Thinspace Technology, Inc. - FORM 10-Q - August 14, 2014

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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 June 30, 2014

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.)

5535 S. Williamson Blvd, Unit 751
Port Orange, FL
  
32128
(Address of principal executive offices)
  
(zip code)

(786) 763-3830
(Registrant's telephone number, including area code)
 
N/A
(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 þ No 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 þ No 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 o No þ
 
Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date, 96,823,918 shares of common stock are issued and outstanding as of August 12, 2014.
 
 
 
 
 
PART I - FINANCIAL INFORMATION

 
 
THINSPACE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
June 30,
    
December 31,
  
   
2014
    
2013
  
   
(Unaudited)
        
Assets
            
             
Current assets:
            
  Cash and cash equivalents
   $ 497,530     $ 341,031  
  Receivable from sale of preferred stock
     -       472,000  
  Accounts receivable
     270,799       387,279  
  Inventory
     1,333,826       4,634  
  Prepaid expenses and other current assets
     352,890       36,263  
                 
    Total current assets
     2,455,045       1,241,207  
                 
Fixed assets, net of accumulated depreciation of $69,491 and $60,312, respectively
     31,181       31,325  
Intangible assets, net of accumulated amortization of $502,820 and $454,416, respectively
     188,101       194,743  
Prepaid stock based compensation
     625,000       -  
Other assets
     10,923       3,049  
                 
Total assets
   $ 3,310,250     $ 1,470,324  
                 
Liabilities and stockholders' deficit
                
                 
Current liabilities:
                
  Accounts payable and accrued expenses
   $ 3,297,687     $ 1,610,753  
  Deferred revenue
     1,208,187       1,482,504  
  Loans payable, current portion
     14,800       74,800  
  Loans payable - related parties
     -       117,348  
  Derivative liabilities
     13,080,248       11,268,087  
    Total current liabilities
     17,600,922       14,553,492  
                 
Deferred revenue, long term
     70,693       73,897  
Convertible notes payable, net of discount of $1,053,862 and $311,806, respectively
     874,779       862,019  
Loans payable
     18,767       25,266  
                 
Total liabilities
     18,565,161       15,514,674  
                 
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,
                
  94,423,918 and 82,819,694 shares issued and outstanding, respectively
     94,424       82,820  
Additional paid in capital
     4,757,432       -  
Accumulated deficit
     (20,055,011 )     (14,093,652 )
Accumulated other comprehensive income (loss)
     (52,503 )     (34,265 )
Total stockholders' deficit
     (15,254,911 )     (14,044,350 )
                 
Total liabilities and stockholders' deficit
   $ 3,310,250     $ 1,470,324  
 
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 AND SIX MONTH PERIODS ENDED JUNE 30, 2014 AND 2013
 (Unaudited)
 
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2014
    
2013
    
2014
    
2013
  
                         
                         
Revenues
  
$
2,593,997
    
$
267,720
    
$
3,378,605
    
$
572,529
  
Cost of goods sold
    
1,728,552
      
178,120
      
1,844,231
      
369,245
  
                                 
Gross profit
    
865,445
      
89,600
      
1,534,374
      
203,284
  
                                 
Operating expense:
                                
Selling, general and administrative
    
2,060,561
      
355,056
      
3,249,135
      
638,148
  
Depreciation and amortization
    
20,251
      
16,601
      
40,035
      
32,667
  
                                 
Total operating expense
    
2,080,812
      
371,657
      
3,289,170
      
670,815
  
                                 
Loss from operations
    
(1,215,367
)
    
(282,057
)
    
(1,754,796
)
    
(467,531
)
                                 
Gain on change in fair value of derivative liability
    
22,862,151
      
-
      
1,109,207
      
-
  
Gain on conversion of debt
    
-
      
-
      
155,129
      
-
  
Interest income (expense)
    
(1,686,014
)
    
(2
)
    
(5,470,899
)
    
183
  
                                 
Income (loss) before provision for income taxes
    
19,960,770
      
(282,059
)
    
(5,961,359
)
    
(467,348
)
                                 
Provision for income taxes
    
-
      
-
      
-
      
-
  
                                 
Net income (loss)
    
19,960,770
      
(282,059
)
    
