ITEM 1. BUSINESS
Overview
VIASPACE Inc. (“we”, “us”, “VIASPACE”, or the “Company”) was founded in July 1998. Our business involves renewable energy and is based on biomass, in particular our license to a dedicated energy crop with the trademark “Giant King® Grass” (“GKG”). Through a license for GKG we obtained from Guangzhou Inter-Pacific Arts Corp., a Chinese wholly-owned foreign enterprise registered in Guangdong province ("IPA China") which owned by VIASPACE Green Energy Inc. (“VGE”), we are able to commercialize GKG throughout the world, except for the People’s Republic of China (“China”) and the Republic of China (“Taiwan”).
GKG can be burned in 100% biomass power plants to generate electricity; made into pellets that can be burned together with coal to reduce carbon emissions from existing power plants; generate bio methane through anaerobic digestion, and can be used as a feedstock for low carbon liquid biofuels for transportation, biochemicals and bio plastics. Cellulosic ethanol, bio butanol and other liquid cellulosic biofuels, do not use corn or other food sources as feedstock. GKG can also be used as animal feed. GKG and other plants absorb and store carbon dioxide from the atmosphere as they grow. When they are burned, they release the carbon dioxide back into the atmosphere, but it is the same carbon dioxide that was removed from the atmosphere, and so this process is carbon neutral. Small amounts of fossil fuel are used by the farm equipment, transportation of GKG and fertilizer, so that the overall process of growing and burning GKG probably has some net carbon dioxide emissions, but much lower emissions than burning coal or other fossil fuels directly to create the same amount of energy. GKG has been independently tested by customers and been shown to have excellent energy content, high bio methane production, and the cellulosic sugar content needed for biofuels and biochemicals.
Our web site is www.VIASPACE.com. Information contained on, or accessible through, our website should not be deemed as part of this report.
Corporate History
ViaSpace Technologies LLC (“ViaSpace LLC”) was founded in July 1998 as a private company to commercialize proven space and defense technologies from NASA and the Department of Defense. ViaSpace LLC had licensed patents, and software technology from California Institute of Technology (“Caltech”), which manages the Jet Propulsion Laboratory (“JPL”) for NASA. On June 22, 2005, ViaSpace LLC acquired the non-operating shell company Global-Wide Publication Ltd. (“GW”). GW was incorporated in the State of Nevada on July 14, 2003. At the closing of the merger, GW was renamed VIASPACE Inc. The transaction was accounted for as a reverse merger and a recapitalization of the Company. VIASPACE became a public company on June 22, 2005.
Grass Business
We focus on GKG, a natural hybrid, non-genetically modified, fast-growing, perennial grass which we are growing as a dedicated energy crop that can be used to generate low carbon and renewable electricity by direct burning in a biomass power plant, and can be made into pellets that can replace some of the coal in existing power plants thus reducing carbon emissions. GKG may also be used to produce bio methane through anaerobic digestion and as a feedstock for non-food liquid biofuels such as bio ethanol and bio butanol. It can also be used as a feedstock for biochemicals and bio plastics. This perennial grass can grow up to 16 feet in height. It can be harvested at least twice a year in tropical and semitropical areas with a yield of up to 375 metric tons per hectare (freshly cut, referred to as wet yield). We believe that GKG has the highest yield of any crop. Note that one hectare (ha) is 10,000 square meters and equal to 2.47 US acres or approximately the size of two US football fields.
GKG has been independently tested by multiple potential customers. Proximate and ultimate analyses are available as well as ash composition, biogas production test data and sugar composition, pretreatment and hydrolysis data are available. To our knowledge, the results have been positive and consistent. GKG has excellent energy content of 18.4 megajoules (MJ) per dry kilogram. Its chemical and physical properties are very similar to corn straw, which is material left behind from the corn plant after the ear of corn has been harvested. Corn straw is used as fuel in many biomass power plants, and a leading international biomass power provider, has declared GKG as suitable for their power plants. The bio methane production from GKG has been tested in three customer laboratories and shows the outstanding production of 91 liters of methane per kilogram of fresh grass. The methane can be used to generate clean electricity or can be burned to produce process heat. There are potentially thousands of biogas plants worldwide that could use GKG. A large European electric utility has tested GKG and examined prototype pellets. In addition to these current markets, GKG can be used as animal feed and has been tested for this purpose.
GKG can also be used as a feedstock to make cellulosic biofuels such as bio ethanol, bio butane and green gasoline. GKG has previously been tested as a potential feedstock for producing biofuels, biochemicals and bio plastics through fermentation method. Laboratory results from these tests show that GKG has almost identical composition including sugar content as corn straw or wheat straw which are the agricultural waste products often targeted as a feedstock for cellulosic biofuels. The projected bio ethanol yield is approximately 80 gallons per dry ton of GKG based on these tests.
Corn straw and wheat straw are the by-products after food production. This agricultural waste material can only be collected after the food is harvested which means that the feedstock supply is very seasonal and must be stored for a long time--up to one year-- between harvests. To support a single biofuel or power plant, agricultural waste must be collected from farms up to 50 or more miles away. Giant King Grass is a high yield dedicated nonfood energy crop that can be harvested at any time in a tropical or subtropical climate. If the biofuel or power plant is co-located with a GKG plantation, the collection radius will only be about three miles. The high yield and logistical advantages mean that GKG can be grown and delivered to a co-located plant at a substantially lower price than currently paid for agricultural waste. The largest operating cost of a biomass power plant or biofuels plant is the cost of the fuel or feedstock, and the low cost and high quality of GKG are of major interest to these customers.
Energy pellets made from dried GKG can be used as a replacement for coal in electricity generating power plants. Reports by the U.S. Department of Energy state that 15% to 20% of coal used in the power plant may be replaced by burning grass in an existing power plant with only minor modifications. This process called co-firing allows utilization of the large capital investment in existing coal fired power plants while reducing their carbon dioxide emissions by 15 to 20%. GKG and other biomass have lower mercury, arsenic and sulfur emissions than coal.
During 2012-2016, we entered into Giant King Grass collaborative supply agreements with partners in the Philippines, Pakistan, Papua New Guinea, Jamaica, Guyana, California, Arizona, St. Croix Virgin Islands, Nicaragua, South Africa and Myanmar. We have shipped Giant King Grass to these states/countries as part of the collaborative agreements. The first phase for each of these partners is for the joint operation of test plots to establish that GKG grows well in the area and optimal agronomic practices are developed. If this initial phase is completed successfully, each partner would then expand the initial growing site as they develop more land to grow GKG. Each partner has different planned uses for the Giant King Grass.
We grow Giant King Grass on leased land in San Diego County, California and Hawaii. These locations serve as nurseries for our Giant King Grass and places from which we can harvest Giant King Grass seedlings and send it to customers in the US and throughout the world.
We plan to expand our grass business into other areas of the world, and are in discussions with developers of power plants, pellet mills and biogas facilities throughout the world other than China and Taiwan.
Having a reliable source of feedstock is critical for all energy users of biomass. Today, power plants and pellet mills use agricultural and forestry waste such as corn straw, wheat straw, rice husks and wood waste as feedstock. Increasing demand for biomass has caused the price of this agricultural and forestry waste to rise dramatically and in some places it is in short supply. Biomass supply issues have caused some power plants to become unprofitable, idle or abandoned. We believe that dedicated energy crops such as GKG may be necessary and advantageous for successful operation of biomass processing facilities. Agricultural waste will still be used, but the dedicated energy crop could provide a reliable and consistent base. The feedstock uncertainty issue may contribute to the difficulties that many proposed biomass power plant and biogas projects have been unable to obtain financing. A dedicated energy crop may help alleviate this obstacle.
Because of its high yield, GKG provides feedstock with less use of land and we believe therefore lower costs compared to its alternatives. Other energy crops providing half the yield will require twice the land and therefore land and other costs could be nearly doubled.
Another major advantage of GKG is that it can be harvested at any time-- particularly in a tropical or subtropical area. When corn straw is used, there is a delay for the corn to mature before any feedstock is produced. Then at the corn harvest, a lot of feedstock is available all at one time. This corn straw has to be collected, stored and used until the next corn harvest which will be one year later. This creates a major logistics issue. If the climate permits, GKG can be planted so that it matures continuously and allows just-in-time harvesting.
Higher food prices have led to food shortages around the globe. This argument has resonated with many world leaders and resulted in a global effort to derive biofuels from plants that are not in the human food chain. Using such plants as fuel sources helps avoid the political issue and perception that prices are rising because foods are being diverted for use as biofuels. These plants are called cellulosic biofuels.
Cellulosic biofuels are based on nonfood plants including grass, shrubs and trees. These plants do not have a lot of sugar and cannot be fermented directly like corn. They do, however, have a lot of cellulose in their leaves, stalks and branches which contain carbon and hydrogen which can then be converted into ethanol called cellulosic ethanol. GKG has been recently tested and shown to have potential for producing cellulosic biofuels including ethanol and for making biochemicals and bio plastics using a fermentation process.
We have four revenue models for GKG: 1. grass plantation integrated with a power plant or processing facility such as a pellet mill under company or joint venture control; 2. contract plantation establishment, support and licensing for a customer that owns and operates the plantation and power plant; 3. collaborative agreements to establish a test plot in the customer’s location to determine that GKG grows sufficiently for the customer to use in their particular application; and 4. consulting agreement services for customers considering the establishment of a grass plantation in their particular country or location.
Under a contract plantation establishment and licensing model, the customer would provide the land, labor and management and be responsible for growing GKG. We will provide initial seedlings, crop management services and knowledge transfer for a negotiated price. In addition, there would be an ongoing license fee based on grass production.
Management believes both models will be important contributors to our revenue streams. We believe all our revenues initially will result from the integrated plantation & end-user model. Rapid global expansion requires local joint venture partners that have land and labor, but lack the energy crop and the expertise to grow it. The contract plantation establishment and licensing model with joint venture partners will be used for most of these projects. We may also serve as a developer for integrated Giant King Grass plantations and bioenergy projects.
Other VIASPACE Projects
We retain a worldwide nonexclusive license to certain patents and patent applications in the areas of interactive radio technology; however, we are devoting no attention to this license.
Research and Development
We did not record any research and development activities in 2017 or 2016. If we do in the future, it will be expensed as incurred.
Competition
Many companies, universities and research laboratories worldwide are investigating grass as a feedstock for cellulosic ethanol and other applications. Monsanto is an example of a large company focusing on grass as a biofuel. Ceres is an example of a company focusing on biomass and grass in particular. Much of the competition is looking at miscanthus or switchgrass. These grasses are suitable for temperate areas. Much of the competition also is focused on selling seeds. GKG is a natural hybrid that is not genetically modified nor generally available, and to our knowledge no one else is growing GKG besides VIASPACE Green Energy, Inc. (“VGE”), as a commercial crop. Based on publicly available data on switchgrass and miscanthus, compared to our data on GKG, we believe that GKG has higher productivity than these and other competing grasses. GKG is most suitable for tropical and subtropical areas, which are the focus of the our efforts. Because GKG is propagated by seedlings and not by seeds, it is not an invasive species. We are focusing on projects involving growing the grass and securing long-term supply contracts for biofuel production, as a replacement for coal and electricity generation, and as animal feed. With long-term supply contracts and joint ventures, we plan to capture these recurring revenue streams.
Other grasses such as alfalfa are suitable for animal feed and are also competitors of GKG.
Many of our competitors have substantially greater financial, research, human resources, and product development capabilities. In addition, many of our competitors have greater experience in marketing such technologies and products and greater potential to develop revenue streams. As a result, our competitors may be able to develop and expand their competing product offerings more rapidly, adapt to new or emerging technologies and changes in customer requirements more quickly, devote greater resources to marketing and sales of their products and adopt more aggressive pricing policies than we can.
Customers
We have a relatively small number of customers that have planted Giant King Grass. We believe this concentration of sales made to a small number of customers will continue in the near future. A loss of any customer could significantly reduce our future revenues.
Intellectual Property
On or about October 20, 2008, IPA China entered into an agreement with China Gate whereby VGE purchased seedlings of GKG and other grasses from China Gate and the parties agreed to assist each other in growing, developing and commercializing GKG. The agreement does not limit IPA China’s right to grow, harvest and market the grass anywhere in the world. No term was specified in the agreement. To our knowledge, China Gate has not entered into similar agreements with any other party.
On September 30, 2012, IPA China granted to VGE a reciprocal worldwide license for GKG, not to exceed the rights IPA China had in GKG. Additionally, on September 30, 2012, VIASPACE and VGE entered into a Supply, License and Commercialization
Agreement (“License Agreement”) pursuant to which VGE granted to VIASPACE a nontransferable, royalty-bearing exclusive license to commercialize Giant King Grass everywhere in the world other than China and Taiwan. Additionally, the License Agreement allows VIASPACE to use the Giant King Grass intellectual property and VIASPACE Green Energy trade name in connection with its efforts to commercialize Giant King Grass.
Executed on April 4, 2016 and effective as of March 28, 2016, we entered into the Global Supply, License, and Commercialization Agreement (the “New Agreement”) with VGE and IPA China.
Prior to the New Agreement, IPA China and VGE had entered into a certain Supply and Commercialization Agreement dated September 30, 2012 regarding a license and supply arrangement between IPA China and VGE regarding Giant King Grass (“IPA-VGE Agreement”). In turn, we also entered into a certain Supply and Commercialization Agreement dated September 30, 2012 with VGE regarding a license and supply arrangement between VGE and us regarding Giant King Grass (“VGE-VIASPACE Agreement”).
Under the New Agreement, we terminated the VGE-VIASPACE Agreement with VGE and IPA China directly granted us an exclusive, perpetual license to commercialize its intellectual property rights to three (3) types of high yield, non-genetically modified grasses (“Three GK Grasses”) throughout the world except Cambodia, People’s Republic of China, Taiwan, Thailand, Myanmar, Malaysia, Laos, Vietnam and Singapore (“VIASPACE Territory”). It and VGE agreed to subordinate the terms of the IPA-VGE Agreement to the terms of the New Agreement. IPA China also granted us the right to use and market the name “Giant King Grass” and other related names.
We would owe royalty payments on the Net Sales of the Three GK Grasses. This license would be sublicenseable in the VIASPACE Territory. IPA China held all rights of ownership to the intellectual property relating to the Three GK Grasses. The Company would own any grasses resulting from any modifications or improvements to the Three GK Grasses. IPA China would use commercially reasonable efforts to maintain its intellectual property rights. We would use commercially reasonable efforts to commercialize the Three GK Grasses throughout the VIASPACE Territory.
Employees
As of December 31, 2017, we had four independent contractors and no employees.
Regulatory Issues
None
Trademarks
We have a trademark registration for “VIASPACE”.
ITEM 1A.
ITEM 1A.RISK FACTORS
Our business is subject to a number of risks. You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this report, before you decide whether to purchase our common stock. The risks set out below are not the only risks we face. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. We wish to caution that the following important factors, among others, in some cases have affected and in the future could affect our actual results and could cause such results to differ materially from those expressed in forward-looking statements made by or on behalf of us.
Risks Related To Our Business
We have incurred losses and anticipate continued losses for the foreseeable future.
Our net loss for the year ended December 31, 2017 was $871,349. We have not yet achieved profitability and expect to continue to incur net losses until we recognize increased revenues from GKG related sales. We rely solely on the GKG licensing agreement we have put in place effective March 28, 2016, to generate revenues or our GKG grass business. Because we do not have an operating history upon which an evaluation of our prospects can be based, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies seeking to develop new and rapidly evolving technologies. To address these risks, we must, among other things, respond to competitive factors, continue to attract, retain and motivate qualified personnel and continue to develop our technologies. We may not be successful in addressing these risks. We can give no assurance that we will achieve or sustain profitability.
Our ability to continue as a going concern is dependent on future revenues or future financing.
