This Amendment No. 1 to Form 10-K for the period ended December 31, 2013, amends Thinspace Technology, Inc.’s Transition Report on Form 10-K for the period ended December 31, 2013, which was originally filed with the Securities and Exchange Commission on March 31, 2014 (the “Original 10-K”) This amendment is being filed solely to add a going concern paragraph to the audit report. Except with respect to the audit report, the Original 10-K has not been amended, updated or otherwise modified.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013
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PART I
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PART II
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PART III
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PART IV
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PART I
Corporate History
Thinspace Technology, Inc. was incorporated in the State of Delaware on November 22, 2006 under the name Map V Acquisition, Inc.
On April 2, 2008, the Company entered into a Share Exchange Agreement with Vanity Holding Group, Inc. (“Vanity Group”) and Vanity Group’s then shareholders whereby we acquired all of the issued and outstanding shares of the common stock of Vanity Group. Upon consummation of the acquisition, Vanity Group became a wholly-owned subsidiary of the Company. Subsequent to the completion of the reverse merger acquisition, the Company filed a Certificate of Amendment with the Delaware Secretary of State changing its name from “Map V Acquisition, Inc.” to “Vanity Events Holding, Inc.” in 2008.
On December 31, 2010, the Company entered into a share exchange agreement (“Exchange Agreement”) by and among the Company, Shogun Energy, Inc., a South Dakota corporation (“Shogun”), Shawn Knapp, the principal shareholder of Shogun (the “Principal Shareholder”) and the other shareholders of Shogun (the “Shogun Shareholders” and collectively with the Principal Shareholder, the “Shareholders”). The closing of the transaction took place on December 31, 2010. Upon the closing of the Exchange, the Company shifted its operations to focus on the business of Shogun.
On June 30, 2011 the Company, Shogun, Mr. Knapp, Roxanne Knapp and the Shareholders entered into a rescission agreement pursuant to which, upon closing, the Exchange Agreement was rescinded, any and all obligations of any party arising from such Exchange Agreement, were, in all respects, deemed to be null and void and of no further force and effect.
Beginning in 2012, management decided to evolve its business strategy from a licensing and marketing company to an e-commerce transactional business.
Pursuant to an Agreement of Merger and Reorganization dated December 31, 2013 (the “Merger Agreement”) between the Company, VAEV Merger Sub, Inc., and Thinspace Technology Ltd. (formerly known as Propalms Ltd.) (“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, representing approximately 91.6% of the outstanding shares of common stock the Company, resulting in a change in control of the Company.
Thinspace UK is a cloud computing company that develops software productivity products that allow its customers secure access to centrally managed Desktops or Software Applications and to work and collaborate from anywhere, accessing enterprise apps and data on any of the latest devices, as easily as they would in their own office- simply and securely.
Effective December 31, 2013, the Company’s existing officer and two of its three directors resigned, and two new directors and officers who were nominees of Propalms were appointed as directors and officers of the Company.
As a result of the foregoing, we have determined to treat the acquisition as a reverse recapitalization for accounting purposes, with Thinspace UK as the acquirer for accounting purposes. As such, the financial information, including the operating and financial results, included in this current report on Form 10-K are that of Thinspace UK rather than that of the Company prior to the closing of the Merger Agreement.
On February 6, 2014, the Company changed its name to Thinspace Technology, Inc.
On February 27, 2014, Propalms International, Ltd., a Nevada corporation an indirect wholly owned subsidiary of the Company, changed its name to Thinspace Technology, Ltd. (“Thinspace Nevada”).
On March 10, 2014, the Company’s wholly-owned subsidiary, Propalms Ltd., a UK registered company changed its name to Thinspace Technology Ltd.
References in this report to “Thinspace”, “Thinspace Technology”, “we,” “us,” “our” and similar words refer to the Company and its wholly-owned subsidiaries, Thinspace UK and Thinspace Nevada, unless the context indicates otherwise, and, prior to the closing, these terms refer to Thinspace UK and Thinspace Nevada. References to Vanity relate to the Company prior to the closing of the Merger Agreement.
Overview
Thinspace Technology is a cloud computing company that develops software productivity solutions that allow its customers secure access to centrally managed Desktops or Software Applications and to work and collaborate from anywhere, accessing enterprise apps and data on any of the latest devices, as easily as they would in their own office- simply and securely.
Our cloud computing solutions help IT and service providers build both private and public clouds, leveraging virtualization and networking technologies to deliver high-performance, elastic and cost-effective services for mobile workstyles.
Thinspace products have been designed to suit the needs of all sizes of organizations from 5 to 50,000+ users. Customers have found Propalms 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 Ltd. (formerly known as Propalms Ltd.) 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) is a Nevada corporation founded on August 24, 2010 and is a wholly-owned subsidiary of Thinspace UK.
Our Products
We have developed software products that all allow our customers secure access to centrally managed Desktops or Software Applications:
Propalms TSE – allows customers to deliver single software applications to any kind of device either inside or outside the corporate network.
Propalms One Gate- allows secure encrypted access to data or applications from outside the corporate network.
Propalms VDI – allows a Microsoft Windows desktop to be centrally run, managed and delivered to any kind of device.
