UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 |
| | |
| | For the quarterly period ended September 30, 2013 |
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 000-54514
VIASPACE GREEN ENERGY INC.
(Exact name of small business issuer as specified in its charter)
| British Virgin Islands | Not Applicable |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
131 Bells Ferry Lane, Marietta, Georgia 30066
(Address of principal executive offices)
(678) 805-7472
(Issuer’s 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 x NOo
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 x NOo
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 filero | Accelerated filero |
| | |
| Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NOx
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 10,480,400 shares of $0.001 par value common stock issued and outstanding as of November 12, 2013.
VIASPACE GREEN ENERGY INC.
INDEX
FISCAL QUARTER ENDED SEPTEMBER 30, 2013
| | | Page |
| Part I. | Financial Information | |
| | | |
| Item 1. | Financial Statements | |
| | Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 (Unaudited) | 3 |
| | Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited) | 4 |
| | Consolidated Statements of Comprehensive Income (Loss) (Unaudited) | 5 |
| | Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2013 and 2012 (Unaudited) | 6 |
| | Notes to Consolidated Financial Statements September 30, 2013 and December 31, 2012 (Unaudited) | 7 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 14 |
| Item 4. | Controls and Procedures | 14 |
| | | |
| Part II. | Other Information | |
| | | |
| Item 1. | Legal Proceedings | 14 |
| Item 1A. | Risk Factors | 14 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
| Item 3. | Defaults Upon Senior Securities | 15 |
| Item 4. | Mine Safety Disclosures | 15 |
| Item 5. | Other Information | 15 |
| Item 6. | Exhibits | 15 |
| | | |
| Signatures | | 16 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIASPACE GREEN ENERGY INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | September 30, 2013 | | | December 31, 2012 | |
| ASSETS | | | | | | | | |
| CURRENT ASSETS: | | | | | | | | |
| Cash and equivalents | | $ | 83,000 | | | $ | 202,000 | |
| Accounts receivable, net of allowance for bad debt | | | 229,000 | | | | 305,000 | |
| Inventory | | | 267,000 | | | | 315,000 | |
| Prepaid expenses | | | 39,000 | | | | 32,000 | |
| Related party receivables | | | 111,000 | | | | 166,000 | |
| Other current assets | | | 9,000 | | | | 13,000 | |
| TOTAL CURRENT ASSETS | | | 738,000 | | | | 1,033,000 | |
| | | | | | | | | |
| FIXED ASSETS, net | | | 1,062,000 | | | | 1,082,000 | |
| | | | | | | | | |
| OTHER ASSETS: | | | | | | | | |
| Land use right, net | | | 727,000 | | | | 627,000 | |
| License to grass, net | | | 384,000 | | | | 402,000 | |
| Goodwill | | | 602,000 | | | | 602,000 | |
| Related party receivables | | | 40,000 | | | | 1,261,000 | |
| Marketable securities | | | 1,872,000 | | | | 455,000 | |
| Other assets | | | 10,000 | | | | 10,000 | |
| TOTAL OTHER ASSETS | | | 3,635,000 | | | | 3,357,000 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 5,435,000 | | | $ | 5,472,000 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Accounts payable | | $ | 188,000 | | | $ | 295,000 | |
| Related party payables | | | 27,000 | | | | 32,000 | |
| Accrued expenses | | | 198,000 | | | | 181,000 | |
| TOTAL CURRENT LIABILITIES | | | 413,000 | | | | 508,000 | |
| | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES | | | | | | | | |
| | | | | | | | | |
| STOCKHOLDERS’ EQUITY: | | | | | | | | |
| Common stock, $0.001 par value, 50,000,000 shares authorized, 10,480,400 issued and outstanding in 2013 and 2012 | | | 10,000 | | | | 10,000 | |
| Additional paid-in capital | | | 17,983,000 | | | | 17,983,000 | |