MaloneBailey LLC, our independent registered public accounting firm, included an explanatory paragraph in its report on our financial statements for 2017, which expresses substantial doubt about our ability to continue as a going concern. The inclusion of a going concern explanatory paragraph in MaloneBailey LLP’s report on our financial statements could have a detrimental effect on our stock price and our ability to raise additional capital if needed. However, on November 30, 2016, as discussed in Note 5, we entered into a Loan Agreement with Mr. Haris Basit, our former CEO and a member of our Board of Directors, whereby Mr. Basit agreed to fund us up to $100,000 over a two-year period in accordance with such agreement. In addition, on February 23, 2017, we entered into a Loan Agreement with Dr. Kevin Schewe, Chairman of our Board of Directors, whereby Dr. Schewe agreed to fund us up to $100,000 over a two-year period in accordance with such agreement. We expect loans from Mr. Basit and Dr. Schewe and revenue generated from future contracts using the license it has for Giant King Grass to fund operations for the foreseeable future.
Our financial statements were prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have not made any adjustments to the financial statements as a result of the outcome of the uncertainty described above. Accordingly, the value of the Company in liquidation may be different from the amounts set forth in our financial statements.
Our continued success will depend on our ability to achieve profitability or to raise capital in order to fund the development and commercialization of our products. Failure to be profitable or to raise additional capital may result in substantial adverse circumstances, including our inability to continue the development of our products and our liquidation.
If we fail to comply with our obligations in our intellectual property licenses, we could lose license rights that are important to our business.
Executed on April 4, 2016 and effective as of March 28, 2016, the Company, VGE and IPA China, entered into the Global Supply, License, and Commercialization Agreement (the “New Agreement”).
Under the New Agreement, VGE and the Company terminated the VGE-VIASPACE Agreement and IPA directly granted us an exclusive, perpetual license to commercialize its intellectual property rights to three (3) types of high yield, non-genetically modified grasses (“Three GK Grasses”) throughout the world except Cambodia, People’s Republic of China, Taiwan, Thailand, Myanmar, Malaysia, Laos, Vietnam and Singapore (“VIASPACE Territory”). It and VGE agreed to subordinate the terms of the IPA-VGE Agreement to the terms of the New Agreement. IPA China also granted the right to use and market the name “Giant King Grass” and other related names.
We would owe royalty payments on the Net Sales of the Three GK Grasses. This license would be sublicenseable in the VIASPACE Territory. IPA China held all rights of ownership to the Three GK Grasses. We would own any grasses resulting from any modifications or improvements to the Three GK Grasses. IPA China would use commercially reasonable efforts to maintain its intellectual property rights. We would use commercially reasonable efforts to commercialize the Three GK Grasses throughout the VIASPACE Territory.
If we do not make our required royalty payments, we could lose our license.
Our growth prospects may be materially and adversely affected if we are unable to produce Giant King Grass in sufficient quantities for our customer or if our competitors develop products that are favored by our customers.
We believe our future growth will depend on the value of our grass business for biofuel, power plant, or animal feed purposes. The ability to develop orders from customers, if at all, is uncertain due to several factors, many of which are beyond our control. If we are unable to produce Giant King Grass to meet the initial demands of our customers, or if our competitors develop products that are favored by our customers, our growth will be adversely affected.
In addition, our business depends on the success of our Giant King Grass business. To mitigate this risk, grow GKG in Hawaii and California. If we are unable to generate our existing products in sufficient quantities - our growth prospects may be materially and adversely affected and our revenues and profitability may decline.
If we lose key personnel or are unable to hire additional qualified personnel, it could impact our ability to grow our business.
We believe our future success will depend in large part upon our ability to attract and retain highly skilled technical, managerial, sales and marketing, finance and operations personnel. We face intense competition for all such personnel, and we may not be able to attract
and retain these individuals. Our failure to do so could delay product development, affect the quality of our products and services, and/or prevent us from sustaining or growing our business. In addition, officers may leave us and subsequently compete against us. Key personnel include Dr. Kevin Schewe, our chief executive officer and Dr. Carl Kukkonen, our chief technology officer. The loss of key personnel, especially if without advanced notice, could harm our ability to maintain and build our business operations. Furthermore, we have no key man life insurance for any of our key officers.
Our revenues to date have been to a few customers, the loss of which could result in a material decline in revenues.
In 2016 and 2017, we have recorded a minor amount of grass revenues related to several Giant King Grass supply contract agreements to a few customers. We believe this concentration of sales made to a small number of customers will continue in the near future. A loss of any customer could significantly reduce our future revenues.
Our success depends upon market acceptance of our technologies and product development.
The markets for our renewable energy technologies are either new or non-existent at the present time. Our success will depend upon the market acceptance of Giant King Grass. This acceptance may require in certain instances a modification to the culture and behavior of customers to be more accepting of other forms of technology. Potential customers may be reluctant or slow to adopt changes or new ways of performing processes. There is no assurance that our current or future products or services will gain widespread acceptance or that we will generate sufficient revenues to allow us to ever achieve profitability.
In addition, our products require continuing improvement and development. Our products may not succeed or may not succeed as intended. As a result, we may need to change our product offerings, discontinue certain products and services or pursue alternative product strategies. There is no assurance that we will be able to successfully improve our current products or that we will continue to develop or market some of our products and services.
We operate in competitive markets against companies that have significantly greater resources than we have.
Overall, the markets for our products are highly competitive and many of our competitors have greater resources and better name recognition than we do. We intend to compete primarily by leveraging our intellectual property rights and our unique product value added features.
Due to uncertainties in our business, the capital on hand may not be sufficient to fund our operations until we achieve positive cash flow.
We have expended and will continue to expend substantial amounts of money for research and development, capital expenditures, working capital needs and manufacturing and marketing of our products and services. Although we have reduced expenses significantly, our business requires funds for operations.
The exact timing and amount of spending required cannot be accurately determined and will depend on several factors, including:
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progress of our research and development efforts;
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competing technological and market developments;
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commercialization of products currently under development by us and our competitors; and
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market acceptance and demand for our products and services.
The cost of developing our technologies may require financial resources greater than we currently have available. Therefore, in order to successfully complete development of our technologies, we may be required to obtain additional financing. We cannot assure you additional financing will be available if needed or on terms acceptable to us. If adequate and acceptable financing is not available, we may have to delay development or commercialization of certain of our products and services or eliminate some or all of our development activities. We may also reduce our marketing or other resources devoted to our products and services. Any of these options could reduce our sales growth and result in continued net losses.
Failure of our internal controls over financial reporting could harm our business and financial results.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external
purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Any growth in our business may place significant additional pressure on our system of internal control over financial reporting. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our common stock.
Risks Related to our Grass Business
We currently have a few meaningful customers for our grass business and are starting to make progress. If we are unable to attract any customers or our existing customers do not continue operations, our grass business will suffer.
We commenced our grass business in October 2008. Our revenues decreased from 2016 to 2017 but revenues are not at a material or significant level. While we believe we will be able to attract more customers and achieve meaningful revenues, we cannot assure you we will. There is no assurance that our potential customers will determine that using GKG for biomass or animal feed purposes will be commercially viable. Further such customers may find other grass or plant products superior to GKG for their needs. Also, our customers may not be able to attract their internal financing to expand or continue their project using GKG. If any of these occur, our grass business will fail.
We may be subject to intellectual property rights claims regarding the seedlings.
We are subject to the risk that the seedlings we license infringe or will infringe upon patents, copyrights, trademarks or other intellectual property rights held by third parties. We acquired rights to grow GKG from a seller which we believe held such rights. If that party does not hold such rights, we may be subject to legal proceedings and claims relating to the intellectual property of others. If any such claim arises in the future, litigation or other dispute resolution proceedings may be necessary to retain our ability to offer our current and future products, which could result in substantial costs and diversion of our management resources and attention even if we prevail in contesting such claims. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property rights, incur additional costs to license or develop alternative products and be forced to pay fines and damages, any of which could materially and adversely affect our business and results of operations, or terminate our grass business entirely.
Natural or man-made disasters could damage our crop production, which would cause us to suffer losses of production and a material reduction of revenues.
GKG is subject to the risks associated with growing crops, including natural disasters such as drought, pestilence, plant diseases and insect infestations, and man-made disasters such as environmental contamination. Other man-made incidents may damage our products, such as arson or other acts that may adversely affect our grass inventory in the winter storage season. Furthermore, natural or man-made disasters may cause farmers to migrate from the farmland, which would decrease the number of end users of our products. We are particularly susceptible to disasters or other incidents in California or Hawaii, where we have the greatest concentration of our operations. In the event of a widespread failure of our grass, we could likely sustain substantial loss of revenues and suffer substantial operating losses. We do not have insurance to protect against such a risk.
Our growth prospects may be materially and adversely affected if we are unable to develop or acquire new products or to produce our existing products in sufficient quantities.
We believe the future growth of our Company will depend on the value of our grass business for biofuel, power plant, or animal feed purposes. The ability to develop orders from customers, if at all, is uncertain due to several factors, many of which are beyond our control. These include changing customer preferences, competitive price pressures, the failure to adapt products to meet the evolving demands of customers, the development of higher-quality products by our competitors, and general economic conditions. If we are unable to develop or acquire additional products that meet the demands of our customers, if our competitors develop products that are favored by our customers, or if we are unable to produce our existing products in sufficient quantities, our growth prospects may be materially and adversely affected and our revenues and profitability may decline.
Our plans to increase production capacity in the grass business and expand into new markets may not be successful, which will adversely affect our operating results.
Our plans to develop our grass business and its production capacity has placed and will continue to place, substantial demands on our managerial, operational, technological and other resources. We are addressing three markets for GKG: feedstock for low-carbon liquid
biofuels for transportation; fuel to burn in electricity generating power plants; and animal feed. We are also reviewing opportunities to grow grass in other areas of China, India, Indonesia, other areas of Southeast Asia and South America. These represent great opportunities for the company, but also represent a potential risk in losing focus and diluting management attention. If we fail to establish and manage the growth of our product offerings, operations and distribution channels effectively and efficiently in such business, we could suffer a material and adverse effect on our operations and our ability to capitalize on new business opportunities, either of which could materially and adversely affect our operating results.
We will need to develop new sales channels into the biofuel, electric power plant, and animal feed markets. Expansion into new markets may present operating and marketing challenges. If we are unable to anticipate the changing demands that expanding operations will impose on our production systems and distribution channels, or if we fail to develop our production systems and distribution channels to meet the demand, we could experience an increase in expenses and our results of operations could be adversely affected.
Our financial results are sensitive to fluctuations in market prices of the products that we offer.
The profitability of our operations is affected by the selling prices of our products. We intend to benchmark the prices of our grass against the prevailing domestic market prices of grass of similar quality and attributes, and set the prices accordingly. Historically, prices of grass and other agricultural products worldwide have been volatile, primarily due to fluctuations in supply and demand. If the prices for such products decline in the future, and we are unable sell more products and/or reduce our cost of sales, our revenues will decrease and our profitability will be adversely affected.
If we are unable to estimate customers’ future needs accurately and to match our production to the demand of our direct customers, our business, financial condition and results of operations may be materially and adversely affected.
Due to the nature of the grass industry, we normally grow according to our production plan before we sell and deliver grass to distributors and our direct customers. The potential end users of our grass, such as biofuel providers and livestock owners, generally make purchasing decisions for our products based on market prices, economic and weather conditions and other factors that we may not be able to anticipate accurately in advance. If we fail to accurately estimate the volume and types of products sought by our customers, we may produce more grass that is in demand by our distributors resulting in aged crops. In the event we decide not to sell the crop due to our concerns about the quality, the aged inventory could eventually be sold at greatly reduced prices. Aged inventory could result in asset impairment, in which case we would suffer a loss and incur an increase in our operating expenses. On the other hand, if we underestimate demand, we may not be able to satisfy our customers’ demand for grass, and thus damage our customer relations and end-user loyalty. Our failure to estimate our customers’ future needs and to match our production to the demand of our direct customers may materially and adversely affect our business, financial condition and results of operations.
Grass prices and sales volumes may decrease in any given year with a corresponding reduction in sales, margins and profitability.
There may be periods of instability during which commodity prices and sales volumes may fluctuate greatly. Commodities can be affected by general economic conditions, weather, disease outbreaks and factors affecting demand, such as availability of financing and competition. Our attempts to differentiate our products from those of other grass producers have not prevented the grass market from having the characteristics of a commodity market. As a result, the price we are able to demand for our grass is dependent on the size of the supply of our grass and the grass of other producers. Therefore, the potential exists for fluctuation in supply, and consequently in price, in our own markets, even in the absence of significant external events that might cause volatility. As a result, the amount of revenue that we receive in any given year is subject to change. As production levels are determined prior to the time that the volume and the market price for orders is known, we may have too much or too little product available, which may materially and adversely affect our revenues, margins and profitability.
Risks Related To An Investment In Our Stock
Any future sale of a substantial number of shares of our common stock could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital.
Any sale of a substantial number of shares of our common stock (or the prospect of sales) may depress the price of our common stock. In particular, we will need to raise additional capital to maintain any ongoing business. We anticipate that the issuance of newly-issued shares to maintain our business will likely be very dilutive. In addition, these sales could lower our value and make it more difficult for us to raise capital. Further, the timing of the sale of the shares of our common stock may occur at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us.
We have 3,900,000,000 authorized shares of common stock, of which 3,402,514,447 were accounted for by our transfer agent as issued and outstanding as of December 31, 2017. Of these issued and outstanding shares, 1,926,010,126 shares (56.6%) are currently held by our executive officers, directors, and principal shareholders including related parties (including Mr. Haris Basit, Vice Chairman; Dr. Carl Kukkonen, our CTO and Director; Ms. Angelina Galiteva, Director; Dr. Kevin L. Schewe, Chairman and CEO;
Mr. Sung Hsien Chang, former director of the Company; Inter Pacific Arts Corporation, a former subsidiary of the Company; and Almaden Energy Group, a related party). Of the shares issued and outstanding at December 31, 2017, 2,115,220,338 are accounted by our transfer agent as restricted under Rule 144. These shares could be released in the future if requested by the holder of the shares, subject to volume and manner of sale restrictions under Rule 144. 1,287,294,109 shares of our common stock are accounted for by our transfer agent as free trading at December 31, 2017. 100,000,000 common shares are accounted for by our transfer agent as issued and outstanding, however, for accounting purposes we account for these as unissued since they are forfeitable. Outstanding common shares excluding these forfeitable shares are 3,302,514,447 at December 31, 2017.
We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares currently held by management and principal shareholders), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.
Our executive officers, directors (including current and former) and principal shareholders own 56.6% of our common stock and one director holds a share of Series A Preferred Stock entitling it to votes of 50.1% on outstanding voting matters, which allows him to control substantially all matters requiring shareholder approval, and their interests may not align with the interests of our other shareholders.
Our executive officers, directors (including current and former) and principal shareholders hold 56.6% of our outstanding shares as of December 31, 2017. In addition, on May 14, 2010, we filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series A Preferred Stock. The Certificate was approved by the Board and did not require shareholder vote. The Certificate created a new class of preferred stock known as Series A Preferred Stock. There is one share designated as Series A Preferred Stock. One share of Series A Preferred Stock is entitled to 50.1% of the outstanding votes on all shareholder voting matters. Series A Preferred Stock has no dividend rights and no rights upon a liquidation event and is subject to cancellation when certain conditions are met.
On May 14, 2010, we issued one share of Series A Preferred Stock to Mr. Chang related to the acquisition of IPA by VIASPACE and VGE. This empowers Chang with supermajority voting rights even after he holds less than a majority of outstanding voting securities. Under the term sheet relating to the VGE Recapitalization, Chang gave a proxy to Director Dr. Schewe during the term of any GKG sublicense from VGE. Dr. Schewe may be willing to provide additional financing to us. In the event he provides such financing, his ownership in the Company will further increase.
Effective as of September 30, 2012, and pursuant to an Agreement to Grant Voting Rights and Transfer Preferred Share executed by Chang and Director Kevin Schewe, Chang granted Schewe an irrevocable proxy that permitted Schewe to vote the Preferred Share. This proxy lasts so long as the License remained exclusive to us. On September 30, 2017 the proxy was cancelled as the Preferred Share was transferred from Chang to Schewe.
Our stock price is likely to be highly volatile because of several factors, including a limited public float.
