Attached files
file | filename |
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EX-32 - EXHIBIT 32 - VIASPACE Inc. | c92699exv32.htm |
EX-10.1 - EXHIBIT 10.1 - VIASPACE Inc. | c92699exv10w1.htm |
EX-31.1 - EXHIBIT 31.1 - VIASPACE Inc. | c92699exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - VIASPACE Inc. | c92699exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 |
For the quarterly period ended September 30, 2009
or
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number 333-110680
VIASPACE INC.
(Exact name of small business issuer as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) |
76-0742386 (I.R.S. Employer Identification No.) |
2102 Business Center Drive, Suite 130, Irvine, CA 92612
(Address of principal executive offices)
(Address of principal executive offices)
(626) 768-3360
(Issuers telephone number)
(Issuers telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). YES o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: 885,279,266 shares of $0.001 par value common stock issued and
outstanding as of November 11, 2009.
VIASPACE INC.
INDEX
QUARTER ENDED SEPTEMBER 30, 2009
QUARTER ENDED SEPTEMBER 30, 2009
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Exhibit 10.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
2
Table of Contents
PART
I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIASPACE INC.
CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 1,213,000 | $ | 2,666,000 | ||||
Accounts receivable, net of allowance for doubtful accounts |
557,000 | 279,000 | ||||||
Inventory |
337,000 | 377,000 | ||||||
Prepaid expenses |
523,000 | 797,000 | ||||||
Related party receivables |
1,919,000 | 921,000 | ||||||
Other current assets |
48,000 | 6,000 | ||||||
TOTAL CURRENT ASSETS |
4,597,000 | 5,046,000 | ||||||
FIXED ASSETS: |
||||||||
Fixed assets, net of accumulated depreciation |
764,000 | 793,000 | ||||||
OTHER ASSETS: |
||||||||
Land use right, net of accumulated amortization |
557,000 | 514,000 | ||||||
Intellectual property, net of accumulated amortization |
167,000 | 179,000 | ||||||
Grass license, net of accumulated amortization |
484,000 | 503,000 | ||||||
Goodwill |
12,322,000 | 12,322,000 | ||||||
Other assets |
3,000 | 13,000 | ||||||
TOTAL OTHER ASSETS |
13,533,000 | 13,531,000 | ||||||
TOTAL ASSETS |
$ | 18,894,000 | $ | 19,370,000 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 533,000 | $ | 778,000 | ||||
Accrued expenses |
569,000 | 161,000 | ||||||
Current portion of long-term debt |
44,000 | 44,000 | ||||||
Loan from related party |
4,800,000 | 4,800,000 | ||||||
Related party payable |
509,000 | 422,000 | ||||||
TOTAL CURRENT LIABILITIES |
6,455,000 | 6,205,000 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
STOCKHOLDERS EQUITY: |
||||||||
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, zero shares issued and outstanding |
| | ||||||
Common stock, $0.001 par value, 1,500,000,000 shares
authorized, 881,896,366 and 814,336,863 issued and
outstanding in 2009 and 2008, respectively |
882,000 | 814,000 | ||||||
Additional paid in capital |
36,447,000 | 35,168,000 | ||||||
Accumulated deficit |
(31,874,000 | ) | (29,804,000 | ) | ||||
Total stockholders equity |
5,455,000 | 6,178,000 | ||||||
Noncontrolling interest |
6,984,000 | 6,987,000 | ||||||
Total equity |
12,439,000 | 13,165,000 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 18,894,000 | $ | 19,370,000 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
Table of Contents
VIASPACE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
REVENUES |
||||||||||||||||
Government contracts |
$ | 171,000 | $ | 62,000 | $ | 533,000 | $ | 80,000 | ||||||||
Commercial contracts |
| 37,000 | 57,000 | 40,000 | ||||||||||||
Framed artwork sales |
1,064,000 | | 2,935,000 | | ||||||||||||
Total revenues |
1,235,000 | 99,000 | 3,525,000 | 120,000 | ||||||||||||
COST OF REVENUES |
762,000 | 76,000 | 2,145,000 | 85,000 | ||||||||||||
GROSS PROFIT |
473,000 | 23,000 | 1,380,000 | 35,000 | ||||||||||||
OPERATING EXPENSES |
||||||||||||||||
Research and development |
6,000 | 266,000 | 24,000 | 460,000 | ||||||||||||
Selling, general and administrative expenses |
1,041,000 | 2,554,000 | 3,325,000 | 5,966,000 | ||||||||||||
Total operating expenses |
1,047,000 | 2,820,000 | 3,349,000 | 6,426,000 | ||||||||||||
LOSS FROM OPERATIONS |
(574,000 | ) | (2,797,000 | ) | (1,969,000 | ) | (6,391,000 | ) | ||||||||
OTHER INCOME (EXPENSE) |
||||||||||||||||
Interest income |
| | | 6,000 | ||||||||||||
Interest expense |
(71,000 | ) | (11,000 | ) | (356,000 | ) | (33,000 | ) | ||||||||
Other income |
1,000 | 70,000 | 68,000 | 212,000 | ||||||||||||
Other expense |
(1,000 | ) | | (3,000 | ) | | ||||||||||
Gain on sale of marketable securities |
| | | 29,000 | ||||||||||||
Gain on sale of humidity sensor product line |
| | 176,000 | | ||||||||||||
Total other income (expense) |
(71,000 | ) | 59,000 | (115,000 | ) | 214,000 | ||||||||||
LOSS BEFORE DISCONTINUED OPERATIONS, NONCONTROLLING
INTEREST AND INCOME TAXES |
(645,000 | ) | (2,738,000 | ) | (2,084,000 | ) | (6,177,000 | ) | ||||||||
Discontinued operations |
| (794,000 | ) | 12,000 | (1,583,000 | ) | ||||||||||
Income taxes |
2,000 | | | | ||||||||||||
Net loss (income) contributed to noncontrolling
interest |
(21,000 | ) | (5,000 | ) | 2,000 | (4,000 | ) | |||||||||
NET LOSS |
$ | (664,000 | ) | $ | (3,537,000 | ) | $ | (2,070,000 | ) | $ | (7,764,000 | ) | ||||
LOSS PER SHARE OF COMMON STOCK BEFORE DISCONTINUED
OPERATIONS AND MINORITY INTEREST |
||||||||||||||||
Basic and diluted |
$ | * | $ | (0.01 | ) | $ | * | $ | (0.02 | ) | ||||||
Discontinued operations |
* | * | * | * | ||||||||||||
Noncontrolling interest in consolidated subsidiaries |
* | * | * | * | ||||||||||||
NET LOSS PER SHARE OF COMMON STOCKBasic and diluted |
$ | * | $ | (0.01 | ) | $ | * | $ | (0.02 | ) | ||||||
WEIGHTED AVERAGE SHARES OUTSTANDINGBasic and
diluted |
878,922,545 | 458,693,837 | 858,652,181 | 415,897,314 |
* | Less than $0.005 per common share. |
4
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
NET LOSS |
$ | (664,000 | ) | $ | (3,537,000 | ) | $ | (2,070,000 | ) | $ | (7,764,000 | ) | ||||
Other Comprehensive Income: |
||||||||||||||||
Unrealized holding gain (loss) on securities |
| | | (49,000 | ) | |||||||||||
Less reclassification adjustment for
realized gain on securities included in net
loss |
| | | (29,000 | ) | |||||||||||
Subtotal |
| | | (78,000 | ) | |||||||||||
COMPREHENSIVE LOSS |
$ | (664,000 | ) | $ | (3,537,000 | ) | $ | (2,070,000 | ) | $ | (7,842,000 | ) | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
Table of Contents
VIASPACE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Unaudited)
Common Stock | Accumulated | |||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||
Paid in | Treasury | Comprehensive | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Capital | Stock | Income | Deficit | Total | ||||||||||||||||||||||
BALANCE, DECEMBER 31, 2008 |
814,336,863 | $ | 814,000 | $ | 35,168,000 | $ | | $ | | $ | (29,804,000 | ) | $ | 6,178,000 | ||||||||||||||
Net loss |
(2,070,000 | ) | (2,070,000 | ) | ||||||||||||||||||||||||
Stock compensation expense
related to stock options |
190,000 | 190,000 | ||||||||||||||||||||||||||
Shares issued to
consultants, vendors,
employees and directors
for services |
67,559,503 | 68,000 | 1,089,000 | 1,157,000 | ||||||||||||||||||||||||
BALANCE, SEPTEMBER 30, 2009 |
881,896,366 | $ | 882,000 | $ | 36,447,000 | $ | | $ | | $ | (31,874,000 | ) | $ | 5,455,000 | ||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
6
Table of Contents
VIASPACE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, | ||||||||
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (2,070,000 | ) | $ | (7,764,000 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: |
||||||||
Depreciation |
94,000 | 53,000 | ||||||
Amortization of intangible assets |
52,000 | 18,000 | ||||||
Stock option compensation expense |
189,000 | 1,443,000 | ||||||
Stock compensation expense related to stock issued |
1,250,000 | 1,248,000 | ||||||
Operating expenses paid in stock issued |
122,000 | 4,128,000 | ||||||
Noncontrolling interest |
(3,000 | ) | (50,000 | ) | ||||
Gain on sale of marketable securities |
| (29,000 | ) | |||||
Gain on sale of assets to Landtec |
(176,000 | ) | | |||||
(Increase) decrease in: |
||||||||
Accounts receivable |
(313,000 | ) | 7,000 | |||||
Inventory |
70,000 | 5,000 | ||||||
Prepaid expenses and other current assets |
107,000 | 25,000 | ||||||
Increase (decrease) in: |
||||||||
Accounts payable |
(245,000 | ) | (55,000 | ) | ||||
Unearned revenue |
(13,000 | ) | | |||||
Accrued expenses and other |
391,000 | (33,000 | ) | |||||
Related party, net |
(176,000 | ) | 173,000 | |||||
Net cash used in operating activities |
(721,000 | ) | (831,000 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Additions to fixed assets |
(77,000 | ) | (3,000 | ) | ||||
Proceeds from sale of marketable securities |
| 29,000 | ||||||
Investment in land lease |
(64,000 | ) | | |||||
Proceeds from sale of assets to Landtec |
210,000 | | ||||||
Net cash provided by investing activities |
69,000 | 26,000 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Related party loans |
(800,000 | ) | | |||||
Proceeds from loan |
| 300,000 | ||||||
Payments on long-term debt |
| (17,000 | ) | |||||
Proceeds from sale of common stock |
| 66,000 | ||||||
Payments of loans |
| (375,000 | ) | |||||
Proceeds from exercise of warrants |
| 259,000 | ||||||
Net cash provided by (used in) financing activities |
(800,000 | ) | 233,000 | |||||
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS |
(1,000 | ) | | |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(1,453,000 | ) | (572,000 | ) | ||||
CASH AND CASH EQUIVALENTS, Beginning of period |
2,666,000 | 608,000 | ||||||
CASH AND CASH EQUIVALENTS, End of period |
$ | 1,213,000 | $ | 36,000 | ||||
Supplemental Disclosure of Cash Flow Information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | | $ | 36,000 | ||||
Income taxes |
$ | | $ | |
Supplemental Disclosure of Non-Cash Activities for 2008:
| The Company issued 108,757,871 shares of the Companys common stock for future services valued at issuance at $5,585,000. This amount was recorded at issuance as prepaid expenses. |
Supplemental Disclosure of Non-Cash Activities for 2009:
| The Company issued 13,377,927 shares of the Companys common stock for future services valued at issuance at $400,000. This amount was recorded at issuance as prepaid expenses. |
The accompanying notes are an integral part of the consolidated financial statements.
7
Table of Contents
VIASPACE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business VIASPACE Inc. (we, us, VIASPACE, or the Company) is a renewable
and alternative energy company and a framed artwork manufacturing
company. Through our majority owned subsidiary VIASPACE Green Energy
Inc (VGE), we grow a fast-growing
hybrid grass (initially in China) for potential use as a low carbon liquid biofuel for
transportation; as a renewable substitute for all or a portion of the coal in electricity
generating power plants, and as animal feed. VIASPACE also produces disposable fuel cartridges
that provide an energy source for notebook computers and cell phones powered by fuel cells. We also
have a subsidiary that manufactures quality framed artwork sold to retailers in the U.S. VIASPACE
is based in California with business activities in China, Korea and Japan.
VIASPACE was founded in 1998 as a private company to commercialize proven space and defense
technologies from NASA and the Department of Defense. VIASPACE licensed patents from California
Institute of Technology (Caltech), which manages the Jet Propulsion Laboratory (JPL) for NASA.
The direct methanol fuel cell was invented at JPL and the University of Southern California.
VIASPACE subsidiary Direct Methanol Fuel Cell Corporation (DMFCC) licensed these patents from
Caltech. On October 21, 2008, the Company and VGE,
signed an agreement to acquire 100% of Inter-Pacific Arts Corp. (IPA BVI), a British Virgin
Islands international business company. We have acquired 70% of IPA
BVI to date and anticipate acquiring the next 30% at a subsequent
closing. As a condition of the initial closing, IPA BVI acquired
100% of the equity interest of Guangzhou Inter-Pacific Arts Corp. (IPA China), a Chinese wholly
owned foreign enterprise registered in Guangdong province in the Peoples Republic of China (PRC)
that manufactures high quality, copyrighted, framed artwork at its factory in the PRC and sells the
framed art to large retailers in the United States. IPA China also has a worldwide license to
cultivate and sell Giant King Grass a natural hybrid, non-genetically modified, extremely
fast-growing, perennial grass that is suitable for livestock feed as well as a feedstock for
biofuel production. Giant King Grass has the potential to be used in the production of nonfood
crop based biofuels such as cellulosic ethanol, methanol and gasoline substitutes we call
grassoline; burned directly in power plants as a clean substitute for coal, and in the more
immediate term, as animal feed for dairy cows, pigs, sheep, goats, fish and other animals.
