|
$
|
3,869,620
|
|
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
nine months ended September 30, 2015.
Balance at beginning of year
|
|
$
|
12,173,986
|
|
Additions and modifications to derivative instruments
|
|
|
3,569,343
|
|
Change in fair value of derivative liabilities
|
|
|
(9,489,141
|
)
|
Extinguishment of derivative liabilities
|
|
|
(2,384,568
|
)
|
Balance at end of period
|
|
$
|
3,869,620
|
|
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.
CONVERTIBLE
INSTRUMENTS
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional
standards for “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815-40”).
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated
from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with
Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.”
Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary
deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between
the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price
embedded in the note. ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control
could or require net cash settlement, then the contract shall be classified as an asset or a liability.
DERIVATIVE
LIABILITIES
ASC
815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments
and account for them as freestanding derivative financial instruments. These three criteria include circumstances in which (a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception
to this rule when the host instrument is deemed to be conventional, as described.
CONCENTRATIONS
OF CREDIT RISK
The
Company performs ongoing credit evaluations of its customers. At September 30, 2015, three customers accounted for 69% 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 $129,000 at September
30, 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 unaudited condensed consolidated financial statements are presented in United States of America dollars.
INCOME (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 4,382,560,883 common share equivalents at September
30, 2015 and 270,375,324 at September 30, 2014. The 2014 common share equivalents have been excluded from the computation of the
weighted average diluted shares, as their inclusion would be antidilutive.
Diluted earnings per share for the
three and nine months ended September 30, 2015 have been calculated as follows:
|
|
Three Months Ended September 30, 2015
|
|
|
Nine Months Ended September 30, 2015
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
36,231,484
|
|
|
$
|
4,654,412
|
|
|
|
|
|
|
|
|
|
|
Preferred dividend
|
|
|
1,875
|
|
|
|
5,625
|
|
Income attributable to convertible instruments
|
|
|
(37,190,422
|
)
|
|
|
(9,569,817
|
)
|
Expense attributable to convertible instruments
|
|
|
687,899
|
|
|
|
3,369,249
|
|
|
|
|
|
|
|
|
|
|
Diluted loss
|
|
$
|
(269,164
|
)
|
|
$
|
(1,540,531
|
)
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
353,913,823
|
|
|
|
189,737,454
|
|
|
|
|
|
|
|
|
|
|
Convertible instruments
|
|
|
146,086,177
|
|
|
|
310,262,546
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
500,000,000
|
|
|
|
500,000,000
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Additional
potentially dilutive shares of approximately 4 billion shares at September 30, 2015 have been excluded from the calculation since
they exceed authorized shares available.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In
June 2014, ASU 2014-15, “
Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern
” (“ASU No. 2014-15”) was issued.
Before the issuance of ASU 2014-15, there was no guidance in U.S. GAAP about management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures.
This guidance is expected to reduce the diversity in the timing and content of footnote disclosures. ASU 2014-15 requires management
to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that
are currently in U.S. auditing standards as specified in the guidance. ASU 2014-15 becomes effective for the annual period ending
after December 15, 2016 and for annual and interim periods thereafter. Early adoption
is permitted. The Company is currently evaluating the effects of adopting ASU 2014-15 on its consolidated financial statements
but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements.
In
November 2015, the FASB issued ASU 2015-17, “
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
”
(“ASU 2015-17”). ASU 2015-17 requires deferred tax assets and liabilities to be classified as noncurrent in the consolidated
balance sheet. ASU 2015-17 becomes effective for interim and annual reporting periods beginning after December 15, 2016. Early
adoption is permitted. A reporting entity should apply the amendment prospectively or retrospectively. The Company is currently
evaluating the effects of adopting ASU 2015-17 on its consolidated financial statements.
In
January 2016, the FASB issued ASU 2016-01, “
Financial Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities
” (“ASU 2016-01”). The amendments require all equity
investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted
for under the equity method of accounting or those that result in consolidation of the investee). The amendments also require
an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability
resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value
in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose
the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the
requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed
for financial instruments measured at amortized cost on the balance sheet for public business entities. This guidance is effective
for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will evaluate
the effects of adopting ASU 2016-01 if and when it is deemed to be applicable.
In
February 2016, the FASB issued ASU 2016-02, “
Leases (Topic 842)
” (“ASU 2016-02”). The main objective
of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities
on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB is amending the
FASB Accounting Standards Codification and creating Topic 842, Leases. ASU 2016-02 is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. The Company does not expect the adoption of this amendment
to have a significant impact on its consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09, “
Improvements to Employee Share-Based Payment Accounting
” (“ASU
2016-09”). ASU 2016-09 affects entities that issue share-based payment awards to their employees. ASU 2016-09 is designed
to simplify several aspects of accounting for share-based payment award transactions which include – the income tax consequences,
classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations.
This guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal
years. The Company is currently evaluating the impact of ASU 2016-09 on its consolidated financial statements.
In
April 2016, the FASB issued ASU 2016-10 “
Revenue from Contracts with Customers
(Topic 606)”
(“ASU
2016-10”). The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. The amendments in ASU 2016-10 affect the guidance in ASU 2014-09, “Revenue from
Contracts with Customers,” which is not yet effective. The effective date and transition requirements of ASU 2016-10 are
the same as the effective date and transition requirements of ASU 2014-09. They are effective prospectively for reporting periods
beginning after December 15, 2017 and early adoption is not permitted. The Company is currently assessing the impact of the adoption
of these amendments on its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12,
“
Revenue from Contracts with Customers(Topic 606): Narrow-Scope Improvements and Practical
Expedients
”. The amendments do not change the core revenue recognition principle in Topic 606. The amendments
provide clarifying guidance in certain narrow areas and add some practical expedients. These amendments are effective at the
same date that Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning
after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year
entity). Topic 606 is effective for nonpublic entities one year later. The Company is currently assessing the impact of the
adoption of the amendments to Topic 606 and these amendments on its consolidated financial statements.
The
Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would
have a material effect on the accompanying 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 year, 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, April and May 2015 the Company received additional funds, aggregating $305,000, 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 $305,000
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 year, 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
$361,000 has been received pursuant to this debenture, $305,000 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 year, 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 year,
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% per year, 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.
RDW
Capital, LLC April 6, 2015 Financing
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.
St.
George Investments LLC April 9, 2015 Financing
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 an 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.
Blue
Citi PR April 10, 2015 Financing
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) $200,000 paid to the Company upon issuance; (ii) $200,000 payable to the Company on June 10, 2015; and $100,000 payable
to the Company on July 10, 2015. Each such payment reflects a 7% original issue discount added to the principal amount at time
of payment (up to $14,000). As of September 30, 2015 a total of $395,000 has been funded pursuant to this agreement.
Black
Mountain Buyback
On
August 10, 2015, the Company entered into a payoff agreement with Black Mountain, pursuant to which the Company paid to Black
Mountain $70,000, and issued to Black Mountain a non-convertible note in the principal amount of $30,000, due one year from the
date of issuance, in exchange for the Company’s convertible note issued to Black Mountain, dated March 23, 2015, in the
original principal amount of $105,000.
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 consolidated financial statements. Upon issuance, we have recorded conversion feature liabilities of
$2,434,738. The value of the conversion feature liabilities was determined using an option valuation model based on the
following assumptions: (1) risk free interest rates of between 0.265 - 0.625%; (2) dividend yield of 0%; (3) volatility
factor of the expected market price of our common stock of between 165% - 210%; and (4) expected lives of 1 – 2.42
years. The Company has allocated $1,346,077 to debt discount, to be amortized over the life of the debt, with the balance of
$1,088,661 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
During
the nine months ended September 30, 2015, $630,923 of principal and $54,128 of accrued interest was converted into 348,278,449
shares of common stock. The Company has recorded income of $2,596,238 and $2,222,937 for the three and nine months ended September
30, 2015, respectively, related to the change in fair value of the conversion feature through the dates of conversion.
At September 30, 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 September 30, 2015 was $3,281,889. The value of the conversion liabilities was
determined using an option valuation modelbased on the following assumptions: (1) risk free interest rate of 0.066% - 0.417%; (2)
dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of between 191% - 248% and (4)
an expected life of 0.25 – 1.66 years. We recorded income of $28,249,012 and $4,814,818 for the three and nine months
ended September 30, 2015, respectively, related to the change in fair value.
During
the three and nine months ended September 30, 2015 we recorded additions to our derivative conversion liabilities related to the
conversion feature attributable to interest accrued during the period. These additions aggregated $96,767 and $798,408 for the
three and nine months ended September 30, 2015, respectively, which has been charged to interest expense.
Convertible
Preferred Stock
The
conversion feature of our Series B preferred stock has been adjusted due to the subsequent issuance of debt. As a result, the
conversion price is now $0.001755 per share, such that an aggregate of 42,735,043 shares of the Company’s common stock are
issuable upon such conversion. The Company has recorded income of $234,162 and $333,112 for the three and nine months ended September
30, 2015, respectively, related to the change in fair value of the conversion feature of the preferred stock through the dates
of adjustment. The Company has also recorded an expense of $22,911 and $336,197 for the three and nine months ended September
30, 2015, respectively, due to the increase in the fair value of the conversion feature as a result of the modification.