The market price of our stock is likely to be highly volatile because there has been a relatively thin trading market for our stock, which causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to resell our common stock following periods of volatility because of the market’s adverse reaction to volatility.
Other factors that could cause such volatility may include:
•
actual or anticipated fluctuations in our operating results;
•
announcements concerning our business or those of our competitors or customers;
•
changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;
•
announcements of technological or agricultural innovations;
•
conditions or trends in the industry;
•
introduction or withdrawal of products and services;
•
variation in quarterly results due to the fact our revenues are generated by sales to a limited number of customers which may vary from period to period;
•
litigation;
•
patents or proprietary rights;
•
departure of key personnel;
•
failure to hire key personnel; and
•
general market conditions.
Because our common stock is considered a “penny stock” any investment in our common stock is considered to be a high-risk investment and is subject to restrictions on marketability.
Our common stock is currently traded on the OTC Capital Markets (“OTCQB”) and is considered a “penny stock.” The OTCQB is generally regarded as a less efficient trading market than the NASDAQ Small Cap Market.
The SEC adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock.
Since our common stock is subject to the regulations applicable to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations on penny stocks could limit the ability of broker-dealers to sell our common stock and thus your ability to sell our common stock in the secondary market. There is no assurance our common stock will be quoted on NASDAQ or the NYSE or listed on any exchange, even if eligible.
We have additional securities available for issuance, including preferred stock, which if issued could adversely affect the rights of the holders of our common stock.
Our articles of incorporation authorize issuance of 3,900,000,000 shares of common and 10,000,000 shares of preferred stock. The common and preferred stock can be issued by, and the terms of the preferred stock, including dividend rights, voting rights, liquidation preference and conversion rights can generally be determined by, our Board of Directors (“BOD”) without shareholder approval. Any issuance of preferred stock could adversely affect the rights of the holders of common stock by, among other things, establishing preferential dividends, liquidation rights or voting powers. Accordingly, our shareholders will be dependent upon the judgment of our management in connection with the future issuance and sale of shares of our common and preferred stock, in the event buyers can be found therefore. Any future issuances of common or preferred stock would further dilute the percentage ownership of our Company held by the public shareholders. Furthermore, the issuance of preferred stock could be used to discourage or prevent efforts to acquire control of our Company through acquisition of shares of common stock.
In addition, on May 14, 2010, we filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series A Preferred Stock. The Certificate was approved by the BOD and did not require shareholder vote. The Certificate created a new class of preferred stock known as Series A Preferred Stock. There is one share designated as Series A Preferred Stock. One share of Series A Preferred Stock is entitled to 50.1% of the outstanding votes on all shareholder voting matters. Series A Preferred Stock has no dividend rights and no rights upon a liquidation event and is subject to cancellation when certain conditions are met. On May 14, 2010, we issued one share of Series A Preferred Stock to Mr. Chang related to the acquisition of IPA by VIASPACE and VGE which was subsequently transferred to Dr. Schewe as discussed in footnotes. This empowers Dr. Schewe with supermajority voting rights even if he holds less than a majority of outstanding voting securities.
Stock options issued by us may have an adverse impact on the market value of our common stock.
The sale of stock issuable upon exercise of the warrants issued or issuable, or even the possibility of their sale, may adversely affect the trading market for our common stock and adversely affect the prevailing market price of our common stock. The existence of rights under such warrants to acquire our common stock at fixed prices may prove a hindrance to our efforts to raise future equity and debt funding, and the exercise of such rights will dilute the percentage ownership interest of our shareholders and may dilute the value of their ownership.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
We currently have no long-term office lease. We maintain a mailing address in California, and our principal executive officers work in California and Colorado.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Prices
The shares of our common stock are principally quoted on the OTC Capital Markets (“OTCQB”) under the trading symbol “VSPC” since from June 22, 2005. Prior to June 22, 2005, our common stock was traded on the OTC Bulletin Board (“OTCBB”) under the symbol “GWPL.OB”. The first day of trading for our common stock was June 4, 2004.
The following table sets forth, for the fiscal quarters indicated, the high and low sale price for our common stock, as reported on the OTCBB or OTCQB. The price information in the table below reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Holders
As of April 2, 2018, there were approximately 56 shareholders of record of our Common Stock.
Dividends
We have not paid any cash dividends on our common stock since our inception and do not anticipate paying any cash dividends on our common stock in the foreseeable future. There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends in the future. Our future dividend policy will be examined periodically by our Board of Directors based upon conditions then existing, including our earnings and financial condition, capital requirements and other relevant factors.
Equity Compensation Plan
Our discussion regarding our equity compensation plans under which our equity securities are authorized for issuance are discussed under the section titled “Equity Compensation Plan Information” under “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters” below.
Recent Sales of Unregistered Securities
On October 20, 2017, we issued 1,920,000 shares of our common stock to a consultant. We relied upon Section 4(2) of the Securities Act of 1933, as amended, for the offer and sale of its stock. We believed that Section 4(2) was available because the offer and sale was not a public offering of its securities and there was not general solicitation or general advertising involved in the offer or sale.
Submission of Matters to a Vote of Security Holders
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
None required for Company.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
VIASPACE Overview
VIASPACE Inc. (“we”, “us”, “VIASPACE”, or the “Company”) was founded in July 1998. Our business involves renewable energy and is based on biomass, in particular our license to a dedicated energy crop with the trademark “Giant King® Grass” (“GKG”). Through a sublicense for GKG we obtained from Guangzhou Inter-Pacific Arts Corp., a Chinese wholly-owned foreign enterprise registered in Guangdong province ("IPA China") which owned by VIASPACE Green Energy Inc. (“VGE”), we are able to commercialize GKG throughout the world, except for the People’s Republic of China (“China”) and the Republic of China (“Taiwan”).
GKG can be burned in 100% biomass power plants to generate electricity; made into pellets that can be burned together with coal to reduce carbon emissions from existing power plants; generate bio methane through anaerobic digestion, and can be used as a feedstock for low carbon liquid biofuels for transportation, biochemicals and bio plastics. Cellulosic ethanol, bio butanol and other liquid cellulosic biofuels, do not use corn or other food sources as feedstock. GKG can also be used as animal feed. GKG and other plants absorb and store carbon dioxide from the atmosphere as they grow. When they are burned, they release the carbon dioxide back into the atmosphere, but it is the same carbon dioxide that was removed from the atmosphere, and so this process is carbon neutral. Small amounts of fossil fuel are used by the farm equipment, transportation of GKG and fertilizer, so that the overall process of growing and burning GKG probably has some net carbon dioxide emissions, but much lower emissions than burning coal or other fossil fuels directly to create the same amount of energy. GKG has been independently tested by customers and been shown to have excellent energy content, high bio methane production, and the cellulosic sugar content needed for biofuels and biochemicals.
Our web site is www.VIASPACE.com. Information contained on, or accessible through, our website should not be deemed as part of this report.
Critical accounting policies and estimates
Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR60”) issued by the SEC, suggests companies provide additional disclosure and commentary on those accounting policies considered most critical. FRR 60 considers an accounting policy critical if it is important to our financial condition and results of operations, and requires significant judgment and estimates on the part of management in its application. For a summary of our significant accounting policies, including the critical accounting policies discussed below, see the accompanying notes to the financial statements.
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates, which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. The following accounting policies discussed below require significant management judgments and estimates.
We have four revenue models for GKG: 1. grass plantation integrated with a power plant or processing facility such as a pellet mill under company or joint venture control; 2. contract plantation establishment, support and licensing for a customer that owns and operates the plantation and power plant; 3. collaborative agreements to establish a test plot in the customer’s location to determine that GKG grows sufficiently for the customer to use in their particular application; and 4. consulting agreement services for customers considering the establishment of a grass plantation in their particular country or location. Revenue earned from collaborative agreements is comprised of negotiated payments for the operations of the test plots. Deferred revenue represents payments received which are related to future performance. For the year ending December 31, 2017 and 2016, we have recognized revenues under revenue models 3 and 4.
With regard to revenue recognition in connection with agreements that include multiple deliverables, management reviews the relevant terms of the agreements and determines whether such deliverables should be accounted for as a single unit of accounting in accordance with FASB ASC 605-25, Multiple-Element Arrangements. If it is determined that the items do not have stand-alone value, then such deliverables are accounted for as a single unit of accounting and any payments received pursuant to such agreement, including any upfront or development milestone payments and any payments received for support services, will be deferred and included in deferred revenue within our balance sheet until such time as management can estimate when all of such deliverables will be delivered, if ever. Management reviews and reevaluates such conclusions as each item in the arrangement is delivered and circumstances of the development arrangement change.
We account for equity instruments issued to consultants and vendors in exchange for goods and services in accordance with the provisions of FASB ASC Topic 505-50, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services” and “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other than Employees”. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with FASB ASC Topic 505-50, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity instrument is granted for accounting purposes. Accordingly, we record the fair value of the fully vested, non-forfeitable common stock issued for future consulting services as prepaid expenses in its balance sheet.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There is no assurance that actual results will not differ from these estimates.
Results of Operations
Year Ended December 31, 2017 Compared to December 31, 2016
Revenues
Revenues were $116,000 and $205,000 for the year ended December 31, 2017 and 2016, respectively, a decrease of $89,000. The revenues relate to collaborative agreements for the joint operation of test plots to establish whether Giant King Grass grows well in the applicable customer’s countries and optimal agronomic practices are developed, and also for consulting and engineering work performed for customers requesting assistance in power plant design and feasibility studies for customers considering using Giant King Grass in their energy project.
Cost of Revenues
Costs of revenues were $30,000 and $58,000 for the year ended December 31, 2017 and 2016, respectively, a decrease of $28,000. The costs incurred by the Company to support the collaborative agreements include travel costs and external consulting costs. We will send personnel or consultants to oversee the initial plantings of Giant King Grass in the customer’s locations.
Gross Profit
The resulting effect on these changes in revenues and cost of revenues for the year ended December 31, 2017 compared to the same period in 2016 was a decrease in gross profit from a gross profit of $147,000 for the year ended December 31, 2016 to gross profit of $86,000 for the year ended December 31, 2017, a decrease of $61,000.
Operations Expenses
Operations expenses were $32,000 and $36,000 for the year ended December 31, 2017 and December 31, 2016, a decrease of $4,000. Labor and consulting costs were higher by $1,000 in 2017 due to an agreed commission on a consultancy contract that resulted in revenue received from AEG. Water and rent costs were lower by $7,000 during 2017 as compared with 2016 due to our non-renewal of the lease and ceasing the Giant King Grass field operation in Q4 2017. Travel costs related to operations were higher by $1,000 in 2017 as compared to 2016 due to more trips to the fields. Supplies were lower by $1,000 in 2017 compared with 2016 due to lower supplies required. Other operations expenses were higher by $2,000 in 2017 as compared with the same period in 2016. Operations expenses consist of plantation expenses related to our test plot in California and costs associated with agronomy support and travel for potential customers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $775,000 and $984,000 for the year ended December 31, 2017 and 2016, respectively, a decrease of $209,000. Stock option compensation expense increased $118,000 in 2017 as compared with 2016 due to increased stock option grants in 2017. Payroll and benefit costs were lower by $151,000 in 2017 compared with the same period of 2016 due to the Company removing salaries in Q4 2017. Stock compensation expense was lower by $91,000 in 2017 versus 2016 due to there being no compensation expense related to an officer or officer family member purchasing common stock of the Company at a discount to market. Accounting fees increased $33,000 in 2017 as compared with 2016 due higher audit costs and accounting contractor expense. Legal fees increased $10,000 in 2017 due to an additional need for legal services. Consulting fees decreased $80,000 in 2017 as compared with same period in 2016 as we did not use a lobbyist in 2017 to assist the Company in obtaining government contracts and also did not use an outside service provider. Insurance costs decreased $40,000 in 2017 compared to 2016
due to reduced directors’ and officers’ insurance costs. Travel costs decreased $2,000 in 2017 as compared with the same period of 2016, due to reduced travel associated with conferences and new business travel costs. Other costs decreased $6,000 in 2017 as compared to 2016.
Loss from Operations
The resulting effect on these changes in gross profits, operations expenses, and selling, general and administrative expenses was a decrease in loss from operations in 2017. For the year ended December 31, 2017, we had a loss from operations of $721,000 compared with a loss from operations of $873,000 for the year ended December 31, 2016, a decrease of $152,000.
Interest Expense
Interest expense was $141,000 and $333,000 for the year ended December 31, 2017 and 2016, respectively, a decrease of $192,000. This is due to a decrease in the amount of the discount recognized by Kevin Schewe, in 2017 as compared to 2016, related to convertible loans made to the Company during 2017 and 2016.
Other Expense
We recorded other expense of $9,000 for the year ended December 31, 2017 and $27,000 for the same period in 2016. Other expense was recorded in 2017 and 2016 primarily due to a decrease in the fair value of our minority interest in AEG.
Other Income
We recorded no other income for the year ended December 31, 2017 compared with $32,000 for the same period in 2016.
In 2016, we reversed royalty expense no longer owed to VGE of $16,000, that was accrued on our Balance Sheet at December 31, 2015, as a result of a new Global Supply, License, and Commercialization Agreement we entered into with VGE and Guangzhou Inter-Pacific Arts Corp. effective March 28, 2016 which eliminated any past claims either party had with each other, among other things as explained in Commitments and Contingencies footnote. In addition, we recorded $16,000 of other income in 2016 related to a forfeitable deposit we received on a collaborative agreement with a customer for its Giant King Grass.
Liquidity and Capital Resources
Our net loss for the year ended December 31, 2017 was $871,000. Non-cash expenses totaled $353,000 for the year ended December 31, 2017 primarily due to stock options expense, stock compensation expense, amortization of debt discount and loss on minority interest. Changes in operating assets and liabilities accrued $128,000 of cash in 2017. Net cash used by operating activities for operations was $160,000 for the year ended December 31, 2017.
We have incurred significant losses from operations, resulting in an accumulated deficit of $54,319,000 at December 31, 2017. We expect such losses to continue. However, on December 31, 2012, we entered into a Loan Agreement with Director Kevin Schewe whereby Dr. Schewe agreed to fund us up to $1,000,000 over a five-year period. Schewe completed the funding of $1,000,000 on January 13, 2016. On January 25, 2016, Schewe entered into a new Loan Agreement whereby he agreed to fund us an additional $300,000 over a one-year period. Schewe completed the funding of $300,000 on November 9, 2016. On November 30, 2016, we entered into a Loan Agreement with our former CEO Haris Basit whereby Mr. Basit agreed to fund us up to $100,000 over a two-year period. On February 23, 2017, we entered into a Loan Agreement with Dr. Schewe whereby Dr. Schewe agreed to fund us up to $100,000 over a two-year period. On July 25, 2017, we entered into a Loan Agreement with Dr. Carl Kukkonen, our CTO, whereby Dr. Kukkonen agreed to fund us up to $25,000 over a two-year period.
We expect to continue as a going concern, however no assurance can be given that Dr. Schewe, Mr. Basit or Dr. Kukkonen will continue to fund us or that sales contracts will be obtained in the future, or if obtained, that such contracts will be profitable or generate cash for us. We received $80,000, $47,500 and $11,500 from Dr. Schewe, Mr. Basit, and Dr. Kukkonen, respectively, related to these Loan Agreements for the year ended December 31, 2017. Other non-related investors also purchased $5,000 of unregistered shares of our common stock. Without proceeds from additional equity financings, future revenues from its Giant King Grass, or loans from Dr. Schewe, Mr. Basit or Dr. Kukkonen, we could not continue as a going concern.
As of April 2, 2018, we had $5,000 remaining availability under Dr. Schewe’s note, $16,025 remaining availability under Mr. Basit’s note and $13,500 remaining availability under Dr. Kukkonen’s note. We expect contracts related to Giant King Grass, loans from Dr. Schewe, Mr. Basit and Dr. Kukkonen, and occasional direct purchases of stock from investors to fund the operations of the Company for the foreseeable future.
Based upon our cash requirements for our plan of operations and our current dividend policy of investing any available cash back into our operations, we do not plan to distribute any cash to our shareholders.
Contractual Obligations
There are no long-term contractual obligations.
