The accompanying notes are an integral part
of these financial statements.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
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 $53,448,000. 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. 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. The Company expects loans from Mr.
Basit 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 Mr. Basit 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, 2015 financial statements to conform to the December 31, 2016
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, 2016 or 2015.
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, 2016 and 2015, 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 and three customers represented 100% of revenues for the year ending December
31, 2016.
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 2016 or 2015. 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, 2016 and 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, 2016 and 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 guidance regarding the accounting for revenue from contracts with customers. In April 2016, May 2016
and December 2016, the FASB issued additional guidance, addressed implementation issues and provided technical corrections. The
guidance may be applied retrospectively or using a modified retrospective approach to adjust retained earnings (deficit). The guidance
is effective for interim and annual periods beginning after December 15, 2017. We are currently evaluating the impact of this guidance
on our financial statements.
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. 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. As of December 31, 2016 and December 31, 2015, included in prepaid expenses for this third-party provider
is $13,000 and $3,000, 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, 2016 and 2015, the Company recorded $149,000 and $272,000, respectively, of stock related
expenses.
Other prepaid expenses (non-stock related)
were $1,000 and $66,000 at December 31, 2016 and December 31, 2015, 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 and the year ended December 31, 2016. The carrying value of the investment is $14,000 and $40,000 as of December
31, 2016 and December 31, 2015, respectively. We recorded other expense of approximately $27,000 in the Company’s Statements
of Operation during the year ended December 31, 2016, 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
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. On August 5, 2015, the
New 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, 2016.
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 2016 and 2015, the fair value was estimated at the date of grant using the following range of assumptions:
|
|
2016
|
|
|
2015
|
|
Risk free interest rate
|
|
|
1.27% - 2.34%
|
|
|
|
1.80% - 2.12%
|
|
Dividends
|
|
|
0%
|
|
|
|
0%
|
|
Volatility factor
|
|
|
132.88% - 139.28%
|
|
|
|
130.65% - 132.00%
|
|
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, 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
|
|
|
197,500,000
|
|
|
|
0.0019
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Cancelled and forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
380,730,000
|
|
|
$
|
0.0028
|
|
|
|
9.10
|
|
|
$
|
–
|
|
Exercisable at December 31, 2016
|
|
|
236,649,000
|
|
|
$
|
0.0033
|
|
|
|
8.69
|
|
|
$
|
–
|
|
During 2016, stock options totaling 197,500,000
were granted. At December 31, 2016, there were 517,547,000 shares available for future
grant. The Plan recorded $247,000 of compensation expense for employees and director stock options in 2016. At December 31, 2016,
there was $261,000 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, 2016,
the fair value of options vested for employees and directors was $308,000. There were no options exercised during 2016.
During 2016, the Company issued 1,636,364
unregistered shares of common stock to a consultant for services provided to the Company. These share issuances were recorded at
approximately $4,000 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 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 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. At the time of the conversions,
the company recorded the discount as additional interest expense. There are no loans outstanding at December 31, 2016 and December
31, 2015. As of December 31, 2016, the Company had remaining availability under the note of $0.
Loan Agreement with Haris Basit
Effective November 30, 2016, the Company
entered into a Loan Agreement with CEO 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.
At the time of the conversions, the company recorded the discount as additional interest expense. There are $0 loans outstanding
at December 31, 2016. As of December 31, 2016, the Company had remaining availability under the note of $75,000.
NOTE 6 – SHAREHOLDERS’ DEFICIT
Preferred Stock
At December 31, 2016 and 2015, 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, 2016 and December 31, 2015,
there is one share of Series A Preferred Stock outstanding.
Common Stock
As of January 1, 2016, 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 2016 and 2015, the Company issued
100,000,000 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%. During the period ending
December 31, 2016 there is no accounting impact from this transaction because the shares remain in the Company's possession.
On February 24, 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 preceding the date of the investment. Mr. Basit
is CEO of the Company and of AEG, a customer of the Company as discussed in Note 9. 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 preceding 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 preceding the date of the investment. The Company issued such common stock on
the date of such Subscription Agreement.
On June 6, 2016, the Company entered into
a Subscription Agreement with the Carl Kukkonen III Trust, 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 preceding the date of the investment. The Company issued such common stock on the date
of such Subscription Agreement.
On June 14, 2016, the Company entered into
a Subscription Agreement with Dan Kukkonen, to purchase 10,000,000 shares of common stock at a purchase price of $0.0006 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 preceding the date of the investment. The Company issued such common stock on the date of such Subscription
Agreement.
On July 29, 2016, the Company entered into
Subscription Agreement with a non-related party to purchase 3,571,429 shares of common stock at a purchase price of $0.0014 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.
On September 28, 2016, the Company entered
into a Subscription Agreement with the Carl Kukkonen III Trust, to purchase 15,000,000 shares of common stock at a purchase price
of $0.0003 per share for $4,500. 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. The Company issued such common stock on the date
of such Subscription Agreement.
On September 28, 2016, the Company entered
into a Subscription Agreement with Dan Kukkonen, to purchase 15,000,000 shares of common stock at a purchase price of $0.0003 per
share for $4,500. 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. The Company issued such common stock on the date of such
Subscription Agreement.
During 2016, the Company
issued 1,636,364 shares of common stock to a consultant of the Company. The shares were issued at fair market value of
approximately $4,000 on the date of the issuance.