Propalms – Pano Logic G2 – The G2 is a Zero Client that replaces traditional desktops, allows secure fast access to hosted virtual desktops
Thin Space – is a branded hardware Zero Client Solution aimed for the enterprise and corporate markets.
These products have been designed to suit the needs of all sizes of organizations from 5 to 50,000+ users. Our products are functionally comparable to similar products developed and sold by the market leader Citrix Systems Inc.
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 sell our products directly to independent software vendors, or ISVs, and application service providers or ASPs and through our worldwide network of distributors and resellers to end users.
End users are from both the public and private sectors and typically have between 5 and 1000 desktop computers in their organization. Examples of current users by industry are:
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· Manufacturing
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Toyota Group (Japan)
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· Software Houses
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McCracken Financial Software (USA)
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· Local Government
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Town of Whitby (Canada)
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· Distribution
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Hisco (USA)
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· Health Care
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Community Health of Southern Iowa (USA)
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· Educational Establishments
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University of Suffolk (USA)
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· Legal
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Lavery De Billy Avocats (Canada)
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· Charitable organisations
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Alzheimer’s Association (USA)
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· Banking
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Capitol Bank (USA)
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· Financial
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Redstone Federal Credit Union (USA)
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MARKET SIZE & TRENDS
The potential market for Microsoft server based computing (SBC) software, also known as thin client software solutions, is estimated to be $4.5 billion in 2014. This estimate is based on our knowledge of the market and interpretation of Microsoft’s and Citrix accounts.
Our product set has comparable functionality to Citrix as well as greater speed and simpler installation processes. However, our low cost base enables us to offer ours products at a much lower competitive price than Citrix, currently approximately 50% less per user. Our maintenance cost for any potential customer is also substantially lower.
Through our network of distributors and resellers, we are typically targeting medium size organizations with up to 1000 users. Citrix mainly target organizations with a larger number of users and consequently they are not currently a significant competitor to us.
Executive Summary
The potential market for Microsoft server based computing (SBC) software, also known as thin client software solutions, is estimated to be approximately $4.5 billion in 2014. This estimate is based on our knowledge of the market and interpretation of Microsoft’s and Citrix accounts.
Thinspace Technology has developed three software products that all allow our customers secure access to centrally managed Desktops or Software Applications:
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Propalms TSE – allows you deliver single software applications to any kind of device either inside or outside the corporate network.
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Propalms One Gate- allows secure encrypted access to data or applications from outside the corporate network.
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Propalms VDI – allows a Microsoft Windows desktop to be centrally run, managed and delivered to any kind of device.
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Our 2013 acquisitions have added two new products to our suite of solutions:
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Pano Logic G2 – The G2 is a Zero Client that replaces traditional desktops, allows secure fast access to hosted virtual desktops
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Thin Space – A branded hardware zero thin client solution aimed for the enterprise and corporate market.
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Marketing
Our marketing plan focuses on key sales and marketing initiatives, many of these are internet based marketing strategies, which have proven results. Our objective when undertaking these marketing activities is to generate as many “web downloads” and undertake as many “on line live demos” as possible, as these tend to secure more sales conversions than any other kind of lead.
We plan to combine our websites into one site, www.thinspace.com, which will be re-designed and optimized for search engines. We anticipate that this will take place before the close of the 4th quarter of 2014.
Our products are all freely downloadable as a fully functional 30 day evaluation. We have produced slow growth in the number of people visiting due to the lack of sustained marketing activity. Our current websites are www.thinspaceinc.com, www.propalms.com and www.vanityeventsholdinginc.com.
Our chosen website marketing strategies are:
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Website optimisation; inserting key words and phrases within our website, which when a prospect searches via various search engines, ensures that Propalms /Thinspace website is always presented to them.
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Google Ad words; Pay-per-click advertising is becoming increasingly more available with web companies like Google and Overture and is very effective in driving people to the desired website. The most important issue with pay-per-click is to target the correct search phrase, include brand names and the like, but most importantly; they lead the browser through to a relevant web page and doesn’t generate “bounce”.
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Partner Sponsorship; There is a number of “Server Based Computing Industry” websites that are a valuable source of information for clients involved or interested in this kind of technology. These sites include www.brianmadden.com www.dabcc.com and www.MSTerminalservices.org. We will seek to have a presence on these sites in order to raise our profile considerably amongst industry professionals.
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Interactive Chat; Under this method, if a browser is clicking around our site, we can engage in an online, real time “chat” with them to establish their interest and point them in the right direction to find what they are looking for on the site.
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Domain Name Registration; Register as many worldwide domain extensions as possible in order to show a “global” web presence.
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Website Language Localisation; Translate our website into as many languages as possible in order to show a “global” presence and courtesy to clients around the world. To coincide with worldwide domain extension registrations.
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Website Design; Continual refresh and update of our website to ensure maximum return visits, retain customer/prospect interest and become a valuable source of information for both our customers and prospects.
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EMARKETING
E-marketing is the “media” of today, with direct hits to the right contacts, giving us traceable leads and a return on our investment that can be measured.