(5,961,359
)
    
(467,348
)
Preferred dividend
    
(1,875
)
    
-
      
(3,750
)
    
-
  
                                 
Net income (loss) attributable to common shareholders
  
$
19,958,895
    
$
(282,059
)
  
$
(5,965,109
)
  
$
(467,348
)
                                 
Basic and diluted income (loss) per share
  
$
0.22
    
$
(0.00
)
  
$
(0.07
)
  
$
(0.01
)
                                 
Weighted average shares outstanding,
                                
  Basic and diluted
    
92,334,401
      
80,200,000
      
91,140,929
      
80,200,000
  
                                 
                                 
Comprehensive income (loss):
                                
                                 
Net income (loss)
  
$
19,960,770
    
$
(282,059
)
  
$
(5,961,359
)
  
$
(467,348
)
Foreign currency translation adjustments
    
(11,141
)
    
(30,642
)
    
(18,238
)
    
(5,932
)
                                 
Comprehensive income (loss)
  
$
19,949,629
    
$
(312,701
)
  
$
(5,979,597
)
  
$
(473,280
)
  
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 SIX MONTH PERIODS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
 
 
   
Six Months Ended June 30,
  
   
2014
    
2013
  
             
Cash flows from operating activities:
            
Net loss
   $ (5,961,359 )   $ (467,348 )
Adjustments to reconcile net loss to net
                
  cash used in operating activities:
                
  Depreciation and amortization
     40,035       32,667  
  Amortization of prepaid stock based compensation
     625,000       -  
  Stock based compensation
     560,966       -  
  Gain on conversion of debt
     (155,129 )     -  
  Change in fair value of derivative liability
     (1,109,207 )     -  
  Amortization of debt discount
     5,036,817       -  
Changes in operating assets and liabilities:
                
  Accounts receivable
     122,091       (307,662 )
  Inventory
     (1,302,480 )     40,400  
  Prepaid expenses and other current assets
     (314,108 )     22,287  
  Other assets
     (7,762 )     (2,415 )
  Accounts payable and accrued expenses
     1,663,239       67,328  
  Deferred revenue
     (294,112 )     643,244  
                 
Net cash used in operating activities
     (1,096,009 )     28,501  
                 
Cash flows from investing activities:
                
Cash paid for fixed assets
     (6,529 )     (10,803 )
                 
Net cash used in investing activities
     (6,529 )     (10,803 )
                 
Cash flows from financing activities:
                
Proceeds from sale of preferred stock
     472,000       -  
Proceeds from notes payable
     961,000       -  
Repayment of note
     (75,000 )     -  
Repayment of loan
     (7,654 )     (7,517 )
Advances from related parties
     21,000       42,402  
Repayments to related parties
     (118,631 )     -  
                 
Net cash provided by financing activities
     1,252,715       34,885  
                 
Effect of exchange rate changes on cash
     6,322       (5,932 )
                 
Net decrease in cash
     156,499       46,651  
Cash, beginning of period
     341,031       51,323  
Cash, end of period
   $ 497,530     $ 97,974  
                 
Supplemental Schedule of Cash Flow Information:
                
  Cash paid for interest
   $ 254,618     $ 185  
                 
Non-cash investing and financing activities:
                
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       -  
Derivative liability reclassified to equity upon expiration of warrants
     1,892,000       -  
Derivative liability of debt issued
     4,378,443       -  
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
June 30, 2014 AND 2013
(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 5 key products:
 
•  
Thinspace TSE - a simple management solution for Microsoft remote desktop users.
•  
Thinspace OneGate - allows secure remote access to applications and data from outside of the corporate network.
•  
Thinspace Universal Client – provides access to applications or Windows desktops from iPad, iPhone or Android tablet or Smartphone
•  
Thinspace Pano  – The Pano is a Zero Client that replaces traditional desktops, allows secure fast access to hosted virtual desktops
 •  
Thinspace Client– A branded hardware Thin Client solution 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 USA”), a Nevada corporation formed on August 24, 2010 and operating in the states of California, Colorado and Florida.

