The accompanying notes are an integral part
of these financial statements.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
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 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 $52,247,000. The Company expects such losses
to continue. However, on September 30, 2012, as discussed in Note 5, the Company entered into a Loan Agreement with Dr. Kevin Schewe,
a member of the Company’s Board of Directors, whereby Dr. Schewe agreed to fund the Company up to $1,000,000 over a five
year period in accordance with such agreement. 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 the Company an additional $300,000 over a one year period. The
Company expects loans from Dr. Schewe 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 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, 2014 financial statements to conform to the December 31, 2015
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, 2015 or 2014.
Accounts Receivable and Allowance
for Doubtful Accounts
–
Trade accounts receivable are presented at face value, net of the allowance for doubtful
accounts. The Company maintains an allowance for doubtful accounts for balances that appear to have specific collection issues.
The collection process is based on the age of the invoice and requires attempted contacts with the customer at specified intervals.
If, after a specified number of days, the Company has been unsuccessful in its collection efforts, a bad debt allowance is recorded
for the balance in question. Delinquent accounts receivable are charged against the allowance for doubtful accounts once uncollectibility
has been determined. The factors considered in reaching this determination are the apparent financial condition of the customer
and the Company’s success in contacting and negotiating with the customer. If the financial condition of the Company’s
customers were to deteriorate, resulting in an impairment of ability to make payments, additional allowances may be required.
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, 2015 and 2014, 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. Five customers represented 100% of
revenues for the year ending December 31, 2015.
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 2015 or 2014. 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, 2015, the net assets of ERV were immaterial. The Company has accounted
for their investment under the equity method and at December 31, 2015, 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 new guidance on the recognition of revenue. The guidance states that an entity should
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. The standard will be effective for annual reporting
periods beginning after December 15, 2016, including interim periods within that reporting period. Our adoption begins with the
first fiscal quarter of fiscal year 2017. Early adoption is not permitted. We are currently evaluating the impact of the adoption
of this accounting standard update on our results of operations or financial position.
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 registered shares of its common stock under an existing registration
statement on Form S-8 as well as unregistered 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 2015, the Company issued 10,000,000 shares of the Company’s
common stock for future services valued at $90,000. As of December 31, 2015 and December 31, 2014, included in prepaid expenses
for this third party provider is $3,000 and $182,000, 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, 2015 and 2014, the Company recorded $272,000 and $293,000,
respectively, of stock related expenses.
Other prepaid expenses (non stock related)
were $66,000 and $68,000 at December 31, 2015 and December 31, 2014, 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, 2015. The carrying value of the investment is $40,000 as of December 31, 2015.
We recorded other income of $84,000 in the Company’s Statements of Operation during the
second quarter of 2015. The company recorded a loss on investment in AEG of $44,000 in the fourth quarter of 2015 due to a
decrease in its fair value. See Note 9 for additional related party transactions with AEG.
NOTE 4 – STOCK OPTIONS, WARRANTS AND ISSUED STOCKS
VIASPACE Inc. 2005 and 2015 Stock Incentive Plans
On October 20, 2005, the BOD of the Company
adopted the 2005 Stock Incentive Plan (the “Plan”) including the 2005 Non-Employee Director Option Program (the “2005
Director Plan”). The Plan is designed to provide additional incentive to employees, directors and consultants of the Company
through awarding incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and other awards.
The Plan was also approved by the holders of a majority of the Company’s common stock. The Plan originally provided for issuance
of up to 28,000,000 shares of the Company’s common stock. On February 13, 2006, the BOD approved the 2006 Non-Employee Director
Option Program (the “2006 Director Plan”) replacing the 2005 Director Plan and the 2006 Director Plan was approved
by the holders of a majority of the Company’s common stock. On July 12, 2006, the Company filed a Form S-8 Registration Statement
with the SEC registering 28,000,000 shares of the Company’s common stock. On February 14, 2008, the BOD and the holders of
a majority of the Company’s common stock approved an amendment to the Plan which increased the maximum aggregate number of
shares which may be issued in the Plan to 99,000,000 shares. On April 30, 2008, the Company filed a Registration Statement on Form
S-8 registering 71,000,000 shares of the Company’s common stock. In addition, effective January 1, 2009 and each January
1 thereafter during the term of the Plan, the maximum number of shares under the Plan are to be increased so that the maximum number
of shares is equivalent to 30% of the total number of shares of common stock issued and outstanding as of the close of business
on the immediately preceding December 31. On February 4, 2009, the Company filed a Registration Statement on Form S-8 registering
146,500,000 shares of the Company’s common stock based on the number of shares of common stock outstanding on December 31,
2008.
