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 license for GKG we obtained from Guangzhou Inter-Pacific Arts Corp., a Chinese wholly-owned foreign enterprise registered in Guangdong province ("IPA China") which is owned by VIASPACE Green Energy Inc. (“VGE”), we are able to commercialize GKG throughout the world, except for the People’s Republic of China (“China”) and the Republic of China (“Taiwan”).
GKG can be burned in 100% biomass power plants to generate electricity; made into pellets that can be burned together with coal to reduce carbon emissions from existing power plants; generate bio methane through anaerobic digestion, and can be used as a feedstock for low carbon liquid biofuels for transportation, biochemicals and bio plastics. Cellulosic ethanol, bio butanol and other liquid cellulosic biofuels, do not use corn or other food sources as feedstock. GKG can also be used as animal feed. GKG and other plants absorb and store carbon dioxide from the atmosphere as they grow. When they are burned, they release the carbon dioxide back into the atmosphere, but it is the same carbon dioxide that was removed from the atmosphere, and so this process is carbon neutral. Small amounts of fossil fuel are used by the farm equipment, transportation of GKG and fertilizer, so that the overall process of growing and burning GKG probably has some net carbon dioxide emissions, but much lower emissions than burning coal or other fossil fuels directly to create the same amount of energy. GKG has been independently tested by customers and been shown to have excellent energy content, high bio methane production, and the cellulosic sugar content needed for biofuels and biochemicals.
Going Concern –
The Company has incurred significant losses from operations, resulting in an accumulated deficit of $54,390,000. The Company expects such losses to continue. However, on November 30, 2016, the Company entered in a Loan Agreement with Vice Chairman Haris Basit whereby he agreed to fund the Company $100,000 over a two-year period. In addition, on February 23, 2017, the Company entered in a Loan Agreement with CEO Kevin Schewe whereby he agreed to fund the Company $100,000 over a two-year period. In addition, on July 25, 2017, the Company entered in a Loan Agreement with CTO Carl Kukkonen whereby he agreed to fund the Company $25,000 over a two-year period. The Company expects loans from Mr. Basit, Dr. Schewe and Dr. Kukkonen and revenue generated from future contracts using the license it has for Giant King Grass to fund operations for the foreseeable future. However, no assurance can be given that Mr. Basit, Dr. Schewe or Dr. Kukkonen will continue to fund the Company or that sales contracts will be obtained in the future, or if they are obtained, that they will be profitable. Accordingly, there continues to be substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any other adjustments that might result from the outcome of these uncertainties.
Basis of Presentation –
The 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, 2017 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, FASB and the International Accounting Standards Board jointly issued a new revenue recognition standard that is designed to improve financial reporting by creating common recognition guidance for U.S. GAAP and International Financial Reporting Standards. The new guidance issued under Accounting Standards Update
("
ASU
")
2014-09
,
Revenue from Contracts with Customers
("
Topic 606
", "
ASU 2014-09
") provides a more robust framework for addressing revenue issues, improves the comparability of revenue recognition practices across industries, provides more useful information to users of financial
7
statements through improved disclosure requirements and s
implifies the presentation of financial statements. The core principle of the guidance is 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 en
tity expects to be entitled in exchange for those goods or services. This guidance permits the use of either of the following transition methods: (i) a full retrospective method reflecting the application of the standard in each prior reporting period with
the option to elect certain practical expediencies, or (ii) a modified retrospective approach with the cumulative effect of initially adopting the standard recognized at the date of adoption, with additional footnote disclosures. The original effective da
te of the new standard was for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In August 2015, the FASB issued an ASU that deferred by one year the effective date of this new revenue recog
nition standard. As a result, the new standard was effective for annual reporting periods beginning after December 15, 2017, although companies could have adopted the standard as early as the original effective date. Early application prior to the original
effective date was not permitted. In the first quarter of 2018, the Company adopted the standard utilizing the
modified
retrospective adoption method in order to provide for comparative results in all periods presented.
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 – PREPAID EXPENSES
The Company has entered into agreements with certain of its consultants and vendors whereby the Company issued 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. During 2017, the third-party provider cleared 50,000,000 shares of the Company’s common stock for future services valued at $75,000. As of March 31, 2018 and December 31, 2017, included in prepaid expenses for this third-party provider is $22,000 and $22,000, respectively, for shares of stock issued to the provider in excess of amounts paid on the Company’s behalf.