Pursuant to an Agreement of Merger and Reorganization dated December 31, 2013 between the Company , VAEV Merger Sub, Inc., and Thinspace UK, VAEV Merger Sub merged with Thinspace UK and all of the issued and outstanding shares of Thinspace UK were exchanged for 80,200,000 shares of common stock of the Company The transaction has been accounted for as a reverse acquisition of Vanity by Thinspace UK but in substance as a capital transaction, rather than a business combination since Vanity had minimal operations and assets as of the closing of the transaction. The stockholders of Thinspace UK own a majority of the Company’s voting power immediately following the transaction and Thinspace UK’s management assumed operational, management and governance control of the Company. The transaction is deemed as reverse recapitalization and the accounting is similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets should be recorded.  Thinspace UK is treated as the surviving and continuing entity.   The Company did not recognize goodwill or any intangible assets in connection with this transaction. Accordingly, the Company’s historical financial statements are those of Thinspace UK and its subsidiary, Thinspace USA.
 
Vanity assets and liabilities retained subsequent to the transaction are as follows:

Cash
  
$
9,848
  
Other assets
    
1,349
  
Accounts payable and accrued expenses
    
(1,032,603
)
Notes payable
    
(922,019
)
Derivative liabilities
    
(8,504,326
)
Net liabilities retained
  
$
(10,447,751
)

We have changed the fiscal year end of Thinspace UK and Thinspace USA to December 31 to match that of Vanity  prior to the reverse acquisition.
 
References herein to “Vanity” refer to the Company prior to the reverse acquisition.
 
 
BASIS OF PRESENTATION AND GOING CONCERN

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. The unaudited interim condensed 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 condensed consolidated financial statements as of and for the three and six months ended June 30, 2014 and 2013 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 six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any future period. All references to June 30, 2014 and 2013 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, 2013, included in the Company’s annual report on Form 10-K/A filed with the SEC on May 13, 2014.
 
The condensed consolidated balance sheet as of December 31, 2013 has been derived from the audited consolidated financial statements at that date but do not include all disclosures required by the accounting principles generally accepted in the United States of America. 

Going Concern

We have incurred a loss from operations of $1,754,796 for the six months ended June 30, 2014. As of June 30, 2014 we have negative working capital of $15,145,877 and a stockholders’ deficit of $15,254,911. As a result, there is substantial doubt about the Company’s ability to continue as a going concern at June 30, 2014.
 
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 condensed consolidated financial statements include the accounts of Thinspace Technology, Inc. and its wholly-owned subsidiaries, Thinspace UK and Thinspace USA. 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.
 
 
 
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 $270,799 and $387,279 as of June 30, 2014 and December 31, 2013, 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

Certain volume licensing arrangements 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 June 30, 2014:
 
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Liabilities
                                
Conversion and warrant derivative liabilities
    
-
      
-
    
$
13,080,248
    
$
13,080,248
  
Total Liabilities
  
 $
-
    
$ 
-
    
$ 
13,080,248
    
$ 
13,080,248
  
 
 
 
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 six month period ended June 30, 2014.

   
2014
  
Balance at beginning of year
  
$
11,268,087
  
   Additions to derivative instruments
    
5,826,248
  
   Change in fair value of derivative liabilities
    
(1,109,207
) 
Reclassification upon expiration of warrants
    
(1,892,000
)
Reclassification upon conversion of debt
    
(1,012,880
) 
Balance at end of period
  
$
13,080,248
  

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 June 30, 2014, one customer accounted for 10% 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 at June 30, 2014 (approximately $145,000 at June 30, 2014) 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.

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 215,155,252 common share equivalents at June 30, 2014 and none at June 30, 2013, which have been excluded from the computation of the weighted average diluted shares.   

Dilutive common stock equivalents consist of shares issuable upon conversion of debt and preferred stock and the exercise of our stock warrants and options. In accordance with ASC 260-45-20, common stock equivalents derived from shares issuable through the exercise of our debt and warrants subject to derivative accounting are not considered in the calculation of the weighted average number of common shares outstanding because the adjustments in computing income available to common stockholders would result in a loss.  Accordingly, the diluted EPS would be computed in the same manner as basic earnings per share. 
 

