The accompanying notes are an integral part of these financial statements.
Metrospaces, Inc.
Notes to Consolidated Financial Statements
September 30, 2015
(Unaudited)
Note 1 – Basis of Presentation and Business
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2015, and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2015, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Amended Annual Report on Form 10-K/A for the year ended December 31, 2014, filed with the SEC on April 22, 2015.
Metrospaces, Inc. (the “Company”) was incorporated as “Strata Capital Corporation” on December 10, 2007, under the laws of the State of Delaware. Urban Spaces, Inc. (“Urban Spaces”) was incorporated on April 3, 2012, under the laws of the State of Nevada and thereafter formed Urban Properties LLC, a Delaware limited liability company and its 99.9% owned subsidiary (“UPLLC”). Through Urban Spaces and its subsidiaries, the Company builds, sells and manages condominium properties located in Argentina and Venezuela. On January 13, 2015, the Company acquired all of the outstanding shares of stock of Bodega IKAL, S.A., an Argentine corporation (“IKAL”), and Bodega Silva Valent S.A., an Argentine corporation which collectively own 75-hectares of vineyards, from which they currently sell grapes to local wineries.
Note 2 – Significant accounting policies
Use of Estimates
The preparation of the financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) 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 dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturity of three months or less to be cash equivalents.
Real Property
Real property is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.
Investments in non-consolidated subsidiaries
Investments in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company’s ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company’s proportionate share of the investees’ net income or losses after the date of investment. When net losses from an investment accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company’s share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.
Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology and trade names from a market participant perspective, useful lives and discount rates.
Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Long-Lived Assets, Including Goodwill and Other Acquired Intangible Assets
The Company evaluates the recoverability of property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any significant impairment charge during the years presented.
The Company reviews goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The Company has elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment under Accounting Standards Update (ASU) No. 2011-08, Goodwill and Other (Topic 350): Testing Goodwill for Impairment, issued by the Financial Accounting Standards Board (FASB). If it is determined that it is more likely than not that its fair value is less than its carrying amount, then the two-step goodwill impairment test is performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step would need to be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. As of September 30, 2015, no impairment of goodwill has been identified.
In addition to the recoverability assessment, the Company routinely reviews the remaining estimated useful lives of property and equipment and finite-lived intangible assets. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized or depreciated over the revised estimated useful life.
The Company generally recognizes revenue from grape sales upon delivery to the customer. The Company does not have any allowance for returns because grapes are accepted upon delivery.
During the three months ended September 30, 2015, the Company reduced revenues by $99,150 because the price agreement was changed due to market circumstances in Argentina.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures,” which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (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, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 – quoted prices in active markets for identical assets or liabilities
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The derivative liability in connection with the conversion feature of the convertible debt, classified as a level 3 liability, is the only financial liability measured at fair value on a recurring basis.
The change in the level 3 financial instrument is as follows:
| Balance December 31, 2014 | | $ | 2,645,300 | |
| | | | | |
| Issued during the nine months ended September 30, 2015 | | | 13,173,941 | |
| Converted during the nine months ended September 30, 2015 | | | (3,710,003 | ) |
| Change in fair value recognized in operations | | | (4,051,170 | ) |
| | | | | |
| Balance September 30, 2015 | | $ | 8,058,068 | |
The estimated fair value of the derivative instruments were valued using the Black-Scholes option pricing model, using the following assumptions at September 30, 2015:
| Estimated Dividends | | | None |
| Expected Volatility | | | 266.03% - 831.76% |
| Risk free interest rate | | | 0.08 - 0.49% |
| Expected term | | | 0.35 to 1.83 years |
The Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities.”
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: We record when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.
Foreign Currency Translation
The functional currency of Bodega IKAL, S.A and Bodega Silva Valent S.A. are denominated in Argentine peso. Assets and liabilities of these operations are translated into United States dollar equivalents using the exchange rates in effect at the balance sheet date. Revenues and expenses are translated using the average exchange rates during each period. Adjustments resulting from the process of translating foreign functional currency financial statements into U.S. dollars are included in accumulated other comprehensive income in shareholders’ deficit.
Note 3 – Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated minimal revenues, has an accumulated deficit of $9,850,259 and has a working capital deficit of $8,702,714 as of September 30, 2015. The continuation of the Company as a going concern is dependent upon, among other things, continued financial support from its shareholders and the attainment of profitable operations. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. There is no assurance that the Company will be able to generate revenues in the future. These financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to continue as a going concern.