Other prepaid expenses (non-stock related) were $1,000 and $0 at March 31, 2018 and December 31, 2017, respectively.
NOTE 3 – REVENUES
Adoption of ASC Topic 606, "Revenue from Contracts with Customers"
On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
We did not have a cumulative impact as of January 1, 2018 due to the adoption of Topic 606 and there was not an impact to our statement of operations for the three months ended March 31, 2018 as a result of applying Topic 606.
Note 4 – Investment in Almaden Energy Group
The investment in Almaden Energy Group, LLC (“AEG”) represents an 18.75% interest in that company’s outstanding membership interest units which became effective April 15, 2015. The Company originally
8
accounted for this investment by the cost method because the membership interest units of AEG are 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 re
cognized in income when declared and totaled $0 for 201
8
and 201
7
. The carrying value of the investment is $
3
,000 and $
6
,000
as of March 31
, 201
8
and December 31, 201
7
, respectively. We recorded other expense of approximately $
3
,000 in the Company’s Statem
ents of Operation during the
three
months ended
March
3
1
, 201
8
, related to a loss on investment in AEG. See Note 8 for additional related party transactions with AEG.
NOTE 5 – CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES
Loan Agreement with Haris Basit
Effective November 30, 2016, the Company entered into a Loan Agreement with Director Haris Basit whereby Mr. Basit agreed to loan up to $100,000 to the Company over a two-year period based on requests from the Company. Each individual loan will accrue interest at 8% per annum. Each note would mature on the first anniversary of the issuance date of such note. Each note is convertible at Mr. Basit’s request, into a fixed number of shares of the Company’s common stock based on the closing price of the Company’s common stock for the twenty trading days prior to the issuance of the loan, less an 80% discount. The Loan Agreement states that 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.
During the three months ended March 31, 2018, Mr. Basit made loans of $12,975 to the Company. The Company recorded a discount on the loans of $12,975 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 2018, Mr. Basit converted loans totalling $12,975 into 82,999,602 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, 2018. As of March 31, 2018, the Company had remaining availability under the note of $14,525.
Loan Agreement with Kevin Schewe
Effective February 23, 2017, the Company entered into a Loan Agreement with CEO Kevin Schewe whereby Dr. Schewe 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 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. The Loan Agreement states that Dr. Schewe 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.
During the three months ended March 31, 2018, Dr. Schewe made loans of $15,000 to the Company. The Company recorded a discount on the loans of $15,000 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 2018, Dr. Schewe converted loans totalling $15,000 into 98,039,216 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, 2018. As of March 31, 2018, the Company had remaining availability under the note of $5,000.
Loan Agreement with Carl Kukkonen
Effective July 25, 2017, the Company entered into a Loan Agreement with CTO Carl Kukkonen whereby Dr. Kukkonen agreed to loan up to $25,000 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 Dr. Kukkonen’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 Dr. Kukkonen will not convert any loan into a number of shares that would exceed the number of available authorized common shares calculated as of the date of the conversion. As a result, the conversion feature is not deemed to be a derivative instrument subject to bifurcation.
9
During the three
months ended
March 31, 2018
, Dr. Kukkonen made loans of $0
to the Company and t
here are $0 loans outstanding at
March 31, 2018
. As of
March 31, 2018
, the Company had remaining
availability under the note of $13,500.
NOTE 6 – STOCKHOLDERS’ EQUITY
Preferred Stock
At March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December 31, 2017, there is one share of Series A Preferred Stock outstanding.
Common Stock
As of January 1, 2018, the number of authorized shares of the Company’s common stock was 3,900,000,000. The par value of the common stock is $0.0001.
During 2017, the Company issued 50,000,000 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 March 31, 2018, there is no accounting impact from this transaction because the shares remain in the Company's possession.
During 2018, the Company issued 1,600,000 shares of common stock to a consultant of the Company. The shares were issued at fair market value of approximately $960 on the date of the issuance.
During 2018, the Company issued 98,039,216 shares of common stock to CEO Kevin Schewe as he converted loans into shares of common stock as allowed under an agreement he has with the Company as discussed in Note 5. During 2018, the Company issued 82,999,602 shares of common stock to Director Haris Basit as he converted loans into shares of common stock as allowed under an agreement he has with the Company as discussed in Note 5.