On August 5, 2015, the BOD of the Company adopted
the 2015 Stock Incentive Plan (the “New Plan”) reserving 800,000,000 shares of common stock for issuance. The New Plan
is designed to provide additional incentive to employees, directors and consultants of the Company through awarding incentive stock
options, non-statutory stock options, stock appreciation rights, restricted stock and other awards. The Plan was also approved
by the holders of a majority of the Company’s common stock. The Company has not filed a Form S-8 Registration Statement with
the SEC for the New Plan as of December 31, 2015.
The Company’s BOD administers the Plan,
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 the Plans generally cannot be granted with an exercise price
of less than 100% of the fair market value on the grant date. The term of the options granted under the Plan cannot be greater
than 10 years. The vesting term is determined by the BOD.
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 2015 and 2014, the fair value was estimated at the date of grant using the following range of assumptions:
|
|
2015
|
|
|
2014
|
|
Risk free interest rate
|
|
|
1.80% - 2.12%
|
|
|
|
1.97%
|
|
Dividends
|
|
|
0%
|
|
|
|
0%
|
|
Volatility factor
|
|
|
130.65% - 132.00%
|
|
|
|
132.99%
|
|
Expected life
|
|
|
6.67 years
|
|
|
|
6.67 years
|
|
Annual forfeiture rate
|
|
|
0%
|
|
|
|
0%
|
|
The following table summarizes activity for employees and
directors in the Company’s Plan and New Plan at December 31, 2015:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term In Years
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2014
|
|
|
97,408,000
|
|
|
$
|
0.0120
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
165,922,000
|
|
|
|
0.0039
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Cancelled and forfeited
|
|
|
80,100,000
|
|
|
|
0.0140
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
183,230,000
|
|
|
$
|
0.0038
|
|
|
|
9.40
|
|
|
$
|
–
|
|
Exercisable at December 31, 2015
|
|
|
132,874,000
|
|
|
$
|
0.0037
|
|
|
|
9.27
|
|
|
$
|
–
|
|
During 2015, stock options totaling 165,922,000
were granted and 80,100,000 stock options were cancelled. At December 31, 2015, there were 715,047,000 shares available for future
grant. The Plan recorded $433,000 of compensation expense for employees and director stock options in 2015. At December 31, 2015,
there was $156,000 of unrecognized compensation costs related to non-vested share-based compensation arrangements under the Plan
that is expected to be recognized over a weighted average period of approximately one year and nine months. At December 31, 2015,
the fair value of options vested for employees and directors was $306,000. There were no options exercised during 2015.
During 2015, the Company issued 991,009 unregistered
shares of common stock to a consultant for services provided to the Company. These share issuances were recorded at $3,840 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 –
SHORT-TERM AND LONG-TERM DEBT
Loan Agreement with Dr. Kevin Schewe
Effective September 30, 2012, the Company entered
into a Loan Agreement with Director 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 a 50% discount. On August 31, 2015, the Board voted to change the discount that Dr. Schewe will
receive on conversions of loans into common stock from a discount of 50% to a discount of 80%. In connection with the separation
from VGE, 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. 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 1, 2015 through December 31, 2015,
Dr. Schewe made loans of $388,000 to the Company. The Company recorded a discount on the loans of $709,000 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 2015, Dr. Schewe converted loans totaling $388,000 into 321,767,290 common shares of the Company. At the
time of the conversions, the company recorded the discount as additional interest expense. As of December 31, 2015, the Company
had remaining availability under the note of $5,000.