At September 30, 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 September 30, 2015 was $587,731. The value of the conversion
liabilities was determined using an option valuation model based on the following weighted average assumptions: (1) risk free
interest rate of 0.209%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of
191% and (4) an expected life of 1 year. We recorded income of $6,052,991 and $2,118,274 during the three and nine
months ended September 30, 2015, respectively, related to the change in fair value.
Derivative
liability activity for the nine months ended September 30, 2015 is summarized as follows:
|
|
Balance at December 31, 2014
|
|
|
Additions
|
|
|
Modifications
|
|
|
Conversions
|
|
|
Reclassifications
|
|
|
Change in Value
|
|
|
Balance at September 30, 2015
|
|
Convertible notes, interest and debt settlement
|
|
$
|
9,471,074
|
|
|
$
|
3,233,146
|
|
|
$
|
—
|
|
|
$
|
(2,253,031
|
)
|
|
$
|
(131,537
|
)
|
|
$
|
(7,037,755
|
)
|
|
$
|
3,281,897
|
|
Convertible preferred stock
|
|
|
2,702,912
|
|
|
|
—
|
|
|
|
336,197
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,451,386
|
)
|
|
|
587,723
|
|
|
|
$
|
12,173,986
|
|
|
$
|
3,233,146
|
|
|
$
|
336,197
|
|
|
$
|
(2,253,031
|
)
|
|
$
|
(131,537
|
)
|
|
$
|
(9,489,141
|
)
|
|
$
|
3,869,620
|
|
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 September 30, 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 September 30, 2015
and December 31, 2014, there were 448,809,894 and 98,381,445 shares of common stock issued and outstanding, respectively.
During
the nine months ended September 30, 2015, we issued 348,278,449 shares of common stock upon the conversion of $630,923 of debt
principal and $54,128 of accrued interest.
During
June 2015 we issued stock grants of 1,000,000 shares to each of two directors, valued at $22,600. The grants vest upon the one
year anniversary of issuance. The expense will be recorded over that one year period. One of these grants was forfeited during
the third quarter. We have recorded expense of $1,875 and $3,775 for the three and nine months ended September 30, 2015, respectively.
During
June 2015 we issued 150,000 shares of common stock, valued at $1,950, as payment for financing activities.
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 and $12,750 for the three and nine months ended September 30, 2015, respectively.
Options
Outstanding
We
have recorded an expense for employee options of $64,334 and $248,877 for the three and nine months ended September 30, 2015,
respectively.
NOTE
6 – COMMITMENTS AND CONTINGENCIES
LEASE
Effective
July 2015 we entered into an office lease with a five year term expiring in July, 2020. Annual minimum lease payments range from
approximately $33,000 for the first year to approximately $47,000 for the final year.
Rent
expense for the three months ended September 30, 2015 and 2014 was $8,460 and $26,178, respectively. Rent expense for the nine
months ended September 30, 2015 and 2014 was $42,361 and $88,604, 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 October 2015, we issued
36,300,266 shares of common stock upon the conversion of $36,800.27 of note principal.
During
the month of November 2015, we issued 9,500,000 shares of common stock upon the conversion of $9,500 of note principal.
During
the month of April 2016 we cancelled 1,100,000 shares of common stock which had been issued as compensation to a former Board
Member, pursuant to the request of the former Board Member.
During
the month of May 2016, we issued 40,000,000 shares of common stock upon the conversion of $10,000 of note principal.
During
the month of June 2016, we issued 76,000,000 shares of common stock upon the conversion of $13,300 of note principal.
During the month of July 2016, we issued 16,000,000
shares of common stock upon the conversion of $2,800 of note principal.
Amendment to Articles of Incorporation
At the Special Meeting of Stockholders
held on March 28, 2016, the stockholders of Thinspace Technology, Inc. approved an amendment to the Company’s charter to
increase the total number of authorized shares of the Company’s common stock from 500,000,000 to 3,500,000,000 shares, $0.001
par value per share. The charter amendment became effective on May 2, 2016 upon filing with, and acceptance for record by, the
Delaware Secretary of State.
Debt
Financings
On November 18, 2015, the
Company issued and sold to Rockwell Capital Partners, Inc. (“Rockwell”) an 8% convertible debenture in the principal
amount of up to $125,000. The debenture 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 debenture
is due two years from the date of issuance. The Company received funds aggregating $25,000 pursuant to the Note during the month
of November 2015.