Note 4 – Acquisition
On January 13, 2015, the Company acquired all of the outstanding shares of common stock of Bodega IKAL, S.A., and all of the outstanding shares of common stock of Bodega Silva Valent S.A., both of which are Argentine corporations which collectively own 75 hectares vineyards that produce grapes that they sell to local wineries. The consideration for these shares was a convertible promissory note in the principal amount of $4,500,000. The acquisitions have been recorded in accordance with the acquisition method of accounting and have included the financial results of the acquired companies from the date of acquisition. Pro forma historical results of operations have not been presented because they are not material to the consolidated statement of operations.
The Company has estimated the fair value assets acquired and liabilities assumed as part of the acquisition and is currently undergoing a formal valuation and will adjust these estimates accordingly within the one year measurement period.
The following table summarizes the estimated fair values assigned to the assets acquired and liabilities assumed:
| Current assets | | $ | 152,215 | |
| Current liabilities | | | (264,264 | ) |
| Land | | | 2,250,000 | |
| Equipment | | | 500,000 | |
| Net Assets Acquired | | | 2,637,951 | |
| Goodwill | | | 1,862,049 | |
| Consideration | | | 4,500,000 | |
Note 5 – Advance payment for Real Property
The Company purchased from GBS Capital Partners, Inc. (“GBS”), a related party, the right to receive 9 loft-type condominium units from their builder upon the completion of these units (See note 12). As consideration for this purchase, the Company agreed to pay $750,000 to GBS, without interest (See note 7). The Company has imputed interest on this obligation at the rate of 8% per annum and has recorded the advance payment net of such imputed interest at a cost of $665,984.
On December 5, 2014, the Company entered into an agreement with GBS to return 4 of the 9 loft-type condominium units in exchange for $350,000 of the debt. The value assigned to the units returned was $295,993 which after the exchange of the debt resulted in a gain of $54,007, which has been recorded as an equity transaction with related parties. The remaining 5 units will be offered for sale upon their acquisition.
Note 6 – Investment in non-consolidated subsidiary
On December 3, 2012, UPLLC assigned to GBS Fund I, LLC, a Florida limited liability company (the “Fund”), UPLLC’s rights to acquire all of the outstanding shares of Promotora Alon-Bell, C.A., a Venezuelan corporation which owns vacant land located in Venezuela upon which a condominium project is to be constructed. UPLLC had acquired such rights from a stockholder of the Company in exchange for a promissory note in the principal amount of $150,000. (See note 8.) This stockholder had acquired his rights to acquire these shares under an agreement with their holders, pursuant to which he paid them $150,000 in cash. This investment, which represents an interest of 26.32% in the Fund, is being accounted for under the equity method of accounting. The Fund acquired the shares in Promotora Alon-Bell, C.A. on December 16, 2012. The Company has not recognized any gain or loss from its investment since the subsidiary has not yet commenced any operations.
Note 7 – Long Term Debt – Related Party
On April 13, 2012, the Company entered into an agreement to purchase nine condominium units from GBS Capital Partners (GBS), a related party of the Company, in exchange for a two year non-interest bearing note payable. Interest has been imputed at a rate of 8% per annum.
The Company has recorded an initial debt discount of $84,016 related to the imputed interest which is being amortized on the effective interest rate method over the term of the note, which was fully amortized as of December 31, 2014.
On December 5, 2014, the Company entered into an agreement with GBS to return 4 of the 9 loft-type condominium units in exchange for $350,000 of the debt leaving a remaining balance of $400,000 on December 31, 2014, which was past due.
On February 19, 2015, the Company exchanged the remaining $400,000 of debt to GBS in exchange for 450,000 shares of newly designated shares of Series B Preferred Stock.