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Emedia/ITMedia/Redmond; Many IT professionals subscribe to various industry news and sales resources. We have used a number of these resource/companies to promote our products, with proven results. They work on a “cost per lead” basis, our campaigns would usually focus around getting the prospects to download our evaluation/trial software or take an on line web demo, which is then followed up by our telesales team.
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Email Blasts (E-shot); either working with our channel partners or using our own customer relationship management (or CRM) data, we can E-shot our prospects on a regular basis to promote products and communicate our message.
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DIRECT MAIL
We intend to run direct mail campaigns in conjunction with telemarketing campaigns. Direct mailers typically do not work without a follow up. We will target the following markets with direct mail campaigns:
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Resellers; to assist our distribution channel to grow our reseller base.
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End Users; to generate end user leads across all market sectors, which we can qualify and pass to our channel for appropriate follow up and close.
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ISV’s; this market is a relatively untapped market for us. Propalms TSE is a very attractive proposition for ISV’s to deliver their own applications, via server based computing, for relatively low initial outlay compared to that of our main competitors.
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ASP Hosting Companies; this market is a relatively untapped market for us. Propalms TSE is a very attractive proposition for ASP Hosting companies to deliver their services, via server based computing, for relatively low initial outlay compared to that of our main competitors.
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Targeting “Original Equipment Manufacturers” to promote our product to be bundled with their software or systems. This is usually done via a formal “OEM Contract”.
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TELEMARKETING
We believe telemarketing is a fundamental sales function that is imperative to ensure we are making continual in roads into new prospects. In order to be effective it is imperative that we are able to “buy in” quality contact data in order to target specific chosen sectors. We plan to target the following sectors:
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End Users – target customers across all vertical sectors
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We believe another effective use of telemarketing resource is to plant “funded heads” in the offices of our channel partners. This funded head, would work for and be paid by us, promoting our products and services to the channel partners customer base. The funded head would prove an invaluable resource for the channel partner to use for the following:
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Onsite support to include telemarketing into resellers/distributors customer database
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Product sales training to resellers/distributors sales teams
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Managing supplier promotion/spiff days
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Liaising between reseller/distributors marketing team and Thinspace
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In return we would expect a commitment from the channel partner, and for them to supply:
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Desk, telephone and internet access
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Access to reseller/distributors account managers
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Access to customer database, to enable telesales activity
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Free inserts into reseller/distributors price lists, catalogues
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Free inserts in eshots and mail shots
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Space on stands at trade shows and exhibitions
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Website presence for Thinspace on reseller/distributors website
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SHOWS & EVENTS
In order for us to gain respect and have our profile raised within our market sectors it is important for us to be present at top industry shows as well as events co-hosted by our channel partners and technology partners. It is our aim to be involved in as many of these as possible. These events include the following:
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Microsoft; Our main industry technology partner hosts a number of events throughout the world on an on-going basis
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Infor; One of the world’s fastest growing ISV’s host annual conferences in US
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VMWorld; The worlds’ largest trade show focussing on the virtualisation market space.
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InfoSec; Infosecurity is a series of events across the globe, and the most comprehensive convergence of information security professionals. It addresses today’s strategic and technical issues in an unrivalled education programme and showcases the most diverse range of new and innovative products and services.
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Partner Events; Our channel partners hold regular and ad hoc events promoting their products and services. We intend to attend and be part of as many of these events as possible, in many cases these events would have a “Thinspace Only” focus and would target both other channel partners/resellers and end users
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PROMOTIONAL ITEMS & BROCHUREWARE
It is important for us to be able to provide our prospects with various promotional media, particularly at events and following up from other marketing activities. These items include:
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Product brochures and price lists
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Promotional items, such as pens, polo shirts, stress balls and other giveaways with our web address and logo on, used to keep the “Thinspace” name in front of our prospects.
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Intellectual Property
The Company owns copyright on all its current range of products as well as ownership of domain names. The Company is considering the possibility of applying for patents on some on some of its software application development as well as future hardware design.
Competition
The market for SBC was started by and is dominated by Citrix who developed the first SBC product. Citrix have continued to develop the product and the market from the late 1990s and have maintained their position as the major worldwide supplier.
There are now a small number of other providers who have followed Citrix into the SBC market but they do not appear to have gained any significant share. The key ones are referred to below.
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Jetro Technologies Limited is a privately owned company based in Israel. They have a number of distributors but to date none of Propalms distributors have reported any activity amongst their customers and prospective customers.
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Ericom Software Limited is a publicly owned company based in Israel. They have recently developed a SBC software solution and as of now have not made any significant sales.
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Hopto Inc, (HPTO.OB) based in California is a publicly traded company. They used to focus on selling their solution in the Unix market, to a very select group of customers. They have now changed direction in developing applications for mobile devices
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Provision Networks Inc, based in U.S.A. They have recently been purchased by QUEST Software (QSFT) for an undisclosed amount.
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Microsoft’s 2003, 2008 & 2012 Terminal Services Edition offers a thin client solution that can be sold in its own right and is most suitable for organizations with 5 to10 users running a single server.
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Customers
During the eleven months ended December 31, 2013 one distributor, Air Company, Japan, accounted for approximately 10% of our net revenues.
Research and Development
During the eleven months ended December 31, 2013, we spent an estimated $400,000 on research and development costs. Our research and development takes place in Puna, India.