| Accumulated other comprehensive income | | | 215,000 | | | | ― | |
| Accumulated deficit | | | (13,186,000 | ) | | | (13,029,000 | ) |
| Total stockholders’ equity | | | 5,022,000 | | | | 4,964,000 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 5,435,000 | | | $ | 5,472,000 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
VIASPACE GREEN ENERGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| REVENUES | | $ | 697,000 | | | $ | 844,000 | | | $ | 2,391,000 | | | $ | 2,411,000 | |
| REVENUES - RELATED PARTIES | | | 9,000 | | | | 51,000 | | | | 73,000 | | | | 94,000 | |
| TOTAL REVENUE | | | 706,000 | | | | 895,000 | | | | 2,464,000 | | | | 2,505,000 | |
| COST OF REVENUES | | | 481,000 | | | | 606,000 | | | | 1,646,000 | | | | 1,733,000 | |
| GROSS PROFIT | | | 225,000 | | | | 289,000 | | | | 818,000 | | | | 772,000 | |
| | | | | | | | | | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | | | | | | | | | |
| Operations | | | 29,000 | | | | 35,000 | | | | 86,000 | | | | 133,000 | |
| Selling, general and administrative | | | 286,000 | | | | 362,000 | | | | 888,000 | | | | 1,175,000 | |
| Total operating expenses | | | 315,000 | | | | 397,000 | | | | 974,000 | | | | 1,308,000 | |
| | | | | | | | | | | | | | | | | |
| LOSS FROM OPERATIONS | | | (90,000 | ) | | | (108,000 | ) | | | (156,000 | ) | | | (536,000 | ) |
| | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | |
| Other expense | | | (11,000 | ) | | | (4,000 | ) | | | (19,000 | ) | | | (3,000 | ) |
| Other income | | | 6,000 | | | | 22,000 | | | | 18,000 | | | | 180,000 | |
| Total other income (expense) | | | (5,000 | ) | | | 18,000 | | | | (1,000 | ) | | | 177,000 | |
| | | | | | | | | | | | | | | | | |
| LOSS BEFORE INCOME TAXES | | | (95,000 | ) | | | (90,000 | ) | | | (157,000 | ) | | | (359,000 | ) |
| Income taxes | | | ― | | | | ― | | | | ― | | | | ― | |
| | | | | | | | | | | | | | | | | |
| NET LOSS | | $ | (95,000 | ) | | $ | (90,000 | ) | | $ | (157,000 | ) | | $ | (359,000 | ) |
| | | | | | | | | | | | | | | | | |
| NET LOSS PER SHARE OF COMMON STOCK – Basic and Diluted | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.04 | ) |
| | | | | | | | | | | | | | | | | |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – Basic | | | 10,480,400 | | | | 8,620,439 | | | | 10,480,400 | | | | 8,606,863 | |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – Diluted | | | 10,480,400 | | | | 8,620,439 | | | | 10,480,400 | | | | 8,606,863 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
VIASPACE GREEN ENERGY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| NET LOSS | | $ | (95,000 | ) | | $ | (90,000 | ) | | $ | (157,000 | ) | | $ | (359,000 | ) |
| | | | | | | | | | | | | | | | | |
| Other Comprehensive Income: | | | | | | | | | | | | | | | | |
| Unrealized gain on marketable securities | | | 122,000 | | | | ― | | | | 196,000 | | | | ― | |
| Foreign currency translation | | | 5,000 | | | | ― | | | | 19,000 | | | | ― | |
| Subtotal | | | 127,000 | | | | ― | | | | 215,000 | | | | ― | |
| | | | | | | | | | | | | | | | | |
| COMPREHENSIVE INCOME (LOSS) | | $ | 32,000 | | | $ | (90,000 | ) | | $ | 58,000 | | | $ | (359,000 | ) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
VIASPACE GREEN ENERGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | Nine Months Ended
September 30, | |
| | | 2013 | | | 2012 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
| Net loss | | $ | (157,000 | ) | | $ | (359,000 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation | | | 87,000 | | | | 79,000 | |
| Amortization | | | 54,000 | | | | 45,000 | |
| Bad debt expense | | | 23,000 | | | | ― | |
| Stock option compensation | | | ― | | | | 111,000 | |
| Non-cash payroll expenses paid by VIASPACE Inc. allocated to Company | | | ― | | | | 31,000 | |
| Loss of disposal of fixed assets | | | ― | | | | 3,000 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | 53,000 | | | | (52,000 | ) |