Employment Agreements
Effective July 10, 2015, we entered into a two-year employment agreement with Haris Basit, our former CEO of the Company. Mr. Basit will receive $120,000 per annum and be entitled to a bonus as determined by our Board of Directors and reimbursement for out-of-pocket expenses in the course of his employment. Additionally, Mr. Basit is to receive 20 business days paid leave per year. On July 10, 2015, we agreed to issue Mr. Basit 25,000,000 stock options at fair market value based on the closing price of our common stock as traded on the OTC Market as of July 10, 2015. These stock options are vested immediately but otherwise shall be subject to the terms of the 2015 option plan. Additionally, we agreed to issue Mr. Basit 18,750,000 stock options to be issued every three months (quarterly) over the term of his employment agreement which runs from July 10, 2015 through July 9, 2017, with the first issuance on October 10, 2015, at fair market value based on the closing price of our common stock as traded on the OTC Market on the date of each grant. Stock options shall vest immediately upon each issuance and shall be otherwise subject to the terms of the 2015 option plan. In the case of a change of control of the Company, the issuance schedule shall be accelerated by one year. Stock options shall have an exercise term of ten years from date of issuance, not to exceed the expiration date of the 2015 option plan. Mr. Basit’s employment agreement expired on July 10, 2017 and was not renewed.
Effective October 1, 2016, we entered into one-year employment agreements with Carl Kukkonen. Dr. Kukkonen serves as Chief Technology Officer of the Company. Dr. Kukkonen will receive a salary of $84,000 per annum. He will also be entitled to customary insurance and health benefits, and reimbursement for out-of-pocket expenses in the course of his employment. Dr. Kukkonen is to receive 20 business days paid leave per year. Additionally, Dr. Kukkonen will be awarded a bonus of 10% of the gross revenue we generate up to a maximum of $100,000.
The employment agreement for Dr. Kukkonen expired on September 30 and was not renewed. Dr. Kukkonen remains our Chief Technology Officer.
Inflation and Seasonality
We have not experienced material inflation during the past five years. Seasonality has historically not had a material effect on our operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2017.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is not required of smaller reporting companies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements to be provided in this Annual Report on Form 10-K are included following Part IV, Item 15, commencing on page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to ensure that information required to be disclosed in ourSecurities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our
management, including its Principal Executive Officer/Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Principal Executive Officer/Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.
Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective.
Limitations on the Effectiveness of Internal Controls
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or all fraud. Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements, due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns may occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risk.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report. During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. This rule defines internal control over financial reporting as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, 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 or procedures may deteriorate.
With the participation of the Chief Executive Officer/Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on this evaluation, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2017, as the result of a material weakness. The material weakness results from significant deficiencies in internal control that collectively constitute a material weakness.
A significant deficiency is a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight of the registrant's financial reporting. We had the following material weakness at December 31, 2017:
•
We have a lack of proper segregation of duties.
•
Our internal control structure lacks multiple levels of review and oversight.
Remediation of Deficiencies and Material Weaknesses
We are unable to remedy the material weaknesses present in our internal controls until we are able to hire additional employees, so that we may then introduce checks and balances on internal controls. We have put systems in place to deal with the revenue recognition deficiencies which include: having persuasive evidence that an arrangement exists in the form of a signed agreement, the price is fixed and determinable by having a purchase order signed by our customer and the company, written confirmation that goods or services have been delivered. The collectability aspect of revenue recognition will be met when we establish a collection history with our customers.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a)
Executive Officers
The following table sets forth our executive officers, their ages and the positions held by them. Our named executive officers as of December 31, 2017 include our Chief Executive Officer/Chief Financial Officer and our Chief Technology Officer.
Kevin L. Schewe, MD. Dr. Schewe has been our CEO/CFO since July 10, 2017. He was appointed to the Board of Directors on January 19, 2012 as an independent director. He has served as Chairman of the Board of Directors since October 1, 2012. Dr. Schewe is a Board-Certified Radiation Oncologist and a Fellow of the American College of Radiation Oncology. Dr. Schewe has devoted his 27-year medical career and practice in the fight against cancer. He currently serves as Medical Director of Radiation Oncology at the Red Rocks Medical Center in Golden, Colorado. The Red Rocks Radiation Oncology Center is co-owned by Dr. Schewe and HealthONE, the Colorado Division of Hospital Corporation of America (HCA) which is the largest private operator of healthcare facilities in the world and listed on the New York Stock Exchange. Dr. Schewe has also developed a premium line of skin care and cosmetic products designed to help naturally heal, protect, repair and subsequently maintain not only the damaged skin of cancer patients, but also individuals who have experienced skin damage resulting from aging, dryness, UV exposure, other illnesses, and environmental pollution. These products are manufactured and sold by Dr. Schewe’s company Elite Therapeutics. Dr. Schewe received his Bachelor of Arts Degree in Biology at the University of Missouri and his medical degree at the University of Missouri School of Medicine.
Carl Kukkonen. Dr. Kukkonen is the Chief Technology Officer and Director of VIASPACE Inc. since 2005. He had been the Chief Executive Officer and Director of VIASPACE Green Energy Inc. since October 2008. On July 10, 2016, Dr. Kukkonen’s title changed from CEO to Chief Technology Officer (“CTO”) after the Company hired Mr. Haris Basit to be the CEO of the Company. He was the Co-founder and Chief Executive Officer of ViaSpace Technologies LLC (predecessor of VIASPACE Inc.) from 1998 to 2005. Previously, he served as CEO and director of SpectraSensors, Inc. and ViaLogy Corp., spun-off former subsidiaries of VIASPACE Inc.; and Direct Methanol Fuel Cell Corporation and Ionfinity LLC, previous subsidiaries of VIASPACE Inc. Dr. Kukkonen served as the Director of the Center for Space Microelectronics Technology and Manager of Supercomputing at the Caltech NASA Jet Propulsion Laboratory from 1984 to 1998. From 1977 to 1984, he was the Principal Research Engineer at Ford Motor Company. Dr. Kukkonen has a B.S. in physics from the University of California at Davis and an M.S. and Ph.D. in physics from Cornell University. He was also a Post-doctoral fellow at Purdue University.
(b)
Directors
Our directors are as follows:
Haris Basit. Mr. Basit was the Chief Executive Officer and Director of VIASPACE Inc. from July 10, 2016 to July 10, 2017 and was appoint Vice Chairman on July 10, 2017. He co-founded Almaden Energy Group (AEG), LLC which partners with VIASPACE to grow Giant King Grass in the United States for animal feed. Since 2012, Mr. Basit has been providing Corporate Strategy Consulting to senior executives of publicly traded companies to help identify new growth opportunities and partnerships. Mr. Basit currently serves on a technical advisory committee to UNOS, a private, non-profit organization that manages the nation’s organ transplant system. He was a consultant to Liebman and Associates, the premier clean energy lobbying firm in Washington, DC. He has provided entrepreneurship mentoring for University of California Berkeley MBA students. He started his career as a Staff Engineer at IBM moving on to became a Manager at Rockwell International, a Manager at Bell Labs, Vice President of Business Development for OEA International and then Founder/CEO of both Multigig, Inc. and Mobius Power, LLC. He received his MSEE from the University of Illinois, Urbana-Champaign in 1986. He also earned a BSEE from University of Illinois, Urbana-Champaign in 1984.
Carl Kukkonen - See background in Item 9 (a) under Executive Officers
Angelina Galiteva. Director Since: April 28, 2006. Committee Memberships of Company: Member of the Compensation Committee, Member of the Corporate Governance and Nominating Committee. Independent Director: Yes. Principal Occupations for the last five years: Angelina Galiteva was appointed by California’s Governor Jerry Brown and subsequently approved by the State Senate to the California Independent System Operator Corporation Board of Governors. The Independent System Operator is responsible for the reliable operation of the electrical grid in the state of California and for the efficient integration of the 33% Renewable Portfolio Standard mandate. Ms. Galiteva is also a Principal at NEOptions, Inc., a renewable energy and new technology product design and project development firm. Her industry experience includes serving as Executive Director of the Los Angeles Department of Water and Power and head of its Green LA, Environmental Affairs and New Product Development Organization. While at the municipal utility, she was responsible for strategic positioning and the environmental compliance departments. Her career includes working with the California ISO and Power Exchange on their initial launches and she also worked as a power analyst for the New York Power Authority. Ms. Galiteva works to advance the use of renewable energy and distributed energy technologies worldwide. In the non-government organization (NGO) arena, she is the founder of the Renewables 100 Policy Institute and also serves as the Chairperson for the World Council for Renewable Energy. Both organizations are dedicated to the successful deployment of renewable energy technologies and the policies that support them on a global scale. Ms. Galiteva graduated from Pace University School of Law with a Juris Doctor degree and an LL.M. degree in Environmental and Energy Law. She specialized in electric utility strategic policy analysis and decision making focusing on pending industry transition and integration of renewable energy technologies in the utility mix.
Kevin L. Schewe, MD. - See background in Item 9 (a) under Executive Officers
Family Relationships
There are no family relationships between or among any of the current directors, executive officers or persons we nominated or charged to become directors or executive officers.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has, during the past five years:
•
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
•
had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;
•
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; or
•
been found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
•
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:.
(i)
any federal or state securities or commodities law or regulation;
(ii)
any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
(iii)
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
•
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. (covering stock, commodities or derivatives exchanges, or other SROs).
Section 16(a) Beneficial Ownership Reporting Compliance
Not applicable.
Code of Ethics
We adopted a code of ethics that applies to its principal: executive officers, financial officer, accounting officer or controller, or persons performing similar functions. The text of our code of ethics is available on our website, www.viaspace.com. A copy of our code of ethics may be obtained free of charge by contacting us at the address or telephone number listed on the cover page hereof.
Committees of the Board of Directors
Audit Committee. On October 20, 2005, our BOD established an Audit Committee. Our Audit Committee has the authority to retain and terminate the services of our independent accountants, reviews annual financial statements, considers matters relating to accounting policy and internal controls and reviews the scope of annual audits. We do not currently have an independent member of the BOD serving as the audit committee’s financial expert that meets the definition under Item 401(e) of Regulation S-K. The Audit Committee held no meetings in 2017.
Compensation Committee. On October 20, 2005, our BOD established a Compensation Committee. Our Compensation Committee reviews, approves and makes recommendations regarding our compensation policies, practices and procedures to ensure that legal and fiduciary responsibilities of the BOD are carried out and that such policies, practices and procedures contribute to our success. The Compensation Committee is responsible for the determination of the compensation of our chief executive officer, and shall conduct its decision-making process with respect to that issue without the chief executive officer present. The Compensation Committee held no meetings in 2017.
Governance and Nominating Committee. On October 20, 2005, our BOD established a Governance and Nominating Committee. This committee’s role is to make recommendations to the full BOD as to the size and composition of the BOD and its committees, and to evaluate and make recommendations as to potential candidates. The Governance and Nominating Committee may consider candidates recommended by shareholders as well as from other sources such as other directors or officers, third party search firms or other appropriate sources. For all potential candidates, the Governance and Nominating Committee may consider all factors it deems relevant, such as a candidate’s personal integrity and sound judgment, business and professional skills and experience, independence, knowledge of the industry in which we operate, possible conflicts of interest, diversity, the extent to which the candidate would fill a present need on the BOD, and concern for the long-term interests of the shareholders. In general, persons recommended by shareholders will be considered on the same basis as candidates from other sources. The Governance and Nominating Committee held no meetings in 2017.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the annual compensation paid by us to Mr. Haris Basit, the principal executive officer, until July 10, 2017, and our executive officers who were paid more than $100,000 per annum. Other than the officers listed, no other officer had total compensation during either of the previous two years of more than $100,000. The Named Executive Officers are our current Chief Executive Officer, our former Chief Executive Officer up to July 2017 and our Chief Technology Officer.
SUMMARY COMPENSATION TABLE
(1)
Column (f) represents the dollar amount recognized as compensation expense for financial statement reporting purposes for each year under FASB ASC Topic 718, Share-Based Payment, and not an amount paid to or realized by the Named Executive Officer.
Assumptions used in the calculation of this amount are included in the footnotes to our audited financial statements. There can be no assurance that the amounts determined by FASB ASC Topic 718 will ever be realized.
(2)
In 2014-September, 2017, Dr. Kukkonen’s health insurance coverage was reimbursed to him directly in cash, which amount is included above in column g.
(3)
Dr. Kukkonen deferred a portion of his 2009, 2010 and 2011 stock awards and is entitled to the following unregistered shares of Company common stock at December 31, 2016: 11,195,707 shares for deferred 2009 compensation; 8,467,939 shares for deferred 2010 compensation; and 24,730,678 shares for deferred 2011 compensation. These shares have not been issued yet.
(4)
Mr. Basit resigned as Chief Executive Officer on July 10, 2017 and was replaced by Dr. Schewe who is not receiving any compensation for services as the Chief Executive Officer.
Narrative Disclosure to Summary Compensation Table
Employment Agreements and Arrangements
Effective July 10, 2015, we entered into a two-year employment agreement with Haris Basit, our former CEO. Mr. Basit received $120,000 per annum and was entitled to a bonus as determined by our Board of Directors and reimbursement for out-of-pocket expenses in the course of his employment. Additionally, Mr. Basit received 20 business days paid leave per year. Mr. Basit’s employment agreement expired on July 10, 2017 and was not renewed.
On July 10, 2015, we agreed to issue Mr. Basit 25,000,000 stock options at fair market value based on the closing price of our common stock as traded on the OTC Market as of July 10, 2015. These stock options are vested immediately but otherwise shall be subject to the terms of the 2015 option plan. Additionally, we agreed to issue Mr. Basit 18,750,000 stock options to be issued every three months (quarterly) over the term of his employment agreement which runs from July 10, 2015 through July 9, 2017, with the first issuance on October 10, 2015, at fair market value based on the closing price of our common stock as traded on the OTC Market on the date of each grant. Stock options shall vest immediately upon each issuance and shall be otherwise subject to the terms of the 2015 option plan. In the case of a change of control of the Company, the issuance schedule shall be accelerated by one year. Stock options shall have an exercise term of ten years from date of issuance, not to exceed the expiration date of the 2015 option plan.
Effective October 1, 2016, we entered into one-year employment agreements with Carl Kukkonen. Dr. Kukkonen serves as Chief Technology Officer of the Company. Dr. Kukkonen will receive a salary of $84,000 per annum. He will also be entitled to customary insurance and health benefits, and reimbursement for out-of-pocket expenses in the course of his employment. Dr. Kukkonen is to receive 20 business days paid leave per year. Additionally, Dr. Kukkonen will be awarded a bonus of 10% of the gross revenue generated by the Company up to a maximum of $100,000.
Stock Option Grants
The following table provides information on stock options granted in 2017 to each of our Named Executive Officers. There can be no assurance that the Grant Date Fair Value of Stock and Option Awards will ever be realized.
VIASPACE INC.
GRANTS OF PLAN-BASED AWARDS
(1)
Options allow the grantee to purchase a share of VIASPACE common stock for the fair market value of a share of VIASPACE Common Stock on the grant date. Options above vested immediately. If a grantee’s employment is terminated, options that are then vested expire within three months of termination and unvested options expire immediately.
(2)
Represents the aggregate FASB ASC Topic 718 values of options granted during the year. There can be no assurance that the options will ever be exercised (in which case no value will be realized by the executive) or that the value on exercise will equal the FASB ASC Topic 718 value.
Outstanding Equity Awards at Fiscal Year End
The following table shows the number of equity awards held by our Named Executive Officers on December 31, 2017.
VIASPACE INC.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
DECEMBER 31, 2017
There were no shares of our common stock acquired during 2017 upon the exercise of the options.
Director Compensation
The following chart summarizes the annual compensation for our non-employee directors during 2017.
Director Compensation
(1)
Column (d) represents the dollar amount recognized as compensation expense for financial statement reporting purposes for 2017 under FASB ASC Topic 718, and not an amount paid to or realized by the Director. The amount shown includes all awards granted. Assumptions used in the calculation of this amount are included in our financial statement footnotes. There can be no assurance that the amounts determined by FASB ASC Topic 718 will ever be realized.