Note 8 – Notes Payable – Related Parties
Notes Payable – related party
| (a) | A $150,000 promissory note payable to a shareholder of the Company incurred for the transfer of an option to purchase the outstanding shares of Promotora Alon-Bell, C.A. (See Note 6), which was due April 20, 2014, and bears interest at the rate of 11% per annum. Interest expense for the year ended December 31, 2014 charged to the statement of operations was $16,500. Accrued interest of $45,375 on this note is included in accrued interest on the accompanying balance sheet. See Note 14. |
On February 19, 2015 the Company exchanged the $150,000 of debt in exchange for 150,000 shares of newly designated shares of series B preferred stock.
| (b) | During the period from the inception of Urban Spaces (April 3, 2012) through December 31, 2014, a stockholder of the Company paid operating expenses of the Company in the amount of $16,990. These amounts were recorded as a loan payable, bearing no interest and due on demand. |
Convertible Note Payable – related party
The Company has issued a Convertible Promissory Note, dated May 1, 2014, in the principal amount of $66,944.04 and bearing interest at the rate of 0.33% per annum, to the prior president and sole director of the Company (the “Existing Note”). The Existing Note is subject to and entitled to the benefits of the Convertible Note Exchange Agreement, dated May 1, 2014, between MSPC and prior president and sole director (the “Existing Note Exchange Agreement”), as amended by an Agreement of Amendment and Rescission, dated as of July 11, 2014, by and among the Company, the former officer and director and one of his affiliates. (the “Rescission Agreement”), including, without limitation, its provisions in respect of the conversion of the principal amount thereof and interests thereon into shares of Common Stock. The Existing Note was issued pursuant to the Existing Note Exchange Agreement solely in exchange for a Convertible Promissory Note, dated February 19, 2014, and maturing 1 year later, in the original principal amount of $260,000, the outstanding principal of which and interest accrued thereon at the time of the exchange, was $66,944.04 (the “First Exchange Note”). The Existing Note Exchange Agreement was amended by the Rescission Agreement to increase the conversion price from the par value of the Common Stock ($0.000001 per share), as provided in the Existing Note Exchange Agreement, to 2.5% of its Current Market Value, as that term is defined therein.
The First Exchange Note was acquired by the prior president and sole director pursuant to a Promissory Note Exchange Agreement, dated February 19, 2014, between the Company and him (the “First Exchange Agreement”) solely in exchange for a promissory note, dated August 13, 2012, and maturing one year later, made by the Company and him in the principal amount of $260,000 and bearing interest at the rate of 0.24% per annum, which was amended on August 12, 2013, by a letter agreement between the Company and him (the “Letter Agreement”) to extend its maturity date to April 14, 2014 (as so amended, the “Original Note”).
The prior president and sole director was issued the Original Note pursuant to an Exchange Agreement, dated August 13, 2012 (the “Original Note Exchange Agreement”), under which he surrendered to the Company for cancellation a certificate representing 10,000,000 shares of its Series A Preferred Stock and extinguished $170,146.00 of the Company’s indebtedness to him as consideration for the Original Note.
The Company has determined that the conversion feature embedded in the notes constitutes a derivative and has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt, on the accompanying balance sheet, and revalued to fair market value at each reporting period.
Note 9 – Acquisition note payable
In connection with the acquisition referred to in note 4, the Company issued a convertible promissory note in the principal amount of $4,500,000. The note was convertible at, at any time at the option of the holder, into shares of Common Stock, as provided therein. The Company has determined that the conversion feature embedded in the note constituted a derivative and it has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt or a charge to interest expense where the derivative exceeds the carrying value of the note, on the accompany balance sheet, and revalued to fair market value at each reporting period. During the nine months ended September 30, 2015, the Company made principal payments aggregating $56,100. On May 29, 2015, the Company exchanged the unpaid $4,443,900 of the note for 100,000 shares of newly designated shares of Series C Preferred Stock.
Note 10 – Notes Payable
On August 28, 2013, the Company received a $10,000 bridge loan from a nonrelated party. The loan bears interest at 15% per annum and matured on February 14, 2014. The loan remains past due and the Company has continued to accrue interest on the note until an agreement with the lender for repayment has been reached.