Company Background On June 22, 2005, ViaSpace Technologies LLC (ViaSpace LLC), which was
founded in July 1998, acquired the non-operating shell company Global-Wide Publication Ltd. (GW).
GW was incorporated in the State of Nevada on July 14, 2003. Upon the date of the merger, GW was
renamed VIASPACE Inc. The transaction was accounted for as a reverse merger and a recapitalization
of the Company.
Basis of Presentation The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with United States generally accepted accounting principles
(GAAP) for financial information and with Securities and Exchange Commission (SEC) instructions
to Form 10-Q. Accordingly, the unaudited financial statements do not include all of the
information and footnotes required by GAAP. Operating results for the nine months ended September
30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year
ended December 31, 2009. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Companys Annual Report on Form 10-K, for the year ended
December 31, 2008. In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been reflected in these interim
financial statements. All significant intercompany accounts and transactions have been eliminated
on consolidation. Certain reclassifications have been made to the September 30, 2008 consolidated
financial statements, in order to conform to the September 30, 2009 consolidated financial
statement presentation.
Noncontrolling Interest Certain amounts presented for prior periods that were previously
designated minority interest have been reclassified to conform to the current year presentation.
Effective January 1, 2009, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No.
51, (codified in FASB Accounting Standards Codification (ASC) Topic 810) which established new
standards governing the accounting for and reporting of noncontrolling interests (NCIs) in
partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain
provisions of this standard indicate, among other things, that NCIs (previously referred to as
minority interests) be treated as a separate component of equity, not as a liability (as was
previously the case); that increases and decreases in the parents ownership interest that leave
control intact be treated as equity transactions, rather than as step acquisitions or dilution
gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the
NCI even when such allocation might result in a deficit balance. This standard also required
changes to certain presentation and disclosure requirements. The provisions of
the standard were applied to all NCIs prospectively, except for the presentation and disclosure
requirements, which were applied retrospectively to all periods presented. As a result, upon
adoption, the Company retroactively reclassified the Minority interest previously included in the
Other liabilities section of the consolidated balance sheet to a new component of equity with
respect to NCIs in consolidated subsidiaries. The adoption also impacted certain captions
previously used on the consolidated statement of income and other comprehensive income, largely
identifying net income including NCI and net income attributable to the Company.
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Table of Contents
Noncontrolling interest in consolidated subsidiaries represents the minority stockholders
proportionate share of equity of DMFCC, Ionfinity and VGE. The Companys controlling interest
requires that the results of these companies operations be included in the consolidated financial
statements. The percentage of DMFCC, Ionfinity and VGE that is not owned by the Company is shown as
NCI in the Consolidated Statement of Operations and Consolidated Balance Sheet. At September 30,
2009 and December 31, 2008, the Company recorded $500,000 as NCI representing an investment in
DMFCC by a minority shareholder. At September 30, 2009 and December 31, 2008, the Company recorded
$6,484,000 (unaudited) and $6,487,000, respectively, representing Common Shareholder NCIs in
Ionfinity and VGE.
Principles of Consolidation The Company is generally a founding shareholder of its affiliated
companies, which are accounted for under the consolidation method. Affiliated companies include
VGE, DMFCC, Ionfinity LLC (Ionfinity), VIASPACE Security, Inc. (VIASPACE Security) and
Concentric Water Technology LLC (Concentric Water) in which the Company owns, directly or
indirectly, a controlling voting interest, are consolidated. Under this method, an affiliated
companys results of operations are reflected within the Companys consolidated statement of
operations. Transactions between the Company and its consolidated affiliated companies are
eliminated in consolidation. The Company adopted SFAS No. 141, Business Combinations (codified in
FASB ASC Topic 805), which requires use of the purchase method for all business combinations
initiated after June 30, 2001.
Fiscal
Year End The Companys fiscal year ends December 31.
Use of Estimates in the Preparation of the Financial Statements The preparation of financial
statements, in conformity with United States 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 debt instruments, purchased
with an original maturity of three months or less, to be cash equivalents.
Concentration
of Credit Risk The Companys financial instruments that are exposed to credit risk
consist primarily of cash equivalents. The Company maintains all of its cash accounts with high
credit quality institutions. Such balances with any one institution may exceed FDIC insured limits.
Accounts Receivable Allowance for Doubtful Accounts The allowance for doubtful accounts relates
to specifically identified receivables that are evaluated individually for collectability. We
determine a receivable is uncollectible when, based on current information and events, it is
probable that we will be unable to collect amounts due according to the original contractual terms
of the receivable agreement, without regard to any subsequent restructurings. Factors considered in
assessing collectability include, but are not limited to, a customers extended delinquency,
requests for restructuring and filings for bankruptcy.
Marketable Securities The Company accounts for marketable securities in accordance with the
provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities
(SFAS No. 115) (codified in FASB ASC Topic 320). SFAS No. 115 provides accounting and disclosure
guidance for investments in equity securities that have readily determinable fair values and all
debt securities. SFAS No. 115 applies to marketable equity securities and all debt securities,
carried at fair value with unrealized gains and losses, net of related deferred tax effect, and
requires that they be reported as an item of other comprehensive income. At September 30, 2009 and
December 31, 2008, the Company did not have any marketable securities.
Inventory Inventory is stated at the lower of cost or market. Cost is determined using the
average cost method. Market is determined using net realizable value. The Company writes down its
inventory for estimated obsolescence, excess quantities and other factors in evaluating net
realizable value. Inventory includes material, direct labor and related manufacturing overhead.
The following is a summary of inventory by business line (unaudited) at September 30, 2009:
Raw Materials | Finished Goods | Total | ||||||||||
Framed-Artwork |
$ | 260,000 | $ | 29,000 | $ | 289,000 | ||||||
Humidity sensor and battery tester |
| | | |||||||||
Grass |
48,000 | | 48,000 | |||||||||
Total |
$ | 308,000 | $ | 29,000 | $ | 337,000 | ||||||
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Table of Contents
The following is a summary of inventory by business line at December 31, 2008:
Raw Materials | Finished Goods | Total | ||||||||||
Framed-Artwork |
$ | 286,000 | $ | 16,000 | $ | 302,000 | ||||||
Humidity sensor and battery tester |
30,000 | 5,000 | 35,000 | |||||||||
Grass |
40,000 | | 40,000 | |||||||||
Total |
$ | 356,000 | $ | 21,000 | $ | 377,000 | ||||||
Property and Equipment Property and equipment are stated at cost, net of accumulated
depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions,
renewals and betterments are capitalized. When property and equipment are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of property and equipment is
provided using the straight-line method for substantially all assets and estimated lives ranging
from 5 to 30 years as follows:
Building |
20 to 30 years | |||
Machinery and equipment |
10 years | |||
Office equipment |
5 years | |||
Vehicles |
5 years | |||
Computers |
3 years |
Land
Use Right All land in the PRC is government owned and cannot be sold to any individual or
company. IPA China acquired rights for the land occupied by its manufacturing facility during 2005
for RMB 5,000,000 or approximately $605,000. The land lease is for 30 years. Accordingly, the
land use right is amortized on the straight-line method over 30 years. In the first quarter of
2009, VGE leased approximately 45 hectares (111 acres) of land in Guangdong province of the PRC for
20 years at a cost of RMB 172,080 or approximately $25,000 every three years. In the third quarter
of 2009, VGE signed a lease for approximately 55 hectares (136 acres) of land in Guangdong
province. The lease began October 1, 2009 for about 29 years at a cost of approximately RMB 65,000
or approximately $8,000 per year. This land is used to grow Giant King Grass.
Intangible
Assets The Companys intangible assets consist of, among other things, (1) licenses to
patents that are amortized over periods through the expiration date of the patents (up to twenty
years); (2) software application code that is amortized over three years; and (3) software licenses
with an estimated useful life of five years. All intangible assets are subject to impairment tests
on an annual or periodic basis. The impairment test consists of a comparison of the fair value of
the intangible asset with its carrying amount. If the carrying amount of an intangible asset
exceeds its fair value, an impairment loss in an amount equal to that excess is recognized.
Amortizing intangibles are currently evaluated for impairment using the methodology set forth in
SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (codified in FASB ASC Topic 360).
Impairment of Long-lived Assets The Company evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset may no longer be
recoverable. If the estimated future cash flows (undiscounted and without interest charges) from
the use of an asset are less than the carrying value, a write-down would be recorded to reduce the
related asset to its estimated fair value. For purposes of estimating future cash flows from
impaired assets, the Company groups assets at the lowest level from which there is identifiable
cash flows that are largely independent of the cash flow of other groups of assets. There have been
no impairment charges recorded by the Company.
Fair Value of Financial Instruments SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, (codified in FASB ASC Topic 85), requires the Company to disclose estimated fair
values of financial instruments. The recorded value of accounts receivables, related party
receivables, related party payables, accounts payable and accrued expenses approximate their fair
values based on their short-term nature. The recorded values of long-term debt and liabilities
approximate fair value.
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Income
Taxes The Company utilizes FAS No. 109, Accounting for Income Taxes, (codified in FASB
ASC Topic 740), which requires recognition of deferred tax assets and liabilities for expected
future tax consequences of events that were included in the financial statements or tax returns.
Under this method, deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial reporting amounts
at each period end based on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be realized. For IPA
China, the statutory corporate income tax rate for foreign enterprises in the PRC is 25% for 2008
and 2009. For 2008, IPA China was eligible for a reduced income tax at 50% of the normal income
tax rate. Beginning January 1, 2009, IPA China will be subjected to the normal income tax rate.
IPA BVI is a British Virgin Islands international company and not subject to any United States
income taxes. The Company does not have any deferred tax assets or liabilities recorded for the
periods covered by the accompanying financial statements.
Revenue Recognition Product Revenue. VIASPACE has generated revenues to date on product
revenue shipments. In accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition
(SAB No. 104) (codified in FASB ASC Topic 605), VIASPACE recognizes product revenue provided that
(1) persuasive evidence of an arrangement exists, (2) delivery to the customer has occurred, (3)
the selling price is fixed or determinable and (4) collection is reasonably assured. Delivery is
considered to have occurred when title and risk of loss have transferred to the customer. The price
is considered fixed or determinable when it is not subject to refund or adjustments. Our standard
shipping terms are freight on board shipping point. If the Company ships product whereby a
customer has a right of return or review period, the Company does not recognize revenue until the
right of return or review period has lapsed. Prior to the period lapsing, this revenue would be
recorded as deferred revenue on the Companys Balance Sheet.
Product Development Revenue on Fixed-Price Contracts With Milestone Values Defined.
Ionfinity has generated revenues to date on fixed-price contracts for government contracts. These
contracts have clear milestones and deliverables with distinct values assigned to each milestone.
The government is not obligated to pay Ionfinity the complete value of the contract and can cancel
the contract if the Company fails to meet a milestone. Although the government can cancel the
contract if a milestone is not met, the Company is not required to refund any payments for prior
milestones that have been approved and paid by the government. The milestones do not require the
delivery of multiple elements as noted in Emerging Issues Task Force (EITF) Issue 00-21 Revenue
Arrangements with Multiple Deliverables (EITF No. 00-21) (codified in FASB ASC Topic 605),. In
accordance with SAB No. 104, the Company treats each milestone as an individual revenue agreement
and only recognizes revenue for each milestone when all the conditions of SAB 104 defined earlier
are met.
Framed art sales. In accordance with SAB No. 104, IPA BVI and IPA China recognize product
revenue provided: (1) persuasive evidence of an arrangement exists, (2) delivery to the customer
has occurred, (3) the selling price is fixed or determinable and (4) collection is reasonably
assured. Delivery is considered to have occurred when title and risk of loss have transferred to
the customer. The price is considered fixed or determinable when it is not subject to refund or
adjustments. Our standard shipping terms are free on board shipping point. Some of the Companys
products are sold in the PRC and are subject to Chinese value-added tax. This VAT may be offset by
VAT paid by the Company on raw materials and other materials included in the cost of producing
their finished product. Revenue is recorded net of VAT taxes.
Cost of Goods Sold Cost of goods sold consists primarily of material costs, employee
compensation, depreciation and related expenses, which are directly attributable to the production
of products. Any write-down of inventory to lower of cost or market is also recorded in cost of
goods sold.
Foreign Currency Translation and Comprehensive Income (Loss) IPA Chinas functional currency is
the Renminbi (RMB). For financial reporting purposes, RMB has been translated into United States
dollars (USD) as the reporting currency. Assets and liabilities are translated at the exchange
rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate
of exchange prevailing during the reporting period. Translation adjustments arising from the use
of different exchange rates from period to period are included as a component of stockholders
equity as Accumulated other comprehensive income. Gains and losses resulting from foreign
currency transactions are included in income. There has been no significant fluctuation in exchange
rate for the conversion of RMB to USD after the balance sheet date. IPA BVIs sales are
denominated in USD.
Segment Reporting and Geographic Information SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information (codified in FASB ASC Topic 280) requires use of the
management approach model for segment reporting. The management approach model is based on the
way a companys management organizes segments within the company for making operating decisions and
assessing performance. Reportable segments are based on products and services, geography, legal
structure, management structure, or any other manner in which management disaggregates a company.
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Stock Based Compensation VIASPACE and DMFCC have stock-based compensation plans. Effective with
VIASPACE and DMFCCs fiscal year that began January 1, 2006, the Company adopted the accounting and
disclosure provisions of SFAS No. 123(R), Share-Based Payments (SFAS No. 123(R)) (codified in
FASB ASC Topic 718), using the modified prospective application transition method. The Company
accounts for equity instruments issued to consultants and vendors in exchange for goods and
services in accordance with the provisions of EITF Issue No. 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling
Goods or Services, and EITF Issue No. 00-18, 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 vendors 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 EITF Issue No. 00-18, an asset acquired in exchange for the issuance
of fully vested, non-forfeitable equity instruments should not be presented or classified as an
offset to equity on the grantors 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
consolidated balance sheet.