Narrative Disclosure to Director Compensation Table
Compensation of Non-Employee Directors
During 2017, no stock options were granted nor cash compensation paid to non-employee directors.
Retirement Plans
We do not have any retirement plans at December 31, 2017.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of April 2, 2018 by (i) each person who beneficially owns more than 5% of all outstanding shares of our common stock, (ii) each director and the executive officer identified below, and (iii) all directors and executive officers as a group. The mailing address for each person identified in this table is 344 Pine Street, Santa Cruz, CA 95062.
(a)
Includes only options that become exercisable on or before May 31, 2018 and excludes options that become exercisable after such date.
(b)
The percent of Common Stock owned is calculated using the sum of the number of shares of Common Stock owned as of April 2, 2018 and the number of options of the beneficial owner that are exercisable on or before May 31, 2018 divided by the sum of the number of shares of Common Stock outstanding as of April 2, 2018 and the number of options of the beneficial owner that are exercisable on or before May 31, 2018.
(c)
Dr. Kukkonen deferred a portion of his 2009, 2010 and 2011 salary and is entitled to 44,394,324 unregistered shares of Company common stock which is not included in the number of shares beneficially owned since they have not been issued yet.
(d)
Mr. Chang is a former director of the Company, President of VIASPACE Green Energy Inc. and CEO of IPA BVI and IPA China, all former subsidiaries of the Company. Shares shown include those owned by Mr. Chang directly and shares held by Changs LLC, the Chang Family Foundation, and Inter Pacific Arts Corporation (an entity controlled by Mr. Chang).
Equity Compensation Plans
The following table summarizes information about the options and warrants under our equity plans as of the close of business on December 31, 2017:
Equity Compensation Plan Information
Our current stock option plans (the “Plans”) are explained in detail in the footnotes to the accompanying financial statements and provide for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock and other awards to our employees, officers, directors or consultants.
Our BOD, with assistance from the executive officers of the Company, administers the Plans, selects the individuals to whom options will be granted, determines the number of options to be granted, and the term and exercise price of each option. Stock options granted pursuant to the terms of each of the Plans generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of the grant for incentive stock options (110% of the fair market value on the date of the grant for employees that own 10% or more of Company stock). In the case of non-qualified stock options, the exercise price shall not be less than 85% of fair market value on the date of the grant. The term of the options granted under the Plans cannot be greater than 10 years. Options vest at varying rates for employees, directors and consultants.
Changes in Control Arrangements
No change in control arrangements existed at December 31, 2017.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Other than as listed below, we have not been a party to any significant transactions, proposed transactions, or series of transactions, and in which, to our knowledge, any of our directors, officers, five percent beneficial security holders, or any member of the immediate family of the foregoing persons has had or will have a direct or indirect material interest.
Due to Dr. Carl Kukkonen
We have a payable of $689,000, at December 31, 2017 and $640,000 at December 31, 2016 owed to Dr. Carl Kukkonen, CTO. Of the amount owed to Dr. Kukkonen, there is a cash component totaling $185,000 and a common stock component totaling $504,000. Dr. Kukkonen deferred a portion of his 2009, 2010 and 2011 stock awards and is entitled to the following unregistered shares of our common stock at December 31, 2017: 11,195,707 shares for deferred 2009 compensation; 8,467,939 shares for deferred 2010 compensation; and 24,730,678 shares for deferred 2011 compensation. These shares have not been issued yet.
Loan Agreement with Dr. Carl Kukkonen
Effective July 25, 2017, we entered into a Loan Agreement with CTO Dr. Carl Kukkonen whereby Dr. Kukkonen agreed to loan up to $25,000 to us over a two-year period based on our requests. Each individual loan will accrue interest at 8% per annum. Each note would mature on the first anniversary of the issuance date of such note. Each note is convertible at Dr. Kukkonen’s request, into a fixed number of shares of our common stock based on the closing price of our common stock for the twenty trading days prior to the issuance of the loan, less an 80% discount. The Loan Agreement states that the Dr. Kukkonen will not convert any loan into a number of shares that would exceed the number of available authorized common shares calculated as of the date of the conversion. As a result, the conversion feature is not deemed to be a derivative instrument subject to bifurcation.
Loan Agreement with Dr. Kevin Schewe
Effective September 30, 2012, we entered into a Loan Agreement with Director Kevin Schewe whereby Dr. Schewe agreed to loan up to $1 million to us over a five-year period based on our requests. The loans would be evidenced by a Secured Convertible Note. Each individual loan will accrue interest at 6% per annum and are secured by all our assets. Each note would mature on the second anniversary of the issuance date of such note. Each note is convertible at Dr. Schewe’s request, into a fixed number of shares of our common stock based on the closing price of our common stock for the twenty trading days prior to the issuance of the loan, less an 80% discount. In connection with the separation from VGE on September 30, 2012, Dr. Schewe was granted an irrevocable proxy that permits him to vote the Preferred Share, giving him the majority shareholder vote. Five years after the separation, Dr. Schewe has transferred the Preferred Share. As the controlling shareholder of the Company he has the ability to increase the number of authorized shares without additional shareholder approval. As such, if the outstanding balance on the loan was convertible into more shares than we have authorized, he has the ability to increase the authorized shares. As a result, the conversion feature is not deemed to be a derivative instrument subject to bifurcation. Schewe completed the funding of $1,000,000 on January 13, 2016 with a funding of $5,000.
On January 25, 2016, Schewe entered into a new Loan Agreement whereby he agreed to fund us an additional $300,000 over a one-year period. From January 14, 2016 through November 9, 2016, Dr. Schewe made loans of $300,000 to us and completed the funding. Including the loan of $5,000 on January 13, 2016, we recorded a discount on the loans of $300,000 as a result of a beneficial conversion feature, which will be amortized over the term of the note on a straight-line basis, which approximates the effective interest method. During 2016, Dr. Schewe converted loans totaling $305,000 into 655,714,285 common shares of the Company. At the time of the conversions, the company recorded the discount as additional interest expense.
On February 23, 2017, the Company entered into a Loan Agreement with Dr. Schewe whereby Dr. Schewe agreed to fund the Company up to $100,000 over a two-year period. From February 23, 2017 through August 15, 2017, Dr. Schewe made loans of $80,000 to the Company. The company recorded a discount on the loans of $80,000 as a result of the beneficial conversion feature, which will be amortized over the term of the note on a straight-line basis, which approximates the effective interest method. During 2017, Dr. Schewe converted loans totaling $80,000 into 242,278,404 common shares of the Company. At the time of the conversions, we recorded the discount as additional interest expense.
There are no loans outstanding at December 31, 2017 and December 31, 2016. As of December 31, 2017, we had remaining availability under the note of $20,000.
Loan Agreement with Haris Basit
Effective November 30, 2016, we entered into a Loan Agreement with Director Haris Basit whereby Mr. Basit agreed to loan up to $100,000 to the Company over a two-year period based on requests from the Company. Each individual loan will accrue interest at 8% per annum. Each note would mature on the first anniversary of the issuance date of such note. Each note is convertible at Mr. Basit’s request, into a fixed number of shares of our common stock based on the closing price of our common stock for the twenty trading days prior to the issuance of the loan, less an 80% discount. The Loan Agreement states that the Mr. Basit will not convert any loan into a number of shares that would exceed the number of available authorized common shares calculated as of the date of the conversion. As a result, the conversion feature is not deemed to be a derivative instrument subject to bifurcation.
From November 30, 2016 through December 31, 2016, Mr. Basit made loans of $25,000 to us. We recorded a discount on the loans of $25,000 as a result of a beneficial conversion feature, which will be amortized over the term of the note on a straight-line basis, which approximates the effective interest method. During 2016, Mr. Basit converted loans totaling $25,000 into 66,312,997 common shares of the Company. At the time of the conversions, we recorded the discount as additional interest expense.
From January 27, 2017 through August 15, 2017 Mr. Basit made loans of $47,500 to us. We recorded a discount on the loans of $47,500 as a result of the beneficial conversion feature and also amortized over the term of the note on a straight-line basis. During 2017, Mr. Basit converted loans totaling $47,500 into 140,958,681 of our common shares. At the time of the conversions, we recorded the discount as additional interest expense.
As of December 31, 2017, we had remaining availability under the note of $27,500.
Almaden Energy Group, LLC
On April 13, 2015, we entered into a Giant King Grass supply contract with Almaden Energy Group, LLC. (“AEG”). AEG is developing an animal feed project in the United States for the domestic and global market. We granted AEG a license to grow Giant King Grass only for animal feed, nursery and research purposes anywhere within the 48 contiguous United States. AEG is permitted to sell Giant King Grass anywhere in the world with the exception of the State of Hawaii. AEG will provide funding to us in return for us
providing seedlings and technical support and training to establish the initial 25 acres plantation in Imperial County, CA. Twenty-six acres were leased of which 20 acres were planted in August 2015.
At December 31, 2016, we have an 18.75% equity ownership in AEG and one designated board seat provided that we maintain an equity ownership position greater than 5%. We recorded $6,000 and $14,000 as of December 31, 2017 and December 31, 2016, respectively, as an Investment in AEG on its Balance Sheet under equity method of accounting (see Note 3). We recorded other expense of approximately $27,000 during the year ended December 31, 2016, and $8,000 during the year ended December 31, 2017, related to a loss on investment in AEG.
Director Independence
Our BOD has determined that it currently has one member who qualifies as “independent” as the term is used in Item 407 of Regulation S-K as promulgated by the SEC and in the listing standards of The Nasdaq Stock Market, Inc. - Marketplace Rule 4200. The independent director is: Ms. Angelina Galiteva.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of Independent Auditors
Consistent with SEC policies regarding auditor independence, our Audit Committee has the responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.
Prior to engagement of the independent auditor for the next year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the Audit Committee for approval.
1.
Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.
2.
Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
3.
Tax services include all services performed by the independent auditor's tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.
4.
Other Fees are those associated with services not captured in the other categories.
Prior to the engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted and the Audit Committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditor.
The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Number
Description of Exhibit
3.1 (i)
Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 1.1 of the Company’s SB-2 Registration Statement filed on November 21, 2003).
3.2 (i)
Amendment to Articles of Incorporation dated August 3, 2005 (incorporated by reference to Item 5.03 of the Company’s Form 8-K filed on August 9, 2005).
3.3 (i)
Amendment to Articles of Incorporation dated May 9, 2005 (incorporated herein by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
3.4 (i)
Amendment to Articles of Incorporation dated June 1, 2005 (incorporated herein by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
3.5 (i)
Articles of Merger between Global-Wide Publication Ltd. and ViaSpace Technologies LLC dated June 17, 2005 (incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
3.6 (i)
Amendment to Articles of Incorporation dated October 12, 2006 (incorporated herein by reference to Item 5.03 of the Company’s Form 8-K filed October 17, 2006).
3.7 (i)
Amendment to Articles of Incorporation dated December 7, 2007 (incorporated herein by reference to Exhibit 10.3 of the Company’s Form 8-K filed December 13, 2007).
3.8 (i)
Amendment to Articles of Incorporation dated February 14, 2008 (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed February 21, 2008).
3.9 (i)
Amendment to Articles of Incorporation dated December 31, 2013 (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed January 3, 2014).
3.9 (j)
Amendment to Articles of Incorporation dated August 5, 2015 (incorporated herein by reference to Exhibit 3.1 of the Company’s Form 8-K filed August 10, 2015).
3.9 (k)
Amendment to Articles of Incorporation dated December 8, 2015 (incorporated herein by reference to Exhibit 3.1 of the Company’s Form 8-K filed December 10, 2015).
3.1 (ii)
Bylaws of the Company (incorporated herein by reference to Exhibit 2.1 of the Company’s SB-2 Registration Statement filed on November 21, 2003).
3.2 (ii)
Amendment to Bylaws of the Company December 7, 2007 (incorporated herein by reference to Exhibit 10.4 of the Company’s Form 8-K filed December 13, 2007).
3.3
Certificate of Designation dated May 14, 2010 (incorporated herein by reference to Exhibit 3.1 of the Company’s Form 8-K filed May 18, 2010).
10.1
VIASPACE Inc. 2005 Stock Incentive Plan dated October 20, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on October 26, 2005).
10.1A
Amendment to 2005 Stock Incentive Plan dated May 18, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on May 23, 2006).
10.1B
Amendment to 2005 Stock Incentive Plan dated December 7, 2007 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on December 13, 2007).
10.1C
Amendment to 2005 Stock Incentive Plan dated February 14, 2008 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on February 21, 2008).
10.1D
Amendment to 2005 Stock Incentive Plan dated February 14, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K/A filed on April 4, 2008).
10.1E
VIASPACE Inc. 2015 Stock Incentive Plan dated August 5, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on August 10, 2015).
Exhibit
Number
Description of Exhibit
10.2
VIASPACE Inc. 2005 Non-Employee Director Option Plan dated October 20, 2005 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on October 26, 2005).
10.3
VIASPACE Inc. 2006 Non-Employee Director Option Plan dated February 13, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on February 16, 2006).
10.4
Compensation Package for Outside Members of the Board Directors of VIASPACE Inc. dated October 20, 2005 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on October 26, 2005).
10.5
2006 Compensation Package for Outside Members of the Board of Directors of VIASPACE Inc. dated February 13, 2006 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on February 16, 2006).
10.6
Service and Support Agreement dated February 28, 2008 between the Company and E2 Corp. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 5, 2008).
10.7
Securities Purchase Agreement dated October 21, 2008 by and among the Registrant, VIASPACE Green Energy Inc., Sung Hsien Chang and China Gate Technology Co. Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 27, 2008).
10.8
Shareholders Agreement dated October 21, 2008 by and among the Registrant, VIASPACE Green Energy Inc., and Sung Hsien Chang (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed October 27, 2008).
10.9
Amendment to Securities Purchase Agreement dated June 22, 2009 by and among the Registrant, VIASPACE Green Energy Inc., Sung Hsien Chang and China Gate Technology Co., Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 26, 2009).
10.10
Amendment No. 2 to Securities Purchase Agreement dated August 21, 2009 by and among the Registrant, VIASPACE Green Energy Inc., Sung Hsien Chang and China Gate Technology Co., Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 25, 2009).
10.11
Amendment No. 3 to Securities Purchase Agreement dated August 21, 2009 by and among the Registrant, VIASPACE Green Energy Inc., Sung Hsien Chang and China Gate Technology Co., Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed November 16, 2009).
10.12
Amendment No. 4 to Securities Purchase Agreement dated November 21, 2009 by and among the Registrant, VIASPACE Green Energy Inc. and Sung Hsien Chang (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 23, 2009).
10.13
Amendment No. 5 to Securities Purchase Agreement dated November 25, 2009 by and among the Registrant, VIASPACE Green Energy Inc. and Sung Hsien Chang (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 30, 2009).
10.14
Amendment No. 6 to Securities Purchase Agreement dated December 18, 2009 by and among the Registrant, VIASPACE Green Energy Inc. and Sung Hsien Chang (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed December 21, 2009).
10.15
Share Purchase Agreement dated April 16, 2010 by and among the Registrant and Sung Hsien Chang (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 20, 2010).
10.16
Amendment to Share Purchase Agreement dated May 14, 2010 by and among Registrant, Sung Chang, certain other VGE shareholders and the other parties set forth therein (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 18, 2010).
10.17
Security Agreement dated May 14, 2010 by and between the Registrant and Sung Chang (incorporated herein by reference to Exhibit 10.2 of the Company’s Form 8-K filed May 18, 2010).
10.18
Stock Pledge Agreement dated May 14, 2010 by and between the Registrant and Sung Chang (incorporated herein by reference to Exhibit 10.3 of the Company’s Form 8-K filed May 18, 2010).
10.19
Registration Rights Agreement dated May 14, 2010 by and between the Registrant and Chang (incorporated herein by reference to Exhibit 10.6 of the Company’s Form 8-K filed May 18, 2010).
10.2
Secured Promissory Note dated May 14, 2010 by and between Registrant and Chang (incorporated herein by reference to Exhibit 10.7 of the Company’s Form 8-K filed May 18, 2010).
