METROSPACES, INC. - Quarter Report: 2015 June (Form 10-Q)

Large accelerated filer	[    ]	Accelerated filer	[    ]
Non-accelerated filer	[    ]	Smaller reporting company	[ X ]
(Do not check if a smaller reporting company)

METROSPACES, INC.

For The Quarterly Period Ended June 30, 2014

 

TABLE OF CONTENTS

 

 

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANY AND ITS INDUSTRY. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS AND PROSPECTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.

 

Metrospaces, Inc.
Consolidated Balance Sheets
(Unaudited)

 

		June 30,				December 31,
		2015				2014
ASSETS
Current Assets
Cash and cash equivalents		$	72,054			$	-
Accounts receivable			233,354				-
Inventory			15,896				-
Prepaid and other current assets			102,928				39,010
Total Current Assets			424,232				39,010
Advance payment for real property			369,991				369,991
Investment in non-consolidated subsidiary			150,000				150,000
Property and equipment, net			2,720,367				-
Goodwill			1,862,048				-
TOTAL ASSETS		$	5,526,638			$	559,001
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Bank overdraft payable			-				166
Accounts payable			122,753				-
Accrued expenses			344,041				68,750
Accrued interest			61,173				52,013
Sales deposit			34,046				34,046
Long term debt related party			-				400,000
Notes payable - related parties			16,990				166,590
Convertible notes payable related party, net of discount			26,528				39,472
Note payable			10,000				10,000
Convertible notes payable, net of discount			54,624				25,056
Derivative liability			6,283,301				2,645,300
Total Current Liabilities			6,953,456				3,441,393
TOTAL LIABILITIES		$	6,953,456			$	3,441,393
Stockholders' Deficit
Preferred stock, $0.000001 par value, 8,000,000 shares authorized			-				-
Series B Preferred Stock, $0.000001 par value, 2,000,000 shares authorized, 1,200,000 shares issued			1				-
Series C Preferred Stock, $0.000001 par value, 100,000 shares authorized, 100,000 shares issued			0				-
Common Stock, $0.000001 par value, 5,000,000,000 shares authorized 4,083,677,219 and 846,555,925 shares issued and outstanding			4,084				847
Additional paid in capital			6,153,575				1,160,693
Accumulated other comprehensive loss			(30,409	)			-
Accumulated deficit			(7,554,070	)			(4,043,932	)
Total Stockholders' Deficit			(1,426,818	)			(2,882,392	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	5,526,638			$	559,001

 

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2015				2014				2015				2014
Revenue		$	67,461			$	-			$	313,321			$	-
Cost of revenue			95,597				-				110,446				-
Gross profit			(28,136	)			-				202,875				-
Operating Expenses
General and administrative expenses			172,654				28,704				210,400				59,276
Total operating expenses			172,654				28,704				210,400				59,276
Operating Loss			(200,790	)			(28,704	)			(7,525	)			(59,276	)
Other Income (expense)
Interest expense			(8,292,567	)			(51,906	)			(8,637,544	)			(331,437	)
Gain (loss) on change in fair value of derivative			4,647,509				(32,069	)			3,563,292				(23,026	)
Gain (loss) on extinguishment of debt			1,841,928				-				1,657,681				(117,509	)
Total other income (expense)			(1,803,130	)			(83,975	)			(3,416,571	)			(471,972	)
Net Loss		$	(2,003,920	)		$	(112,679	)		$	(3,424,096	)		$	(531,248	)
Preferred stock dividend			(86,042	)			-				(86,042	)			-
Net Loss to common stockholder		$	(2,089,962	)		$	(112,679	)		$	(3,510,138	)		$	(531,248	)
Net loss per common share - basic and diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average of common shares - basic and diluted			3,314,219,525				2,565,233,149				2,256,343,895				2,502,622,038

 

 