Net Income (Loss) Per Share The Company computes net loss per share in accordance with SFAS No.
128, Earnings per Share (SFAS No. 128) (codified in FASB ASC Topic 260), and SEC SAB No. 98
(SAB No. 98). Under the provisions of SFAS No. 128 and SAB No. 98, basic and diluted net loss per
share is computed by dividing the net loss available to common stockholders for the period by the
weighted average number of shares of common stock outstanding during the period.
Research and Development The Company charges research and development expenses to operations as
incurred.
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following at September 30, 2009 and December 31,
2008, respectively:
2009 | 2008 | |||||||
(Unaudited) | ||||||||
U.S. Government customers |
$ | 67,000 | $ | 32,000 | ||||
Framed artwork customers |
508,000 | 247,000 | ||||||
Total accounts receivable |
575,000 | 279,000 | ||||||
Less: Allowance for doubtful accounts |
(18,000 | ) | | |||||
Accounts receivable, net |
$ | 557,000 | $ | 279,000 | ||||
NOTE 3 PREPAID EXPENSES
During 2008 and 2009, the Company entered into agreements with certain of its consultants and
vendors whereby the Company issued registered shares of the Companys common stock under an
existing registration statement on Form S-3 and an existing registration statement on Form S-8 in
exchange for future services to be provided to the Company. As of September 30, 2009 and December
31, 2008, the remaining value of these agreements was $474,000 (unaudited) and $187,000,
respectively, which is included in prepaid expenses in the accompanying consolidated balance
sheets.
On August 25, 2008, the Board of Directors of the Company awarded nine million shares each to Dr.
Carl Kukkonen, CEO; Mr. Amjad Abdallat, COO; and Mr. Stephen Muzi, CFO; as compensation for
services rendered to the Company. In addition, one million shares were awarded to Mr. Rick
Calacci, Director, for services rendered to the Company. All of these shares had a one-year
restriction attached to them that expired August 24, 2009. The value of the shares on the date
of grant was $775,500 which was expensed monthly through August 24, 2009. As of September 30, 2009
and December 31, 2008, the unamortized value of these common shares was zero (unaudited) and
$501,000, respectively, and is included in prepaid expenses in the accompanying consolidated
balance sheets.
Other prepaid expenses were $49,000 (unaudited) and $109,000 at September 30, 2009 and December 31,
2008, respectively.
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NOTE 4 FIXED ASSETS
Fixed assets are comprised of the following at September 30, 2009 and December 31, 2008,
respectively:
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Computer equipment and office equipment |
$ | 216,000 | $ | 369,000 | ||||
Machinery and equipment |
256,000 | 206,000 | ||||||
Building |
627,000 | 606,000 | ||||||
Vehicles |
144,000 | 144,000 | ||||||
Leasehold improvements |
1,000 | 26,000 | ||||||
Total property and equipment |
1,244,000 | 1,351,000 | ||||||
Less: Accumulated depreciation |
480,000 | 558,000 | ||||||
Fixed assets, net |
$ | 764,000 | $ | 793,000 | ||||
NOTE 5 LAND USE RIGHT
Land use right is composed of the following at September 30, 2009 and December 31, 2008,
respectively:
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Land use right |
$ | 669,000 | $ | 605,000 | ||||
Less: Accumulated amortization |
112,000 | 91,000 | ||||||
Land use right, net |
$ | 557,000 | $ | 514,000 | ||||
The amortization for the next five years will be: 2010 $38,000; 2011 $38,000; 2012 $33,000;
2013 $30,000; and 2014 $20,000.
NOTE 6 INTANGIBLE ASSETS
Intellectual Property
Intangible asset balances related to intellectual property are comprised of the following at
September 30, 2009 and December 31, 2008, respectively:
2009 | 2008 | |||||||
(Unaudited) | ||||||||
License to patent |
$ | 380,000 | $ | 380,000 | ||||
Less: Accumulated amortization |
213,000 | 201,000 | ||||||
Intellectual property, net |
$ | 167,000 | $ | 179,000 | ||||
The amortization expense for the next five years will be $17,000 in each year.
Grass License
As more fully explained in Note 8, the Company acquired IPA China and IPA BVI on October 21, 2008.
IPA China has a worldwide license to cultivate and sell a fast-growing high yield hybrid grass
called Giant King Grass that has the potential to be used in the production of nonfood biofuels
and, in the more immediate term, animal feedstock for dairy cows, pigs, sheep, goats, fish and
other animals. The Company issued 30,576,007 of its common shares to the licensor of the Giant
King Grass valued at $507,000 on the date of acquisition. The grass license is amortized over an
estimated useful life of 20 years. For the nine months ended September 30, 2009, $23,000 was
recorded as amortization expense. The ending balance of license to grass, net was $484,000
(unaudited) and $503,000 at September 30, 2009 and December 31, 2008, respectively. The
amortization expense for the next five years will be $25,000 in each year.
Goodwill
As more fully explained in Note 8, the Company acquired IPA China and IPA BVI on October 21, 2008
and recorded goodwill of $12,322,000 related to the acquisition.
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NOTE 7 OWNERSHIP INTEREST IN AFFILIATED COMPANIES
DMFCC. As of September 30, 2009 and December 31, 2008, the Company owned 71.4% of the outstanding
shares of DMFCC.
VGE. As of September 30, 2009 and December 31, 2008, the Company owned 59.7% of the outstanding
shares of VGE.
Ionfinity. As of September 30, 2009 and December 31, 2008, the Company owned 46.3% of the
outstanding membership interests of Ionfinity. The Company has two seats on Ionfinitys board of
managers out of four total seats. The Company provides management and accounting services for
Ionfinity. The Company also acts as tax partner for Ionfinity for income tax purposes. Due to
these factors, Ionfinity is considered economically and organizationally dependent on the Company
and as such is included in the Consolidated Financial Statements of the Company. The minority
interest held by other members is disclosed separately in the Companys Consolidated Financial
Statements.
VIASPACE Security. As of September 30, 2009 and December 31, 2008, the Company owned 100% of the
outstanding shares of VIASPACE Security. This subsidiary is currently inactive as the assets of
VIASPACE Security were sold to a third party on December 22, 2008.
Concentric Water. As of September 30, 2009 and December 31, 2008, the Company owned 100% of the
membership interests of Concentric Water. This subsidiary is currently inactive.
NOTE 8 ACQUISITION OF IPA
On October 21, 2008, VIASPACE and VGE entered into a Securities Purchase Agreement (the Purchase
Agreement) with Sung Hsien Chang (Chang), and China Gate Technology Co., Ltd., a Brunei
Darussalam company (Licensor). Under the Purchase Agreement, we agreed to acquire 100% of IPA
BVI, and the entire equity interest of IPA China from Chang, the sole shareholder of IPA BVI and
IPA China. In exchange, VIASPACE agreed to pay $15.832 million in a combination of cash, and
newly-issued shares of VIASPACE and VGE shares. In addition, VIASPACE issued shares of its common
stock to Licensor and in exchange Licensor sublicensed certain fast growing grass technology to IPA
China.
The acquisition will be completed through two closings. At the first closing on October 21, 2008
(First Closing), VGE issued 3,500,000 newly-issued shares to Chang and his designees and
5,090,000 newly issued shares to VIASPACE. VIASPACE issued 215,384,615 shares of its common stock
to Chang and 30,576,007 shares of common stock to Licensor. Chang delivered 70% of the outstanding
common stock of IPA BVI. On June 22, 2009, the parties entered into an Amendment to the Purchase
Agreement that extended the Second Closing to August 21, 2009.
On August 21, 2009, the parties entered into a second Amendment to the Purchase Agreement that the
VGE shares held by Chang and others were no longer subject to forfeiture even if the Second Closing
did not occur. This amendment also extended the Second Closing to November 21, 2009. The Second
Closing is scheduled for November 21, 2009, and VIASPACE is to pay $4,800,000 plus interest to
Chang. Interest on the Cash Consideration shall accrue at 6% for the first six months after the
First Closing, and then 18% until June 10, 2009, and then at an annual rate of 6%. VIASPACE shall
also issue 1.8% of its then outstanding shares of common stock as of the Second Closing to
Licensor. Chang shall deliver the remaining 30% of the outstanding shares of IPA BVI to VGE even
if the Second Closing does not occur. Chang will also cause IPA China to be a wholly-owned subsidiary
of IPA BVI including obtaining all governmental approvals required for such transfer.
VGE entered into four separate two-year employment agreements with each of Carl Kukkonen, Sung
Hsien Chang, Stephen Muzi and Maclean Wang. Kukkonen would serve as Chief executive Officer, Chang
as President, Muzi as Chief Financial Officer and Wang as Managing Director of Grass Development.
Wang is also the sole shareholder to the Licensor. Kukkonen and Chang would receive a salary of
$240,000 per annum, Muzi receives $180,000 per annum and Wang receives $84,000 per annum. Each of
them is entitled to a bonus as determined by the VGE Board of Directors, customary insurance and
health benefits, 15 days paid leave per year, and reimbursement for out-of-pocket expenses in the
course of his employment.
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Under Changs employment agreement, VGE will grant him an option to purchase the number shares of
its common stock equal to four percent (4%) of VGEs total outstanding shares as of the Second
Closing Date. The purchase price of the option shares shall be eighty percent (80%) of the fair market value of such common stock as of the Second Closing Date.
The option shall vest over 24 months beginning on the date of the Employment Agreement, with 1/24
of the option shares vesting on the first day of each month that Chang is employed with VGE. Our
shareholders also entered into an agreement with Chang regarding the rights as our shareholders
(Shareholders Agreement) to elect directors.
Under Wangs employment agreement, VGE will grant him an option to purchase the number shares of
its common stock equal to four percent (4%) of VGEs total outstanding shares as of the Second
Closing Date. The purchase price of the option shares shall be eighty percent (80%) of the fair
market value of such common stock as of the Second Closing Date. The option shall vest over 24
months beginning on the date of the Employment Agreement, with 1/24 of the option shares vesting on
the first day of each month that Wang is employed with VGE.
VIASPACE and VGEs obligations to consummate the Second Closing is conditioned upon, among other
things, the transfer of the equity of IPA China from Chang to IPA BVI and the execution of the
assignment of the right to grow and harvest fast-growing proprietary grasses from Licensor to IPA
China.
Also, pursuant to the second Amendment, VIASPACE irrevocably assigned to Chang and Licensor the
VIASPACE shares issued to Chang and Licensor in the First Closing of the Purchase Agreement.
Licensor agreed to limit sales of VIASPACE common shares issued at the First Closing to 8,800,000
shares in any 90-day period. Additionally, in the event that the Second Closing fails to occur and
conditions to VIASPACEs closing obligations to the Second Closing as set forth in the Purchase
Agreement have been satisfied, then (1) Chang and/or his designees shall retain VGE Shares, (2)
VIASPACE shall transfer all shares of VGE common stock it holds to Chang, (3) Chang will deliver
the remaining 30% equity interest of IPA-BVI to VGE, such that VGE shall receive all equity
securities of IPA-BVI, and (4) if VGEs common stock is not listed on a Trading Market as of the
Second Closing Deadline, Chang shall also receive such number of shares of VIASPACE common stock so
that Chang shall own a majority of the outstanding shares of VIASPACE common stock as of the date
of issuance.
On October 13, 2009 the parties to the Purchase Agreement entered into the third Amendment to the
Securities Purchase Agreement in which the parties agreed that in the event that the Second Closing
fails to occur and VIASPACEs closing conditions to the Second Closing have been satisfied by
Chang, then (1) Chang and his designees shall retain the 3,500,000 VGE shares issued at the First
Closing, (2) VIASPACE shall transfer all shares of VGE common stock it holds to Chang, (3) Chang
will deliver the remaining 30% equity interest of IPA BVI to VGE, such that VGE shall receive all
equity securities of IPA BVI, and (4) if VGEs common stock is not listed on a Trading Market as of
the Second Closing Deadline, Chang shall also receive such number of shares of VIASPACE common
stock so that Chang shall own a majority of the outstanding shares of VIASPACE common stock as of
the date of issuance. In addition, the parties clarified that the three year non-competition
clause to engage in the grass business starting from the date of the First Closing does not apply
to VGE and Messrs. Kukkonen and Muzi, but only to VIASPACE and its other affiliates. Further, we
deleted the obligation of Licensor to assign the grass license to VGE.
As of the First Closing, Chang warranted that IPA BVI and IPA Chinas cash equivalents (which
includes all cash plus accounts receivables less accounts payable) will be $3 million. Any
difference between $3 million and the actual cash equivalents on the financial records of IPA BVI
and IPA China as of the First Closing is a Cash Shortfall. Chang agrees to deposit the Cash
Shortfall into IPA BVIs bank account once the amount is determined. In December 2008, Chang
deposited $1,580,000 in the bank account of IPA BVI related to this Cash Shortfall.
As required by the Purchase Agreement, VGE filed a Form S-1 Registration Statement with the SEC on
June 3, 2009 covering the resale of all or such maximum portion of VGE common stock issued pursuant
to the Purchase Agreement as permitted by SEC regulations. The second Amendment extends until
November 21, 2009, the date that VGE shall use its best efforts to qualify its Common Stock for
quotation on a trading market. If VGEs Registration Statement is declared effective by the SEC on
or before November 21, 2009, the Second Closing Deadline will be extended until December 21, 2009.
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Provided the Second Closing has occurred, if VGE common stock is not listed on a trading market
within 396 days after the First Closing, then VIASPACE will issue to Chang the number of shares of
its common stock equivalent to $5,600,000. The stock price will be calculated as the average
closing price of VIASPACEs common stock during the 60 day period prior to and including the Second
Closing Date.