Exhibit
Number
Description of Exhibit
10.20A
Amendment to Secured Promissory Note dated May 16, 2011 by and between Registrant and Chang (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 10-Q filed May 16, 2011).
10.21
Recapitalization Agreement dated September 30, 2012 by and among the Registrant, VIASPACE Green Energy Inc. (“VGE”), Sung Chang, Changs LLC, Carl Kukkonen and Stephen Muzi (incorporated by reference to Exhibit 10.01 of the Company’s Form 8-K filed October 5, 2012).
10.22
Supply License and Commercialization Agreement dated September 30, 2012 by and among the Registrant and VGE (incorporated by reference to Exhibit 10.02 of the Company’s Form 8-K filed October 5, 2012).
10.23
Loan Agreement dated September 30, 2012 by and between the Registrant and Dr. Kevin Schewe (incorporated by reference to Exhibit 10.03 of the Company’s Form 8-K filed October 5, 2012).
10.24
Form of Secured Convertible Note (incorporated by reference to Exhibit 10.04 of the Company’s Form 8-K filed October 5, 2012).
10.24A
Amendment to Form of Secured Convertible Note dated October 28, 2014 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed October 31, 2014).
10.25
Security Agreement dated September 30, 2012 by and between the Registrant and Dr. Kevin Schewe (incorporated by reference to Exhibit 10.05 of the Company’s Form 8-K filed October 5, 2012).
10.26
Mutual Limited Release dated September 30, 2012 by and among the Registrant, VGE, Schewe, Kukkonen, Muzi, Chang and the other parties listed therein (incorporated by reference to Exhibit 10.06 of the Company’s Form 8-K filed October 5, 2012).
10.27
Lock-up Agreement dated September 30, 2012 by and among VIASPACE and the other parties listed therein (incorporated by reference to Exhibit 10.07 of the Company’s Form 8-K filed October 5, 2012).
10.28
Kukkonen Employment Agreement dated October 10, 2012 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 11, 2012).
10.28A
Kukkonen Employment Agreement dated October 9, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 11, 2013).
10.28B
Kukkonen Employment Agreement dated October 28, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 31, 2014).
10.28C
Amendment to Kukkonen Employment Agreement dated June 22, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 23, 2015).
10.28D
Kukkonen Employment Agreement dated October 8, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 14, 2015).
10.28E
Kukkonen Employment Agreement dated May 13, 2016 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed May 17, 2016).
10.28F
Kukkonen Employment Agreement dated October 24, 2016 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed October 25, 2016).
10.29
Muzi Employment Agreement dated October 10, 2012 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed October 11, 2012).
10.29A
Muzi Employment Agreement dated October 9, 2013 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed October 11, 2013).
10.29B
Muzi Employment Agreement dated October 28, 2014 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed October 31, 2014).
10.29C
Muzi Employment Agreement dated September 24, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 30, 2015).
10.29D
Muzi Employment Agreement dated October 24, 2016 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed October 25, 2016).
Exhibit
Number
Description of Exhibit
10.30
Kukkonen, Muzi and Galiteva Lock Up Agreement dated October 10, 2012 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed October 11, 2012).
10.31
Senior Secured Convertible Promissory Note dated October 23, 2012 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 23, 2012).
10.32
Senior Secured Convertible Promissory Note dated November 27, 2012 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 29, 2012).
10.33
Senior Secured Convertible Promissory Note dated December 31, 2012 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed December 31, 2012).
10.34
Senior Secured Convertible Promissory Note dated January 30, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed January 31, 2013).
10.35
Senior Secured Convertible Promissory Note dated February 25, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed February 25, 2013).
10.36
Senior Secured Convertible Promissory Note dated March 28, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 1, 2013).
10.37
Senior Secured Convertible Promissory Note dated April 25, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 30, 2013).
10.38
Senior Secured Convertible Promissory Note dated May 29, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 31, 2013).
10.39
Senior Secured Convertible Promissory Note dated June 24, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 25, 2013).
10.40
Senior Secured Convertible Promissory Note dated July 29, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 31, 2013).
10.41
Senior Secured Convertible Promissory Note dated August 28, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 29, 2013).
10.42
Senior Secured Convertible Promissory Note dated September 24, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 26, 2013).
10.43
Senior Secured Convertible Promissory Note dated October 25, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 28, 2013).
10.44
Senior Secured Convertible Promissory Note dated January 29, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed January 31, 2014).
10.45
Senior Secured Convertible Promissory Note dated February 26, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed February 27, 2014).
10.46
Senior Secured Convertible Promissory Note dated March 19, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 19, 2014).
10.47
Senior Secured Convertible Promissory Note dated April 23, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 24, 2014).
10.48
Senior Secured Convertible Promissory Note dated May 21, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 22, 2014).
10.49
Senior Secured Convertible Promissory Note dated June 20, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 20, 2014).
10.50
Senior Secured Convertible Promissory Note dated July 18, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 18, 2014).
10.51
Senior Secured Convertible Promissory Note dated August 20, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 20, 2014).
Exhibit
Number
Description of Exhibit
10.52
Senior Secured Convertible Promissory Note dated September 23, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 23, 2014).
10.53
Senior Secured Convertible Promissory Note dated October 29, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 31, 2014).
10.54
Senior Secured Convertible Promissory Note dated November 6, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 6, 2014).
10.55
Senior Secured Convertible Promissory Note dated December 9, 2014 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed December 9, 2014).
10.56
Senior Secured Convertible Promissory Note dated January 21, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed January 22, 2015).
10.57
Senior Secured Convertible Promissory Note dated February 19, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed February 19, 2015).
10.58
Senior Secured Convertible Promissory Note dated March 25, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 25, 2015).
10.59
Senior Secured Convertible Promissory Note dated April 14, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 15, 2015).
10.60
Subscription Agreement between Registrant and Haris Basit dated April 14, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 17, 2015).
10.61
Subscription Agreement between Registrant and Asad Cochinwala dated April 14, 2015 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed April 17, 2015).
10.62
Senior Secured Convertible Promissory Note dated May 26, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 26, 2015).
10.63
Senior Secured Convertible Promissory Note dated June 25, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 25, 2015).
10.64
Haris Basit Employment Agreement dated July 10, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 15, 2015).
10.65
Senior Secured Convertible Promissory Note dated July 14, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 14, 2015).
10.66
Senior Secured Convertible Promissory Note dated July 28, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 29, 2015).
10.67
Subscription Agreement between Registrant and Lajpat Rai dated July 31, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 5, 2015).
10.68
Senior Secured Convertible Promissory Note dated August 19, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 19, 2015).
10.69
Subscription Agreement between Registrant and Lajpat Rai dated August 20, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 21, 2015).
10.70
Senior Secured Convertible Promissory Note dated September 2, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 8, 2015).
10.71
Senior Secured Convertible Promissory Note dated September 25, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 25, 2015).
10.72
Subscription Agreement between Registrant and Mark Monahan dated October 6, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 8, 2015).
10.73
Senior Secured Convertible Promissory Note dated November 9, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 10, 2015).
Exhibit
Number
Description of Exhibit
10.74
Subscription Agreement between Registrant and Dr. Carl Kukkonen dated November 9, 2015 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed November 10, 2015).
10.75
Senior Secured Convertible Promissory Note dated November 23, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 25, 2015).
10.76
Senior Secured Convertible Promissory Note dated December 22, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed December 23, 2015).
10.77
Subscription Agreement between Registrant and Dr. Carl Kukkonen dated December 22, 2015 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed December 23, 2015).
10.78
Senior Secured Convertible Promissory Note dated January 13, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed January 20, 2016).
10.79
Loan Agreement dated January 25, 2016 by and between the Registrant and Dr. Kevin Schewe (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed January 28, 2016).
10.80
Security Agreement dated January 25, 2016 by and between the Registrant and Dr. Kevin Schewe (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed January 28, 2016).
10.81
Form of Secured Convertible Note (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed January 28, 2016).
10.82
Senior Secured Convertible Promissory Note dated January 25, 2016 (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed January 28, 2016).
10.83
Senior Secured Convertible Promissory Note dated February 26, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 2, 2016).
10.84
Subscription Agreement between Registrant and Dr. Carl Kukkonen dated February 26, 2016 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 2, 2016).
10.85
Subscription Agreement between Registrant and Almaden Energy Group, LLC dated February 25, 2016 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed March 2, 2016).
10.86
Senior Secured Convertible Promissory Note dated March 28, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 28, 2016).
10.87
Subscription Agreement between Registrant and Dr. Carl Kukkonen dated March 28, 2016 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 28, 2016).
10.88
Global Supply, License, and Commercialization Agreement dated as of March 28, 2016 by and among the Registrant, VIASPACE Green Energy Inc. and Guangzhou Inter-Pacific Arts Corp. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 8, 2016).
10.89
Senior Secured Convertible Promissory Note dated April 12, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 14, 2016).
10.90
Senior Secured Convertible Promissory Note dated May 4, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 10, 2016).
10.91
Senior Secured Convertible Promissory Note dated May 12, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 17, 2016).
10.92
Senior Secured Convertible Promissory Note dated May 31, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 3, 2016).
10.93
Senior Secured Convertible Promissory Note dated June 9, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 14, 2016).
10.94
Senior Secured Convertible Promissory Note dated July 14, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 19, 2016).
Exhibit
Number
Description of Exhibit
10.95
Senior Secured Convertible Promissory Note dated July 26, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 1, 2016).
10.96
Senior Secured Convertible Promissory Note dated August 26, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 30, 2016).
10.97
Senior Secured Convertible Promissory Note dated September 19, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 22, 2016).
10.98
Senior Secured Convertible Promissory Note dated October 24, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 25, 2016).
10.99
Senior Secured Convertible Promissory Note dated November 9, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 14, 2016).
10.100
Loan Agreement dated November 30, 2016 by and between the Registrant and Haris Basit (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed December 2, 2016).
10.101
Form of Secured Convertible Note (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed December 2, 2016).
10.102
Senior Secured Convertible Promissory Note between Registrant and Haris Basit dated November 30, 2016 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed December 2, 2016).
10.103
Senior Secured Convertible Promissory Note between Registrant and Haris Basit dated January 27, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed February 1, 2017).
10.104
Loan Agreement dated January 23, 2017 by and between the Registrant and Dr. Kevin Schewe (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 1, 2017).
10.105
Form of Senior Secured Convertible Promissory Note between Registrant and Dr. Kevin Schewe (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 1, 2017).
10.106
Senior Secured Convertible Promissory Note between Registrant and Dr. Kevin Schewe dated February 24, 2017 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed March 1, 2017).
10.107
Senior Secured Convertible Promissory Note between Registrant and Mr. Haris Basit dated February 24, 2017 (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed March 1, 2017).
10.108
Senior Secured Convertible Promissory Note between Registrant and Dr. Kevin Schewe dated March 27, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 31, 2017).
10.109
Senior Secured Convertible Promissory Note between Registrant and Mr. Haris Basit dated March 29, 2017 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 31, 2017).
10.110
Senior Secured Convertible Promissory Note between Registrant and Dr. Kevin Schewe dated April 25, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 1, 2017).
10.111
Senior Secured Convertible Promissory Note between Registrant and Mr. Haris Basit dated April 25, 2017 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed May 1, 2017).
10.112
Senior Secured Convertible Promissory Note between Registrant and Dr. Kevin Schewe dated June 1, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 7, 2017).
10.113
Senior Secured Convertible Promissory Note between Registrant and Mr. Haris Basit dated June 1, 2017 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed June 7, 2017).
10.114
Senior Secured Convertible Promissory Note between Registrant and Dr. Kevin Schewe dated June 19, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 23, 2017).
10.115
Senior Secured Convertible Promissory Note between Registrant and Mr. Haris Basit dated June 19, 2017 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed June 23, 2017).
10.116
Senior Secured Convertible Promissory Note between Registrant and Dr. Kevin Schewe dated July 25, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 31, 2017).
Exhibit
Number
Description of Exhibit
10.117
Senior Secured Convertible Promissory Note between Registrant and Mr. Haris Basit dated July 25, 2017 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed July 31, 2017).
10.118
Senior Secured Convertible Promissory Note between Registrant and Dr. Carl Kukkonen dated July 25, 2017 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed July 31, 2017).
10.119
Loan Agreement dated July 25, 2017 by and between the Registrant and Dr. Carl Kukkonen (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed July 31, 2017).
10.120
Form of Senior Secured Convertible Promissory Note between Registrant and Dr. Carl Kukkonen (incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K filed July 31, 2017).
10.121
Senior Secured Convertible Promissory Note between Registrant and Dr. Kevin Schewe dated August 15, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 18, 2017).
10.122
Senior Secured Convertible Promissory Note between Registrant and Mr. Haris Basit dated August 15, 2017 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed August 18, 2017).
14.1
* VIASPACE Inc. Code of Ethics for Senior Executive Officers and Senior Financial Officers dated October 20, 2005
* List of subsidiaries of Company.
31.1
* Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2
* Certification of President and Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
* Certification of the Company’s Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
* XBRL Instance Document
101.SCH
* XBRL Schema Document
101.CAL
* XBRL Calculation Linkbase Document
101.DEF
* XBRL Definition Linkbase Document
101.LAB
* XBRL Label Linkbase Document
101.PRE
* XBRL Presentation Linkbase Document
!
* Filed herewith
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on April 2, 2018.
VIASPACE INC.
(Registrant)
By:
/s/ KEVIN SCHEWE
Name: Kevin Schewe
Title: Chief Executive Officer
(Principal Executive Officer and Director)
By:
/s/ KEVIN SCHEWE
Name: Kevin Schewe
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ KEVIN SCHEWE
Chief Executive Officer
April 2, 2018
Kevin Schewe
(Principal Executive Officer and Director)
/s/ KEVIN SCHEWE
Chief Financial Officer
April 2, 2018
Kevin Schewe
(Principal Financial and Accounting Officer)
/s/ CARL KUKKONEN
Chief Technology Officer and Director
April 2, 2018
Carl Kukkonen
/s/ ANGELINA GALITEVA
Director
April 2, 2018
Angelina Galiteva
/s/ HARIS BASIT
Director
April 2, 2018
Haris Basit
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VIASPACE INC.
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Balance Sheets
Statements of Operations
Statements of Shareholders’ Deficit
Statements of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
VIASPACE, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Viaspace, Inc. (the “Company”) as of December 31, 2016 and 2017, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2016
Houston, Texas
April 2, 2018
VIASPACE INC.
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
VIASPACE INC.
STATEMENTS OF OPERATIONS
* Less than $0.01 per common share.
The accompanying notes are an integral part of the financial statements.
VIASPACE INC.
STATEMENTS OF SHAREHOLDERS’ DEFICIT
YEARS ENDED DECEMBER 31, 2017 AND 2016
The accompanying notes are an integral part of the financial statements.
VIASPACE INC.
STATEMENTS OF CASH FLOWS
Supplemental Disclosure of Non-Cash Activities for 2016:
•
The Company issued 100,000,000 shares of the Company’s common stock for future funding source but was not recorded to prepaid expenses since the shares were not cleared at December 31, 2016.
•
The Company cleared 30,000,000 shares of the Company’s common stock for future services valued at $149,000.
•
The Company recorded a discount on the loans from Dr. Schewe and Haris Basit of 330,000 as a result of a beneficial conversion feature. During 2016, Dr. Schewe and Haris Basit converted loans of $330,000 to equity.
Supplemental Disclosure of Non-Cash Activities for 2017:
•
The Company cleared 50,000,000 shares of the Company’s common stock for future services valued at $75,000.
•
The Company recorded a discount on the loans from Dr. Kevin Schewe, Dr. Carl Kukkonen and Haris Basit of $139,000 as a result of a beneficial conversion feature. During 2017, Dr. Kevin Schewe, Dr. Carl Kukkonen and Haris Basit converted loans of $139,000 to equity.
The accompanying notes are an integral part of the financial statements.