		Six Months Ended
		June 30,
		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(3,424,096	)		$	(531,248	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization of imputed interest			-				7,148
Stock-based compensation			79,000				-
Interest accrued to related party			-				8,250
Payment of expenses by issuances of convertible notes			64,736				-
Salary accrued to related party			3,000				7,500
Non-cash interest expense			8,638,610				314,943
(Gain) loss on change in fair value of derivative			(3,563,292	)			23,026
(Gain) loss on extinguishment of debt			(1,657,681	)			117,509
Changes in operating assets and liabilities:
(Increase) decrease in operating assets:
Accounts receivable			(191,101	)			-
Inventory			(15,896	)
Prepaid expenses and other assets			16,630				(10,000	)
Increase (decrease) in operating liabilities:
Accounts payable			69,063				4,995
Accrued expenses			(24,325	)			14,818
Net Cash Used in Operating Activities			(5,352	)			(43,059	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from acquisition			29,415				-
Net Cash provided by Investing Activities			29,415				-
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft			(166	)			-
Proceeds from issuance of note payable			107,000				40,000
Repayment of acquisition loan			(56,100	)			-
Proceeds from issuance of stock			400				-
Net Cash Provided By Financing Activities			51,134				40,000
Effect of exchange rate on cash			(3,143	)			-
Net increase (decrease) in cash and cash equivalents			72,054				(3,059	)
Cash and cash equivalents, beginning of period			-				3,179
Cash and cash equivalents, end of period		$	72,054			$	120
Supplemental cash flow information
Cash paid for interest		$	-			$	-
Cash paid for taxes		$	-			$	-
Non-cash transactions:
Derivative liability recognized as interest		$	7,913,857			$	-
Derivative liability recognized as debt discount		$	2,891,563			$	300,000
Conversion of convertible debt into common stock		$	31,500			$	-
Conversion of convertible debt related party into common stock		$	18,865			$	107,640
Conversion of convertible debt into series C preferred stock		$	3,412,064			$	-
Common Stock issued from conversion of convertible debt		$	955,057			$	-
Series B preferred stock issued from conversion of debt		$	550,000			$	-
Series C preferred stock issued from conversion of debt		$	4,443,900			$	-

 

Metrospaces, Inc.
Notes to Consolidated Financial Statements
June 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 June 30, 2015, and the results of operations and cash flows for the periods presented. The results of operations for the six months ended June 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 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.

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 June 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.

Revenue Recognition

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. 

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.

Fair Value Measurement

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:

The estimated fair value of the derivative instruments were valued using the Black-Scholes option pricing model, using the following assumptions at June 30, 2015:

 

Convertible Instruments

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.

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 $7,554,070 and has a working capital deficit of $6,529,224 as of June 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:

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

On February 19, 2014, the Company issued a convertible promissory note in the amount of $260,000 in exchange for a previously issued note of $260,000 to the prior president and sole director of the Company. The new note bears interest at a rate of 0.30% per annum and matured February 19, 2015. The note was further amended on July 11, 2014 to change the conversion feature and is now convertible into shares of the Company’s common stock at a price per share of 2.5% of the current market price of the Company’s common stock, as defined in the agreement. Since the issuance of the note, the holder has converted $233,472 of principal into shares of common stock. The remaining principal balance of the note at June 30, 2015 was $26,528. 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 six months ended June 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 non related 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 June 30, 2015 and December 31, 2014, convertible notes payable consisted of the following:

 

The remaining principal balance of the convertible notes at June 30, 2015 was $171,736. 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 $117,112 on the accompanying balance sheet.

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 $4,500 and $0 has been paid and the Company has accrued an amount of $3,000 and 7,500 for the six months ended June 30, 2015 and 2014. The Company has accrued an aggregate amount of $46,250 since inception which is reflected in accrued expenses in the accompanying Balance Sheet at June 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 June 30, 2015, the Company had approximately $2,870,500 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

On October 31, 2014, the board of directors approved an amendment to the Company’s Certificate of Incorporation, as amended, to effect a 1-for-500 reverse stock split on the issued and outstanding common. 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 six months ended June 30, 2015, $18,865 of principal of the convertible note payable to a related party referred to in Note 8 was converted into 2,784,300,000 shares of common stock according to the terms of the convertible instrument.