During the month of November the Company
entered into an amendment of a $100,000 Note originally entered into with IBC Equity Holdings on October 8, 2014 whereby an option
for conversion of any or all outstanding portion of the note into shares of common stock was added. The debenture 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
During the month of November the Company
entered into an amendment of a $300,000 Note originally entered into with IBC Equity Holdings on October 8, 2014 whereby an option
for conversion any or all outstanding portion of the note into shares of common stock was added. The debenture 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
On November 18, 2015, the Company issued
and sold to IBC Funds, LLC, (“IBC Funds”) an 8% convertible debenture in the principal amount of $101,978.91. The debenture
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 debenture is due two years from the date of issuance.
On December 9, 2015, the Company issued
and sold to Blue Citi, LLC, (“Blue Citi”) an 8% convertible debenture in the principal amount of up to $150,000. The
debenture is convertible into the Company’s common stock at a conversion price equal to 65% of the lowest trading price of
the common stock for the twenty trading days prior to conversion. Repayment of the debenture is due January 15, 2018. The Company
received funds pursuant to the Note aggregating $49,000 during the month of December 2015 and $101,000 in the month of January
2016.
During the month of March 2016 the Company
received funds, aggregating $20,000, pursuant to a Securities Purchase Agreement originally entered into with Rockwell Capital
Partners, Inc. (“Rockwell”) dated November 18, 2015 in which the Company sold to Rockwell an 8% convertible debenture
in the principal amount of up to $125,000.
On May 2, 2016, the Company issued and
sold to Rockwell Capital Partners, Inc. (“Rockwell”) an 8% convertible debenture in the principal amount of up to $360,000.
The debenture 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 debenture is due two years from the
date of issuance. The Company received funds aggregating $130,000 pursuant to the Note during the month of May 2016.
On May 4, 2016, the Company issued and
sold to Blue Citi, LLC, (“Blue Citi”) an 8% convertible debenture in the principal amount of up to $45,000. The debenture
is convertible into the Company’s common stock at a conversion price equal to 65% of the lowest trading price of the common
stock for the twenty trading days prior to conversion. Repayment of the debenture is due May 4, 2018. On July 25, 2016 the Note
was amended to a principal amount of up to $25,000.
During the month of June 2016 the Company
received funds, aggregating $90,000, pursuant to a Securities Purchase Agreement originally entered into with Rockwell Capital
Partners, Inc. (“Rockwell”) dated May 2, 2016 in which the Company sold to Rockwell an 8% convertible debenture in
the principal amount of up to $360,000.
During the month of August 2016 the
Company received funds, aggregating $60,000, pursuant to a Securities Purchase Agreement originally entered into with Rockwell
Capital Partners, Inc. (“Rockwell”) dated May 2, 2016 in which the Company sold to Rockwell an 8% convertible debenture
in the principal amount of up to $360,000.
On August 10, 2016 the Company issued
to Rockwell Capital Partners, Inc. (“Rockwell”) a 10% Promissory Note in the amount of $30,250 with an OID of $2,750.
The Note matures on August 9, 2017 and requires a monthly payment of $2,653.40.
During the month of September 2016 the
Company received funds, aggregating $25,000, pursuant to a Securities Purchase Agreement originally entered into with Blue Citi,
LLC (“Blue Citi”) dated May 4, 2016 in which the Company sold to Blue Citi an 8% convertible debenture in the principal
amount of up to $45,000.
Legal Matters
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 an 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.
During the month of September 2016 the
Company received notice of a default judgment in the principal amount of $261,462.79, plus interest at 18% per annum, awarded to
St. George Investments, LLC in Case No. 160903366 in the Third Judicial District Court of Salt Lake County, State of Utah on September
19, 2016. The judgment of $261,462.79 includes principal, default penalties and interest.
On November 11, 2015 the Company entered
into an amended employment agreement with its Chief Executive Officer whereby Mr. Bautista’s annual salary was reduced to
$60,000. In addition, Mr. Bautista will be eligible to receive commission on all software maintenance agreements which are renewed
or entered into from the company's current user install base at a rate of 10% of the net renewal rate - which is invoiced price
less any taxes or prepayment discounts. Additionally, employee will be entitled to a commission at a rate of 10% of the net margin
on any new sales of the company’s current released products, based on the net margin to the company which would be calculated
based on Gross Sales – Channel/customer discounts- cost of goods = net margin, payment of commission will be paid within
30 days of receipt of funds from the customers.
In addition, Mr. Bautista forfeited
the option to purchase Five Million (5,000,000) shares of the Company’s common stock with an exercise price of $0.17 and
agreed that at termination of employment he will not be eligible to receive severance payments.