Licensor and Chang each represents and covenants that at least 100 hectares of arable land in
Guangdong province in China will be available for grass farming by IPA China within 12 months after
the First Closing Date. Any agreement regarding such land use rights shall grant the land use
rights to IPA China, but shall be assignable to VGE at VGEs option. The term of such agreement,
including possible renewals, shall be at least 10 years.
The value paid by VIASPACE and VGE for the acquisition was $15,832,000 composed of: fair market
value of VIASPACE stock issued for assets acquired $4,589,000; VIASPACE loan to Mr. Sung Chang
$4,800,000; and VIASPACE minority interest in VGE $6,443,000. The net assets acquired totaled
$3,003,000. The excess of value paid for the acquisition in excess of net assets acquired was
assigned to: grass license $507,000 and goodwill $12,322,000 which are recorded on the balance
sheet of VIASPACE.
The acquisition of IPA occurred on October 21, 2008. The following table reflects the Companys
consolidated unaudited results of operations for the three and nine months ended September 30,
2008, as if the acquisition occurred on January 1, 2008:
Three Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2008 | 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenues
as reported |
$ | 99,000 | $ | 120,000 | ||||
Revenues
pro forma |
$ | 2,318,000 | $ | 4,829,000 | ||||
Net Income
as reported |
$ | (3,537,000 | ) | $ | (7,764,000 | ) | ||
Net Income
pro forma |
$ | (3,264,000 | ) | $ | (7,345,000 | ) | ||
Earnings per
share basic and diluted as reported |
$ | (0.01 | ) | $ | (0.02 | ) | ||
Earnings per
share basic and diluted pro forma |
$ | (0.01 | ) | $ | (0.02 | ) | ||
* | Less than $0.005 per common share |
NOTE 9 DISCONTINUED OPERATIONS
Return of Battery License to Caltech
On August 11, 2009, the Company and California Institute of Technology (Caltech) entered into an
agreement whereby the Company returned to Caltech the license it received from Caltech on August
15, 2007 related to certain electrochemical thermodynamic measurement system technology. In
exchange for the return of this license and $25,000, Caltech cancelled $134,000 in patent costs
related to the electrochemical thermodynamic measurement system technology and patent costs related
to DMFCC fuel cell technology licensed from Caltech. The Company also agreed to return its fuel
cell patents to Caltech if it ever fails to maintain the patents or if it fails by August 11, 2013
to commercialize or license one or more of the fuel cell patents received from Caltech. The
Company is free to not maintain one or more individual patents if they do not meet business
objectives in which case such individual patent shall revert back to Caltech. If the portfolio is
returned to Caltech, DMFCC will be granted a royalty-free nonexclusive license without the right to
sublicense to the patents covering the ability to make, use, sell, offer to sell and import the
items covered by the patents.
Sale of Assets of VIASPACE Security
On December 22, 2008, the Company (the Seller) entered into an Asset Purchase Agreement (the
Purchase Agreement) with Knovitech, Inc., a Delaware corporation (the Buyer). Pursuant to the
Purchase Agreement, the Company transferred certain assets described below for $479,000 (Purchase
Price). $200,000 of the Purchase Price was paid Buyer as a deposit. An additional $279,000 was
paid by Buyers assumption of certain indebtedness of Seller as evidenced by that certain
promissory note executed and delivered by Seller in the original principal amount of $250,000 plus
accrued interest of $29,000 executed by Seller in favor of Rhino Steel Manufacturing Ltd. and
subsequently acquired by SNK Capital Trust (Rhino Note).
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The Company transferred assets consisting of trade and assumed names (except for the trade name
VIASPACE and Direct Methanol Fuel Cell Corporation DMFCC and Ionfinity); customer lists and
customer orders received after Closing; Sellers licenses or other contractual arrangements for
SHINE, an inference engine technology, and any related licenses from JPL/Caltech for use of
SHINE; Sellers intellectual property relating to the AIMS Perimeter Surveillance Radar solution
(by DMT) (AIMS Radar) and also the deposit on the radar equipment; Sellers intellectual property
relating to: (i) ViaChange technology, (ii) U-Hunter technology; and (iii) MUDSS technology;
certain equipment owned by Seller consisting of (i) desktop and laptop computers used by Sellers
consultants or employees and (ii) test and manufacturing equipment needed to carry on the business
units acquired by the Buyer; all other intangible assets related to the assets set forth in
subsections (a) through (h) listed above; all uniform resource locators (URLs) associated with
the domain names of the Seller related, directly or indirectly, to the purchased assets as
described in sub-sections (a) through (i) above, including, without limitation, any websites
related to the Purchased Assets together with all content of such websites but excluding URLs and
websites incorporating the trade name VIASPACE, or relating to DMFCC (as defined below);
Assets excluded from the transfer, included among other things: trademark, logo, trade name and
corporate name, URLs, websites relating to and incorporating the name VIASPACE, and Direct
Methanol Fuel Cell Corporation, and DMFCC; Sellers Equipment including without limitation,
furniture, fixtures, computers and tenant improvements and computer servers, not otherwise
expressly included; the energy businesses, including without limitation the humidity sensor,
battery tester, and battery businesses and also Sellers member interest in Ionfinity LLC; Sellers
Accounts Receivable for products or services arising out of transactions prior to closing; and
equity securities of, or any other rights, interests or privileges pertaining to any of Sellers
subsidiaries.
Seller granted Buyer an option to purchase the humidity sensor, battery tester, and battery
businesses and Sellers share in Ionfinity LLC for $400,000. This option expired April 18, 2009.
The Company recorded a gain on sale of assets related to this Purchase Agreement of $452,000 in the
fourth quarter of 2008. Discontinued operations of $1,193,000 for the nine months ended September
30, 2008, related to the operations that were sold are shown in the accompanying consolidated
statements of operations related to this business that was sold.
Sale of Humidity Sensor Business Unit
On April 20, 2009, the Company (Seller) entered into an Asset Purchase and Support Services
Agreement (the Landtec Purchase Agreement) with Landtec North America, a California corporation
(Buyer). Pursuant to the Landtec Purchase Agreement, the Company transferred certain assets (the
Purchased Assets) described below to the Buyer. The Purchased Assets primarily included assets
related to the Sellers tunable diode laser-based humidity sensor business. Seller also agreed to
cause certain of its consultants and employees to provide support services after the closing
(Support Services).
Buyer agreed to pay Seller $210,000 for the purchase of the Purchased Assets and for the Support
Services allocated as follows:
(a) | Sixty Thousand Dollars ($60,000) for the Purchased Assets payable at the time of the closing; and | |
(b) | One Hundred Fifty Thousand ($150,000) for the Support Services of which One Hundred Ten Thousand Dollars ($110,000) will be payable at the Closing and Forty Thousand Dollars ($40,000) will be payable sixty (60) days after the Closing conditioned upon performance of the Support Services. |
Purchased Assets include:
(a) | trade and assumed names VIASENSOR; HS-1000, HS-2000, HS-3000, and all variations; | |
(b) | customer lists and customer orders received after Closing; | |
(c) | Sellers patent rights and intellectual property related to the humidity sensor including issued US patent number 7,499,169, and any other patent applications, brochures, manuals, sales presentations and assembly drawings, instructions, software, calibration instructions and shipping instructions; | |
(d) | parts inventory; | |
(e) | prototype and tradeshow demonstration units; | |
(f) | manufacturing equipment and calibration equipment owned by the company including computers and monitors, IC programmer and oscilloscope; | |
(g) | Drawings of all parts and/or components of the humidity sensor (a complete printed set and the original CAD); | |
(h) | Assembly drawings for the humidity sensor (a complete printed set and the original CAD files); | |
(i) | Works instructions explaining how to assemble the humidity sensor; |
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(j) | Works instructions explaining how to calibrate the humidity sensor including acceptable limits; | |
(k) | A complete bill of materials for the humidity sensor; | |
(l) | A complete list of suppliers of each part or assembly; | |
(m) | Circuit diagrams for all circuits in the humidity sensor including interconnection diagrams; | |
(n) | Printed Circuit Board (PCB) information for each PCB within the humidity sensor, a complete bill of materials for each PCB, a full set of Gerber files for each PCB; | |
(o) | Original CAD design file for each PCB; | |
(p) | Purchase specification/special considerations for each PCB; | |
(q) | Software files containing original source code; | |
(r) | Software release notes, including known bugs; | |
(s) | Copy of compiler used and any related license; | |
(t) | Copy of compiled code as binary file (so you can still make copies even if compiler problems); | |
(u) | All software documentation; | |
(v) | Software version control log; | |
(w) | Details of development environment; | |
(x) | Any test gear related to the humidity sensor; | |
(y) | List of customers and contact information; | |
(z) | List of distributors and contact information; and | |
(aa) | all inventions, technology, processes, concepts (documented or undocumented), patents (and the right to recover for past infringements thereof), patent applications, licenses, trade secrets, trademarks (and the right to recover for past infringements thereof), designs and drawings of Seller elated to the humidity sensor. | |
(bb) | rights of Seller under all agreements relating to such assets set forth in sub-sections (a) through (aa), above, including but not limited to distributor, representative, teaming agreements. | |
(cc) | all right, title and interest of Seller in and to all Intellectual Property rights relating to such assets set forth in sub-sections (a) through (aa) above, including without limitation all books, payment records; accounts; correspondence; production records; technical, accounting and procedural manuals; development and design data; and other useful business records utilized in the conduct of or relating to the Purchased Assets. |
Assets excluded from the transfer, included among other things:
(a) | Sellers rights under this Agreement; | |
(b) | Sellers Accounts Receivable for products or services arising out of transactions prior to Closing; | |
(c) | Securities of VGE, VIASPACE, DMFCC and all assets of VGE, VIASPACE, DMFCC, and all securities and assets not explicitly covered under this Agreement. |
Seller, through its designated representatives Carl Kukkonen, CEO and Stephen Muzi, CFO, will
provide support and consulting services to Buyer relating to the manufacturing of the Assets and
the modification of the Assets to Buyer applications, including testing and troubleshooting, for
sixty (60) days after the sale.
Seller and Buyer mutually indemnified the other party for losses arising from
(i) | the breach of any representation or warranty made by Seller contained in the Agreement; | |
(ii) | the breach of any covenant or agreement by Seller contained in the Agreement; | |
(iii) | any and all Losses suffered or incurred by Buyer by reason of or in connection with any claim or cause of action of any third party to the extent arising out of any action, inaction, event, condition, liability or obligation of Seller occurring or existing prior to the Closing; and, | |
(iv) | all liabilities of Seller, none of which shall be assumed by Buyer. |
Seller and its principals also agreed not to own, manage, operate, join or work for any business
that is directly competitive with the Purchased Assets for a three year period.
On April 20, 2009, pursuant to the terms of the Landtec Purchase Agreement, the Company closed the
transaction to sell assets related to its humidity sensor business for $210,000. Seller received
$170,000 on April 20, 2009 from Buyer and received $40,000 on June 22, 2009.
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The Company recorded a gain on sale of assets related to this Landtec Purchase Agreement of
$176,000 in the second quarter of 2009. Discontinued operations of $390,000 for the nine months
ended September 30, 2008, related to the operations that were sold are shown in the accompanying
consolidated statements of operations related to this business that was sold.
NOTE
10 STOCK OPTIONS AND WARRANTS
VIASPACE Inc. 2005 Stock Incentive Plan
On October 20, 2005, the Board of Directors (the Board) 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 was also approved by the holders of a majority of the Companys common
stock. The Plan originally provided for the reservation for issuance under the Plan of 28,000,000
shares of the Companys 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 Companys common stock. On February
14, 2008, the Board and the holders of a majority of the Companys common stock approved an
amendment to the Plan which increases 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 Form S-8 Registration
Statement registering 71,000,000 shares of the Companys common stock. In addition, effective
January 1, 2009 and each January 1 thereafter during the term of the Plan, the maximum aggregate
number of shares under the Plan are to be increased so that the maximum aggregate 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 Form S-8 Registration Statement registering 146,500,000 shares of the Companys common stock
based on the number of shares of common stock outstanding on December 31, 2008.
The Plan is designed to provide additional incentive to employees, directors and consultants of the
Company through the awarding of incentive stock options, non-statutory stock options, stock
appreciation rights, restricted stock and other awards. On February 13, 2006, the Board 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 Companys
common stock. The 2006 Director Plan awards a one-time grant of 125,000 options, or such other
number of options as determined by the Board of Directors as plan administrator of the 2006
Director Plan, to newly appointed outside members of the Companys Board and annual grants of
50,000 options, or such other number of options as determined by the Board of Directors, to outside
members of the Board that have served at least six months.
The Companys Board 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 date of the grant. The term of
the options granted under the Plan cannot be greater than 10 years. Options to employees and
directors generally vest over four years but the actual length of the vesting term is determined by
the Board. An aggregate of 117,819,554 shares were available for future grant at September 30,
2009. During the nine months ended September 30, 2009, the Company granted 19,538,462 stock
options to board members, employees and consultants to purchase common shares with exercise prices
of ranging between $0.0094 and $0.0225 per share. During this same period, no stock options were
cancelled due to employees, directors or consultants terminating employment or service with the
Company.
For the nine months ended September 30, 2009, the Company issued 23,084,563 shares of common stock
under the Plan to employees, directors and consultants for services provided to the Company. The
stock compensation expense recorded relating to these share issuances was based on fair market
value on the date of grant and totaled $352,000 for the nine months ended September 30, 2009.
SFAS No. 123(R) 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. SFAS
No. 123(R) 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 Companys Consolidated Statements of Operations.