During the six months ended June 30, 2015, $31,500 of principal of the convertible note payable referred to in Note 11 was converted into 212,821,294 shares of common stock according to the terms of the convertible instrument.

During the six months ended June 30, 2015, 240,000,000 shares of common stock were issued as consulting fee valued at approximately $28,760.

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.

On May 29, 2015, the Company exchanged the $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.

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 800,000,000 shares 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 June 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 June 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY’S FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS REPORT.

General

We acquire land and design, build, develop and resell condominiums on it, principally in urban areas in Latin America, alone or together with investors; we are also acquiring condominiums that are under construction for resale, but do not intend to conduct business in this manner after these condominiums have been sold. We sell condominiums at different prices, depending principally on their location, size and level of options and amenities to customers who are able to make substantial payments upon signing purchase agreements and at agreed time as construction progresses. Our current projects are located in Buenos Aires, Argentina, and Caracas, Venezuela. One of these projects is nearing completion one is in the construction stage, and one is in the planning stage. We are considering projects in Peru and Colombia, but have taken no measures to implement them. We market directly with our own sales force by personal contact, through real estate brokers and agents and internet websites. We will also manage these condominiums for customers who wish to lease them on a long- or short-term basis. The Company’s operating subsidiary, Urban Spaces, Inc., a Nevada corporation (“Urban Spaces”), which the Company acquired on August 13, 2012, commenced operations on April 3, 2012. Through two Argentinian companies collectively called “IKAL,” which we acquired on January 13, 2015, we operate vineyards and plan to develop a hotel and time share villas.

Our Common Stock is quoted on OTC Pink under the trading symbol “MSPC.”

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2015

We had revenues of $67,461 for the three-month period ended June 30, 2015, versus no revenues for the three-month period ended June 30, 2014. Revenues increased because we recognized revenue from grape sales upon delivery to the customer from the subsidiaries that we acquired on January 13, 2015.

General and administrative expenses for the three-month period ended June 30, 2015, were $172,654, compared with $28,704 for the three-month period ended June 30, 2014. These expenses were higher during the later period primarily because of an increase in professional fees due to the acquisition of its subsidiaries, stock-based compensation and the increased expenses of new subsidiaries.

We had an operating loss of $200,790 for the three-month period ended June 30, 2015, compared with $28,704 for the three-month period ended June 30, 2014, because of the increased expenses related to the acquisition and increased expenses of new subsidiaries are included in the operating expenses.

We incurred interest expense of $8,292,567 during the three-month period ended June 30, 2015, of which $7,913,857 was resulted from the excess of derivative liability over the face value of convertible notes issued with a bifurcated conversion feature and $375,545 was recognized as amortization of the discounted debt. During the three-month period ended June 30, 2014, we incurred interest of $51,906.

We recognized $4,647,509 as gain on change in fair value of derivative during the three-month period ended June 30, 2015, compared with a loss on change in fair value of derivative of $32,069 during the three-month period ended June 30, 2014.

We recognized $1,803,130 as gain on extinguishment of debt during the three-month period ended June 30, 2015. For the three-month period ended June 30, 2014, we incurred no such gain or loss.

We had a net loss of $2,003,920 for the three-month period ended June 30, 2015, compared with $112,679 for the three-month period ended June 30, 2014.

SIX MONTHS ENDED JUNE 30, 2015

We had revenues of $313,321 for the six-month period ended June 30, 2015, versus no revenues for the six-month period ended June 30, 2014. Revenues increased because we recognized revenue from grape sales upon delivery to the customer from the subsidiaries that we acquired on January 13, 2015.

General and administrative expenses for the six-month period ended June 30, 2015, were $210,400, compared with $59,276 for the six-month period ended June 30, 2014. These expenses were higher during the later period primarily because of an increase in professional fees due to the acquisition of its subsidiaries, stock-base compensation and the increased expenses of new subsidiaries.

We had an operating loss of $7,525 for the six-month period ended June 30, 2015, compared with $59,276 for the six-month period ended June 30, 2014, because we generated revenues from grape sales since we acquired our subsidiaries on January 13, 2015.