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 February 21, 2014 Financing
 
On February 21, 2014, the Company entered into a Securities Purchase Agreement with IBC Funds, LLC (“IBC Funds”) pursuant to which the Company sold to IBC Funds an 8% convertible debenture in the principal amount of $150,000. The debenture matures on the third anniversary of the date of issuance and bears interest at 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 per share at 25% of the lowest closing bid price for the Company’s common stock during the previous 20 trading days.

IBC Funds March 21, 2014 Financing

On March 21, 2014, the Company entered into a Securities Purchase Agreement with IBC Funds pursuant to which the Company sold to IBC Funds an 8% convertible debenture in the principal amount of $50,000. The debenture matures on the third anniversary of the date of issuance and has terms substantially the same as the February 21, 2014 debenture.

Greystone March 21, 2014 Financing

On March 21, 2014, the Company entered into a Securities Purchase Agreement with Greystone Capital Partners, Inc. (“Greystone”) pursuant to which the Company sold to Greystone an 8% convertible debenture in the principal amount of $50,000.The debenture matures on the third anniversary of the date of issuance and has terms substantially the same as the February 21, 2014 debenture.

Greystone March 26, 2014 Financing

On March 26, 2014, the Company entered into a Securities Purchase Agreement with Greystone pursuant to which the Company sold to Greystone an 8% convertible debenture in the principal amount of $50,000. The debenture matures on the third anniversary of the date of issuance and has terms substantially the same as the February 21, 2014 note.
 
Greystone April 17, 2014 Financing

On April 17, 2014, the Company entered into a Securities Purchase Agreement with Greystone pursuant to which the Company sold to Greystone an 8% convertible debenture in the principal amount of $65,000. 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. Greystone 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.
 
IBC Funds April 17, 2014 Financing

On April 17, 2014, the Company entered into a Securities Purchase Agreement with IBC Funds pursuant to which the Company sold to IBC Funds an 8% convertible debenture in the principal amount of $100,000. The debenture matures on the third anniversary of the date of issuance and has terms substantially the same as the Greystone April 17, 2014 note.
 
Greystone May 29, 2014 Financing

On May 29, 2014, the Company entered into a Securities Purchase Agreement with Greystone pursuant to which the Company sold to Greystone 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 has terms substantially the same as the Greystone April 17, 2014 note. We have received $56,000 pursuant to this debenture.
 
 
10


IBC Funds May 29, 2014 Financing

On May 29, 2014, the Company entered into a Securities Purchase Agreement with IBC Funds pursuant to 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 has terms substantially the same as the Greystone April 17, 2014 note. We have received $100,000 pursuant to this note.

CP US May 29, 2014 Financing

On May 29, 2014, the Company entered into a Securities Purchase Agreement with CP US Income Group LLC (“CP US”) pursuant to which the Company sold to CP US an 8% convertible debenture in the principal amount of $265,000. The debenture matures on the third anniversary of the date of issuance and has terms substantially the same as Greystone April 17, 2014 note.

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 $4,378,443. 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 0.75 - 0.875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of between 402% - 419%; and (4) an expected life of 3 years. The Company has allocated $886,000 to debt discount, to be amortized over the life of the debt, with the balance of $3,492,443 being charged to expense at issue.

During the six months ended June 30, 2014, $191,184 of principal and $11,409 of accrued interest was converted into 4,051,870 shares of common stock. The Company has recorded expense of $202,943 for the three months ended March 31, 2014 related to the change in fair value of the conversion feature through the dates of conversion.
 
NOTE 4 –DERIVATIVE LIABILITIES
 
The Company has identified certain embedded derivatives related to its convertible debentures, convertible preferred stock, common stock purchase warrants 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. Since the warrants have a price reset feature, they 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 June 30, 2014, 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 June 30, 2014 was $10,036,888. The value of the conversion liabilities was determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rate of 0.875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of between 393% - 397% and (4) an expected life of 2.5 - 2.91 years. We recorded income of $12,058,825 and $1,665,931 during the three and six months ended June 30, 2014, respectively, related to the change in fair value.  