During 2016, the Company issued 655,714,285
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. During 2016, the Company issued 66,312,997 shares of common stock to CEO 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.
As of December 31, 2016, there were 2,819,472,132
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 $694,000 for the year ended December 31, 2015 and increased by $174,000 for
the year ended December 31, 2016. 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 $21,038,000 available at December 31, 2016 and State net operating loss carryovers of approximately
$20,039,000 available at December 31, 2016. 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, 2016,
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, 2016 and 2015, 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, 2016.
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, 2016 and
2015. 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
|
|
2013 – 2015
|
California
|
|
2012 – 2015
|
The following table reconciles the US statutory
rates to the Company’s effective tax rate for 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
U.S Statutory rates
|
|
|
34.0%
|
|
|
|
34.0%
|
|
State taxes, net of Federal benefit
|
|
|
5.8%
|
|
|
|
5.6%
|
|
Permanent differences
|
|
|
–
|
|
|
|
(1.0%
|
)
|
Change in Valuation allowance
|
|
|
(39.8%
|
)
|
|
|
(38.6%
|
)
|
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, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
8,322,000
|
|
|
$
|
8,285,000
|
|
Stock compensation expense
|
|
|
4,302,000
|
|
|
|
4,166,000
|
|
Other
|
|
|
5,000
|
|
|
|
4,000
|
|
Total Deferred Tax Assets
|
|
|
12,629,000
|
|
|
|
12,455,000
|
|
Less: Valuation allowance
|
|
|
(12,629,000
|
)
|
|
|
(12,455,000
|
)
|
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, 2016 and 2015 that are not included in the loss per share calculation since
their effect would be anti-dilutive for the periods indicated:
|
|
2016
|
|
|
2015
|
|
Stock Options
|
|
|
380,730,000
|
|
|
|
183,230,000
|
|
The following table sets forth the computation
of basic and diluted net loss per share for 2016 and 2015, respectively:
|
|
2016
|
|
|
2015
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to common stock
|
|
$
|
(1,201,000
|
)
|
|
$
|
(2,006,000
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
2,433,356,365
|
|
|
|
1,704,277,945
|
|
|
|
|
|
|
|
|
|
|
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, 2016 and December 31, 2015 are Related Party Payables of $640,000 and $656,000, respectively. The Company
has a payable of $640,000, at December 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, 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.
At December 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 year ended December 31, 2016.
The Company has a loan agreement with Director Dr. Kevin Schewe
and CEO Haris Basit which is described in Note 5.
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 is also the CEO of the Company. For the year ended
December 31, 2016 and 2015, the Company recorded $22,000 and $18,000, respectively, in revenues from AEG.
At December 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 December 31, 2016, the Company recorded $14,000 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 leases land in San Diego County, California where it grows Giant King Grass. Rent and utility expense
charged to operations for the year ended December 31, 2016 and December 31, 2015, was $17,000 and $12,000, 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, 2016 and 2015, the Company received $193,000
and $129,000, respectively, in payments under these collaborative agreements. The Company recognized revenue from these collaborative
agreements of $205,000 and $188,000 for the year ended December 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, 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 serves as Chief Financial Officer, Treasurer and Secretary. Dr. Kukkonen will receive a salary of $84,000
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.
Litigation
The Company is not party to any material
legal proceedings at the present time.
NOTE 11 – SUBSEQUENT EVENTS
On January 9, 2017, the Company entered
into a Subscription Agreement with a non-affiliate investor 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.
On January 10, 2017, pursuant
to an Employment Agreement entered on July 10, 2015, between the Company and Mr. Haris Basit, CEO, the Registrant issued 18,750,000
non-qualified stock options out of its existing stock plan to Mr. Basit. The stock options will vest immediately and were issued
at $0.0015 per share which represented fair market value on the date of grant.
On January 27, 2017, Mr. Haris Basit, CEO
and Director of the Company, advanced $5,500 pursuant to a convertible loan agreement and immediately converted the $5,500 loan
into 14,102,564 shares of Company common stock at a conversion price of $0.00039 per common share.
On February 23, 2017, Dr. Kevin Schewe,
Director of the Company, entered into a new convertible loan Agreement whereby he agreed to fund the Company an additional $100,000
over a two-year period. The loans would be evidenced by a convertible note. The notes accrue interest at 8% per annum, 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 February 24, 2017, Mr. Haris Basit,
CEO and Director of the Company, advanced $6,000 pursuant to a convertible loan agreement and immediately converted the $6,000
loan into 14,492,754 shares of Company common stock at a conversion price of $0.000414 per common share.
On February 24, 2017, Dr. Kevin Schewe,
Director of the Company, advanced $15,000 pursuant to a convertible loan agreement and immediately converted the $15,000 loan
into 36,231,884 shares of Company common stock at a conversion price of $0.000414 per common share.
On March 27, 2017, Dr. Kevin Schewe, Director
of the Company, advanced $10,000 pursuant to a convertible loan agreement and immediately converted the $10,000 loan into 26,666,667
shares of Company common stock at a conversion price of $0.000375 per common share.
On March 29, 2017, Mr. Haris Basit, CEO
and Director of the Company, advanced $4,500 pursuant to a convertible loan agreement and immediately converted the $4,500 loan
into 12,228,261 shares of Company common stock at a conversion price of $0.000368 per common share.