The Company elected to adopt the detailed method provided in SFAS No. 123(R) for calculating the
beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects
of employee stock-based compensation, and to determine the
subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the income tax
effects of employee stock-based compensation awards that are outstanding upon the adoption of SFAS
No. 123(R).
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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 Companys dividend
history. The stock volatility factor is based on the historical volatility of the Companys stock
price. The expected life of an option grant is based on managements 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. For stock options issued, including
those issued to employees, directors, consultants and advisory board members for the three or nine
months ended September 30, 2009 and 2008, the fair value was estimated at the date of grant using
the following range of assumptions:
September 30, 2009 | September 30, 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
Risk free interest rate |
2.53% 3.31 | % | 3.28% 3.42 | % | ||||
Dividends |
0 | % | 0 | % | ||||
Volatility factor |
126.13% 134.16 | % | 118.81% 122.90 | % | ||||
Expected life |
6.67 years | 6.67 years | ||||||
Annual forfeiture rate |
28.6% 49.9 | % | 0% 16.3 | % |
Employee and Director Option Grants
The following table summarizes activity for employees and directors in the Companys Plan for 2009:
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Remaining | Aggregate | ||||||||||||||
Number of | Price Per | Contractual | Intrinsic | |||||||||||||
Shares | Share | Term In Years | Value | |||||||||||||
Outstanding at December 31, 2008 |
8,130,000 | $ | 0.04 | |||||||||||||
Granted |
18,000,000 | 0.02 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
Outstanding at September 30, 2009 |
26,130,000 | $ | 0.03 | 8.5 | $ | 79,000 | ||||||||||
Exercisable at September 30, 2009 |
6,786,875 | $ | 0.03 | 8.5 | $ | 32,000 | ||||||||||
The weighted-average grant date fair value of stock options granted to employees and directors
during 2009 was $0.0143 per share. The Company recorded $166,000 of compensation expense for
employee and director stock options during 2009. At September 30, 2009, there was a total of
$302,000 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 two and one half years. At September 30, 2009, the fair value of options vested for
employees and directors was $164,000. There were no options exercised during 2009.
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Consultant Option Grants
The following table summarizes activity for consultants in the Companys Plan for 2009:
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Remaining | Aggregate | ||||||||||||||
Number of | Price Per | Contractual | Intrinsic | |||||||||||||
Shares | Share | Term In Years | Value | |||||||||||||
Outstanding at December 31, 2008 |
| $ | | |||||||||||||
Granted |
1,538,462 | 0.02 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
Outstanding at September 30, 2009 |
1,538,462 | $ | 0.02 | 2.8 | $ | 7,000 | ||||||||||
Exercisable at September 30, 2009 |
1,538,462 | $ | 0.02 | 2.8 | $ | 7,000 | ||||||||||
The weighted-average grant date fair value of stock options granted to consultants during 2009 was
$0.015 per share. The Company recorded $23,000 of compensation expense for consultant stock
options during 2009. At September 30, 2009, there was a total of zero unrecognized compensation
costs related to non-vested share-based compensation arrangements. At September 30, 2009, the fair
value of options vested for consultants was $37,000. There were no options exercised during 2009.
Direct Methanol Fuel Cell Corporation 2002 Stock Option / Stock Issuance Plan
DMFCC formed a stock-based compensation plan in 2002 entitled the 2002 Stock Option / Stock
Issuance Plan (the DMFCC Option Plan) that reserved 2,000,000 shares of DMFCC common stock for
issuance to employees, non-employee members of the board of directors of DMFCC, board members of
its parent company, consultants, and other independent advisors. As of September 30, 2009, options
to purchase 1,396,000 shares of DMFCC common stock were outstanding and 604,000 shares remained
available for grant under the DMFCC Option Plan. Of these outstanding options, 1,030,000 are
incentive stock options issued to employees and 366,000 are non-statutory stock options issued to
consultants. During the period ended September 30, 2009, DMFCC issued no stock options.
DMFCC uses the Black-Scholes option pricing model to calculate the fair market value of each option
granted. The Black-Scholes option pricing model includes assumptions for risk free interest rates,
dividends, stock volatility and expected life of an option grant. For stock options that are
issued, the fair value of each option grant is recognized as compensation expense on a
straight-line basis over the vesting period of each stock option award.
The following table summarizes activity in the DMFCC Option Plan for the period ended September 30,
2009:
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Remaining | Aggregate | ||||||||||||||
Number of | Price Per | Contractual | Intrinsic | |||||||||||||
Shares | Share | Term In Years | Value | |||||||||||||
Outstanding at December 31, 2008 |
1,396,000 | $ | .02 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
Outstanding at September 30, 2009 |
1,396,000 | $ | .02 | 5.7 | $ | 45,000 | ||||||||||
Exercisable at September 30, 2009 |
1,396,000 | $ | .02 | 5.7 | $ | 45,000 | ||||||||||
DMFCC recorded zero stock option compensation expense during 2009 and 2008. There were no options
exercised during 2008.
Warrants
The Company has issued warrants to purchase 624,000 common shares of the Company to non-affiliate
parties at exercise prices ranging from $0.30 to $0.60 per share.
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NOTE 11 LONG-TERM DEBT
Concentric Water entered into a long-term debt agreement with the Community Development Commission
(CDC) in 2004 for $100,000, with interest of 5%, monthly payments of $1,610, with the final
payment due in September 2009. The loan was secured by the assets of Concentric Water. The
Company did not make the final payment in September 2009 and is currently negotiating with the CDC
to change the payment terms.
VIASPACE Security entered into a long-term debt agreement with the CDC in 2004 for $50,000, with
interest of 5%, monthly payments of $1,151, with the final payment due in September 2009. The loan
was secured by the assets of VIASPACE Security. The Company did not make the final payment in
September 2009 and is currently negotiating with the CDC to change the payment terms.
Summary of Loans and Long-Term Debt
Loans and Long-term debt is comprised of the following at September 30, 2009 and December 31, 2008,
respectively:
2009 | 2008 | |||||||
(Unaudited) | ||||||||
CDC of the County of Los Angeles, secured, with interest at 5% due September 1, 2009 |
$ | 9,000 | $ | 9,000 | ||||
CDC of the County of Los Angeles, secured, with interest at 5% due September 1, 2009 |
35,000 | 35,000 | ||||||
Total Long-term Debt |
44,000 | 44,000 | ||||||
Less Current Portion of Long-term Debt |
44,000 | 44,000 | ||||||
Net Long-term Debt |
$ | | $ | | ||||
As discussed in Note 8, the Company is obligated to pay Sung Hsien Chang $4,800,000 on November 21,
2009, related to the Second Closing of the acquisition of IPA China and IPA BVI by VGE and the
Company. Interest expense on the $4,800,000 accrues at 6% for the first six months after the First
Closing, and then 18% until June 10, 2009, and then an annual rate of 6%. The $4,800,000 loan is
shown as a related party loan in the accompanying consolidated balance sheet. At September 30,
2009, there is accrued interest of $353,000 (unaudited) related to this loan included in accrued
expenses.
NOTE 12 STOCKHOLDERS EQUITY
Preferred Stock
As of September 30, 2009 (unaudited) and December 31, 2008, the number of authorized shares of the
Companys preferred stock was 10,000,000 shares. The par value of the preferred stock is $0.001.
There were no shares outstanding of preferred stock as of September 30, 2009 and December 31, 2008.
Common Stock
As of September 30, 2009 (unaudited) and December 31, 2008, the number of authorized shares of the
Companys common stock was 1,500,000,000 shares. The par value of the common stock is $0.001.
Common stockholders are entitled to one vote for each share held on all matters voted on by
stockholders.
As of December 31, 2008, there were 814,336,863 shares of common stock outstanding. During 2009,
the Company issued 23,084,563 shares of common stock under an existing Form S-8 Registration
Statement to employees and consultants for services provided or to be provided to the Company. In
addition, the Company issued 44,474,940 unregistered shares of common stock to employees,
directors, consultants and vendors for services provided or to be provided to the Company. All of
the share issuances in 2009 were recorded at fair market value on the date of grant. As of
September 30, 2009, there were 881,896,366 (unaudited) shares of common stock outstanding.
NOTE 13 INCOME TAX
The Company recognizes interest and/or penalties related to income tax matters in income tax
expense. The Company has accrued no interest or penalties at September 30, 2009. As of the date
of these financial statements, the 2007, 2006, and 2005 income tax years are open to the
possibility of examination by federal, state, or local taxing authorities.
The Company did not record a provision for income taxes for the nine months ended September 30,
2009 as a result of operating losses for the current fiscal year. The Company has 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. It is possible that managements 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.
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NOTE 14 RETIREMENT PLAN
Effective March 1, 2006, the Board approved and established the VIASPACE Inc. 401(k) Plan (401(k)
Plan). The 401(k) Plan covered employees of the Company and its subsidiaries. The 401(k) Plan
was closed on March 1, 2009.
NOTE 15 OPERATING SEGMENTS
The Company evaluates its reportable segments in accordance with SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS No. 131). For the three and nine months
ended September 30, 2009, the Companys Chief Executive Officer, Dr. Carl Kukkonen, was the
Companys Chief Operating Decision Maker (CODM) pursuant to SFAS No. 131. The CODM allocates
resources to the segments based on their business prospects, product development and engineering,
and marketing and strategy.
The Company operates in four reportable segments. The operations of DMFCC and VIASPACE Corporates
energy related business are included in the Energy segment. The operations of Ionfinity are
included in the Security segment. The operations of IPA China and IPA BVI are included in the
Framed Artwork segment. The operations of VGE are included in the Grass segment.
Effective with the acquisition of IPA by VGE on October 21, 2008, the Company added two reportable
segments. One is the framed-artwork segment which specializes in manufacturing and selling
high-quality, copyrighted, framed artwork to retail stores. In addition, there is a grass business
segment, which plans to grow, harvest and sell Giant King Grass as a livestock feed as well as a
future feedstock for biofuel production.
Energy Segment:
(i) | DMFCC: DMFCC is a provider of disposable fuel cartridges and intellectual property protection for manufacturers of direct methanol and other liquid hydrocarbon fuel cells. Direct methanol fuel cells are expected to be replacements for traditional batteries and are expected to gain a substantial market share in the future because they offer longer operating time as compared to current lithium ion batteries and may be instantaneously recharged by simply replacing the disposable fuel cartridge. |
(ii) | VIASPACE Corporate: VIASPACE Corporate is identifying and pursuing additional business opportunities in areas including batteries and battery test equipment, alternative fuels, and new products to conserve energy and reduce emissions. |
Security Segment:
(i) | Ionfinity: Ionfinity is working on a next-generation mass spectrometry technology, which could significantly improve the application of mass spectrometry for industrial process control and environmental monitoring and could also spawn a new class of detection systems for homeland security. |
Framed-Artwork Segment:
(i) | IPA China and IPA BVI: Specialize in manufacturing high-quality, copyrighted, framed artwork in the PRC which is sold to retail stores in the U.S. |
Grass Segment:
(i) | VGE: VGE is growing Giant King Grass in the PRC to be harvested and sold initially as a livestock feed and in the future as a feedstock for biofuel production and as a clean alternative to coal in electricity generating power plants, |
The accounting policies of the reportable segments are the same as those described in the summary
of significant accounting policies (see Note 1 to these financial statements). The Company
evaluates segment performance based on income (loss) from operations excluding infrequent and
unusual items.
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The amounts shown as Corporate Administrative Costs consist of unallocated corporate-level
operating expenses. In addition, the Company does not allocate other income/expense, net to
reportable segments.
Information on reportable segments for the three and nine months ending September 30, 2009 and 2008
are shown below:
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
September 30, 2009 | September 30, 2008 | September 30, 2009 | September 30, 2008 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenues: |
||||||||||||||||
Energy |
$ | | $ | 36,000 | $ | 57,000 | $ | 40,000 | ||||||||
Security |
171,000 | 63,000 | 533,000 | 80,000 | ||||||||||||
Framed-Artwork |
1,064,000 | | 2,935,000 | | ||||||||||||
Grass |
| | | | ||||||||||||
Total
Revenues |
$ | 1,235,000 | $ | 99,000 | $ | 3,525,000 | $ | 120,000 | ||||||||
Income (Loss) From Operations: |
||||||||||||||||
Energy |
$ | (25,000 | ) | $ | (380,000 | ) | $ | (45,000 | ) | $ | (905,000 | ) | ||||
Security |
14,000 | 15,000 | 66,000 | 6,000 | ||||||||||||
Framed-Artwork |
186,000 | | 576,000 | | ||||||||||||
Grass |
(156,000 | ) | | (676,000 | ) | | ||||||||||
Income (Loss) From Operations by Reportable Segments |
19,000 | (365,000 | ) | (79,000 | ) | (899,000 | ) | |||||||||
Corporate Administrative Costs |
(134,000 | ) | (1,162,000 | ) | (451,000 | ) | (3,088,000 | ) | ||||||||
Corporate Stock Compensation and Warrant
Expense |
(459,000 | ) | (1,270,000 | ) | (1,439,000 | ) | (2,404,000 | ) | ||||||||
Loss From Operations |
$ | (574,000 | ) | $ | (2,797,000 | ) | $ | (1,969,000 | ) | $ | (6,391,000 | ) | ||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Assets: |
||||||||
Energy |
$ | 176,000 | $ | 202,000 | ||||
Security |
182,000 | 134,000 | ||||||
Framed-Artwork |
4,922,000 | 5,179,000 | ||||||
Grass |
199,000 | 193,000 | ||||||
VIASPACE Corporate |
13,415,000 | 13,662,000 | ||||||
Total Assets |
$ | 18,894,000 | $ | 19,370,000 | ||||
The Company had one framed-artwork customer who made up 67% and 63% of the consolidated revenues of
the Company for the three and nine months ended September 30, 2009, respectively.