Employees
As of March 18, 2014 the Company employs a total of 11full-time employees.
An investment in the Company’s common stock involves a high degree of risk. In determining whether to purchase the Company’s common stock, an investor should carefully consider all of the material risks described below, together with the other information contained in this report before making a decision to purchase the Company’s securities. An investor should only purchase the Company’s securities if he or she can afford to suffer the loss of his or her entire investment.
Risks Related to Our Business
Because we have a limited operating history, our ability to fully and successfully develop our business is unknown.
Our ability to successfully develop our products, and to realize consistent, meaningful revenues and profit has not been established and cannot be assured. For us to achieve success, our products must receive broad market acceptance by consumers. Without this market acceptance, we will not be able to generate sufficient revenue to continue our business operation. If our products are not widely accepted by the market, our business may fail. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues, manage development costs and expenses, and compete successfully with our direct and indirect competitors.
Based upon current plans, we expect to incur operating losses in future periods. This will happen because there are expenses associated with the development, production, marketing, and sales of our product. As a result, we may not generate significant revenues in the future. Failure to generate significant revenues in near future may cause us to suspend or cease activities.
We will need additional funds to produce, market, and distribute our product.
We will have to spend additional funds to produce, market and distribute our product. If we cannot raise sufficient capital, we may have to cease operations and you could lose your investment. We will need additional funds to produce our product for distribution to our target market. Even after we complete the production of our product, we will have to spend substantial funds on distribution, marketing and sales efforts before we will know if we have commercially viable and marketable/sellable products.
There is no guarantee that we will achieve sufficient sale levels.
There is no guarantee that the expenditure of money on distribution and marketing efforts will translate into sales or sufficient sales to cover our expenses and result in profits.
Our development, marketing, and sales activities are limited by our size.
Because we are small and do not have much capital, we must limit our product development, marketing, and sales activities. As such we may not be able to complete our production and business development program and this will have a material adverse effect on the Company’s business, financial condition and results of operations.
Intense competition and increasing competition in the THIN CLIENT market could hurt our business.
The market for thin clients is highly competitive. Market participants are of various sizes, with various market shares and geographical reach, some of whom have access to substantially more sources of capital. We will compete generally with major companies such as Citrix, Hopto, Ericom and 2X. As a result of both direct and indirect competition, our ability to successfully distribute, market and sell our product, and to gain sufficient market share in the United States to realize profits may be limited, and our business plan may not succeed.
Unfavorable general economic conditions in the United States could negatively impact our financial performance.
Unfavorable general economic conditions, such as a recession or economic slowdown, in the United States could negatively affect the affordability of, and demand for, our product in the United States. Lower demand for our product in the United States could reduce our profitability.
Changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations could increase our costs or reduce our net operating revenues.
In addition, failure to comply with environmental, health or safety requirements and other applicable laws or regulations could result in the assessment of damages, the imposition of penalties, suspension of production, changes to equipment or processes, or a cessation of operations at our or our bottling partners’ facilities, as well as damage to our image and reputation, all of which could harm our profitability.
Our business could be adversely impacted by conditions affecting the information technology market.
The demand for our products and services depends substantially upon the general demand for business-related computer appliances and software, which fluctuates based on numerous factors, including capital spending levels, the spending levels and growth of our current and prospective customers, and general economic conditions. Moreover, the purchase of our products and services is often discretionary and may involve a significant commitment of capital and other resources. Future economic projections for the information technology sector are uncertain and highlight an industry in transition from legacy platforms to mobile, cloud, big data and social solutions. If our current and prospective customers cut costs they may significantly reduce their information technology expenditures. Additionally, if our current and prospective customers shift their information technology spending more rapidly towards newer technologies and solutions, the demand for our products and services most aligned with legacy platforms (such as our Desktop Virtualization products) could decrease. Fluctuations in the demand for our products and services could have a material adverse effect on our business, results of operations and financial condition.
If we do not develop new products and services, integrate acquired products and services and enhance our existing products and services, our business, results of operations and financial condition could be adversely affected.
The markets for our products and services are characterized by:
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rapid technological change;
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evolving industry standards;
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fluctuations in customer demand;
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changing and increasingly sophisticated customer needs; and
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frequent new product and service introductions and enhancements.
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Our future success depends on our ability to continually enhance our current products and services, integrate acquired products and services, and develop and introduce new products and services that our customers choose to buy. The emerging markets for our next generation of products and services have yet to be defined. The introduction of third-party solutions embodying new technologies and the emergence of new industry standards could make our existing and future software solutions obsolete and unmarketable. If we are unable to keep pace with technological developments of third parties, expectations of the emerging markets and customer demands by introducing new products and services and enhancements, our business, results of operations and financial condition could be adversely affected. Our future success could be hindered by:
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delays in our introduction of new products and services;
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delays in market acceptance of new products and services or new releases of our current products and services;
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our failure to support services in a timely manner;
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our failure to identify and address significant product quality issues;
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our inability to position our and/or price our products and services to meet the market demand;
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our failure to maintain relevance in the evolving marketplace; and
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third party’s introduction of new products, or services or technologies that could replace, make obsolete or shorten the life cycle of our existing product and service offerings.