NOTE 6 – SHAREHOLDERS’ DEFICIT
Preferred Stock
At December 31, 2015 and 2014, the number of
authorized shares of the Company’s preferred stock was 10,000,000. The par value of the preferred stock is $0.001. On December
8, 2015, the Company’s board of directors and a majority of its common shareholders approved a resolution to decrease the
par value of the Company’s preferred stock from $0.001 to $0.0001.
On May 14, 2010, the Company 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, the Company issued one share of Series A
Preferred Stock to Mr. Chang related to the acquisition of IPA by VIASPACE and VGE, effectively giving him a controlling interest
in VIASPACE.
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 (discussed
in Note 10) remained exclusive to the Company. Upon the earlier of (i) the expiration of five years or (ii) the date when the Company
reached a market capitalization of at least $50 million, the proxy would be cancelled as the Preferred Share would be transferred
from Chang to Schewe.
At December 31, 2015 and December 31, 2014,
there is one share of Series A Preferred Stock outstanding.
Common Stock
As of January 1, 2015, the number of authorized
shares of the Company’s common stock was 1,800,000,000. On August 7, 2015, the Company’s board of directors and a majority
of its common shareholders approved a resolution to increase authorized common shares from 1,800,000,000 shares to 3,900,000,000
shares. As of January 1, 2015, the par value of common and preferred shares was $0.001. On December 8, 2015, the Company’s
board of directors and a majority of its common shareholders approved a resolution to decrease the par value of the Company’s
common stock from $0.001 to $0.0001. Common shareholders are entitled to one vote for each share held on all matters voted on by
shareholders.
During 2015, the Company issued 10,991,009
unregistered shares of common stock to employees, consultants and vendors for services provided or to be provided to the Company.
These share issuances were recorded at $94,000 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 April 14, 2015, the Company entered into
separate Subscription Agreements with Mr. Haris Basit and Mr. Asad Cochinwala in which each party agreed to purchase 14,285,714
shares of common stock at a purchase price of $0.0035 per share for $50,000. 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 preceeding the date of the investment.
The Company received $50,000 from Mr. Basit and $50,000 from Mr. Cochinwala on April 14, 2015. Mr. Basit became CEO and director
of the Company on July 10, 2015. Mr Basit is also the CEO of Almaden Energy Group (“AEG”), a customer of the Company
as discussed in Note 8. Mr. Cochinwala is CFO of AEG.
On July 31, 2015, the Company entered into
a Subscription Agreement with a private investor to purchase 14,705,882 shares of common stock at a purchase price of $0.0017 per
share for $25,000. 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 preceeding the date of the investment.
On August 20, 2015, the Company entered into
a Subscription Agreement with a private investor to purchase 13,888,889 shares of common stock at a purchase price of $0.0018 per
share for $25,000. 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 preceeding the date of the investment.
On October 6, 2015, the Company entered into
a Subscription Agreement with a private investor to purchase 23,809,524 shares of common stock at a purchase price of $0.0021 per
share for $50,000. 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 preceeding the date of the investment.
On November 9, 2015, the Company entered into
a Subscription Agreement with Dr. Kukkonen, CTO of the Company, to purchase 4,285,714 shares of common stock at a purchase price
of $0.0007 per share for $3,000. The purchase price per share was equal to 20% of the average closing price of the Company's common
stock for the 20 trading days immediately preceeding the date of the investment.
On December 22, 2015, the Company entered into
a Subscription Agreement with Dr. Kukkonen, CTO of the Company, to purchase 15,000,000 shares of common stock at a purchase price
of $0.0004 per share for $6,000. The purchase price per share was equal to 20% of the average closing price of the Company's common
stock for the 20 trading days immediately preceeding the date of the investment.
During 2015, the Company issued 321,767,290
shares of common stock to Director 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.
As of December 31, 2015, there were 1,995,451,343
shares of common stock outstanding.
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.