NOTE 16 NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128. Under the provision of SFAS No. 128, 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 SFAS
No. 128 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) for the three and
nine months ended September 30, 2009 and 2008 that are not included in the loss per share
calculation since their effect would be anti-dilutive:
(Unaudited) | ||||||||
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Stock Options |
27,668,462 | 16,082,000 | ||||||
Warrants |
624,000 | 624,000 |
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The following table sets forth the computation of basic and diluted net loss per share for the nine
months ended September 30, 2009 and 2008, respectively:
(Unaudited) | (Unaudited) | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Basic and diluted net loss per share: |
||||||||||||||||
Numerator: |
||||||||||||||||
Net loss attributable to common stock |
$ | (664,000 | ) | $ | (3,537,000 | ) | $ | (2,070,000 | ) | $ | (7,764,000 | ) | ||||
Denominator: |
||||||||||||||||
Weighted average shares of common stock outstanding |
878,922,545 | 458,693,837 | 858,652,181 | 415,897,314 | ||||||||||||
Net loss per share of common stock, basic and diluted |
$ | * | $ | (0.01 | ) | $ | * | $ | (0.02 | ) | ||||||
* | Less than $0.005 per share |
NOTE 17 RELATED PARTY TRANSACTIONS
Other than as listed below, we have not been a party to any significant transactions, proposed
transactions, or series of transactions, and in which, to our knowledge, any of our directors,
officers, five percent beneficial security holders, or any member of the immediate family of the
foregoing persons has had or will have a direct or indirect material interest.
Related Party Receivables
Mr. Sung Hsien Chang, President of VGE and CEO of IPA China and IPA BVI, owes $1,009,000 to IPA BVI
at September 30, 2009. JJ International (JJ) is a company owned by Sung Hsien Chang that
operates separately and also does business with IPA China. JJ owes IPA BVI $706,000 at September
30, 2009. IPA China recorded revenues of $233,000 during the nine months ended September 30, 2009
from JJ. An employee of IPA China owes $204,000 to VGE at September 30, 2009. Total related
party receivables are $1,919,000 at September 30, 2009.
Related Party Payables
At September 30, 2009, the Company included as a related party payable $173,000 representing
accrued salary and partner draw due to Dr. Kukkonen, CEO, and Mr. Amjad Abdallat, former VP, by
ViaSpace Technologies, LLC (ViaSpace LLC) prior to its merger with the Company on June 22, 2005.
These amounts were accrued by ViaSpace LLC prior to December 31, 2002. In addition, at September
30, 2009, the Company owes $230,000 to Dr. Kukkonen and Mr. Abdallat for earned salary in 2008 and
2009 that has not been paid and is included in related party payables at September 30, 2009.
On October 31, 2006, the Company entered into a Consulting Agreement (the Consulting Agreement)
with Denda Associates Co. Ltd. (Denda Associates). Pursuant to the Consulting Agreement, Denda
Associates will provide the Company with consulting and business development expertise to assist
the Company with expanding into the Japanese market. Denda Associates was founded by Mr. Nobuyuki
Denda, who serves as its CEO and who also served on the Board of Directors of the Company. Mr.
Denda resigned from the Board of Directors effective July 1, 2008 for personal health reasons. As
of September 30, 2009, $11,000 is owed to Mr. Denda.
As of September 30, 2009, VGE owes salary payments of $72,000 to related parties including Mr. Sung
Chang, the President and a director of VGE.
As of September 30, 2009, Ionfinity owes salary payments of $4,000 to related parties including two
directors of Ionfinity.
IPA China owes $19,000 to an employee of IPA China at September 30, 2009.
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Total related party payables are $509,000 at September 30, 2009.
As discussed in Note 8, the Company is obligated to pay Sung Hsien Chang $4,800,000 on November 21,
2009, related to the Second Closing of the acquisition of IPA China and IPA BVI by VGE and the
Company. Interest expense on the $4,800,000 accrues at 6% for the first six months after the First
Closing, and then 18% until June 10, 2009, and then an annual rate of 6%. The $4,800,000 loan is
shown as a related party loan in the accompanying consolidated balance sheet. At September 30,
2009, there is accrued interest of $353,000 (unaudited) related to this loan included in accrued
expenses.
Employment Agreements
On October 21, 2008, VGE entered into two-year employment agreements with each of Dr. Carl
Kukkonen, Mr. Sung Hsien Chang, Mr. Stephen Muzi and Mr. Maclean Wang. Dr. Kukkonen would serve as
Chief executive Officer, Mr. Chang as President, Mr. Muzi as Chief Financial Officer, Treasurer and
Secretary and Mr. Wang as Managing Director of Grass Development. Dr. Kukkonen and Mr. Chang would
receive a salary of $240,000 per annum, Mr. Muzi receives $180,000 per annum and Mr. Wang receives
$84,000 per annum. Each of them is entitled to a bonus as determined by the VGE Board of
Directors, customary insurance and health benefits, 15 days paid leave per year, and reimbursement
for out-of-pocket expenses in the course of his employment. These employment agreements are
terminated if the Company fails to achieve the Second Closing of IPA BVI and IPA China as discussed
in Note 8.
NOTE 18 OTHER COMMITMENTS AND CONTINGENCIES
Leases
On May 1, 2006, the Company relocated its office and laboratory space to a new location and entered
into a five year lease. Future minimum lease payments due under this lease subsequent to September
30, 2009 are as follows:
Fiscal Year | ||||
2010 |
$ | 96,000 | ||
2011 |
80,000 | |||
Total minimum lease payments |
$ | 176,000 | ||
The Company vacated its office space on March 1, 2009. The Company and the landlord are actively
looking for a new tenant to assume this lease. Rent expense charged to operations for 2009 and
2008 was $101,000 and $35,000, respectively.
Operations in the PRC
IPA Chinas operations in the PRC are subject to specific considerations and significant risks not
typically associated with companies in the North America and Western Europe. These include risks
associated with, among others, the political, economic and legal environments and foreign currency
exchange. The Companys results may be adversely affected by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things.
The Companys sales, purchases and expenses transactions are denominated in RMB and all of the
Companys assets and liabilities are also denominated in RMB. The RMB is not freely convertible
into foreign currencies under the current law. In China, foreign exchange transactions are required
by law to be transacted only by authorized financial institutions. Remittances in currencies other
than RMB may require certain supporting documentation in order to affect the remittance.
Litigation
The Company is not party to any legal proceedings at the present time.
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NOTE 19 FINANCIAL ACCOUNTING DEVELOPMENTS
In April 2009, the Financial Accounting Standards Board (FASB) issued FSP No. SFAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly (FSP No. SFAS 157-4). FSP No. SFAS 157-4, which is codified in FASB ASC Topics
820-10-35-51 and 820-10-50-2, provides additional guidance for estimating fair value and emphasizes
that even if there has been a significant decrease in the volume and level of activity for the
asset or liability and regardless of the valuation technique(s) used, the objective of a fair value
measurement remains the same. The Company adopted FSP No. SFAS 157-4 beginning April 1, 2009. This
FSP had no material impact on the Companys financial position, results of operations or cash
flows.
In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, which is codified in FASB ASC Topic 320-10. This FSP modifies
the requirements for recognizing other-than-temporarily impaired debt securities and changes the
existing impairment model for such securities. The FSP also requires additional disclosures for
both annual and interim periods with respect to both debt and equity securities. Under the FSP,
impairment of debt securities will be considered other-than-temporary if an entity (1) intends to
sell the security, (2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the securitys entire amortized cost basis (even if the
entity does not intend to sell). The FSP further indicates that, depending on which of the above
factor(s) causes the impairment to be considered other-than-temporary, (1) the entire shortfall of
the securitys fair value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be recorded in other
comprehensive income. This FSP requires entities to initially apply the provisions of the standard
to previously other-than-temporarily impaired debt securities existing as of the date of initial
adoption by making a cumulative-effect adjustment to the opening balance of retained earnings in
the period of adoption. The cumulative-effect adjustment potentially reclassifies the noncredit
portion of a previously other-than-temporarily impaired debt security held as of the date of
initial adoption from retained earnings to accumulated other comprehensive income. The Company
adopted FSP No. SFAS 115-2 and SFAS 124-2 beginning April 1, 2009. This FSP had no material impact
on the Companys financial position, results of operations or cash flows.
In April 2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments, which is codified in FASB ASC Topic 825-10-50. This FSP
essentially expands the disclosure about fair value of financial instruments that were previously
required only annually to also be required for interim period reporting. In addition, the FSP
requires certain additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures are required
beginning with the quarter ending June 30, 2009.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, codified in FASB ASC Topic
855-10-05, which provides guidance to establish general standards of accounting for and disclosures
of events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. SFAS No. 165 also requires entities to disclose the date through which
subsequent events were evaluated as well as the rationale for why that date was selected. SFAS No.
165 is effective for interim and annual periods ending after June 15, 2009, and accordingly, the
Company adopted this pronouncement during the second quarter of 2009. SFAS No. 165 requires that
public entities evaluate subsequent events through the date that the financial statements are
issued. The Company has evaluated subsequent events through the time of filing these financial
statements with the SEC on November 9, 2009.
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets an
amendment of FASB Statement No. 140, codified as FASB ASC Topic 860, which requires entities to
provide more information regarding sales of securitized financial assets and similar transactions,
particularly if the entity has continuing exposure to the risks related to transferred financial
assets. SFAS No. 166 eliminates the concept of a qualifying special-purpose entity, changes the
requirements for derecognizing financial assets and requires additional disclosures. SFAS No. 166
is effective for fiscal years beginning after November 15, 2009. The Company does not believe the
adoption of SFAS No. 166 will have an impact on its financial condition, results of operations or
cash flows.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), codified
as FASB ASC Topic 810-10, which modifies how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar rights) should be
consolidated. SFAS No. 167 clarifies that the determination of whether a company is required to
consolidate an entity is based on, among other things, an entitys purpose and design and a
companys ability to direct the activities of the entity that most significantly impact the
entitys economic performance. SFAS No. 167 requires an ongoing reassessment of whether a company
is the primary beneficiary of a variable interest entity. SFAS No. 167 also requires additional
disclosures about a companys involvement in variable interest entities and any significant changes
in risk exposure due to that involvement. SFAS No. 167 is effective for fiscal years beginning
after November 15, 2009. The Company does not believe the adoption of SFAS No. 167 will have an
impact on its financial condition, results of operations or cash flows.
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On July 1, 2009, the Company adopted Accounting Standards Update (ASU) No. 2009-01, Topic 105 -
Generally Accepted Accounting Principles amendments based on Statement of Financial Accounting
Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles (ASU No. 2009-01). ASU No. 2009-01 re-defines authoritative US
GAAP for nongovernmental entities to be only comprised of the FASB Accounting Standards
Codification (Codification) and, for SEC registrants, guidance issued by the SEC. The
Codification is a reorganization and compilation of all then-existing authoritative US GAAP for
nongovernmental entities, except for guidance issued by the SEC. The Codification is amended to
effect non-SEC changes to authoritative US GAAP. Adoption of ASU No. 2009-01 only changed the
referencing convention of US GAAP in Notes to the Consolidated Financial Statements.
NOTE 20 GOING CONCERN
During the audit of its consolidated financial statements for the year ended December 31, 2008, the
Companys auditors issued a going concern audit opinion which raised doubt about the Companys
ability to continue as a going concern and fund cash requirements for operations through March 31,
2010. Beginning in the fourth quarter of 2008, the Company has made major changes to address this
issue including laying off certain of its staff to reduce operating expenses and selling non-core
and as yet non-profitable business units. The Company is now focused primarily on three main
business units including the fuel cell business, grass business and framed-artwork business.
During 2009, management of the Company is focused on completing the Second Closing of the IPA BVI
and IPA China which requires a $4.8 million payment to Sung Hsien Chang as explained in Note 8. If
the Second Closing is accomplished, management believes the Company will be able to continue as a
going concern with no immediate need for additional outside financing.
NOTE
21 SUBSEQUENT EVENT
On October 13, 2009 the parties to the Purchase Agreement discussed in
Note 8 entered into the third Amendment to the Securities Purchase Agreement in which the parties agreed that in the
event that the Second Closing fails to occur and VIASPACE’s closing conditions to the Second Closing have been
satisfied by Chang, then (1) Chang and his designees shall retain the 3,500,000 VGE shares issued at the First
Closing, (2) VIASPACE shall transfer all shares of VGE common stock it holds to Chang, (3) Chang will deliver
the remaining 30% equity interest of IPA BVI to VGE, such that VGE shall receive all equity securities of IPA BVI, and
(4) if VGE’s common stock is not listed on a Trading Market as of the Second Closing Deadline, Chang shall
also receive such number of shares of VIASPACE common stock so that Chang shall own a majority of the outstanding
shares of VIASPACE common stock as of the date of issuance. In addition, the parties clarified that the three year
non-competition clause to engage in the grass business starting from the date of the First Closing does not apply to
VGE and Messrs. Kukkonen and Muzi, but only to VIASPACE and its other affiliates. Further, we deleted the
obligation of Licensor to assign the grass license to VGE.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion contains certain statements that constitute forward-looking statements.
Such statements appear in a number of places in this Report, including, without limitation,
Managements Discussion and Analysis of Financial Condition or Plan of Operation. These
statements are not guarantees of future performance and involve risks, uncertainties and
requirements that are difficult to predict or are beyond our control. Our future results may
differ materially from those currently anticipated depending on a variety of factors, including
those described below under Risks Related to Our Future Operations and our filings with the
Securities and Exchange Commission. The following should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto that appear elsewhere in this Report and in
conjunction with our 2008 annual report on Form 10-K.