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We believe the demand for technology has and will continue to shift from the types of products and services we and our competitors have sold in the past to a new generation of products and services. We cannot guarantee that our products will achieve the broad market acceptance by our channel and strategic partners, customers and prospective customers necessary to generate significant revenue in the future. In addition, we cannot guarantee that we will be able to respond effectively to technological changes or new product announcements by others. If we experience material delays or sales shortfalls with respect to our new products and services or new releases of our current products and services, those delays or shortfalls could have a material adverse effect on our business, results of operations and financial condition.
In order to be successful, we must attract, engage, retain and integrate key employees, and failure to do so could have an adverse effect on our ability to manage our business.
Our success depends, in large part, on our ability to attract, engage, retain, and integrate qualified executives and other key employees throughout all areas of our business. Identifying, developing internally or hiring externally, training and retaining highly-skilled managerial, technical, sales and services, finance and marketing personnel are critical to our future, and competition for experienced employees can be intense. In order to attract and retain executives and other key employees in a competitive marketplace, we must provide a competitive compensation package, including cash- and equity-based compensation. Failure to successfully hire executives and key employees or the loss of any executives and key employees could have a significant impact on our operations. Further, changes in our management team may be disruptive to our business, and any failure to successfully integrate key new hires or promoted employees could adversely affect our business and results of operations. Competition for qualified personnel in our industry is intense because of the limited number of people available with the necessary technical skills and understanding of products in our industry. The loss of services of any key personnel, the inability to retain and attract qualified personnel in the future or delays in hiring may harm our business and results of operations.
Our products could contain errors that could delay the release of new products or that may not be detected until after our products are shipped.
Despite significant testing by us and by current and potential customers, our products, especially new products or releases or acquired products, could contain errors. In some cases, these errors may not be discovered until after commercial shipments have been made. Errors in our products could delay the development or release of new products and could adversely affect market acceptance of our products. Additionally, our products depend on third-party products, which could contain defects and could reduce the performance of our products or render them useless. Because our products are often used in mission-critical applications, errors in our products or the products of third parties upon which our products rely could give rise to warranty or other claims by our customers, which may have a material adverse effect on our business, financial condition and results of operations.
We rely on indirect distribution channels and major distributors that we do not control.
We rely significantly on independent distributors and resellers to market and distribute our products and appliances. For instance, one distributor, Air Company, Japan , accounted for approximately 10% of our net revenues in 2013. We maintain and periodically revise our sales incentive programs for our independent distributors and resellers, and such program revisions may adversely impact our results of operations. Our competitors may in some cases be effective in providing incentives to current or potential distributors and resellers to favor their products or to prevent or reduce sales of our products. The loss of or reduction in sales to our distributors or resellers could materially reduce our revenues. Further, we could maintain individually significant accounts receivable balances with certain distributors. The financial condition of our distributors could deteriorate and distributors could significantly delay or default on their payment obligations. Any significant delays, defaults or terminations could have a material adverse effect on our business, results of operations and financial condition.
Our Thin Client business could suffer if there are any interruptions or delays in the supply of hardware or hardware components from our third-party sources.
We rely on a concentrated number of third-party suppliers, who provide hardware or hardware components for our Thin Client products, and contract manufacturers. If we are required to change suppliers, there could be a delay in the supply of our hardware or hardware components and our ability to meet the demands of our customers could be adversely affected, which could cause the loss of a significant amount of sales and existing or potential customers and delayed revenue recognition and adversely affect our results of operations. While we have not, to date, experienced any material difficulties or delays in the manufacture and assembly of our Thin Client products, our suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, or the need to implement costly or time-consuming protocols to comply with applicable regulations (including regulations related to conflict minerals), equipment malfunction, natural disasters and environmental factors, any of which could delay or impede their ability to meet our demand.
If operating margins and gross margins decline, our future operating results could be adversely affected.
Our operating margins in our new initiatives may be lower than those we have achieved in our more mature products and services markets, and our new initiatives may not generate sufficient revenue to recoup our investments in them. We may experience a decline in gross margin as the mix of our revenue may include more products with a hardware component and increased sales of our services, both of which have a higher cost than our software products. If we are not able to recoup our investment by normalizing our margins or reducing our costs through integration of new initiatives it could adversely affect our business, results of operations and financial condition.
Actual or perceived security vulnerabilities in our products and services or cyberattacks on our networks could have a material adverse impact on our business and results of operations.
Use of our products and services may involve the transmission and/or storage of data, including in certain instances customers' business and personally identifiable information. Thus, maintaining the security of products, computer networks and data storage resources is important as security breaches could result in product or service vulnerabilities and loss of and/or unauthorized access to confidential information. We devote significant resources to addressing security vulnerabilities in our products and services through our efforts to engineer more secure products and services, enhance security and reliability features in our products and services, deploy security updates to address security vulnerabilities and seeking to respond to known security incidents in sufficient time to minimize any potential adverse impact. Generally speaking, unauthorized parties may attempt to misappropriate or compromise our confidential information or that of third parties, create system disruptions, product or service vulnerabilities or cause shutdowns. These perpetrators of cyberattacks also may be able to develop and deploy viruses, worms, malware and other malicious software programs that attack our products and services, our networks or otherwise exploit any security vulnerabilities of our products, services and networks. Because techniques used by these perpetrators to obtain unauthorized access to or sabotage systems change frequently and generally are not recognized until long after being launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We can make no assurance that we will be able to detect, prevent, timely and adequately address, or mitigate the negative effects of cyberattacks or other security breaches.