Note 11 – Convertible Note Payable
At September 30, 2015 and December 31, 2014, convertible notes payable consisted of the following:
| | | September 30, | | | December 31, | |
| | | 2015 | | | 2014 | |
| | | (Unaudited) | | | | |
| On February 25, 2014, the Company entered into a Convertible Note Agreement in the principal amount of $40,000 with an unrelated third party. The note bears interest at 8% per annum and is convertible into shares of the Company’s common stock at the option of the holder at a purchase price equal to 58% of the lowest closing bid price of the Company’s common stock for fifteen prior trading days upon which a notice of conversion is received by the Company. The note matures on February 25, 2015, but may be redeemed by the Company for a) an amount equal to 125% of the unpaid principal if redeemed within the first 90 days of the note, b) an amount equal to 140% of the unpaid principal if redeemed after the 91st day but before the 151st day of the note, or c) an amount equal to 150% of the unpaid principal if redeemed after the 151st day but before the 180th day of the note. The note may not be redeemed by the Company after 180 days. The note has been discounted by its beneficial conversion feature of $6,444 at December 31, 2014. As at September 30, 2015, convertible note of $40,000 was converted and no discount remained. | | $ | - | | | $ | 25,056 | |
| | | | | | | | | |
On February 25, 2014, the Company entered into a Convertible Note Agreement in the principal amount of $40,000 with an unrelated third party and an additional $42,000 on February 10, 2015. These notes bear interest at 8% per annum and are convertible into shares of the Company’s common stock at the option of the holder at a purchase price equal to 58% of the lowest closing bid price of the Company’s common stock for fifteen prior trading days upon which a notice of conversion is received by the Company. The note matures on February 10, 2016, but may be redeemed by the Company for a) an amount equal to 125% of the unpaid principal if redeemed within the first 90 days of the note, b) an amount equal to 140% of the unpaid principal if redeemed after the 91st day but before the 151st day of the note, or c) an amount equal to 150% of the unpaid principal if redeemed after the 151st day but before the 180th day of the note. The note may not be redeemed by the Company after 180 days. Since the inception of the note $30,000 of principal of the note was converted into shares of common stock according to the terms of the convertible instrument. On July 23, 2015, the Convertible Note Agreement of remaining principal amount of $42,000 was amended. The note bears interest at 8% per annum and is convertible into shares of the Company’s common stock at the option of the holder at a purchase price equal to 30% multiplied by the average of the lowest closing bid price for the common stock during 30 trading day period ending on the latest complete trading day prior to the conversion date. On August 20, 2015, $6,000 of the note was converted into 200,000 shares of common stock. As of September 30, 2015, the note is presented net of a discount of $6,551. | | | 29,449 | | | | - | |
| | | | | | | | | |
On March 23 2015, the Company entered into a Convertible Note Agreement in the principal amount of $29,000 with an unrelated third party and an additional $37,000 on April 8, $21,936 on April 17, $9,800 on April 29, 2015. The notes bears interest at 10% per annum and are convertible into shares of the Company’s common stock at the option of the holder at a purchase price equal to 2.5% of the current market price which is the average of the daily closing price for a share of common stock for the three consecutive trading days ending on the trading day immediately prior to the day on which a conversion notice is delivered. The note matures on the date which is one year after the agreement date. On September 23, 2015, the Company entered into an agreement to extend the maturity date of the following notes; $37,000 on April 8, 2015, $21,936 on April 17, 2015, and $9,800 on April 29, 2015. The new maturity date was extended by 1 year from the original maturity date. During the nine months ended September 30, 2015, $6,000 of the note was converted. As of September 30, 2015, the note is presented net of a discount of $66,052 remained. | | | 31,684 | | | | - | |
| | | | | | | | | |
On May 8, 2015, the Company entered into a Convertible Note Agreement in the principal amount of $7,000 with an unrelated third party and an additional $25,000 on May 29, 2015, $10,000 on July 8, 2015, $16,000 on July 28, $8,000 on August 11, 2015, $17,600 on August 25, 2015 and $6,000 on September 24, 2015. The notes bear interest at 10% per annum and are convertible into shares of the Company’s common stock at the option of the holder at a purchase price equal to 2.5% of the current market price which is the average of the daily closing price for a share of common stock for the three consecutive trading days ending on the trading day immediately prior to the day on which a conversion notice is delivered. The notes mature on the date which is one year after the agreement date. On September 23, 2015, the Company entered into an agreement to extend the maturity date of the following notes; $7,000 on May 8, 2015, $25,000 on May 29, 2015, $10,000 on July 8, 2015, and $16,000 on July 28. The new maturity date was extended by 1 year from the original maturity date. As of September 30, 2015, the note is presented net of a discount of $74,917. | | | 14,683 | | | | | |
| | | | | | | | | |
| On July 28, 2015, the Company entered into a Convertible Note Agreement in the principal amount of $25,000 with an unrelated third party. The note bears interest at 12% per annum and are convertible into shares of the Company’s common stock at the option of the holder at a purchase price equal to 50% multiplied by the lowest closing bid price for the Common Stock during the 30 trading day period ending on the latest complete trading day prior to the conversion date. The note matures on January 28, 2017. As of September 30, 2015, the note is presented net of a discount of $20,833 remained. | | | 4,167 | | | | | |
| | | | | | | | | |
| Total | | $ | 79,983 | | | $ | 25,056 | |
| | | | | | | | | |
| Less: current portion of convertible note payable | | | (75,816 | ) | | | (25,056 | ) |
| | | | | | | | | |
| Long-term convertible note payable | | $ | 4,167 | | | $ | - | |
The remaining principal balance of the convertible notes at September 30, 2015 was $248,336. The Company has determined that the conversion feature embedded in the notes constitutes a derivative and has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt, on the accompany balance sheet, and revalued to fair market value at each reporting period. The notes are presented net of a discount of $168,353 as of September 30, 2015.