The valuation allowance increased by approximately $260,000 for the year ended December 31, 2014 and increased by $694,000 for
the year ended December 31, 2015. 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 has Federal net operating loss
carryovers of approximately $20,815,000 available at December 31, 2015 and State net operating loss carryovers of approximately
$20,713,000 available at December 31, 2015. The federal and California net operating losses will begin to expire in 2023 and 2015,
respectively. Additionally, the Company has capital loss carryforwards of approximately $13,231,000 available at December 31, 2015,
which expire through 2018. 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, 2015 and 2014, 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, 2015.
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, 2015 and
2014. 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:
Jurisdiction
|
|
Tax Years
|
Federal
|
|
2012 – 2014
|
California
|
|
2011 – 2014
|
The following table reconciles the US statutory
rates to the Company’s effective tax rate for 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
U.S Statutory rates
|
|
|
34.0%
|
|
|
|
34.0%
|
|
State taxes, net of Federal benefit
|
|
|
5.6%
|
|
|
|
5.6%
|
|
Permanent differences
|
|
|
(1.0%
|
)
|
|
|
(1.2%
|
)
|
Change in Valuation allowance
|
|
|
(38.6%
|
)
|
|
|
(38.4%
|
)
|
Other
|
|
|
–
|
|
|
|
–
|
|
Effective income tax rate
|
|
|
0.0%
|
|
|
|
0.0%
|
|
The following are the components of the Company’s deferred
tax assets and liabilities at December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
8,285,000
|
|
|
$
|
7,746,000
|
|
Stock compensation expense
|
|
|
4,166,000
|
|
|
|
4,015,000
|
|
Other
|
|
|
4,000
|
|
|
|
-
|
|
Total Deferred Tax Assets
|
|
|
12,455,000
|
|
|
|
11,761,000
|
|
Less: Valuation allowance
|
|
|
(12,455,000
|
)
|
|
|
(11,761,000
|
)
|
Net Deferred Tax Assets
|
|
$
|
–
|
|
|
$
|
–
|
|
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, 2015 and 2014 that are not included in the loss per share calculation since
their effect would be anti-dilutive for the periods indicated:
|
|
2015
|
|
|
2014
|
|
Stock Options
|
|
|
183,230,000
|
|
|
|
97,408,000
|
|
The following table sets forth the computation
of basic and diluted net loss per share for 2015 and 2014, respectively:
|
|
2015
|
|
|
2014
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Net loss attributable to common stock
|
|
$
|
(2,006,000
|
)
|
|
$
|
(752,000
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
1,704,277,945
|
|
|
|
1,520,187,700
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock, basic and diluted
|
|
$
|
*
|
|
|
$
|
*
|
|
__________
* Less than $0.01
NOTE 9 – RELATED PARTY TRANSACTIONS
Included in the Company’s balance sheets
at December 31, 2015 and December 31, 2014 are Related Party Payables of $656,000 and $640,000, respectively. The Company has a
payable of $640,000, at December 31, 2015 and December 31, 2014 owed to Dr. Carl Kukkonen. On July 10, 2015, Dr. Kukkonen’s
title changed from CEO to Chief Technology Office (“CTO”) after the Company hired Mr. Haris Basit to be the CEO of
the Company. Of the amount owed to Dr. Kukkonen, there is a cash component totaling $136,000 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, 2015: 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. At December 31, 2015, the Company also has a royalty payable
to VGE of $16,000. There was no corresponding payable to VGE at December 31, 2014.
The Company has a loan agreement with Director Dr. Kevin Schewe
which is described in Note 5.
On December 18, 2013, the Company entered into
a Representation in Pakistan and Giant King Grass supply contract with Winergy Pakistan Private Limited (“Winergy”),
a company incorporated and existing under the laws of Pakistan. Mr. Khurram Irshad, a director of the Company, is a director and
shareholder of Winergy. Winergy was also appointed the exclusive representative of the Company in Pakistan. Winergy is developing
bioenergy and animal feed projects in Pakistan and seeking a biomass source. The Company's Giant King Grass will be supplied to
Winergy and a propagation nursery and test plot is to be established in Pakistan. Winergy will operate and pay the expenses for
a Giant King Grass propagation nursery and test plot in Pakistan. Winergy paid a one-time fee of $5,000 to the Company upon the
signing of the contract. The Company expects to receive additional license fees in the future from Winergy when they are able to
secure relationships with customers who will use the Company's Giant King Grass in their particular application. No revenues were
received from Winergy in 2015.