A breach of our security measures as a result of third-party action, malware, employee error, malfeasance or otherwise could result in (among other consequences):
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harm to our reputation or brand, which could lead some customers to seek to cancel subscriptions, stop using certain of our products or services, reduce or delay future purchases of our products or services, or use competing products or services;
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•
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individual and/or class action lawsuits, which could result in financial judgments against us or the payment of settlement amounts, which would cause us to incur legal fees and costs;
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•
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state or federal enforcement action, which could result in fines and/or penalties or other sanctions and which would cause us to incur legal fees and costs; and/or
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•
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in the event that we or one of our customers were the victim of a cyberattack or other security breach, additional costs associated with responding to such breach, such as investigative and remediation costs, and the costs of providing data owners or others with notice of the breach, legal fees, the costs of any additional fraud detection activities required by such customers' credit card issuers, and costs incurred by credit card issuers associated with the compromise and additional monitoring of systems for further fraudulent activity.
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Any of these actions could materially adversely impact our business and results of operations.
Our Software Application products are an alternative to the traditional way of managing desktops, and various factors could cause this line of products and services to result in slower revenue growth than we have historically experienced.
The success of our Software Application products depends in part on organizations and customers perceiving technological and operational benefits and cost savings associated with adopting desktop and application virtualization solutions. Although we have experienced success with this platform, some customers may experience challenges in implementing desktop and application virtualization due to complexity as they may create complex deployments. In addition, our primary competition in desktop and application virtualization is the existing IT practice of managing physical desktops as devices, and the success of our Desktop and Application Virtualization products may depend on information technology executives' continuing to rethink how desktops can be delivered more effectively and efficiently. To the extent that there is slower adoption of desktop and application virtualization solutions, the revenue growth associated with our Software Application products may be slower than we have historically experienced, which could adversely affect our business, results of operations and financial condition.
We anticipate that sales of our Thin Client and Software Application products and related enhancements and upgrades will constitute a majority of our revenue for the foreseeable future. Declines and variability in demand for our Thin Client and Software Application products could occur as a result of:
• new competitive product releases and updates to existing products;
• industry trend to focus on the delivery of applications especially on mobile devices;
• introduction of potential disruptive technology by third parties;
• termination of our product offerings and enhancements;
• potential market saturation;
• technological change;
• general economic conditions;
• complexities and cost in implementation;
• failure to deliver satisfactory technical support;
• dissatisfied customers; or
• lack of success of entities with which we have a technology relationship.
In addition, there continues to be an increase to the number of alternatives to Windows operating system powered desktops, in particular mobile devices such as smartphones and tablet computers. Users may increasingly turn to these devices to perform functions that would have been traditionally performed by desktops and laptops, which in turn may reduce the market for our Desktop and Application Virtualization products.
If our customers do not continue to purchase our Thin Client and Software Application products as a result of these or other factors, our revenue would decrease and our results of operations and financial condition would be adversely affected. In addition, modification or termination of certain of our Thin Client and Software Application products may cause variability in our revenue and make it difficult to predict our revenue growth and trends in our Thin Client and Software Application products as our customers adjust their purchasing decisions in response to such events.
Risks Related to the Company’s Common Stock
There is a limited trading market for the Company’s common stock, and you may have difficulty trading and obtaining quotations for our common stock.
The Company’s common stock is registered under the Exchange Act and is quoted on the OTC Bulletin Board. There has been limited reported trading to date in our common stock. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price of, our securities. This severely limits the liquidity of the common stock, and may adversely affect the market price of our common stock. A limited market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or assets by using common stock as consideration.
Our common stock is currently deemed a “penny stock,” which makes it more difficult for our investors to sell their shares.
Our common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The Nasdaq Stock Market or other national securities exchange and trades at less than $1.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
The rights of the holders of common stock have been impaired by the issuance of preferred stock and may be further impaired by the potential future issuance of preferred stock.
Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors has the authority to issue up to 50,000,000 shares of our preferred stock, of which 500,000 shares have been designated Series A Preferred Stock, none of which are issued and outstanding, 75,000 shares are designed as Series B Preferred Stock, all of which are issued and outstanding, and 672,000 shares have been designated as Series C Preferred Stock, all of which are issued and outstanding.
Furthermore, our board of directors has the right, without stockholder approval, to issue additional preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock, which could be issued with the right to more than one vote per share, and could be utilized as a method of discouraging, delaying or preventing a change of control. The possible negative impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any additional shares of preferred stock or to create any additional series of preferred stock, we may issue such shares in the future.
As an issuer of “penny stock,” the protection provided by the federal securities laws relating to forward-looking statements does not apply to the Company.
Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, the Company will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by the Company contained a material misstatement of fact or was misleading in any material respect because of the Company’s failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.
The Company has not paid dividends in the past and does not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of the Company’s common stock.
