Pumpers Forget to Mention Thinspace Technology Inc (OTCMKTS:THNS)’s Toxic Debt
Thinspace Technology Inc (OTCMKTS:THNS)’s latest 10-Q covers the second quarter of 2014 and it came out on August 14. It showed that the revenues have grown from $267 thousand for Q2 of 2013 to nearly $2.6 million for Q2 of 2014. That, in case you haven’t calculated it already, is an astonishing 869% leap year over year. So, how did investors react to the positive figures?
Well, they didn’t react at all. During the days following the publishing of the report, THNS remained pretty much stationary and the volumes were tiny. The company tried to draw some attention to itself by publishing a couple of press releases but even that didn’t help. It wasn’t until the pumpers came along that we finally saw some movement.
THNS was pumped pretty much constantly throughout September. Then, the promoters took a little break, but at the end of last month they came back with a vengeance and the touting has been relentless ever since. The latest batch of emails landed in investors’ mailboxes yesterday and it came courtesy of Damn Good Penny Picks and Investor Soup who have collectively received $28,500 in compensation.
During yesterday’s session, investors traded more than 960 thousand shares (four times the thirty-day average) which goes to show that the pumpers’ efforts have paid off to some extent. Unfortunately, THNS‘ performance failed to impress. The ticker only managed to gain 6% which means that it’s currently sitting at just over $0.19 per share (a whopping 80% below its 52-week high).
The question is: “Is there anything to suggest that it can put up a more consistent performance in the future?”.
We’re about to find out, but we should mention at this point that while the jump in the revenues is indeed impressive, the rest of the 10-Q doesn’t look like much. Here’s a summary of the most important figures:
- cash: $497 thousand
- current assets: $2.4 million
- current liabilities: $17.6 million
- quarterly operating loss: $1.2 million
While THNS did manage to end Q2 with a net income, this was mostly due to change in fair value of derivative liabilities. The revenues are growing, but they’re still not enough to offset the operating expenses. The working capital deficit is also quite huge and although a large portion of the current liabilities ($13 million) consists of derivative liabilities, the debt is alarmingly big.
Speaking of debt, some of it is convertible into common stock and apparently, the promoters who are touting the company decided that giving you any information about this is not that important. We, however, reckon that you should be aware of all the facts before jumping in.
We go through our fair share of SEC filings on a daily basis around here and we see that many penny stock companies resort to some toxic notes which can later be turned into shares at rates that are way below the current market price. We know that this alone is sometime enough to scare away the more risk-averse investors. If the aforementioned investors have a look through THNS‘ report, they will be downright terrified.
Various notes issued over the last year or so can be converted into shares at discounts that range from 60% to 75%. If you’re new to these sort of things, you’re probably wondering: “What does that mean?”.
It means that during the first six months of 2014, some note holders turned $202,593 worth of principal amount and interest into 4,051,870 shares of common stock (the average conversion rate comes in at just under $0.05 per share). It also means that in July, a further $42,060 worth of debt was converted into 2,400,000 shares (bringing the conversion price down to less than $0.02 per share).
With plenty of notes still outstanding, the threat of a huge amount of discounted stock hitting the open market is very real, especially with the increased promotional activity we’ve seen lately. That’s why, considering all the risks and conducting the proper amount of research is absolutely essential.