VIASPACE INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - VIASPACE Inc. (“we”, “us”, “VIASPACE”, or the “Company”) was founded in July 1998. Its business involves renewable energy and is based on biomass, in particular our license to a dedicated energy crop with the trademark “Giant King® Grass” (“GKG”). Through a sublicense for GKG we obtained from Guangzhou Inter-Pacific Arts Corp., a Chinese wholly-owned foreign enterprise registered in Guangdong province ("IPA China") which owned by VIASPACE Green Energy Inc. (“VGE”), we are able to commercialize GKG throughout the world, except for the People’s Republic of China (“China”) and the Republic of China (“Taiwan”).
GKG can be burned in 100% biomass power plants to generate electricity; made into pellets that can be burned together with coal to reduce carbon emissions from existing power plants; generate bio methane through anaerobic digestion, and can be used as a feedstock for low carbon liquid biofuels for transportation, biochemicals and bio plastics. Cellulosic ethanol, bio butanol and other liquid cellulosic biofuels, do not use corn or other food sources as feedstock. GKG can also be used as animal feed. GKG and other plants absorb and store carbon dioxide from the atmosphere as they grow. When they are burned, they release the carbon dioxide back into the atmosphere, but it is the same carbon dioxide that was removed from the atmosphere, and so this process is carbon neutral. Small amounts of fossil fuel are used by the farm equipment, transportation of GKG and fertilizer, so that the overall process of growing and burning GKG probably has some net carbon dioxide emissions, but much lower emissions than burning coal or other fossil fuels directly to create the same amount of energy. GKG has been independently tested by customers and been shown to have excellent energy content, high bio methane production, and the cellulosic sugar content needed for biofuels and biochemicals.
Going Concern - The Company has incurred significant losses from operations, resulting in an accumulated deficit of $54,319,000. The Company expects such losses to continue. On January 25, 2016, Schewe entered into a new Loan Agreement whereby he agreed to fund the Company an additional $300,000 over a one-year period. Dr. Schewe completed the funding of $300,000 on November 9, 2016. On November 30, 2016, the Company entered in a Loan Agreement with CEO Haris Basit whereby he agreed to fund the Company $100,000 over a two-year period. On February 23, 2017, the Company entered into a Loan Agreement with Dr. Schewe whereby Dr. Schewe agreed to fund the Company up to $100,000 over a two-year period. On July 25, 2017, the Company entered into a Loan Agreement with Dr. Carl Kukkonen, CTO of the Company, whereby Dr. Kukkonen agreed to fund the Company up to $25,000 over a two-year period. The Company expects loans from Dr. Schewe, Mr. Basit and Dr. Kukkonen and revenue generated from future contracts using the sublicense it has for Giant King Grass to fund operations for the foreseeable future. However, no assurance can be given that Dr. Schewe, Mr. Basit and Dr. Kukkonen will continue to fund the Company or that sales contracts will be obtained in the future, or if they are obtained, that they will be profitable. Accordingly, there continues to be substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any other adjustments that might result from the outcome of these uncertainties.
Basis of Presentation - The accompanying audited financial statements of the Company were prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for financial information and with Securities and Exchange Commission (“SEC”) instructions to Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Certain reclassifications were made to the December 31, 2016 financial statements to conform to the December 31, 2017 financial statement presentation.
Use of Estimates in the Preparation of the Financial Statements - The preparation of financial statements, in conformity with US 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 date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents as of December 31, 2017 or 2016.
Income Taxes - Income taxes are accounted for under the asset and liability approach, where deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. An uncertain tax position is considered effectively settled on completion of an examination by a taxing authority if certain other conditions are satisfied. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense, net and other income (expense), net, respectively.
Revenue Recognition - The Company has four revenue models for GKG: 1. grass plantation integrated with a power plant or processing facility such as a pellet mill under company or joint venture control; 2. contract plantation establishment, support and licensing for a customer that owns and operates the plantation and power plant; 3. collaborative agreements to establish a test plot in the customer’s location to determine that GKG grows sufficiently for the customer to use in their particular application; and 4. consulting agreement services for customers considering the establishment of a grass plantation in their particular country or location. Revenue earned from collaborative agreements is comprised of negotiated payments for the operations of the test plots. Deferred revenue represents payments received which are related to future performance. For the year ending December 31, 2017 and 2016, the Company has recognized revenues under revenue models 3 and 4.
With regard to revenue recognition in connection with agreements that include multiple deliverables, management reviews the relevant terms of the agreements and determines whether such deliverables should be accounted for as a single unit of accounting in accordance with FASB ASC 605-25, Multiple-Element Arrangements. If it is determined that the items do not have stand-alone value, then such deliverables are accounted for as a single unit of accounting and any payments received pursuant to such agreement, including any upfront or development milestone payments and any payments received for support services, will be deferred and included in deferred revenue within our balance sheet until such time as management can estimate when all of such deliverables will be delivered, if ever. Management reviews and reevaluates such conclusions as each item in the arrangement is delivered and circumstances of the development arrangement change.
Major Customers - A relatively small number of customers account for a significant percentage of the Company’s sales. Three customers represented 100% of revenues for the year ending December 31, 2016 and four customers represented 100% of revenues for the year ending December 31, 2017.
Stock Based Compensation - VIASPACE has a stock-based compensation plan. The Company has adopted the accounting and disclosure provisions of “Share-Based Payments”, codified in FASB ASC Topic 718, using the modified prospective application transition method. FASB ASC Topic 718 requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values using the modified prospective transition method. FASB ASC Topic 718 requires companies to estimate the fair value of share-based payment awards to employees and directors on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite services periods on a straight-line basis in the Company’s Statements of Operations. The Company accounts for equity instruments issued to consultants and vendors in exchange for goods and services in accordance with the provisions of FASB ASC Topic 505-50, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services” and “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other than Employees”. The measurement date for the fair value of the equity instruments issued is determined at the earlier of: (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with FASB ASC Topic 505-50, an asset acquired for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of the fully vested, non-forfeitable common stock issued for future consulting services as prepaid expenses in its balance sheet.
Fair Value of Financial Instruments - Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date.
Under the provisions of the Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”), there are three levels of inputs that may be used to measure fair value:
Level 1. Quoted prices in active markets for identical assets or liabilities. The Company had no Level 1 assets or liabilities during any period presented.
Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. The Company had no Level 2 assets or liabilities during any period presented.
Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. The Company had no Level 3 assets or liabilities during any period presented.
The carrying value of cash and cash equivalents, prepaid expenses, trade payables and accrued expenses, payables to related parties and deferred revenue approximates fair value due to the short period of time to maturity.
Net Income (Loss) Per Share - The Company computes net loss per share in accordance with “Earnings per Share”, codified in FASB ASC Topic 260. Under the provisions of this topic, basic and diluted net loss per share is computed by dividing the net loss available to common shareholders for the period by the weighted average number of shares of common stock outstanding during the period.
Research and Development - The Company did not record any research and development activities in 2017 or 2016. If we do in the future, it will be expensed as incurred.
Joint Venture - The Company entered into a joint venture with Corporacion Agricola, S.A. (“Agricorp”), a Nicaragua company, and formed Energia Reino Verde, S.A. (“ERV”) on January 30, 2014. The Company was granted an equity interest of 50% of outstanding shares of ERV for $0 on December 9, 2014. At December 31, 2017 and December 31, 2016, the net assets of ERV were immaterial. The Company has accounted for their investment under the equity method and at December 31, 2017 and December 31, 2016, the investment was recorded at $0. Future plans are that ERV will own and operate a 12 MW biomass power plant that will be co-located with the 834 hectare (2,060 acre) Giant King ® Grass plantation project in Nicaragua.
Recent Accounting Standards - In May 2014, the FASB issued guidance regarding the accounting for revenue from contracts with customers. The FASB’s Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), was issued in three parts: (a) Section A, “Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40),” (b) Section B, “Conforming Amendments to Other Topics and Subtopics in the Codification and Status Tables,” and (c) Section C, “Background Information and Basis for Conclusions.”
ASU 2014-09 provides a framework for addressing revenue recognition issues and, upon its effective date, will replace almost all pre-existing revenue recognition guidance in current U.S. generally accepted accounting principles (GAAP) (i.e., legacy GAAP), including industry-specific guidance and the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin Topic 13, Revenue Recognition (which is also part of legacy GAAP for public entities). The core principle underlying the guidance in ASC 606, which is included in ASC 606-10-10-2, is to “recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” Implementation must occur no later than the quarter and year beginning January 1, 2018, for public entities (i.e., public business entities and certain not-for-profit entities and employee benefit plans) with a calendar year end. The Company expects the revenue impact of this change to be minimal since the Company currently adheres to revenue recognition when performance obligations on contracts are satisfied.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern (ASU 2014-15). The guidance in ASU 2014-15 sets forth management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management's plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and annual periods thereafter. Early application is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
Subsequent Events - We have evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, we are not aware of any events or transactions (other than those disclosed in Note 11) that occurred subsequent to the balance sheet date but prior to filing that would require recognition or disclosure in our financial statements.
NOTE 2 - PREPAID EXPENSES
The Company has entered into agreements with certain of its consultants and vendors whereby the Company issued restricted shares of common stock in exchange for services to be provided to the Company. The Company has engaged a third party provider to pay certain expenses of the Company on behalf of the Company. As compensation for the payment of these expenses on behalf of the Company, the Company pays the provider in shares of common stock equivalent to the expense paid plus a fee equal to 15% of the expense paid. In 2016, the Company issued 100,000,000 shares of the Company’s common stock for future services valued at $225,000. The Company cleared 30,000,000 shares of the Company’s common stock for future services valued at $149,000. In 2017, the Company cleared 50,000,000 shares of the Company’s common stock for future services valued at $75,000. As of December 31, 2017 and December 31, 2016, included in prepaid expenses for this third-party provider is $22,000 and $13,000, respectively, for shares of stock issued to the provider in excess of amounts paid on the Company’s behalf. For the year ended December 31, 2017 and 2016, the Company recorded $75,000 and $149,000, respectively, of stock related expenses.
Other prepaid expenses (non-stock related) were $2,000 and $1,000 at December 31, 2017 and December 31, 2016, respectively.
Note 3 - Investment in Almaden Energy Group
The investment in Almaden Energy Group, LLC (“AEG”) represents an 18.75% interest in that company’s outstanding member units which became effective April 15, 2015. The Company originally accounted for this investment by the cost method because the member units of that company is unlisted and the criteria for using the equity method of accounting are not satisfied as the Company is not able to exercise significant influence over AEG. However, upon the Company hiring the CEO of AEG as its CEO in July 2015, the Company changed the method of its investment in AEG to the equity method. Dividends are recognized in income when declared and totaled $0 for the year ended December 31, 2016 and the year ended December 31, 2017. The carrying value of the investment is $6,000 and $14,000 as of December 31, 2017 and December 31, 2016, respectively. We recorded other expense of approximately $27,000 during the year ended December 31, 2016, and $8,000 during the year ended December 31, 2017, related to a loss on investment in AEG. See Note 9 for additional related party transactions with AEG.
NOTE 4 - STOCK OPTIONS, WARRANTS AND ISSUED STOCKS
The fair value of each stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for United States Treasury debt securities at a maturity near the term remaining on the option. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the historical volatility of the Company’s stock price. The expected life of an option grant is based on management’s estimate as no options have been exercised in the Plan to date. The Company calculated a forfeiture rate for employees and directors based on historical information. A forfeiture rate of 0% is used for options granted to employees, directors and consultants. The fair value of each option grant to employees, directors and consultants is calculated by the Black-Scholes method and is recognized as compensation expense on a straight-line basis over the vesting period of each stock option award.
For stock options issued to employees, director and consultants for 2017 and 2016, the fair value was estimated at the date of grant using the following range of assumptions:
The following table summarizes activity for employees and directors in the Company’s Plan and New Plan at December 31, 2017:
During 2017, stock options totaling 68,750,000 were granted. At December 31, 2017, there were 449,797,000 shares available for future grant. The Plan recorded $365,000 of compensation expense for employees and director stock options in 2017. At December 31, 2017, there was $0 of unrecognized compensation costs related to non-vested share-based compensation arrangements under the Plan. At December 31, 2017, the fair value of options vested for employees and directors was $257,000. There were no options exercised during 2017.
During 2017, the Company issued 3,000,000 unregistered shares of common stock to a consultant for services provided to the Company. These share issuances were recorded at approximately $3,000 which is the fair market value determined by the price of the Company’s common stock trading on the OTC Markets on the date of grant.
NOTE 5 - CONVERTIBLE NOTES PAYABLE TO RELATED PARTY
Loan Agreement with Dr. Kevin Schewe
Effective September 30, 2012, the Company entered into a Loan Agreement with CEO Kevin Schewe whereby Dr. Schewe agreed to loan up to $1 million to the Company over a five-year period based on requests from the Company. The loans would be evidenced by a Secured Convertible Note. Each individual loan will accrue interest at 6% per annum and are secured by all assets of the Company. Each note would mature on the second anniversary of the issuance date of such note. Each note is convertible at Dr. Schewe’s request, into a fixed number of shares of the Company’s common stock based on the closing price of the Company’s common stock for the twenty trading days prior to the issuance of the loan, less an 80% discount. In connection with the separation from VGE on September 30, 2012, Dr. Schewe was granted an irrevocable proxy that permits him to vote the Preferred Share, giving him the majority shareholder vote. As the controlling shareholder of the Company he has the ability to increase the number of authorized shares without additional shareholder approval. As such, if the outstanding balance on the loan was convertible into more shares than the Company has authorized, he has the ability to increase the authorized shares. As a result, the conversion feature is not deemed to be a derivative instrument subject to bifurcation. Schewe completed the funding of $1,000,000 on January 13, 2016 with a funding of $5,000.
On January 25, 2016, Schewe entered into a new Loan Agreement whereby he agreed to fund the Company an additional $300,000 over a one-year period. From January 14, 2016 through November 9, 2016, Dr. Schewe made loans of $300,000 to the Company and completed the funding. Including the loan of $5,000 on January 13, 2016, the Company recorded a discount on the loans of $300,000 as a result of a beneficial conversion feature, which will be amortized over the term of the note on a straight-line basis, which approximates the effective interest method. During 2016, Dr. Schewe converted loans totaling $305,000 into 655,714,285 common shares of the Company.
On February 23, 2017, the Company entered into a Loan Agreement with Dr. Schewe whereby Dr. Schewe agreed to fund the Company up to $100,000 over a two-year period. During 2017, Dr. Schewe converted loans totaling $80,000 into 242,278,404 common shares of the Company. At the time of the conversions, the company recorded the discount as additional interest expense. There are no loans outstanding at December 31, 2017 and December 31, 2016. As of December 31, 2017, the Company had remaining availability under the note of $20,000.
Loan Agreement with Haris Basit
Effective November 30, 2016, the Company entered into a Loan Agreement with Director Haris Basit whereby Mr. Basit agreed to loan up to $100,000 to the Company over a two-year period based on requests from the Company. Each individual loan will accrue interest at 8% per annum. Each note would mature on the first anniversary of the issuance date of such note. Each note is convertible at Mr. Basit’s request, into a fixed number of shares of the Company’s common stock based on the closing price of the Company’s
common stock for the twenty trading days prior to the issuance of the loan, less an 80% discount. The Loan Agreement states that the Mr. Basit will not convert any loan into a number of shares that would exceed the number of available authorized common shares calculated as of the date of the conversion. As a result, the conversion feature is not deemed to be a derivative instrument subject to bifurcation.
From November 30, 2016 through December 31, 2016, Mr. Basit made loans of $25,000 to the Company. The Company recorded a discount on the loans of $25,000 as a result of a beneficial conversion feature, which will be amortized over the term of the note on a straight-line basis, which approximates the effective interest method. During 2016, Mr. Basit converted loans totaling $25,000 into 66,312,997 common shares of the Company.
During 2017 Mr. Basit made loans of $47,500 to the Company. The Company recorded a discount on the loans of $47,500 as a result of a beneficial conversion feature, which will be amortized over the term of the note on a straight line basis, which approximates the effective interest method. During 2017, Mr. Basit converted loans totaling $47,500 into 140,958,681 common shares of the Company. At the time of the conversions, the company recorded the discount as additional interest expense. There are $0 loans outstanding at December 31, 2017. As of December 31, 2017, the Company had remaining availability under the note of $27,500.