As of March 31, 2018, there were 3,485,153,265 shares of common stock outstanding.
NOTE 7 – 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 was equal to 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, 2018 and 2017 that are not included in the loss per share calculation since their effect would be anti-dilutive for the periods indicated:
|
|
2018
|
|
|
2017
|
|
Stock Options
|
|
|
449,480,000
|
|
|
|
399,480,000
|
|
10
The following table sets forth the computation of basic and diluted net loss per share for 2017 and 2016, respectively:
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Basic and diluted net loss
per share:
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
common stock
|
|
$
|
(71,000
|
)
|
|
$
|
(223,000
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average shares of
common stock outstanding
|
|
|
3,485,613,929
|
|
|
|
2,878,744,837
|
|
|
Net loss per share of common
stock, basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
NOTE 8 – RELATED PARTY TRANSACTIONS
Included in the Company’s balance sheets at March 31, 2018 and December 31, 2017 are Related Party Payables of $749,000 and $749,000, respectively. The Company has a payable of $689,000 and $640,000, at March 31, 2018 and December 31, 2017 owed to Dr. Carl Kukkonen, CTO. Of the amount owed to Dr. Kukkonen, there is a cash component totalling $185,000 and a common stock component totalling $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 March 31, 2018: 11,195,707 shares for deferred 2009 compensation; 8,467,939 shares for deferred 2010 compensation; and 24,730,678 shares for deferred 2011 compensation. The Company also owes Director Haris Basit $60,000 at March 31, 2018, representing salary earned but not paid. Mr. Basit was also granted 18,750,000 options at March 31, 2017, and no options were issued during 2018. In addition, at March 31, 2018 there are Other Related Party Payables owed to Dr. Kukkonen, in the amount of $2,000, to Mr. Basit, in the amount of $9,000 and to Mr. Nicholas Stoll, in the amount of $8,000.
The Company has a loan agreement with CEO Dr. Kevin Schewe, Director Haris Basit and CTO Carl Kukkonen 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. The CEO of AEG is also the former CEO and current member of the Board of Directors of the Company. For the three months ended March 31, 2018 and 2017, the Company recorded $0 and $0, respectively, in revenues from AEG. At March 31, 2018, 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, 2018, the Company recorded $3,000 as an Investment in AEG on its Balance Sheet under equity method of accounting (see Note 3).
On June 1, 2017, the Company acquired a 2.91% interest in Clean Energy Solutions, LLC’s (“CES”) outstanding membership interest units. The Company has accounted for this investment by the cost method because the membership interest units of that company are 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 CES. CES is a customer of the Company who is in discussion for future GKG contracts. At March 31, 2018, the Company’s interest in CES is recorded at $0.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Leases
The Company currently has no long term office lease. The Company terminated its lease on land in San Diego County, California on August 31, 2017, where it grew Giant King Grass. Rent and utility expense charged to operations for the three months ended March 31, 2018 and 2017, was $0 and $3,000, respectively.
11
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, 2018 and 2017, the Company received no payments under these collaborative agreements. The Company recognized no revenue from these collaborative agreements for the three months ended March 31, 2018 and 2017.
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
On July 25, 2017, the Company announced that effective July 31, 2017, Haris Basit resigned as CEO of the Company to move to a position leading a Silicon Valley based technology company. Mr. Basit became Vice-Chairman of the Company’s Board of Directors and thus continues to be involved in the overall strategic direction of the Company. During this transition of leadership, Dr. Kevin Schewe, who is the largest shareholder of the Company and Board Chairman, became the acting CEO.
Litigation
The Company is not party to any material legal proceedings at the present time.
12
NOTE 10 – SUBSEQUENT EVENTS
On April 24, 2018, the Company issued 1,600,000 shares of common stock to a consultant of the Company. The shares were issued at fair market value of approximately $1,000 on the date of the issuance.
On April 24, 2018, Mr. Haris Basit, Direct of the Company, advanced $14,525 pursuant to a convertible loan agreement and immediately converted the $14,525 loan into 44,692,308 shares of Company common stock at a conversion price of $0.000325 per common share.
On April 24, 2018, Dr. Kevin Schewe, CEO of the Company, advanced $5,000 pursuant to a convertible loan agreement and immediately converted the $5,000 loan into 15,384,615 shares of Company common stock at a conversion price of $0.000325 per common share.
13