During the six months ended June 30, 2014 we recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest accrued during the period. These additions aggregated $149,283 and $414,441 for the three and six months ended June 30, 2014, 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 $0.05 per share or an aggregate of 1,500,000 shares of the Company’s common stock. The Company has recorded income of $98 for the three months ended March 31, 2014, related to the change in fair value of the conversion feature of the preferred stock through the date of adjustment. The Company has also recorded an expense of $74,977 for the three months ended March 31, 2014 due to the increase in the fair value of the conversion feature as a result of the modification.

At June 30, 2014, 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 June 30, 2014 was $2,623,053. 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 0.139%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 262% and (4) an expected life of 1.125 years. We recorded income of $7,278,064 and $115,513 during the three and six months ended June 30, 2014, respectively, related to the change in fair value.  
 
 
Warrant Liabilities

The warrants with price reset features have been adjusted due to the subsequent issuance of convertible debt. As a result, those warrants totaled 8,700,000 with an exercise price of $0.05. The Company has recorded income of $21,915 for the three months ended March 31, 2014 related to the change in fair value of the warrants through the date of adjustment. The Company has also recorded an expense of $958,388 for the three months ended March 31, 2014 due to the increase in the fair value of the warrants as a result of the modifications.
 
During the three months ended June 30, 2014 an aggregate of 4,700,000 warrants expired. The Company has recorded income of $1,258,643 for the three and six months ended June 30, 2014 related to the change in fair value of the warrants through the dates of expiration. At expiration the Company has reclassified an aggregate of $1,892,000 of derivative liability to equity.

At June 30, 2014, we recalculated the fair value of the remaining warrants containing a price reset feature subject to derivative accounting and have determined that the fair value at June 30, 2014 was $420,307. The value of the warrant liabilities was determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.04%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 175% and (4) an expected life of 0.31 years. We recorded income of $2,266,619 and expense of $1,749,950 during the three and six months ended June 30, 2014, respectively, related to the change in fair value.  

NOTE 5 – LOANS PAYABLE – RELATED PARTY

Entities controlled by certain shareholders have provided short term working capital loans to the Company aggregating approximately $21,000 during the six months ended June 30, 2014. The Company repaid approximately $119,000 of loans during the six months ended June 30, 2014.

During May 2014 the Company settled all related party and related accrued interest through a lump sum payment. The excess of the liabilities over the payment, totaling $17,391, has been credited to paid in capital.

NOTE 6– RELATED PARTY TRANSACTIONS

An entity owned by certain of our shareholders provided management services to the Company. Fees incurred for the three months ended June 30, 2014 and 2013 were $0 and $41,367, respectively. Fees incurred for the six months ended June 30, 2014 and 2013 were $0 and $152,182, respectively.
 
NOTE 7 – 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, 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 June 30, 2014 and December 31, 2013.
 
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 June 30, 2014 and December 31, 2013, there were 94,423,918 and 82,819,694 shares of common stock issued and outstanding, respectively.
 
During January 2014 we issued 5,000,000 shares of common stock, valued at $1,250,000, pursuant to a consulting agreement with a one year term. We will expense the value of the shares over 2014. During the three and six months ended June 30, 2014, we recorded expense of $312,500 and $625,000, respectively.

During January 2014 we cancelled 250,000 shares of common stock which had been issued in July of 2012 as payment for consulting services, pursuant to the request of the consultant.

During the six months ended June 30, 2014, we issued 4,051,870 shares of common stock upon the conversion of $191,184 of note principal and $11,409 of accrued interest.

Effective April 15, 2014 and April 30, 2014 we issued an aggregate of 277,354 shares of common stock to our former President as payment of accrued salary in the amount of $30,000. Such shares were issued pursuant to terms contained in his employment agreement. The shares had a value of $76,891.

During the six months ended June 30, 2014 we issued an aggregate of 2,300,000 shares of common stock, valued at $469,000, for services.

During the six months ended June 30, 2014 we issued 25,000 shares of common stock, valued at $20,500, as payment for a domain name.

During the six months ended June 30, 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 $1,417 for the three and six month periods ended June 30, 2014.
 
 

Options Outstanding

During May 2014 we granted an aggregate of 5,000,000 common stock options to an employee. The options will vest ratably over three years commencing on the grant date and vesting on each one year anniversary, 1,000,000 on May 29, 2015 and 2,000,000 on May 29, 2016 and 2017. The options have an exercise price of $0.17 per share and a term of five years. These options have a weighted average grant date fair value of $0.15 per option, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 0.52%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 293%; and (4) an expected life of the options of 2.2 years. We have recorded an expense for the employee options of $32,620 for the three and six months ended June 30, 2014.