Loan Agreement with Dr. Carl Kukkonen
On July 25, 2017, the Company entered into a Loan Agreement with Dr. Carl Kukkonen, CTO of the Company, whereby Dr. Kukkonen agreed to fund the Company up to $25,000 over a two-year period.
During 2017 Dr. Kukkonen made loans of $11,500 to the Company. The Company recorded a discount on the loans of $11,500 as a result of a beneficial conversion feature, which will be amortized over the term of the note on a straight line basis, which approximates the effective interest method. During 2017, Dr. Kukkonen converted loans totaling $11,500 into 41,218,638 common shares of the Company. At the time of the conversions, the company recorded the discount as additional interest expense. There are $0 loans outstanding at December 31, 2017. As of December 31, 2017, the Company had remaining availability under the note of $13,500.
NOTE 6 - SHAREHOLDERS’ DEFICIT
Preferred Stock
At December 31, 2017 and 2016, the number of authorized shares of the Company’s preferred stock was 10,000,000. The par value of the preferred stock is $0.0001.
At December 31, 2017 and December 31, 2016, there is one share of Series A Preferred Stock outstanding.
Common Stock
As of January 1, 2018, the number of authorized shares of the Company’s common stock was 3,900,000,000. The par value of the common stock is $0.0001.
During 2017 and 2016, the Company issued 0 and 100,000,000 unregistered restricted shares of common stock respectively to a funding source so that the funding source can pay for future expenses on behalf of the Company. The shares are issued to the funding source to cover the amount of future expenses plus a fee of 15% of such future expenses. At the time of the future payment of the expenses incurred by the Company, the common stock and additional paid in capital are credited for the amount of the future payment plus 15%. During the period ending December 31, 2017, 50,000,000 shares of common stock were recorded as cleared to the funding source for $75,000 credited to common stock and additional paid in capital.
On January 9, 2017, the Company entered into Subscription Agreement with a non-related party to purchase 5,586,592 shares of common stock at a purchase price of $0.000895 per share for $5,000. The purchase price per share was equal to 50% of the average closing price of the Company's common stock for the 20 trading days immediately preceding the date of the investment. The Company issued such common stock on the date of such Subscription Agreement.
During 2017, the Company issued 3,000,000 shares of common stock to a consultant of the Company. The shares were issued at fair market value of approximately $3,000 on the date of the issuance.
During 2017, the Company issued 242,278,404 shares of common stock to CEO Kevin Schewe as he converted loans into shares of common stock as allowed under an agreement he has with the Company as discussed in Note 5. During 2017, the Company issued 140,958,681 shares of common stock to Director Haris Basit as he converted loans into shares of common stock as allowed under an agreement he has with the Company as discussed in Note 5. During 2017, the Company issued 41,218,638 shares of common stock to
CTO Carl Kukkonen as he converted loans into shares of common stock as allowed under an agreement he has with the Company as discussed in Note 5.
There were 3,302,514,447 and 2,819,472,132 shares of common stock outstanding as of December 31, 2017 and December 31, 2016, respectively.
NOTE 7 - INCOME TAX
The Company recorded valuation allowances to fully reserve its deferred tax assets, as management believes it is more likely than not that these assets will not be realized. A Congressional bill was passed in 2017 for tax overhaul which decreased the Federal tax rate from 34% to 21%, effective for tax year beginning after December 31, 2017. The valuation allowance increased by approximately $174,000 for the year ended December 31, 2016 and, due to the tax effect, decreased by $3,645,000 for the year ended December 31, 2017. It is possible that management’s estimates as to the likelihood of realization of its deferred tax assets could change as a result of changes in estimated operating results. Should management conclude that it is more likely than not that these deferred tax assets are, at least in part, realizable, the valuation allowance will be reduced and recognized as a deferred income tax benefit in the statement of operations in the period of change.
The Company is open to tax examination for years ending December 31, 2014 through December 31, 2016. The Company has Federal net operating loss carryovers of approximately $21,185,000 available at December 31, 2017 and State net operating loss carryovers of approximately $20,149,000 available at December 31, 2017. The federal and California net operating losses will begin to expire in 2024 and 2016, respectively. Additionally, the Company has capital loss carryforwards of approximately $13,231,000 available at December 31, 2017, which expire through 2019. Due to the uncertainty surrounding the realization of the capital loss carryforwards in future tax returns, the tax effect of the capital loss carryforwards is not recognized in the income tax provision.
FASB ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. During the years ended December 31, 2017 and 2016, the Company did not recognize any tax liabilities related to uncertain tax positions and does not have a balance for such liabilities as of December 31, 2017.
The Company recognizes accrued interest and penalties, if any, associated with uncertain tax positions as part of the income tax provision. There was no accrued interest or penalties associated with uncertain tax positions recognized in the Company’s balance sheets as of December 31, 2017 and 2016. The Company is subject to income tax in the United States federal jurisdiction and various state jurisdictions and has identified its federal tax return and tax returns in state jurisdictions below as “major” tax filings. These jurisdictions, along with the years still open to audit under the applicable statutes of limitation, are as follows:
The following table reconciles the US statutory rates to the Company’s effective tax rate for 2017 and 2016:
The following are the components of the Company’s deferred tax assets and liabilities at December 31, 2017 and 2016:
NOTE 8 - NET LOSS PER SHARE
The Company computes net loss per share in accordance with FASB ASC Topic 260. Under its provisions, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings would customarily include, if dilutive, potential shares of common stock issuable upon the exercise of stock options and warrants. The dilutive effect of outstanding stock options and warrants is reflected in earnings per share in accordance with FASB ASC Topic 260 by application of the treasury stock method. For the periods presented, the computation of diluted loss per share equaled basic loss per share as the inclusion of any dilutive instruments would have had an antidilutive effect on the earnings per share calculation in the periods presented.
The following table sets forth common stock equivalents (potential common stock) at December 31, 2017 and 2016 that are not included in the loss per share calculation since their effect would be anti-dilutive for the periods indicated:
The following table sets forth the computation of basic and diluted net loss per share for 2017 and 2016, respectively:
*Less than $0.01
NOTE 9 - RELATED PARTY TRANSACTIONS
Included in the Company’s balance sheets at December 31, 2017 and December 31, 2016 are Related Party Payables of $749,000 and $640,000, respectively. The Company has a payable of $749,000, at December 31, 2017 owed to Dr. Carl Kukkonen, CTO and Mr. Haris Basit, Director. Of the amount owed to Dr. Kukkonen, there is a cash component totaling $185,000 and a common stock component totaling $504,000. Dr. Kukkonen deferred a portion of his 2009, 2010 and 2011 stock awards and is entitled to the following unregistered shares of Company common stock at December 31, 2017: 11,195,707 shares for deferred 2009 compensation; 8,467,939 shares for deferred 2010 compensation; and 24,730,678 shares for deferred 2011 compensation. The amount owed to Mr. Basit is cash totaling $60,000. In addition at December 31, 2017 there is Related Party Payables owed to Dr. Kukkonen in the amount of $2,815, to Mr. Basit in the amount of $8,831, and to Mr. Nicholas Stoll, in the amount of $4,500.
At December 31, 2017 and December 31, 2016, the Company also has a royalty payable to VGE of $0 and $0, respectively. On March 28, 2016, the Giant King Grass license with VGE was renegotiated which resulted in the Company not owing VGE any royalties for past revenues recorded by the Company. $16,000 was recorded as other income in the Company’s Statement of Operations for the year ended December 31, 2016.
The Company has loan agreements with CEO Dr. Kevin Schewe, CTO Dr. Carl Kukkonnen and Director Haris Basit which are described in Note5.
On April 13, 2015, the Company entered into a Giant King Grass supply contract with Almaden Energy Group, LLC. (“AEG”). AEG is developing an animal feed project in the United States for the domestic and global market. The Company granted AEG a license to grow Giant King Grass only for animal feed, nursery and research purposes anywhere within the 48 contiguous United States. AEG is permitted to sell Giant King Grass anywhere in the world with the exception of the State of Hawaii. AEG will provide funding to the Company in return for the Company providing seedlings and technical support and training to establish the initial 25 acres plantation in Imperial County, CA. Twenty-six acres were leased of which 20 acres were planted in August 2015. The CEO of AEG was the CEO of the Company. For the year ended December 31, 2017 and 2016, the Company recorded $0 and $22,000, respectively, in revenues from AEG.
At December 31, 2017, the Company has an 18.75% equity ownership in AEG and one designated board seat provided that the Company maintains an equity ownership position greater than 5%. At December 31, 2017, the Company recorded $6,000 as an Investment in AEG on its Balance Sheet under equity method of accounting (see Note 3).
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Leases
The Company currently has no long-term office lease. The Company leased land in San Diego County, California ending September, 2017, where it grew Giant King Grass. Rent and utility expense charged to operations for the year ended December 31, 2017 and December 31, 2016, was $10,000 and $17,000, respectively.
Collaborative Agreements
We are a party to certain collaborative agreements with various entities for the joint operation of test plots to establish that GKG grows well in the area and optimal agronomic practices are developed. These agreements are in the form of development collaborations and licensing agreements. Under these agreements, we have granted rights to grow and use of GKG. In return, we are entitled to receive certain payments for the operations of the test plots and license fees on the harvesting of GKG should it ultimately be commercialized.
All of our collaborative agreements are subject to termination by either party, without significant financial penalty. Under the terms of these agreements, upon a termination we are entitled to reacquire all rights in our technology at no cost and are free to re-license the technology to other collaborative partners.
Revenue earned from collaborative agreements is comprised of negotiated payments for the establishment, evaluation and operations of GKG test plots. Deferred revenue represents customer payments received which are related to future performance. Generally, for collaborative agreements establishing test plots, the Company recognizes revenue only after the Giant King Grass is planted in the customer’s location. Until that time any money received is recorded as deferred revenue. During the year ended December 31, 2017 and 2016, the Company received $0 and $193,000, respectively, in payments under these collaborative agreements. The Company recognized revenue from these collaborative agreements of $0 and $205,000 for the year ended December 31, 2017 and 2016, respectively.
Global Supply, License, and Commercialization Agreement
Executed on April 4, 2016 and effective as of March 28, 2016, the Company, VGE and Guangzhou Inter-Pacific Arts Corp., a Chinese wholly-owned foreign enterprise registered in Guangdong province ("IPA") owned by VGE, entered into the Global Supply, License, and Commercialization Agreement (the "New Agreement").
Prior to the New Agreement, IPA and VGE had entered into a certain Supply and Commercialization Agreement dated September 30, 2012 regarding a license and supply arrangement between IPA and VGE regarding Giant King Grass ("IPA-VGE Agreement"). In turn, VGE and the Company also entered into a certain Supply and Commercialization Agreement dated September 30, 2012 regarding a license and supply arrangement between VGE and the Company regarding Giant King Grass ("VGE-VIASPACE Agreement").
Under the New Agreement, VGE and the Company terminated the VGE-VIASPACE Agreement and IPA directly granted the Company an exclusive, perpetual license to commercialize its intellectual property rights to three (3) types of high yield, non-genetically modified grasses ("Three GK Grasses") throughout the world except Cambodia, People’s Republic of China, Taiwan, Thailand, Myanmar, Malaysia, Laos, Vietnam and Singapore ("VIASPACE Territory"). It and VGE agreed to subordinate the terms of the IPA-VGE Agreement to the terms of the New Agreement. IPA also granted the right to use and market the name "Giant King Grass" and other related names.
The Company would owe royalty payments on the Net Sales of the Three GK Grasses. This license would be sublicenseable in the VIASPACE Territory. IPA held all rights of ownership to the Three GK Grasses. The Company would own any grasses resulting from
any modifications or improvements to the Three GK Grasses. IPA would use commercially reasonable efforts to maintain its intellectual property rights. The Company would use commercially reasonable efforts to commercialize the Three GK Grasses throughout the VIASPACE Territory.
Employment Agreements
Effective July 10, 2015, the Company entered into a two-year employment agreement with Haris Basit, CEO of the Company. Mr. Basit received $120,000 per annum and was entitled to a bonus as determined by the Company’s Board of Directors, as well as reimbursements for out-of-pocket expenses in the course of his employment. Additionally, Mr. Basit was to receive 20 business days paid leave per year. The two year agreement was not renewed in 2017. On July 10, 2015, the Company agreed to issue Mr. Basit 25,000,000 stock options at fair market value based on the closing price of the Company’s common stock as traded on the OTC Market as of July 10, 2015. These stock options are vested immediately but otherwise shall be subject to the terms of the 2015 option plan. Additionally, the Company agreed to issue Mr. Basit 18,750,000 stock options to be issued every three months (quarterly) over the term of his employment agreement which ran from July 10, 2015 through July 9, 2017, with the first issuance on October 10, 2015, at fair market value based on the closing price of the Company’s common stock as traded on the OTC Market on the date of each grant. Stock options vested immediately upon each issuance and are otherwise subject to the terms of the 2015 option plan. Stock options have an exercise term of ten years from date of issuance, not to exceed the expiration date of the 2015 option plan.
On July 25, 2017, the Company announced that effective July 31, 2017, Haris Basit is resigning as CEO of the Company to move to a position leading a Silicon Valley based technology company. Mr. Basit will become Vice-Chairman of the Company’s Board of Directors and thus continue to be involved in the overall strategic direction of the Company. During this transition of leadership, Dr. Kevin Schewe, who is the largest shareholder of the Company and Board Chairman, becomes the acting CEO.
Effective October 1, 2016, the Company entered into one-year employment agreements with Carl Kukkonen and Stephen Muzi. Dr. Kukkonen serves as Chief Technology Officer of the Company and Mr. Muzi served as Chief Financial Officer, Treasurer and Secretary. Dr. Kukkonen received a salary of $84,000 per annum and Mr. Muzi received $64,000 per annum. Each of them were also entitled to customary insurance and health benefits, and reimbursement for out-of-pocket expenses in the course of their employment. Dr. Kukkonen received 20 business days paid leave per year and Mr. Muzi received 10 business days paid leave. Additionally, Dr. Kukkonen was awarded a bonus of 10% of the gross revenue generated by the Company up to a maximum of $100,000. The one-year agreements were not renewed in 2017.
On October 2, 2017, the Company announced that effective September 30, 2017, Stephen Muzi resigned as Chief Financial Officer (CFO) of the Registrant to move to a position with a private company. Dr. Kevin Schewe, largest shareholder, Board Chairman and Acting Chief Executive Officer (CEO), becomes the acting CFO of VIASPACE. Dr. Carl Kukkonen, Co-Founder of VIASPACE, remains in his position as Chief Technology Officer (CTO) and Haris Basit remains in his position as Vice-Chairman of the Registrant Board of Directors.
Litigation
The Company is not party to any material legal proceedings at the present time.
NOTE 11 - SUBSEQUENT EVENTS
On January 16, 2018, Mr. Haris Basit, Director of the Company, advanced $6,500 pursuant to a convertible loan agreement and immediately converted the $6,500 loan into 40,498,442 shares of Company common stock at a conversion price of $0.0001605 per common share.
On January 16, 2018, the Company issued 1,600,000 unregistered shares of common stock to a consultant for services provided to the Company. These share issuances were recorded at approximately $1,000 which is the fair market value determined by the price of the Company’s common stock trading on the OTC Markets on the date of grant.
On February 26, 2018, Dr. Kevin Schewe, CEO of the Company, advanced $15,000 pursuant to a convertible loan agreement and immediately converted the $15,000 loan into 98,039,216 shares of Company common stock at a conversion price of $0.000153 per common share.
On March 3, 2018, Mr. Haris Basit, Director of the Company, advanced $4,975 pursuant to a convertible loan agreement and immediately converted the $4,975 loan into 32,947,020 shares of Company common stock at a conversion price of $0.000151 per common share.
On March 16, 2018, Mr. Haris Basit, Director of the Company, advanced $1,500 pursuant to a convertible loan agreement and immediately converted the $1,500 loan into 9,554,140 shares of Company common stock at a conversion price of $0.000157 per common share.