We incurred interest expense of $8,637,544 during the six-month period ended June 30, 2015, of which $7,913,857 was resulted from the excess of derivative liability over the face value of convertible notes issued with a bifurcated conversion feature $712,320 was recognized as amortization of the discount. During the six-month period ended June 30, 2014, we incurred interest of $331,437.

We recognized $3,563,292 as gain on change in fair value of derivative during the six-month period ended June 30, 2015, compared with a loss on change in fair value of derivative of $23,026 during the three-month period ended June 30, 2014.

We recognized $1,657,681 as gain on extinguishment of debt during the six-month period ended June 30, 2015. For the six-month period ended June 30, 2014, we incurred a loss on extinguishment of debt of $117,509.

We had a net loss of $3,424,096 for the six-month period ended June 30, 2015, compared with a loss of $ for the six-month period ended June 30, 2014.

LIQUIDITYAND CAPITAL RESOURCES

Our net loss for the six months ended June 30, 2015, was $3,424,096 and our accumulated deficit at that date was $7,554,070. We had $72,054 in cash available at that date, as well as accounts receivable of $233,354. We financed our operations during this period principally through loans of $107,000 and $29,415 in cash acquired from acquisition. During the six-month period then ended, Mr. Oscar Brito, our president, earned $7,500 in salary from Urban Spaces. We were unable to pay $3,000 of this obligation and it has been accrued in our financial statements. We will be able to pay our obligations only from revenues from our operations and/or financing. Given our current financial condition and prospects, we can give no assurance as to whether or when we will be able to do so.

Net cash used in operating activities for the six-month period ended June 30, 2015, was $5,352.

Net cash provided by in financing activities for the six-month period ended June 30, 2015, was $51,134.

At June 30, 2015, we had a stockholders’ deficit of $1,426,818. The report of our independent registered public accounting firm on our audited financial statements at December 31, 2014, contains a paragraph regarding doubt as to our ability to continue as a going concern. We do not have sufficient working capital to pay our operating costs for the next 12 months and we will require additional funds to pay our legal, accounting and other fees associated with our company and its filing obligations under federal securities laws, as well as to pay our other accounts payable generated in the ordinary course of our business. The Company believes that it will require approximately $1 million to fund its operations for the next 12 months. The Company plans to fund its activities, including those of Urban Spaces, during the balance of 2015 and beyond through the sale of debt or equity securities, preconstruction sales of condominiums and/or deposits on condominium units sold after construction of a project commences but before these units are delivered. The ability of the Company to obtain funding from pension funds in Argentina has been restricted by the recent nationalization of the largest Argentine pension funds. The Company believes that it will be able to obtain funding for its projects from other private lenders, but can give no assurance that it will be successful in so doing or that such financing, if available, will be on acceptable terms.

In Latin American countries, the proceeds of these preconstruction sales and deposits are not held in escrow pending closing, but may be used freely. Most commonly, the Company will make a preconstruction sale of one or a few penthouse or luxury condominiums in a project at a discount of 15%-25% from their list price. This discount approximates the rate of interest that the Company would pay for borrowed money in these countries. Such preconstruction sales and deposits are respectively expected to provide approximately 10% to 25% of a project’s costs. We believe that we will receive approximately $1 million from preconstruction sales and deposits over the next 12 months.