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. Additional acres will be planted in spring of 2016.
As part of the supply contract, the Company
was issued 25% equity ownership in AEG and one designated board seat provided that the Company maintains an equity ownership position
greater than 5%. As part of the Company’s agreement with director Khurram Irshad, the Company is required to issue 25% of
its equity ownership interest in AEG to Mr. Irshad. At December 31, 2015, the Company recorded $40,000 as an Investment in AEG
on its Balance Sheet representing the fair value estimate of the Company’s minority interest in AEG (see Note 3).
As discussed in Note 6, on April 14, 2015,
two principals of AEG invested $100,000 to purchase unregistered shares of the Company’s common stock. One of these investors,
Mr. Haris Basit, became CEO and director of the Company on July 10, 2015 and is also the CEO of AEG. The other investor was Asad
Cochinwala who is CFO of AEG. In total, 28,571,428 common shares of the Company are owned by the founding partners of AEG, Mr.
Basit and Mr. Cochinwala. Additionally, as discussed in Note 6, the Company entered into a Subscription Agreement with Dr. Kukkonen,
CTO of the Company, to purchase 4,285,714 shares of common stock at a purchase price of $0.0007 per share for $3,000.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Leases
The Company currently has no long term office
lease. The Company leases land in San Diego County, California where it grows Giant King Grass. Rent expense charged to operations
for the year ended December 31, 2015 and December 31, 2014, was $12,000 and $16,000, 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 years ending December 31, 2015 and 2014, the Company received $129,000
and $182,000, respectively, in payments under these collaborative agreements. The Company recognized revenue from these collaborative
agreements of $188,000 and $153,000 for the years ending December 31, 2015 and 2014, respectively.
License Agreement
Effective as of 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 anywhere within 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. The Company assigned
no value to the sublicense due to uncertainties of future revenues.
VIASPACE agreed that it would not during the
term of the License Agreement and a three-year period thereafter, (i) manufacture, commercialize or otherwise engage in any research
or development of a grass or any other product or material having similar or otherwise competitive properties to Giant King Grass.
VGE agreed to provide VIASPACE with Giant King
Grass seedlings that will be filled at an agreed upon price as set forth in the License Agreement. VIASPACE agreed to pay VGE for
and during the Term a royalty of eight percent (8%) on net sales made in its territory.
The initial term of the License Agreement is
for two years (“Initial Term”). As a condition to the right to renew after the first two-year term for an additional
two year term, VIASPACE needed to achieve the milestones in the first two year period:
|
·
|
One
or more fully-executed, third party sales contracts for the sale of Giant King Grass
shall have been entered into during the Initial Term, pursuant to which VIASPACE is to
be paid an aggregate amount of at least $200,000 within that 24 consecutive monthly period;
and two or more, third party growing locations of at least 10 hectares in total shall
have been obtained and planted during the Initial Term. The Company has entered into
various collaborative agreements with entities for the joint operation of test plots
to satisfy these milestones.
|
These milestones were achieved by the Company as of September 30,
2014 and the license was renewed for another two years.
As a condition to the right to renew the First
Renewal Term (for years five and six) of the License Agreement, the Company is to achieve during the First Renewal Term the following
milestones by September 30, 2016 as a condition to any such renewal:
|
·
|
A total of least three or more (including the above) fully-executed, third party sales contracts for the sale of Giant King Grass shall have been entered into during the First Renewal Term, pursuant to which the Registrant is to be paid the aggregate amount of $400,000, with not less than $100,000 of the Initial Sales Milestone having been paid during the First Renewal Term and with the remaining unpaid balance of the Initial Sales Milestone being paid within six months of the Second Renewal Term (e.g., in the fifth year) and the Second Sales Milestone being paid in full within that 24 consecutive monthly period following the signing of any such third contract; and
|
|
·
|
A total of at least three or more (including the two above) growing locations of at least 30 hectares in total shall have been obtained and planted during the Second Renewal Term, which shall be subject to the reasonable satisfaction of VGE.