VIASPACE Overview
VIASPACE Inc. (we, us, VIASPACE, or the Company) is a renewable and alternative energy
company with a global reach. We operate three separate businesses. We grow a proprietary,
fast-growing grass (initially in China) for low carbon liquid biofuels for transportation;
potentially as a green substitute for all or a portion of the coal in electricity generating power
plants, and as animal feed. We also manufacture and develop framed copyrighted artwork in China
and market and sell them in the U.S. We produce disposable fuel cartridges that provide the energy
source for notebook computers and cell phones powered by fuel cells. We do not make the biofuel;
rather we grow the grass feedstock for the biofuel factory. We do not make fuel cells, but instead
we make disposable fuel cartridges for fuel cell and electronics manufacturers such as Samsung.
Both the grass and the fuel cartridge businesses could represent potentially large and recurring
revenue streams. A single fuel cell powered notebook computer may use as many as 100 fuel
cartridges during its lifetime. The fuel cell/fuel cartridge business model is analogous to the
razor/razor blade business model with the fuel cartridges being the disposable product. VIASPACE
is based in California with business activities in China, Korea and Japan.
VIASPACE was founded in 1998 as a private company to commercialize proven space and defense
technologies from NASA and the Department of Defense. VIASPACE has licensed patents, and software
technology from California Institute of Technology (Caltech), which manages the Jet Propulsion
Laboratory (JPL) for NASA. The direct methanol fuel cell was invented at JPL and the University
of Southern California. VIASPACE subsidiary Direct Methanol Fuel Cell Corporation has licensed
these patents from Caltech. VIASPACE became a public company on June 22, 2005. On October 21,
2008, the Company and its then wholly-owned subsidiary VIASPACE Green Energy (VGE), acquired an
equity interest in Inter-Pacific Arts, Corp. (IPA BVI), a British Virgin Islands profitable
company that manufactures high quality, copyrighted, framed artwork at its factory in the Peoples
Republic of China (PRC), and sells the framed art to large retailers in the US. IPA BVI, through
its wholly-owned subsidiary, Guangzhou Inter-Pacific Arts Corp., a Chinese wholly owned foreign
enterprise registered in Guangdong province (IPA China) which also has a worldwide license to
cultivate and sell Giant King Grass a natural hybrid, non-genetically modified, extremely
fast-growing, perennial grass that is suitable for livestock feed as well as a feedstock for
biofuel production. The Giant King Grass has the potential to be used in the production of nonfood
crop based biofuels such as cellulosic ethanol, methanol and green gasoline; burned directly in
power plants as a clean substitute for coal, and in the more immediate term, as animal feed for
dairy cows, pigs, sheep, goats, fish and other animals.
The Companys web site is www.VIASPACE.com.
Critical accounting policies and estimates
Financial Reporting Release No. 60, Cautionary Advice Regarding Disclosure About Critical
Accounting Policies (FRR60) issued by the SEC, suggests that companies provide additional
disclosure and commentary on those accounting policies considered most critical. FRR 60 considers
an accounting policy to be critical if it is important to the Companys financial condition and
results of operations, and requires significant judgment and estimates on the part of management in
its application. For a summary of the Companys significant accounting policies, including the
critical accounting policies discussed below, see the accompanying notes to the consolidated
financial statements.
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The preparation of the Companys financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) requires management to make estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amount
of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates,
which are based on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. The result of these
evaluations forms the basis for making judgments about the carrying values of assets and
liabilities and the reported amount of expenses that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions. The following
accounting policies require significant management judgments and estimates:
VIASPACE and DMFCC have generated revenues on product revenue shipments. In accordance with SEC
Staff Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104), VIASPACE and DMFCC
recognize product revenue provided that (1) persuasive evidence of an arrangement exists, (2)
delivery to the customer has occurred, (3) the selling price is fixed or determinable and (4)
collection is reasonably assured. Delivery is considered to have occurred when title and risk of
loss have transferred to the customer. The price is considered fixed or determinable when it is
not subject to refund or adjustments. Our standard shipping terms are freight on board shipping
point. If the Company ships product whereby a customer has a right of return or review period, the
Company does not recognize revenue until the right of return or review period has lapsed. Prior to
the period lapsing, this revenue would be recorded as deferred revenue on the Companys balance
sheet.
Ionfinity has generated revenues to date on fixed-price contracts for government contracts in 2008
and 2007. These contracts have clear milestones and deliverables with distinct values assigned to
each milestone. The government is not obligated to pay Ionfinity the complete value of the
contract and can cancel the contract if the Company fails to meet a milestone. The milestones do
not require the delivery of multiple elements as noted in Emerging Issues Task Force (EITF) Issue
No. 00-21 Revenue Arrangements with Multiple Deliverables (EITF No. 00-21). In accordance
with SAB No. 104, the Company treats each milestone as an individual revenue agreement and only
recognizes revenue for each milestone when all the conditions of SAB No. 104 defined earlier are
met.
In accordance with SAB No. 104, IPA BVI and IPA China recognize product revenue provided: (1)
persuasive evidence of an arrangement exists, (2) delivery to the customer has occurred, (3) the
selling price is fixed or determinable and (4) collection is reasonably assured. Delivery is
considered to have occurred when title and risk of loss have transferred to the customer. The price
is considered fixed or determinable when it is not subject to refund or adjustments. Our standard
shipping terms are free on board shipping point. Some of the Companys products are sold in the
PRC and are subject to Chinese value-added tax. This VAT may be offset by VAT paid by the Company
on raw materials and other materials included in the cost of producing their finished product.
Revenue is recorded net of VAT taxes.
The Company accounts for equity instruments issued to consultants and vendors in exchange for goods
and services in accordance with the provisions of EITF Issue No. 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling
Goods or Services, and EITF Issue No. 00-18, 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 vendors 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 EITF Issue No. 00-18, an asset acquired in exchange for the issuance
of fully vested, non-forfeitable equity instruments should not be presented or classified as an
offset to equity on the grantors 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
consolidated balance sheet.
The Company bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. There is no assurance that actual results will not differ from these estimates.
See footnotes in the accompanying financial statements regarding recent financial accounting
developments.
Results of Operations
Three Months Ended September 30, 2009 Compared to September 30, 2008
Revenues
Revenues were $1,235,000 and $99,000 for 2009 and 2008, respectively, an increase of $1,136,000.
IPA BVI and IPA China recorded revenues of $1,064,000 from the sales of framed-artwork primarily to
retail U.S. customers. There were no revenues recognized in 2008 for IPA BVI and IPA China as the
acquisition of IPA BVI and IPA China occurred on October 21, 2008. Ionfinity
incurred higher revenues of $109,000 due to the starting of a Phase II U.S. Army contract in August
2008 and a U.S. Navy contract in October 2008. DMFCC recorded decreased sales of $37,000 from 2008
to 2009.
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Cost of Revenues
Costs of revenues were $762,000 and $76,000 for 2009 and 2008, respectively, an increase of
$686,000. IPA BVI and IPA China incurred costs related to its framed-artwork totaling $609,000.
There were no costs of revenues for framed-artwork recognized in 2008 as the acquisition of IPA
occurred on October 21, 2008. Ionfinity recorded increased cost of revenues of $106,000 during
2009 as compared with 2008 due to the beginning of its Phase II contracts with the U.S. Army and
U.S. Navy in the fourth quarter of 2008. DMFCC recorded decreased cost of revenues of $29,000 due
to lower sales in 2009 for this period.
Gross Profit
The resulting effect on these changes in revenues and cost of revenues from 2008 to 2009 was an
increase in gross profits from $23,000 in 2008 to $473,000 in 2009, an increase of $450,000.
Research and Development
Research and development expenses were $6,000 and $266,000 for 2009 and 2008, respectively, a
decrease of $260,000. Consulting expenses decreased by $236,000 due to the termination of
consultants performing research and development assignments. Other research and development
expenses, net, decreased $24,000. Research and development will continue at DMFCC in 2009 but at
lower levels compared with 2008.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,041,000 and $2,554,000 for 2009 and 2008,
respectively, a decrease of $1,513,000. Selling payroll, payroll benefits and commissions
increased $133,000 in 2009 as compared with 2008 primarily due to higher commissions in the
framed-artwork business segment. There were no commissions paid in the framed-artwork segment in
2008 as the acquisition of IPA BVI and IPA China occurred on October 21, 2008. General and
administrative payroll and payroll benefit costs increased $51,000 primarily due to salaries paid
by VGE in 2009 and no salaries paid by VGE in 2008. Stock compensation expense related to stock
options decreased by $326,000 during 2009 as compared with 2008 as many stock options were
cancelled in 2008. Stock compensation related to the Company issuing stock to employees,
consultants and vendors in lieu of cash payments for services decreased $517,000 in 2009 as
compared to the same period in 2008 as the Company has lower staff levels in 2009 versus the same
period of 2008. The Companys consulting expenses decreased by $235,000 in 2009 as compared to
2008 as fewer consultants were used in Companys operations. The Companys accounting fees
increased $30,000 due to higher audit fees. The Company incurred higher legal fees by $32,000 due
to additional fees related to the Form S-1 Registration statement for VGE. The Company incurred
lower public relations and investor relations fees of $717,000 as compared with the same period of
2008. Other selling, general and administrative expenses, net, increased by $36,000 during 2009.
We expect that selling, general and administrative expenses will continue in 2009 to be lower than
2008 levels.
Loss from Operations
The resulting effect on these changes in gross profits, research and development expenses and
selling, general and administrative expenses from 2008 to 2009 was a decrease in the loss from
operations from $2,797,000 in 2008 to $574,000 in 2009, a decrease of $2,223,000.
Other Income (Expense), Net
Interest Expense
Interest expense increased by $60,000 from 2008 to 2009, primarily as a result of interest expense
being accrued on the related party loan payable to Sung Hsien Chang related to the acquisition of
IPA by the Company on October 21, 2008 as discussed in Note 8.
Other Income and Other Expense
Other income decreased $69,000 from 2008 to 2009.
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Discontinued Operations
As explained in Note 9, on December 22, 2008, the Company entered into an asset purchase agreement
with Knovitech, Inc., whereby the Company transferred certain assets related to its security
business for $479,000. In addition, in Note 9, the Company explains that it sold its laser-based
humidity sensor business to Landtec for $210,000. Discontinued operations loss of $794,000 for the
three months ended September 30, 2008, related to the operations of these discontinued business
units are shown in the accompanying consolidated statements of operations.
Nine Months Ended September 30, 2009 Compared to September 30, 2008
Revenues
Revenues were $3,525,000 and $120,000 for 2009 and 2008, respectively, an increase of $3,405,000.
IPA BVI and IPA China recorded revenues of $2,935,000 from the sales of framed-artwork primarily to
retail U.S. customers. There were no revenues recognized in 2008 for IPA BVI and IPA China as the
acquisition of IPA BVI and IPA China occurred on October 21, 2008. Ionfinity incurred higher
revenues of $453,000 due to the starting of a Phase II U.S. Army contract in August 2008 and a U.S.
Navy contract in October 2008. VIASPACE recorded increased revenues of $2,000 related to a battery
sale in 2009. DMFCC recorded increased sales of $15,000 from 2008 to 2009 related to a fuel cell
contract it has with Samsung.
Cost of Revenues
Costs of revenues were $2,145,000 and $85,000 for 2009 and 2008, respectively, an increase of
$2,060,000. IPA BVI and IPA China incurred costs related to its framed-artwork totaling
$1,643,000. There were no costs of revenues for framed-artwork recognized in 2008 as the
acquisition of IPA occurred on October 21, 2008. Ionfinity recorded increased cost of revenues of
$399,000 during 2009 as compared with 2008 due to the beginning of its Phase II contracts with the
U.S. Army and U.S. Navy in the fourth quarter of 2008. DMFCC recorded increased cost of revenues
of $18,000 due to higher sales in 2009 compared with 2008.
Gross Profit
The resulting effect on these changes in revenues and cost of revenues from 2008 to 2009 was an
increase in gross profits from $35,000 in 2008 to $1,380,000 in 2009, an increase of $1,345,000.
Research and Development
Research and development expenses were $24,000 and $460,000 for 2009 and 2008, respectively, a
decrease of $436,000. Consulting expenses decreased by $340,000 due to the termination of
consultants performing research and development assignments. Payroll and payroll benefits
decreased $47,000 in 2009 as compared with 2008 as the Company laid off certain employees. Other
research and development expenses, net, decreased $49,000. Research and development will continue
at DMFCC in 2009 but at lower levels compared with 2008.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $3,325,000 and $5,966,000 for 2009 and 2008,
respectively, a decrease of $2,641,000. Selling payroll, payroll benefits and commissions
increased $301,000 in 2009 as compared with 2008 primarily due to higher commissions in the
framed-artwork business segment. There were no commissions paid in the framed-artwork segment in
2008 as the acquisition of IPA BVI and IPA China occurred on October 21, 2008. General and
administrative payroll and payroll benefit costs increased $166,000 primarily due to salaries paid
by VGE in 2009 and no salaries paid by VGE in 2008. Stock compensation expense related to stock
options decreased by $1,228,000 during 2009 as compared with 2008 as many stock options were
cancelled in 2008. Stock compensation related to the Company issuing stock to employees,
consultants and vendors in lieu of cash payments for services increased $163,000 in 2009 as
compared to the same period in 2008. The Companys consulting expenses decreased by $580,000 in
2009 as compared to 2008 as fewer consultants were used in Companys operations. The Companys
accounting fees increased $123,000 due to higher audit fees. The Company incurred lower legal fees
of $77,000 due to lower fees related to patents and investment activities. The Company incurred
lower public relations and investor relations fees of $1,576,000 as compared with the same period
of 2008. Other selling, general and administrative expenses, net, increased by $67,000 during
2009. We expect that selling, general and administrative expenses will continue in 2009 to be
lower than 2008 levels.