No cash dividends have been paid on the Company’s common stock. We expect that any income received from operations will be devoted to our future operations and growth. The Company does not expect to pay cash dividends in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as the Company’s board of directors may consider relevant. If the Company does not pay dividends, the Company’s common stock may be less valuable because a return on an investor’s investment will only occur if the Company’s stock price appreciates.
Our management controls the majority of our outstanding voting securities.
Our officers and directors control the majority of our voting securities. Therefore, our management will control the outcome of all corporate actions and decisions for an indefinite period of time including election of directors, amendment of charter documents and approval of mergers and other significant corporate transactions.
FORWARD-LOOKING STATEMENTS
Statements in this Transition Report on Form 10-K may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above under “Risk Factors,” and under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this current report and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to our ability to raise any financing which we may require for our operations, competition, government regulations and requirements, pricing and development difficulties, our ability to make acquisitions and successfully integrate those acquisitions with our business, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this current report, except as required under applicable securities laws.
Our corporate offices are located at 12555 Orange Drive, Suite 216, Davie, Florida 33331. We lease 100 square feet of space for $524 per month. The lease expires on April 30, 2014.
Our U. S. Technical Support office is located at 951 Mariner-s Blvd, Suite 300, San Mateo, California 94404. We lease 500 square feet for $5,500 per month. The lease expires on 31 May, 2014
Our U.S. sales office is located at 801 International Parkway, Suite 500, Lake Mary, FL 32746. We lease 1,200 square feet for $7,500 per month. The lease expires on March 31, 2014.
As of March 1, 2014 our new U.S. head office is located at 5535 South Williams Blvd, Suite 751, Port Orange, Florida 32128. We lease 2,300 sq feet for $2,300 per month. The lease expires on March 1, 2015
Our international administrative offices are located at The Catalyst @ University of York, Baird Lane, York YO10 5GA, North Yorkshire, UK. We lease 900 square feet for $2,640 per month.
We believe that our existing facilities are suitable and adequate to meet our current business requirements.
We are not party to any material legal proceedings and no property of the Company is subject to any material legal proceedings.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock quoted on the OTC Bulletin Board and OTCQB under the symbol “THNS.” There has been limited reported trading to date in the Company’s common stock.
The following table sets forth, for the periods indicated, the range of high and low intraday closing bid information per share of our common stock.
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High
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Low
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Quarter ended 03/31/12
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$
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2.60
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$
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0.015
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Quarter ended 06/30/12
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$
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2.60
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$
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1.21
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Quarter ended 09/30/12
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$
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1.95
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$
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1.01
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Quarter ended 12/31/12
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$
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1.66
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$
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0.95
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Quarter ended 03/31/13
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$
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2.75
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$
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1.19
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Quarter ended 06/30/13
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$
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2.09
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$
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0.41
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Quarter ended 09/30/13
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$
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1.55
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$
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0.30
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Quarter ended 12/31/13
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$
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0.36
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$
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0.16
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The above prices are believed to reflect representative inter-dealer quotations, without retail markup, markdown or other fees or commissions, and may not represent actual transactions.
As of March 18, 2014, there were approximately 75 holders of record of the Company’s common stock.
Dividends
The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain future earnings, if any, to finance the expansion of its business. As a result, the Company does not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Sales of Unregistered Securities
On December 20, 2013, the Company entered into a Securities Purchase Agreement with IBC Funds, LLC (“IBC”) pursuant to which the Company sold to IBC an 8% convertible debenture in the principal amount of $150,000 (the “Debenture”). The Debenture matures on December 31, 2016 (the “Maturity Date”) and bears interest 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 Conversion Price per share at 25% of the lowest closing bid price for the Company’s stock during the previous 20 trading days (the “Conversion Price”).
With the exception of the shares that the Company is obligated to issue to previous investors, for as long as the Debenture is outstanding, the Conversion Price of the Debenture shall be subject to adjustment for issuances of common stock or securities convertible into common stock or exercisable for shares of common stock at a purchase price of less than the then-effective conversion price, on any unconverted amounts, such that the then applicable conversion price shall be adjusted using full-ratchet anti-dilution on such new issuances subject, to customary carve outs, including restricted shares granted to officers, and directors and consultants.
Issuer Purchases of Equity Securities
None.
Not Applicable.
Overview
Thinspace Technology is a cloud computing company that develops software productivity solutions that allow its customers secure access to centrally managed Desktops or Software Applications and to work and collaborate from anywhere, accessing enterprise apps and data on any of the latest devices, as easily as they would in their own office- simply and securely.
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) is a Nevada corporation founded on 24 August, 2010 and is a wholly-owned subsidiary of Thinspace UK.
Recent Developments
On December 6, 2013, the Circuit Court in the Twelfth Judicial Circuit in and for Sarasota County, Florida, entered an Order Granting Approval of Settlement Agreement approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in accordance with a Settlement Agreement between the Company and IBC Funds, LLC, to convert an aggregate of $426,908.03 of past-due accounts payable, which IBC had purchased from certain of our vendors, plus fees and costs to shares of common stock at 35% of the lowest trading price in the 20 days twenty trading period preceding the share request. IBC has contractually agreed to restrict its ability to convert the Debenture such that the number of shares of the Company common stock held by each of the Investor and its affiliates after such conversion does not exceed 9.99% of the Company’s then issued and outstanding shares of Common Stock.