|
Employment Agreements
Effective July 10, 2015, the Company entered
into a two-year employment agreement with Haris Basit, CEO of the Company. Mr. Basit will receive $120,000 per annum and be entitled
to a bonus as determined by the Company’s 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, 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 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 the Company’s 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, 2015, 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 serves as Chief Financial Officer, Treasurer and Secretary. Dr. Kukkonen will receive a salary of $120,000
per annum and Mr. Muzi would receive $64,000 per annum. Each of them would 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 and Mr. Muzi is to receive 10 business days paid leave. 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. Dr. Kukkonen will also be purchasing $3,000 per month
worth of Company unregistered common shares at a price equal to 20% of the average closing price of the Company's common stock
for the 20 trading days immediately preceeding the purchase date.
Litigation
The Company is not party to any material legal
proceedings at the present time.
NOTE 11 – SUBSEQUENT EVENTS
On January 13, 2016, Dr. Kevin Schewe, Director
of the Company, advanced an additional $5,000 pursuant to the convertible loan agreement and immediately converted the $5,000 loan
into 12,500,000 shares of Company common stock at a conversion price of $0.0004 per common share.
On January 25, 2016, Schewe entered into a
new convertible loan Agreement whereby he agreed to fund the Company an additional $300,000 over a one year period. The loans would
be evidenced by a secured convertible note. The notes accrue interest at 8% per annum, and are secured by all assets of the Company
pursuant to a security agreement and are convertible into shares of Company common stock at a price equal to 20% of the average
closing price for the 20 trading days prior to the issuance of the loan.
On January 27, 2016, Dr. Kevin Schewe, Director
of the Company, advanced an additional $15,000 pursuant to the convertible loan agreement and immediately converted the $15,000
loan into 37,500,000 shares of Company common stock at a conversion price of $0.0004 per common share.
On February 25, 2016, the Company entered into
a Subscription Agreement with Almaden Energy Group, LLC. ("AEG"), a related party whose CEO is Haris Basit, CEO of the
Company, in which AEG agreed to purchase 12,500,000 shares of common stock at a purchase price of $0.0016 per share for $20,000.
The purchase price per share was equal to 50% of the average closing price of the Registrant's common stock for the 20 trading
days immediately preceeding the date of the investment. Additionally, AEG and the Company signed an Addendum which amended the
April 13, 2015 Grass Supply Contract (the "Contract) for Giant King Grass. $30,000 was still owed to the Company for the Contract
by AEG. AEG agreed to pay $20,000 of the $30,000 owed to the Registrant, but in return would received Company common shares with
a market value of $40,000 (i.e. 50% discount to current market price). $10,000 remains to be paid to Company by AEG at a later
date.
On February 26, 2016, Dr. Kevin Schewe, Director
of the Company, advanced an additional $15,000 pursuant to the convertible loan agreement and immediately converted the $15,000
loan into 25,000,000 shares of Company common stock at a conversion price of $0.0006 per common share.
On February 26, 2016, the Company entered into
a Subscription Agreement with Dr. Carl Kukkonen, Chief Technology Officer of the Company, to purchase 5,000,000 shares of common
stock at a purchase price of $0.0006 per share for $3,000. The purchase price per share was equal to 20% of the average closing
price of the Company's common stock for the 20 trading days immediately preceding the date of the investment.
On March 28, 2016, Dr. Kevin Schewe, Director
of the Company, advanced an additional $15,000 pursuant to the convertible loan agreement and immediately converted the $15,000
loan into 25,000,000 shares of Company common stock at a conversion price of $0.0006 per common share.
On March 28, 2016, the Company entered into
a Subscription Agreement with Dr. Carl Kukkonen, Chief Technology Officer of the Company, to purchase 5,000,000 shares of common
stock at a purchase price of $0.0006 per share for $3,000. The purchase price per share was equal to 20% of the average closing
price of the Company's common stock for the 20 trading days immediately preceding the date of the investment.