| Inventory | | | 48,000 | | | | (84,000 | ) |
| Related party receivable | | | 55,000 | | | | (321,000 | ) |
| Prepaid expenses | | | (7,000 | ) | | | 11,000 | |
| Other current assets | | | 4,000 | | | | 1,000 | |
| Accounts payable | | | (107,000 | ) | | | (57,000 | ) |
| Related party payable | | | (6,000 | ) | | | 9,000 | |
| Accrued expenses | | | 18,000 | | | | 35,000 | |
| Net cash provided by (used in) operating activities | | | 65,000 | | | | (548,000 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Cash paid for purchase of fixed assets | | | (68,000 | ) | | | (92,000 | ) |
| Cash paid for land leases | | | (135,000 | ) | | | (144,000 | ) |
| Proceeds from disposal of fixed assets | | | ― | | | | 1,000 | |
| Net cash used in investing activities | | | (203,000 | ) | | | (235,000 | ) |
| | | | | | | | | |
| Effect of exchange rate on cash and equivalents | | | 19,000 | | | | ― | |
| | | | | | | | | |
| NET DECREASE IN CASH AND EQUIVALENTS | | | (119,000 | ) | | | (783,000 | ) |
| CASH AND EQUIVALENTS, Beginning of period | | | 202,000 | | | | 944,000 | |
| CASH AND EQUIVALENTS, End of period | | $ | 83,000 | | | $ | 161,000 | |
| | | | | | | | | |
| Supplemental Disclosure of Cash Flow Information: | | | | | | | | |
| Cash paid during the period for: | | | | | | | | |
| Interest | | $ | ― | | | $ | ― | |
| Income taxes | | | ― | | | | ― | |
| | | | | | | | | |
| Noncash Investing and Financing Activities: | | | | | | | | |
| Change in fair value of available-for-sale securities | | $ | 196,000 | | | $ | ― | |
| Available-for-sale securities received for related party receivable | | | 1,221,000 | | | | ― | |
Supplemental Disclosure of Noncash Investing and Financing Activities for 2012:
| | ● | On September 30, 2012, the Company entered into a recapitalization agreement with VIASPACE Inc. On the date of the recapitalization, the Company wrote-off $2,318,000 of related party receivables, net, and charged this amount to additional paid in capital. Included in the related party receivables amount was $1,880,400 representing the fair market value of 1,880,400 newly-issued common shares of the Company that were issued to Changs, LLC as required by the recapitalization agreement. |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
VIASPACE GREEN ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business – VIASPACE Green Energy Inc., a British Virgin Islands (“BVI”) international business company (“we”, “us”, “VGE” or the “Company”) is a renewable energy company. Our renewable energy is based on biomass -- in particular our dedicated energy crop with the trademarked name “Giant King™ Grass”. VGE is the parent company of Inter Pacific Arts Corporation, a BVI international business company (“IPA BVI”) and Guangzhou Inter Pacific Arts, a People’s Republic of China (“PRC”) company (“IPA China”). IPA China is a wholly-owned foreign enterprise headquartered in Guangdong province of China. IPA BVI owns all equity interests of IPA China. IPA BVI and IPA China specialize in the manufacturing of high quality, copyrighted, framed artwork sold in US retail chain stores. IPA China also has a license for and produces Giant King Grass (“GKG”), a proprietary dedicated energy crop, which can be burned in 100% biomass power plants to generate electricity, made into pellets that can be burned together with coal to reduce carbon emissions from existing power plants, generate bio methane through anaerobic digestion, and can be used as a feedstock for low carbon liquid biofuels for transportation, biochemicals and bio plastics. GKG can also be used as animal feed. GKG has been independently tested by customers and been shown to have excellent energy content, high bio methane production, and the cellulosic sugar content needed for biofuels and biochemicals.