Warrants Outstanding

At June 30, 2014 we have an aggregate of 4,000,000 common stock purchase warrants outstanding and exercisable. The warrants currently have an exercise price of $0.05 per share. The warrants expire on October 6, 2014 and November 10, 2014 and have a weighted average remaining life of 0.31 years at June 30, 2014. The warrants contain a price reset feature and are accounted for as derivative liabilities.
 
NOTE 8 - COMMITMENTS AND CONTINGENCIES

GOLDCREST STOCK PURCHASE AGREEMENT

On April 2, 2014, Thinspace UK entered into a stock purchase agreement (the “Purchase Agreement”) with Goldcrest Distribution Limited (“Goldcrest”). Pursuant to the Purchase Agreement, Thinspace UK may, for a period of one year commencing upon the execution of the Purchase Agreement, and upon receipt of orders from customers, request funding for such orders from Goldcrest, which Goldcrest may provide at its discretion, in an aggregate amount of up to Ј1.8 million (approximately USD$3.02 million). The Purchase Agreement was entered into in connection with a purchase order received by Thinspace UK in the amount of Ј2,307,357. Pursuant to the Purchase Agreement, Thinspace UK paid Goldcrest an establishment fee of Ј36,150 and agreed to pay a transaction fee of 3% for a transaction period of 3 months for advances under the Purchase Agreement. Thinspace UK’s obligations under the Purchase Agreement will be secured by a debenture over the assets of Thinspace UK and personal guarantees executed by Owen Dukes and Robert Zysblat, the Company’s former Chief Executive Officer and former President, respectively.

LEASE

We currently occupy office space pursuant to various short term leases expiring in 2014.

Rent expense for the three months ended June 30, 2014 and 2013 was $25,057 and $34,937, respectively. Rent expense for the six months ended June 30, 2014 and 2013 was $62,426 and $65,558, 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 9 - SUBSEQUENT EVENTS
 
During July 2014, we issued 2,400,000 shares of common stock upon the conversion of notes payable in the amount of $42,060.
 
 
 

Overview

Thinspace Technology, Inc. (the “Company”, “Thinspace”, “we”, “us”, or “our”) is a cloud computing company that  develops software productivity solutions that allow its 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. 

Thinspace Technology 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.

Thinspace Technology 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 or 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.

Thinspace Technology Limited (formerly known as Propalms Ltd), our wholly-owned subsidiary which we acquired on December 31, 2013 (“Thinspace UK”) is a United Kingdom corporation founded on October 11, 2001 and launched sales in July 2005.

Thinspace Technology Ltd. (formerly known as Propalms International Ltd) (“Thinspace US”) is a Nevada corporation founded on August 24, 2010 and is a wholly-owned subsidiary of Thinspace UK.

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 - These 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.
 
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 June 30, 2014 as compared to the Three Months ended June 30, 2013

Revenues:

Net revenue was $2,593,997 for the three months ended June 30, 2014 compared to net revenue of $267,720 for the three months ended June 30, 2013. Overall, our revenues increased 868% for the 2014 period as compared to the 2013 period. The increase is primarily attributable to the delivery of a large order during the 2014 period (representing approximately 80% of revenue) as well as the introduction of new products during calendar year 2013, and the results of increased  marketing activities.


Cost of revenue

Cost of revenue as a percent of revenue was 67% for each of the three months ended June 30, 2014 and 2013. 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 increased 460% for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. Our costs have increased as we have initiated the Thinspace US operations and increased our marketing and other activities, Included in our operating expenses for the first quarter of 2014 is $312,500 of non-cash expense for stock based compensation related to costs associated with consultants we have engaged to assist our company in its growth efforts. This non-cash expense is being amortized over the one year life of the contract, which runs through December 31, 2014. The balance of our other operating expenses includes salaries, consulting, marketing and general overhead expenses (including approximately $561,000 in other stock based compensation for the 2014 period).