Note 12 – Related Party Transactions
A stockholder is a 33% partner in GBS Capital Partners (see Note 5), the entity from which the Company acquired the deposit of nine condominium units.
The stockholder referred to above is entitled to receive a monthly salary of $1,250. The salary of $5,030 and $0 has been paid and the Company has accrued an amount of $6,220 and $11,250 for the nine months ended September 30, 2015 and 2014. The Company has accrued an aggregate amount of $49,470 since inception which is reflected in accrued expenses in the accompanying Balance Sheet at September 30, 2015.
On February 19, 2015, the Company issued 600,000 shares of newly designated shares of Series B Preferred Stock to the Company’s executive officer as payment under his employment agreement.
See Notes 5 and 7 regarding the assignment of the right to acquire 9 condominium units from an entity in which a stockholder of the Company has an interest.
Note 13 – Income Taxes
As of September 30, 2015, the Company had approximately $3,743,100 of federal and state net operating loss carryovers (“NOLs”) which begin to expire in 2032. Utilization of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under regulations.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.
Note 14 – Stockholders Equity
Common stock
The Company is authorized to issue 10,000,000,000 shares of common stock, par value of $0.000001 per share.
On September 11, 2015, the Company amended its Certificate of Incorporation, as amended, to effect a 1-for-1000 reverse stock split of its issued and outstanding shares of common stock. All relevant information relating to numbers of shares and per share information have been retrospectively adjusted to reflect the reverse stock split for all periods presented.
During the nine months ended September 30, 2015, $16,107 of principal of the convertible note payable to a related party referred to in Note 8 was converted into 3,715,300 shares of common stock according to the terms of the convertible instrument.
During the nine months ended September 30, 2015, $31,500 of principal of the convertible note payable referred to in Note 11 was converted into 412,821 shares of common stock according to the terms of the convertible instrument.
During the nine months ended September 30, 2015, 340,000 shares of common stock were issued as consulting fee valued at approximately $28,760.
As of September 30, 2015 and December 31, 2014, respectively, 5,314,871 and 846,745 shares of common stock were issued and outstanding.
The Company is authorized to issue 8,000,000 shares of preferred stock at a par value of $0.000001 per share in series. As of September 30, 2015 and December 31, 2014, no shares of preferred stock were issued and outstanding.
The Board of Directors of the Company has designated 2,000,000 shares of preferred stock as Series B PIK Convertible Preferred Stock (“Series B Preferred Stock”).
On February 19, 2015 the Company exchanged the $400,000 of debt to GBS referred to in Note 7 for 450,000 shares of Series B Preferred Stock and the $150,000 of debt to the Company’s shareholder referred to in note 8 for 150,000 shares of Series B Preferred Stock and issued 600,000 shares of newly designated shares of Series B Preferred Stock to the Company’s executive officer for the $50,000 of compensation.
As of September 30, 2015 and December 31, 2014, 1,200,000 and 0 shares of Series B Preferred Stock were issued and outstanding.
The Board of Directors of the Company has designated 100,000 shares of preferred stock as Series C PIK Convertible Preferred Stock (“Series C Preferred Stock”).