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Loss from Operations
The resulting effect on these changes in gross profits, research and development expenses and
selling, general and administrative expenses from 2008 to 2009 was a decrease in the loss from
operations from $6,391,000 in 2008 to $1,969,000 in 2009, a decrease of $4,422,000.
Other Income (Expense), Net
Interest Income
Interest income decreased $6,000 from 2008 to 2009 due to the Company maintaining lower cash
balances than the prior year.
Interest Expense
Interest expense increased by $323,000 from 2008 to 2009, primarily as a result of interest expense
being accrued on the related party loan payable to Sung Hsien Chang related to the acquisition of
IPA by the Company on October 21, 2008 as discussed in Note 8.
Other Income and Other Expense
Other income decreased $144,000 from 2008 to 2009 due to the Company not incurring additional other
income in 2009.
Gain on Sale of Humidity Sensor Product Line
On April 20, 2009, the Company into an Asset Purchase and Support Services Agreement with Landtec
North America. The Purchased Assets primarily included assets related to the Sellers tunable
diode laser-based humidity sensor business. Seller also agreed to cause certain of its consultants
and employees to provide support services for a period of 60 days after the closing. Landtec
agreed to pay $210,000 for the purchased assets and support services. The Company recorded a gain
on sale of assets related to this Landtec Purchase and Support Services Agreement of $176,000 in
the second quarter of 2009.
Discontinued Operations
As explained in Note 9, on December 22, 2008, the Company entered into an asset purchase agreement
with Knovitech, Inc., whereby the Company transferred certain assets related to its security
business for $479,000. In addition, in Note 9, the Company explains that it sold its laser-based
humidity sensor business to Landtec for $210,000. Discontinued operations loss of $1,583,000 for
the nine months ended September 30, 2008, related to the operations of these sold business units
are shown in the accompanying consolidated statements of operations. In addition, income of
$12,000 is shown as discontinued operations for the nine months ended September 30, 2009.
Liquidity and Capital Resources
Net cash used in operating activities was $721,000 for the nine months ended September 30, 2009.
The Companys net loss was $2,070,000 in 2009. Non-cash expenses totaled $1,585,000 for the first
nine months of 2009, composed primarily of stock compensation expense related to stock issued to
employees, directors and consultants. General working capital used $60,000 in cash for the nine
months of 2009. Related party, net, used $176,000 in cash during 2009.
Net cash provided by investing activities was $69,000 for the nine months ended September 30, 2009,
primarily related to proceeds received on the sale of assets to Landtec of $210,000. The Company
had capital expenditures of $77,000 and $64,000 in costs association with land leases in the PRC
for land to grow Giant King Grass.
The Company recorded $800,000 in cash flows from financing activities for the nine months ended
September 30, 2009 related to related party loans to Mr. Sung Chang.
Our quarterly loss was lower in 2009 as compared to 2008 and we expect that to continue for the
rest of 2009. During the audit of its consolidated financial statements for the year ended
December 31, 2008, the Companys auditors issued a going concern audit opinion which raised doubt
about the Companys ability to continue as a going concern and fund cash requirements for
operations through
March 31, 2010. Beginning in the fourth quarter of 2008, the Company has made major changes to
address this issue including laying off certain of its staff to reduce operating expenses and
selling non-core and as yet non-profitable business units. The Company is now focused primarily on
three main business units including the fuel cell business, grass business and framed-artwork
business. During 2009, management of the Company is focused on completing the second closing of
the IPA transaction which requires a $4.8 million payment to Sung Hsien Chang as explained in Note
8. If the second closing is accomplished, management believes the Company will be able to continue
as a going concern with no immediate need for additional outside financing. If the second closing
is not accomplished, management expects that the auditors will continue to issue a going concern
audit opinion on the Company for 2009.
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Contractual Obligations
The following table summarizes our long-term contractual obligations at September 30, 2009:
Less than 1 | 1-3 | 3-5 | More than | |||||||||||||||||
Total | Year | Years | Years | 5 Years | ||||||||||||||||
Long-term debt obligations (a) |
$ | 44,000 | $ | 44,000 | $ | | $ | | $ | | ||||||||||
Operating lease obligations (b) |
$ | 176,000 | $ | 96,000 | $ | 80,000 | $ | | $ | | ||||||||||
Employment agreements (c) |
$ | 806,000 | $ | 744,000 | $ | 62,000 | $ | | $ | |
(a) | The annual installment of principal and interest on the notes payable owed to the Community Development Commission as discussed in the accompanying footnotes to the consolidated financial statements are noted. | |
(b) | The Company leased office and laboratory space in Pasadena, California and entered into a five-year lease on May 1, 2006. The Company vacated its office space on March 1, 2009. The Company and the landlord are actively looking for a new tenant to assume this lease. Future minimum lease payments are noted. | |
(c) | Employment agreements: On October 21, 2008, VGE entered into two-year employment agreements with each of Dr. Carl Kukkonen, Mr. Sung Hsien Chang, Mr. Stephen Muzi and Mr. Maclean Wang. Dr. Kukkonen would serve as Chief executive Officer, Mr. Chang as President, Mr. Muzi as Chief Financial Officer, Treasurer and Secretary and Mr. Wang as Managing Director of Grass Development. Dr. Kukkonen and Mr. Chang would receive a salary of $240,000 per annum, Mr. Muzi receives $180,000 per annum and Mr. Wang receives $84,000 per annum. Each of them is entitled to a bonus as determined by the VGE Board of Directors, customary insurance and health benefits, 15 days paid leave per year, and reimbursement for out-of-pocket expenses in the course of his employment. These employment agreements are terminated if the Company fails to achieve the Second Closing of IPA BVI and IPA China as discussed in Note 8. |
There are no other major outstanding contractual obligations.
Inflation and Seasonality
We have not experienced material inflation during the past five years. Seasonality has historically
not had a material effect on our operations.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements as of September 30, 2009.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is confined to our cash and cash equivalents. We invest excess cash
and cash equivalents in high-quality money market funds that invest in federal agency notes and
United States treasury notes, which we believe are subject to limited credit risk. We currently do
not hedge interest rate exposure. The effective duration of our portfolio is all current with no
investment of a long-term duration. Due to the short-term nature of our investments, we do not
believe that we have any material exposure to interest rate risk arising from our investments.
Most of our transactions are conducted in United States dollars, although we do have some research
and development, and sales and marketing agreements with consultants outside the United States.
The majority of these transactions are conducted in United States dollars. If the exchange rate
changed by ten percent, we do not believe that it would have a material impact on our results of
operations or cash flows.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures. Disclosure controls are controls and procedures designed to
reasonably assure that information required to be disclosed in our reports filed under the Exchange
Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls
are also designed to reasonably assure that such information is accumulated and communicated to our
management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate
to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no
matter how well designed and implemented, can provide only reasonable assurance of achieving an
entitys disclosure objectives. The likelihood of achieving such objectives is affected by
limitations inherent in disclosure controls and procedures. These include the fact that human
judgment in decision-making can be faulty and that breakdowns in internal control can occur because
of human failures such as simple errors, mistakes or intentional circumvention of the established
processes.
At the end of the period covered by this report, the Companys management, with the participation
of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that these disclosure controls and procedures were
effective at the reasonable assurance level described above as of the end of the period covered in
this report.
Changes in internal controls over financial reporting. Management, with the participation of the
Chief Executive Officer and Chief Financial Officer of the Company, has evaluated any changes in
the Companys internal control over financial reporting that occurred during the most recent fiscal
quarter. Based on that evaluation, management, the Chief Executive Officer and the Chief Financial
Officer of the Company have concluded that no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during
the fiscal quarter ended September 30, 2009 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company does not have any legal proceedings as of September 30, 2009.
ITEM 1A. RISK FACTORS
Risk Factors Which May Affect Future Results
The Company wishes to caution that the following important factors, among others, in some cases
have affected and in the future could affect the Companys actual results and could cause such
results to differ materially from those expressed in forward-looking statements made by or on
behalf of the Company.
There have been no material changes to the risk factors included in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2008, other than as set forth below:
Risks Related To Our Business
We have incurred losses and anticipate continued losses for the foreseeable future.
Our net loss for the nine months ended September 30, 2009 was $2,070,000. The Companys net loss
has decreased in 2009 from 2008 although we are not yet profitable on a consolidated basis.
Beginning in the fourth quarter of 2008, the Company made major changes to address this issue
including laying off certain of its staff to reduce operating expenses and selling non-core and as
yet non-profitable business units. The Company is now focused primarily on three main business
units including the fuel cell business, grass business and framed-artwork business. We have not
yet achieved profitability and expect to continue to incur net losses until we recognize sufficient
revenues from the fuel cell business, grass business and framed-artwork business to offset
expenses. Because we have a limited history upon which an evaluation of our prospects can be
based, our prospects must be considered in light of the risks, expenses and difficulties frequently
encountered by companies seeking to develop new and rapidly evolving technologies. To address
these risks, we must, among other things, respond to competitive factors, continue to attract,
retain and motivate qualified personnel and commercialize and continue to develop our technologies.
We may not be successful in addressing these risks. We can give no assurance that we will achieve
or sustain profitability.
Our ability to continue as a going concern is dependent on future financing.
Goldman Parks Kurland Mohidin LLP, our independent registered public accounting firm, included an
explanatory paragraph in its report on our financial statements for the fiscal year ended December
31, 2008, which expressed substantial doubt about our ability to continue as a going concern. The
inclusion of a going concern explanatory paragraph in Goldman Parks Kurland Mohidin LLPs report on
our financial statements could have a detrimental effect on our stock price and our ability to
raise additional capital.
Our financial statements have been prepared on the basis of a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business. We
have not made any adjustments to the financial statements as a result of the outcome of the
uncertainty described above. Accordingly, the value of the Company in liquidation may be different
from the amounts set forth in our financial statements.
Our continued success will depend on our ability to continue to raise capital in order to fund the
development and commercialization of our products. Failure to raise additional capital may result
in substantial adverse circumstances, including our inability to continue the development of our
products and our liquidation.
Our revenues to date have been to a few customers, the loss of which could result in a severe
decline in revenues.
The Company had one customer who made up 67% and 63% of the consolidated revenues of the Company
for the three and nine months ended September 30, 2009, respectively. We believe that this trend
of revenues to a few customers will continue in the near future. A loss of any customer by the
Company could significantly reduce recognized revenues.
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Risks Related To An Investment In Our Stock
Any future sale of a substantial number of shares of our common stock could depress the trading
price of our common stock, lower our value and make it more difficult for us to raise capital.
Any sale of a substantial number of shares of our common stock (or the prospect of sales) may have
the effect of depressing the trading price of our common stock. In addition, these sales could
lower our value and make it more difficult for us to raise capital. Further, the timing of the
sale of the shares of our common stock may occur at a time when we would otherwise be able to
obtain additional equity capital on terms more favorable to us.
The Company has 1,500,000,000 authorized shares of common stock, of which 881,896,366 were issued
and outstanding as of September 30, 2009. Of these issued and outstanding shares, 374,025,292
shares (41.0% of the total issued and outstanding shares) are currently held by our executive
officers, directors and principal shareholders (including Dr. Carl Kukkonen, CEO and Director; Mr.
Amjad Abdallat, Former COO and Director; Mr. Sung Hsien Chang, President of VGE and CEO of IPA BVI
and IPA China; and SNK Capital Trust). On April 10, 2006, SNK Capital Trust agreed to a lock-up of
its 61,204,286 shares until April 9, 2011. No other shares are currently subject to any lock-up
arrangement. Of the total shares issued and outstanding at September 30, 2009, 380,140,061 are
accounted by our transfer agent as restricted under Rule 144. These shares could be released in
the future if requested by the holder of the shares, subject to volume and manner of sale
restrictions under Rule 144. A total of 501,756,305 shares of the Companys common stock are
accounted for by our transfer agent as free trading shares.
We cannot predict the size of future issuances of our common stock or the effect, if any, that
future issuances and sales of shares of our common stock will have on the market price of our
common stock. Sales of substantial amounts of our common stock (including shares currently held by
management and principal shareholders), or the perception that such sales could occur, may
adversely affect prevailing market prices for our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 6, 2009 and July 20, 2009, the Company issued Dr. Kukkonen, CEO of the Company, a combined
total of 2,929,443 unregistered shares of the Companys common stock in exchange for salary at
valued at $61,000 on the date of issuance. On August 26, 2009 and September 1, 2009, the Company
issued vendors 845,297 unregistered shares of the Companys common stock in exchange for
administrative services valued at $17,000 on the date of issuance. The shares were issued in
reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended. We made a determination that these parties were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of accepting our shares as
payment for their services and the Company believes that each party was given or had access to
detailed financial and other information with respect to the Company. These vendors acquired the
shares for investment purposes without view to distribution, and there was no general advertising
or general solicitation in connection with the issuance of the shares. Further, restrictive
transfer legends were placed on all certificates issued to these parties, and no underwriting or
selling commissions were paid in connection with these share issuances.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits
10.1 | Amendment to Securities Purchase Agreement dated October 14, 2009 by and among Registrant, VIASPACE
Green Energy Inc., Sung Hsien Chang and China Gate Technology Co., Ltd. * |
|||
10.2 | Amendment
No. 2 to Securities Purchase Agreement dated August 21,
2009 by and among the Registrant VIASPACE Green Energy Inc., Sung
Hsien Chang and China Gate Technology Co., Ltd** |
|||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * |
|||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * |
|||
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. * |
* | Filed herewith. | |
** | Previously filed. |
[SIGNATURES PAGE FOLLOWS]
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VIASPACE Inc. (Registrant) |
||||
Date: November 16, 2009 | /s/ CARL KUKKONEN | |||
Carl Kukkonen | ||||
Chief Executive Officer | ||||
Date: November 16, 2009 | /s/ STEPHEN J. MUZI | |||
Stephen J. Muzi | ||||
Chief Financial Officer |
39