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 income from the change in the fair value of our derivative liabilities of $22,862,151 during the three months ended June 30, 2014 with no comparable income or expense for the three months ended June 30, 2013. 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 interest expense of $1,686,014 during the three months ended June 30, 2014 as compared with interest expense of $2 during the three months ended June 30, 2013. 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 $1,211,969. The balance of the expense for the 2014 period relates to the amortization of debt discount and interest accrued on debt.
 
Six Months ended June 30, 2014 as compared to the Six Months ended June 30, 2013

Revenues:
 
Net revenue was $3,378,605 for the six months ended June 30, 2014 compared to net revenue of $572,529 for the six months ended June 30, 2013. Overall, our revenues increased 490% for the 2014 period as compared to the 2013 period. The increase is primarily attributable to the delivery of a large order during the 2014 period (representing approximately 61% of revenue) as well as the introduction of new products during calendar year 2013, and the results of increased marketing activities.

Cost of revenue

Cost of revenue as a percent of revenue was 55% for the six months ended June 30, 2014 and 65% for the six months ended June 30, 2013. 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 increased 390% for the six months ended June 30, 2014, compared to the six months ended June 30, 2013. Our costs have increased as we have initiated the Thinspace US operations and increased our marketing and other activities, Included in our operating expenses for the first six months of 2014 is $625,000 of non-cash expense for stock based compensation related to costs associated with consultants we have engaged to assist our company in its growth efforts. This non-cash expense is being amortized over the one year life of the contract, which runs through December 31, 2014. The balance of our other operating expenses includes salaries, consulting, marketing and general overhead expenses (including approximately $561,000 in other stock based compensation for the 2014 period).

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 income from the change in the fair value of our derivative liabilities of $1,109,207 during the six months ended June 30, 2014 with no comparable income or expense for the six months ended June 30, 2013. 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 gain from the conversion of debt of $155,129 during the six months ended June 30, 2014, with no comparable item for the six months ended June 30, 2013. 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 $5,470,899 during the six months ended June 30, 2014 as compared with interest income of $183 during the six months ended June 30, 2013. 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 $3,906,884, 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 debt.

 Liquidity and Capital Resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. As of June 30, 2014 we had approximately $498,000 in cash and cash equivalents and a working capital deficit of $15,145,877 (resulting primarily from derivative liabilities aggregating $13,080,248), as compared to cash and cash equivalents of approximately $341,000 and a working capital deficit of $13,312,285 at December 31, 2013. Our recent sources of operating capital have been equity and debt financings, along with advances from related parties. In December 2013 we raised $100,000 from the sale of a convertible debenture and $672,000 from the sale of preferred stock (of which $472,000 was received in January 2014). We also received proceeds from convertible and other notes aggregating $961,000 during the six months ended June 30, 2014.

Net Cash Provided by Operating Activities

We used $1,096,009 of cash in our operating activities during the six months ended June 30, 2014 compared to $28,501 provided by our operating activities for the six months ended June 30, 2013. The increase in net cash used results primarily from an increase in net loss of $528,196 (after adjusting for non-cash expenses), an increase in inventory and prepayments and a decrease in deferred revenue, all partially offset by an increase in accounts payable.
 
Net Cash Used in Investing Activities

We used $6,529 for the purchase of furniture and equipment during the six months ended June 30, 2014, compared to $10,803 used during the six months ended June 30, 2013.

Net Cash Provided by Financing Activities

During the six months ended June 30, 2014, we received $472,000 from the sale of our preferred stock, $961,000 from the sale of notes and convertible debentures and $21,000 from stockholder advances. We repaid $82,654 of notes payable and repaid $118,631 of shareholder advances. During the six months ended June 30, 2013 we made note repayments of $7,517 and received advances from related parties of $42,402.

Greystone $65K Financing

On April 17, 2014, the Company entered into a Securities Purchase Agreement with Greystone Capital Partners, Inc. (“Greystone”) pursuant to which the Company sold to Greystone an 8% convertible debenture in the principal amount of up to $65,000 (it being agreed that any such amounts (up to $65,000) may be paid by Greystone to the Company in Greystone’s discretion during the 90 pay period commencing on the date of issuance of the debenture). 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. Greystone 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 25% of the lowest closing bid price for the Company’s common stock during the previous 20 trading days. To date, we have received $65,000 pursuant to this agreement. 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.
 