On May 29, 2015, the Company exchanged the unpaid $4,443,900 of acquisition note payable referred to in Note 9 for 100,000 shares of newly designated shares of Series C Preferred Stock. The Company accounted for the conversion as an extinguishment of debt, whereby it recorded the fair value of the Series C Preferred Stock, based on a third party valuation of the Series C, and recorded the difference between the fair value, the carrying value of the debt (net of discount) and the bifurcated conversion option, which aggregated $1,687,807 and recorded as a gain on extinguishment of debt.
As of September 30, 2015 and December 31, 2014, 100,000 and 0 shares of series C preferred stock were issued and outstanding.
Note 15 – Stock-Based Compensation
On November 4, 2014, the Board of Directors adopted the Metrospaces, Inc. Restricted Stock Plan. The plan is administered by the board’s compensation committee. Also on November 4, 2014, the compensation committee granted an award of 800,000 shares of common stock (800,000,000 shares prior to the reverse split referred to in note 14) under the plan to Oscar Brito, who was then the Company’s principal executive officer and a director. The shares awarded shall vest as follows:
| 1. | After the Corporation publishes its audited annual financial statement for the year ended December 31, 2019, the Grantee shall receive a number of shares (subject to the Base Amount and Additional Annual Amount), free of all restrictions, equal to the market value on the date of such publication, determined on the basis of the Last Price, of twenty percent (20%) of the sum of the amounts, if any, shown as net income on the Corporation’s statement of operations for the years ended December 31, 2019, 2018, 2017, 2016 and 2015. |
| 2. | For each of the years ended December 31, 2020, 2021, 2022, 2023 and 2024, when the Corporation publishes its audited annual financial statements with respect to such year, the Grantee shall receive a number of shares (subject to the Base Amount and Additional Annual Amount), free of all restrictions, equal to the market value on the date of such publication, determined on the basis of the Last Price, of twenty percent (20%) of the amount, if any, shown as net income on the Corporation’s statement of operations for such year. |
| 3. | Shares of Restricted Stock that have not Vested on the date of the publication of the Corporation’s audited annual financial statements for the year ended December 31, 2024, shall never Vest and the Grantee shall have no further rights with respect to them. |
As of September 30, 2015 none of the award have vested and no compensation cost has been recorded in the Company’s financial statements. Based on the $.0001 per share closing price of the Company’s common stock on September 30, 2015 there was approximately $800,000 of unrecognized compensation cost related to these non-vested restricted shares outstanding.
Note 16 – Subsequent Events
Management has evaluated events occurring after the date of these financial statements through the date that these financial statements were issued and did not have any material recognizable subsequent events, except as follows;
| · | On June 4, 2015 the Company has entered into agreements under which it will acquire 60% of the shares of Sociedad Mercantile Inversora Caribe Mar, C.A. (“Carib Mar”) from Oscar Brito, Senior vice president and shareholder of the Company for $500. Carib Mar owns 12.000 square meters of land on Coche Island in the State of Nueva Esparta, Venezuela, on which it plans to build a hotel. |
On July 7, 2014, Mr. Brito, acquired 312,500 shares of Caribe Mar, comprising 50% of its shares from LW Proyectos y Construcciones C.A., a Venezuelan corporation (the “LW Shares”), and acquired 62,500 shares of Caribe Mar, comprising 10% of its shares, from Isaias Arturo Medina Meijas.
Mr. Medina held a right of first refusal with respect to the transfer of the LW Shares, which he waived under an agreement, in consideration of a payment of $50,000 in cash and 2,000 shares of the Series D PIK Convertible Preferred Stock of the Company.
The shares of Series D Preferred Stock, when issued and delivered, will have a liquidation preference of $100.00 per share, will accrue dividends at the quarterly rate of $2.1875 per share to be paid prior to the payment of dividends on the common stock, will be optionally redeemable by the Registrant in certain events, and will be convertible into shares of common stock on and after February 1, 2016, such that each share of Series D Stock will be convertible into a number of shares of common stock equal to the Liquidation Value of such share of Series D Stock divided by 90% of the Market Price, as defined, of a share of common stock. Each holder of Series D Stock will have the right to cast at meetings of stockholders a number of votes equal to the number of shares that he holds divided by the market price of a share of common stock.