On August 13, 2012, the Company issued a promissory note payable to Richard S. Astrom in the principal amount of $260,000. This promissory note was due on August 13, 2013, bore interest at the rate of 0.24% per annum and was secured by a Pledge Agreement, dated as of August 13, 2012, between the Company and Mr. Astrom, under which the Company pledged the shares of Urban Spaces to Mr. Astrom. The maturity of the promissory note was extended to April 14, 2014, on August 12, 2013, and on February 19, 2014, the promissory note was exchanged for a convertible promissory note which was convertible into shares of Common Stock at a price per share based upon the current market price of the Common Stock. Because of conversions of the principal amount  of the  convertible  promissory  note  into  shares  of Common  Stock,  the  principal amount  was  reduced to $65,901.67. On May 1, 2014, under a Convertible Note Exchange Agreement, this convertible promissory note and the interest accrued thereon was exchanged for another convertible promissory note in the principal amount of $69,944.04, which is convertible into Common Stock at its par value and the pledge agreement was terminated; this convertible promissory note obligates Mr. Astrom to convert the principal amount thereof into Common Stock as quickly as practicable without his becoming an affiliate of the Company. On July 11, 2014, the Convertible Note Exchange Agreement was amended to provide for a conversion price equal to 2.5% of Current Market Value, as that term is defined. As the result of conversions and the forgiveness of $83,516 of indebtedness owed under the Convertible Promissory Note, there is $27,227.62 outstanding thereunder.

 

On April 13, 2012, UPLLC entered into an agreement with GBS, under which GBS assigned to UPLLC the right to receive 9 condominium units being constructed in Buenos Aires and UPLLC agreed to pay $750,000 to GBS for these units. The obligation of UPLLC to pay GBS is secured by a Pledge Agreement, dated April 13, 2012, between Urban Spaces and GBS, under which Urban Spaces pledged its membership interests in UPLLC to GBS. Installments of $350,000 and $400,000 were due under this agreement on April 15, 2013, and April 15, 2014, respectively. Because the units were not timely delivered, the parties agreed that these dates would be extended to October 15, 2013, and 2014, respectively and that the new dates would be further extended by the number of days after May 30, 2013, that elapse until delivery. The Company eliminated $300,000 of its liability to GBS by selling the right to acquire 4 units to GBS and by the subsequent exchange of $450,000 of indebtedness in respect of the other 5 units for 450,000 shares of its Series B Convertible PIK Preferred Stock.

 

While  the  Company  is  not  in  default  under the  convertible  promissory  note payable to Mr. Astrom, funds are not available to  pay the amount due; however, since Mr. Astrom is obligated to convert the principal amount of this convertible promissory note into shares of Common Stock, the Company does not expect that it will be required to pay this obligation. The Company plans to obtain such funds through the sale of debt or equity securities rather than from preconstruction sales of condominiums and/or deposits on condominium units sold after construction of its other projects commence but before these units are delivered.

We can give no assurance that any of the funding described above will be available on acceptable terms, or available at all. If we are unable to raise funds in sufficient amount, when required or on acceptable terms, we may have to significantly reduce, or discontinue, our operations. To the extent that we raise additional funds by issuing equity securities or securities that are convertible into the Company’s equity securities, its stockholders may experience significant dilution.

 

We currently do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Acting Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of June 30, 2015. Based on this evaluation, our Chief Executive Officer and Acting Chief Financial Officer concluded that these disclosure controls and procedures were effective as of such date, at a reasonable level of assurance, in ensuring that the information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is: (i) accumulated and communicated to our management (including the Chief Executive Officer and Acting Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. We have assessed the effectiveness of those internal controls as of June 30, 2015, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework as a basis for our assessment.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material weakness in our internal control over financial reporting. This material weakness consisted of an insufficiency of employees who have bookkeeping and accounting experience. This is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.

As we are not aware of any instance in which we failed to identify or resolve a disclosure matter or failed to perform a timely and effective review, we determined that the addition of personnel to our bookkeeping and accounting operations is not an efficient use of our very limited resources at this time and not in the interest of our stockholders.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending legal proceedings nor is any of our property the subject of any pending legal proceedings.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

ITEM 2. UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. (REMOVED AND RESERVED). ITEM 5. OTHER INFORMATION

 

None

 

ITEM 6. EXHIBITS

 

                                                                                                        

EXHIBIT NUMBER		DESCRIPTION
31.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1		Section 1350 Certification of Principal Executive Officer
32.2		Section 1350 Certification of Principal Financial Officer

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

By:   /s/ Oscar Brito             

Executive Vice President

(Principal Financial Officer and duly authorized signatory)

 

 

 

 

 

 

 

 

 

 

21