IBC Funds $100K Financing

On April 17, 2014, the Company entered into a Securities Purchase Agreement with IBC Funds, LLC (“IBC Funds”) pursuant to which the Company sold to IBC Funds an 8% convertible debenture in the principal amount of up to $100,000 (it being agreed that any such amounts (up to $100,000) may be paid by IBC Funds to the Company in IBC Funds’ discretion during the 90 pay period commencing on the date of issuance of the debenture). 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 25% of the lowest closing bid price for the Company’s common stock during the previous 20 trading days. To date, we have received $100,000 pursuant to this agreement. 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.


 
CPUS $265K Financing

On May 29, 2014, the Company entered into a Securities Purchase Agreement with CP US Income Group, LLC (“CPUS”) pursuant to which the Company sold to CPUS an 8% Convertible Debenture in the principal amount of $265,000. 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. CPUS 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 price per share of 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.

Greystone $617.5K Financing

On May 29, 2014, the Company entered into a Securities Purchase Agreement with Greystone Capital Partners, Inc. pursuant to which the Company sold to Greystone 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. Greystone 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 price per share of 40% of the lowest closing bid price for the Company’s common stock during the previous 20 trading days. Pursuant to the terms of the debenture, Greystone paid the Company $56,000 upon the issuance of the Debenture and any additional payments (up to a maximum of $617,500) may be made by Greystone to the Company in Greystone’s discretion during the two year period commencing on the date of issuance. To date, we have received $56,000 pursuant to this agreement. 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.
 
IBC Funds $617.5K Financing

On May 29, 2014, the Company entered into a Securities Purchase Agreement with IBC Funds pursuant to 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 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 price per share of 40% of the lowest closing bid price for the Company’s common stock during the previous 20 trading days. Pursuant to the terms of the debenture, IBC paid the Company $100,000 upon the issuance of the Debenture and any additional payments (up to a maximum of $617,500) may be made by IBC to the Company in IBC’s discretion during the two year period commencing on the date of issuance. To date, we have received $100,000 pursuant to this agreement. 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.
 
We presently do not have any other 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.
 

Not required for a smaller reporting company.



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 President and Chief Executive 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 President and Chief Executive Officer concluded that, due to the material weaknesses in our internal controls over financial reporting disclosed in the Company’s 10-K for the year ended December 31, 2013, 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 President and Chief Executive Officer to allow timely decisions regarding required disclosure.
 
Changes in Internal Control over Financial Reporting
 
There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2014 that have materially affected, or are 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.

During April 2014 we issued an aggregate of 277,354 shares of common stock to our former President as payment of accrued salary.

During June 2014 we issued an aggregate of 2,300,000 shares of common stock for services.

During June 2014 we issued 25,000 shares of common stock as payment for a domain name.

During June 2014 we issued 200,000 shares of common stock to an employee. The grant vests upon the two year anniversary, on May 29, 2016.

On April 17, 2014, the Company entered into a Securities Purchase Agreement with IBC Funds pursuant to which the Company sold to IBC Funds an 8% convertible debenture in the principal amount of up to $100,000. IBC 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 per share at 40% of the lowest closing bid price for the Company’s common stock during the previous 20 trading days.

On April 17, 2014, the Company entered into a Securities Purchase Agreement with Greystone pursuant to which the Company sold to Greystone an 8% convertible debenture in the principal amount of up to $65,000. Greystone 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 per share at 40% of the lowest closing bid price for the Company’s common stock during the previous 20 trading days.

In connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering.

Item 3. Defaults Upon Senior Securities.
 
None.
 
Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information .
 
None.

 

No.
  
Description
 
 
EX-101.INS
  
XBRL INSTANCE DOCUMENT
EX-101.SCH
  
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL
  
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.LAB
  
XBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE
  
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
     


 



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: August 14, 2014
By:  
/s/ Jay Christopher Bautista
  
 
Jay Christopher Bautista
  
 
Chief Executive Officer (principal executive, financial and accounting officer)
  
     
     
       
     
     
     
 
 
 
 
 
20

Thinspace Technology, Inc. Reports

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