| · | On September 30, 2015, the Company and Oscar Brito entered into an agreement entitled "Cesion de Derecho Preferencial de Acciones de la Sociedad Mercantil Promotodora de Turismo Hecos, C.A.," under which Mr. Brito would transfer to the Corporation 1,000 shares of Sociedad Mercantil Promotodora de Turismo Hecos, C.A. ("Hecos"), constituting one-third of its share capital, in exchange for 2,500 shares of the Corporation's Series D PIK Convertible Preferred Stock ("Series D Stock"), the certificate of designations of which is being filed with the Secretary of State of the State of Delaware and the provisions of which are discussed above. The shares that he sold to the Registrant comprise his entire interest in Hecos. |
Hecos owns 20,000 square meters of land in the Jurisdiction of Parroquia Pariaguan, Municipio Francisco de Miranda, State of Anzoategui, as well as architectural plans, engineering plans, renderings and a web site relating to the construction of a hotel on that property.
On September 30, 2015, the Company and Oscar Brito entered into an agreement entitled “Cesion de Derecho Preferencial de Acciones de la Sociedad Mercantil Promotodora de Turismo Hecos, C.A.,” under which Mr. Brito would transfer to the Corporation 1,000 shares of Sociedad Mercantil Promotodora de Turismo Hecos, C.A. (“Hecos”), constituting one-third of its share capital, in exchange for 2,500 shares of the Corporation's Series D PIK Convertible Preferred Stock (“Series D Stock”), the certificate of designations of which is being filed with the Secretary of State of the State of Delaware and the provisions of which are discussed above. The shares that he sold to the Registrant comprise his entire interest in Hecos. Hecos owns 20,000 square meters of land in the Jurisdiction of Parroquia Pariaguan, Municipio Francisco de Miranda, State of Anzoategui, as well as architectural plans, engineering plans, renderings and a web site relating to the construction of a hotel on that property.
Our Common Stock is quoted on OTC Pink under the trading symbol “MSPC.”
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2015
Revenues and Gross Profits
We had negative revenues of $99,150 for the three months ended September 30, 2015, and no revenues for the three months ending September 30, 2014. The negative revenues of $99,150 for the three months ended September 30, 2015, resulted from the repricing of an agreement relating to the purchase of grapes due to market circumstances in Argentina. The cost of generating these revenues was $33,145 for the three months ended September 30, 2015, and the Company did not generate any revenue for the three months ended September 30, 2014. As a result, we generated a gross loss of $130,295 for the three months ended September 30, 2015, compared to $0 for the three months ended September 30, 2014.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2015, were $124,068, compared with $6,573 for the three months ended September 30, 2014. These expenses were higher during the later period primarily because of expenses, including legal and accounting expenses, associated with being a public company, stock-based compensation and the increased d expenses of new subsidiaries.
Interest
Interest expense for the three months ended September 30, 2015, was $2,320,202, compared with $51,906 for the period ended September 30, 2014. Of the interest expense for the three months ended September 30, 2015, $5,922 was for accrued interest and for the three-month period ended September 30, 2014, was $4,125; in each period, the remaining portion of interest was for non-cash items relating to the derivative accounting for the embedded conversion feature of our convertible debt.
Other Gains and Expenses
We also incurred a gain on the change in fair value of derivative relating to the conversion feature of our convertible debt, and a gain on extinguishment of debt due to the accounting treatment of the conversion of convertible debt with a corresponding embedded conversion option accounted for as a derivative.
Net Loss
We had a net loss of $2,051,189 for the three-month period ended September 30, 2015, compared with $487,907 for the three-month period ended September 30, 2014. The reasons for the increase in net loss were that interest increased to $2,320,202 in the later period from $51,906 in the earlier period and the increase in general and administrative expense. We incurred a non-cash gain of $487,879 on change in fair value of derivative as the result of the conversion of portions of convertible instruments into Common Stock. We also had a gain of $35,498 from the extinguishment of debt.
NINE MONTHS ENDED SEPTEMBER 30, 2015
Revenues and Gross Profits
We had revenues of $214,171 for the nine-month period ended September 30, 2015, and no revenues for the nine-month period ended September 30, 2014. The cost of generating these revenues was $141,591 for the nine months ended September 30, 2015, and the Company did not generate any revenue for the nine months ended September 30, 2014. As a result, we generated a gross profit of $72,580 for the nine months ended September 30, 2015, compared to $0 for the nine months ended September 30, 2014.