Pursuant to an Agreement of Merger and Reorganization dated December 31, 2013 (the “Merger Agreement”) between the Company, VAEV Merger Sub, Inc., and Thinspace Technology Ltd. (formerly known as Propalms Ltd.) (“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 ommon stock of the Company, representing approximately 91.6% of the outstanding shares of common stock the Company, resulting in a change in control of the Company.
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
Eleven Months ended December 31, 2013 as compared to the Year ended January 31, 2013
Revenues
We currently derive our revenues from a number of software products that allow our customers secure access to centrally managed Desktops or Software Applications:
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Propalms TSE – allows you deliver single software applications to any kind of device either inside or outside the corporate network.
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Propalms One Gate- allows secure encrypted access to data or applications from outside the corporate network.
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Propalms VDI – allows a Microsoft Windows desktop to be centrally run, managed and delivered to any kind of device.
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Pano Logic G2 – The G2 is a Zero Client that replaces traditional desktops, allows secure fast access to hosted virtual desktops
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Thin Space – A branded hardware zero thin client solution aimed for the enterprise and corporate market.
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Overall, our revenues increased 41% for the eleven months ended December 31, 2013 as compared to the year ended January 31, 2013. The increase is attributable to the introduction of new products during the December 31, 2013 period, as we as to the results of increased marketing activities. While we cannot be certain that we will maintain this type of growth, we are optimistic about the recurring revenue from our products.
Cost of revenue
Cost of revenue as a percent of revenue was 43% for both the eleven months ended December 31, 2013 and for the year ended January 31, 2013. Cost of revenue consists of software development, purchased hardware and software costs and shipping costs.
Operating expense
Operating expense increased 169% for the eleven months ended December 31, 2013 compared to the year ended January 31, 2013. Our costs have increased as we have initiated the Thinspace US operations and increased our marketing and other activities,
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.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. As of December 31, 2013 we had approximately $341,000 in cash and cash equivalents and a working capital deficit of $13,312,285 (resulting primarily from derivative liabilities aggregating $11,268,087), as compared to cash and cash equivalents of approximately $8,000 and a working capital deficit of $650,980 at January 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).
Our accounts receivable has increased substantially at December 31, 2013 from January 31, 2013 and reflects our increased revenues.
Net Cash Provided by Operating Activities
We used $29,514 of cash in our operating activities during the eleven months ended December 31, 2013 compared to $32,890 used by our operating activities for the year ended January 31, 2013. An increase in net loss of $1,032,897 (after adjusting for non-cash expenses) was offset by increases in accounts payable and deferred revenue.
Net Cash Used in Investing Activities
We used $36,540 for the purchase of furniture and equipment during the eleven months ended December 31, 2013, with $4,528 used during the year ended January 31, 2013.
Net Cash Provided by Financing Activities
During the eleven months ended December 31, 2013 we received $200,000 from the sale of our preferred stock and $100,000 from the sale of a convertible debenture. We acquired $9,848 pursuant to our recapitalization and also received net advances from related parties of $111,691. We repaid $12,748 of a note payable. During year ended January 31, 2013 we made note repayments of $13,431.
Financing Activities –
We are a party to a total of eighteen convertible notes aggregating an outstanding principal balance of $1,173,825 at December 31, 2013, with related accrued and unpaid interest of $209,972. Of these notes, sixteen notes, aggregating $1,073,825 of principal, are convertible at discounts to the market price of our common stock of 75% - 90%. Two notes, aggregating $100,000 principal balance, are convertible at a fixed conversion rate of $0.001 per share. The convertible notes, as amended, bear interest at a weighted average rate of 9% per year and mature in December of 2016.
We presently do not have any other available credit, bank financing or other external sources of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding. We estimate that we will need additional capital of $1,800,000 for the 2014 fiscal year.
We will still need additional capital in order to continue operations until we are able to achieve positive operating cash flow. Additional capital is being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. 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, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
Our continuation as a going concern for a period longer than the current fiscal year is dependent upon our ability to obtain necessary additional funds to continue operations and expansion of our business, to determine the existence, discovery and successful exploitation of potential revenue sources that will be financed primarily through available working capital, the sales of securities and convertible debt, issuance of notes payable other debt or a combination thereof, depending upon the transaction size, market conditions and other factors.
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 applicable.
INDEX TO FINANCIAL STATEMENTS
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F2
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F-3
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F-4
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F-5
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F-6
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F-7 to F-19
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To the Board of Directors and Stockholders of Thinspace Technology, Inc.
We have audited the accompanying balance sheets of Thinspace Technology, Inc. (the “Company”) as of December 31, 2013 and January 31, 2013, and the related statements of operations, changes in stockholders’ equity, and cash flows for the eleven months ended December 31, 2013 and the year ended January 31, 2013. Thinspace Technology, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thinspace Technology, Inc. as of December 31, 2013 and January 31 2013, and the results of its operations and its cash flows for the eleven months ended December 31, 2013 and the year ended January 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has negative working capital and accumulated stockholders’ deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Bedinger & Company
Concord, California
March 24, 2014