* Amounts derived from audited financial statements for the year
ended December 31, 2015
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 $52,618,000. The Company expects such losses
to continue. However, on September 30, 2012, as discussed in Note 4, 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 unaudited interim financial statements included herein, presented in accordance with United States generally accepted accounting
principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting
of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained
therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company
for the year ended December 31, 2015 and notes thereto included in the Company's annual report on Form 10-K. The Company follows
the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods
are not indicative of annual results.
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.
Note 2 – 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 $30,000 and $40,000 as of March
31, 2016 and December 31, 2015, respectively. We recorded other expense of $10,000 in the Company’s Statements of
Operation during the three months ended March 31, 2016, related to a loss on investment in AEG due to a decrease in its fair
value. See Note 7 for additional related party transactions with AEG.
NOTE 3 – STOCK OPTIONS, WARRANTS AND
ISSUED STOCK
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 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.
The following is a summary of the Company’s stock option activity
for the three months ended at March 31, 2016:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term In Years
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2015
|
|
|
183,230,000
|
|
|
$
|
0.0038
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
18,750,000
|
|
|
|
0.0017
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Cancelled and forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2016
|
|
|
201,980,000
|
|
|
$
|
0.0036
|
|
|
|
9.21
|
|
|
$
|
13,000
|
|
Exercisable at March 31, 2016
|
|
|
106,930,000
|
|
|
$
|
0.0036
|
|
|
|
9.13
|
|
|
$
|
13,000
|
|
Stock options totaling 18,750,000 were granted
during the three months ended March 31, 2016. The Plan recorded $52,000 of compensation expense for employees and director stock
options in 2016. At March 31, 2016, there was $134,000 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 six
months. At March 31, 2016, the fair value of options vested for employees and directors was $381,000. There were no options exercised
during the three months ended March 31, 2016.
NOTE 4 –
CONVERTIBLE NOTES
PAYABLE TO RELATED PARTY
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 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 March 31, 2016, Dr. Schewe made loans of $45,000 to the Company. Including the loan of $5,000 on January 13,
2016, the Company recorded a discount on the loans of $50,000 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 $50,000 into 100,000,000 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 March 31, 2016 and
December 31, 2015. As of March 31, 2016, the Company had remaining availability under the note of $255,000.
NOTE 5 – STOCKHOLDERS’ EQUITY
Common Stock
As of January 1, 2016, the number of authorized
shares of the Company’s common stock was 3,900,000,000.
During 2016 and 2015, the Company issued 50,000,000
and 40,000,000 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%.
On February 26, 2016, the Company entered
into a Subscription Agreement with Almaden Energy Group, LLC (“AEG”) 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 Company's common stock for the 20 trading days immediately preceeding the date of the
investment. Mr. Basit is CEO of the Company and of AEG, a customer of the Company as discussed in Note 7. The Company issued
such common stock on the date of such Subscription Agreement.
On February 26, 2016, the Company entered into
a Subscription Agreement with Dr. Kukkonen, CTO 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 preceeding the date of the investment. The Company issued
such common stock on the date of such Subscription Agreement.
On March 28, 2016, the Company entered into
a Subscription Agreement with Dr. Kukkonen, CTO 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 preceeding the date of the investment. The Company issued
such common stock on the date of such Subscription Agreement.
During 2016, the Company issued 100,000,000
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 4.
As of March 31, 2016, there were 2,197,951,343
shares of common stock outstanding.
NOTE 6 – 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 March 31, 2016 and 2015 that are not included in the loss per share calculation since their
effect would be anti-dilutive for the periods indicated:
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Stock Options
|
|
|
201,980,000
|
|
|
|
97,408,000
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the computation
of basic and diluted net loss per share for the three months ended March 31, 2016 and 2015, respectively:
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(371,000
|
)
|
|
$
|
(271,000
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
2,124,984,310
|
|
|
|
1,582,017,065
|
|
Net loss per share of common stock, basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
Included in the Company’s balance sheets
at March 31, 2016 and December 31, 2015 are Related Party Payables of $650,000 and $656,000, respectively. The Company has a payable
of $640,000, at March 31, 2016 and December 31, 2015 owed to Dr. Carl Kukkonen, CTO. 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 March 31, 2016 and December 31, 2015, the Company also has a royalty payable to VGE of $0 and $16,000, 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. The $16,000 was recorded as other income in the Company’s Statement of Operations
for the three months ended March 31, 2016.
The Company has a loan agreement with Director Dr. Kevin Schewe
which is described in Note 4.
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 former
director of the Company, is a director and shareholder of Winergy. Mr Irshad resigned from the Company’s board of
directors on January 24, 2016. 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 2016.
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.
At March 31, 2016, 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 March 31, 2016, the Company recorded $30,000 as an Investment in AEG on its Balance Sheet representing the fair value
estimate of the Company’s minority interest in AEG (see Note 2).
NOTE 8 – 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 and utility expense charged
to operations for the three months ended March 31, 2016 and 2015, was $2,000 and $4,000, 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 three months ended March 31, 2016 and 2015, the Company received $35,000
and $0, respectively, in payments under these collaborative agreements. The Company recognized revenue from these collaborative
agreements of $15,000 and $15,000 for the three months ended March 31, 2016 and 2015, 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 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. On May 13, 2016, the Company entered into a new employment
agreement with Dr. Kukkonen for the period May 13, 2016 through September 30, 2016. All terms remained the same as the previous
employment agreement with the exception that the provision allowing Dr. Kukkonen to purchase $3,000 worth of common stock per month
at a discount has been removed.
Litigation
The Company is not party to any material legal
proceedings at the present time.
NOTE 9 – SUBSEQUENT EVENTS
On April 11, 2016, in accordance with the employment
agreement of Mr. Basit, the Company issued 18,750,000 stock options to him at fair market value based on the closing price of the
Company’s common stock as traded on the OTC Market as of that date. The stock options are vested immediately.
On April 12, 2016, Dr. Kevin Schewe, Director
of the Company, advanced an additional $35,000 pursuant to the convertible loan agreement and immediately converted the $35,000
loan into 58,333,333 shares of Company common stock at a conversion price of $0.0006 per common share.
On May 4, 2016, Dr. Kevin Schewe, Director
of the Company, advanced an additional $10,000 pursuant to the convertible loan agreement and immediately converted the $10,000
loan into 12,500,000 shares of Company common stock at a conversion price of $0.0008 per common share.
On May 12, 2016, Dr. Kevin Schewe, Director
of the Company, advanced an additional $25,000 pursuant to the convertible loan agreement and immediately converted the $25,000
loan into 31,250,000 shares of Company common stock at a conversion price of $0.0008 per common share.