We are growing GKG on approximately 457 acres of leased land in China, which serves as a nursery to provide seedlings for large bioenergy projects, a demonstration plantation for potential partners and customers to visit, to provide samples for testing by potential customers, and as a grass source for our own pellet products.
Corporate History–VGE was formed on July 1, 2008. Prior to October 21, 2008, VGE was 100% owned by VIASPACE Inc. (“VIASPACE”) and had no active operations. On October 21, 2008, the majority shareholder of IPA BVI and IPA China, Sung Hsien Chang (“Chang”), entered into a Securities Purchase Agreement (the "Purchase Agreement") with VGE, VIASPACE and China Gate Technology Co., Ltd., a Brunei Darussalam company ("China Gate"). Under the Purchase Agreement, VGE acquired 100% of IPA BVI and the entire equity interest of IPA China from Chang. In exchange, VIASPACE agreed to pay approximately $16 million in cash and newly issued shares of VIASPACE and VGE stock. In addition, VIASPACE issued shares of its common stock to China Gate for China Gate’s sublicense of certain grass technology to IPA China. On September 30, 2012, VIASPACE, VGE and Chang entered into a recapitalization agreement whereby VIASPACE returned the shares it owned in VGE back to VGE, and VGE subsequently issued 8,384,320 shares to Changs, LLC, a limited liability company controlled by Chang. These shares represented 80% of the outstanding shares of VGE. The shares were issued to Changs, LLC during the fourth quarter of 2012. As of December 31, 2012, VIASPACE owned 0% of the outstanding common shares of the Company. As of December 31, 2012, Changs, LLC owned 80% of the outstanding shares of the Company.
Basis of Presentation - The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Results for interim periods should not be considered indicative of results for a full year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The accounting policies used in preparing these consolidated financial statements are the same as those described in Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 revenues and expenses during the reporting period. Significant estimates are required as part of determining the allowance for doubtful accounts, estimated lives of property and equipment and intangibles, and long-lived asset impairments. Actual results and outcomes may materially differ from management’s estimates and assumptions.
Reclassifications of prior year’s data have been made to conform to 2013 classifications. Such classifications had no effect on net income (loss) reported in the consolidated statements of operations.
NOTE 2 – COMMON SHARES HELD OF VIASPACE
The Company owns common shares of VIASPACE Inc., a company quoted on the OTC Capital Markets under the symbol “VSPC”. Prior to the separation of the Company from VIASPACE on September 30, 2012, the Company accounted for the common shares it held in VIASPACE, its parent company, on a cost basis. Subsequent to the separation, the Company has determined that its VSPC shares are available-for-sale securities in accordance with ASC Topic 320-10-35-1; therefore, unrealized holding gains and losses are reported as a component of accumulated other comprehensive loss until realized.
On April 5, 2013, JJ International Inc. (“JJ”), a related party of the Company discussed in Note 3, entered into a Payment of Obligation and Limited Release Agreement (the “Agreement”) with VGE, IPA BVI and IPA China, whereby the parties agreed that JJ would give the Company 78,801,687 common shares of VIASPACE Inc., in full satisfaction of certain outstanding receivables. The number of common shares given by JJ was determined based on a closing price of $0.0155 of VIASPACE Inc. common stock on that date and had a fair market value of $1,221,426 on the date of the Agreement.
As of September 30, 2013, the Company owned 135,691,337 shares in VSPC, with an estimated fair value of $1,872,000, which is based on the closing price of VSPC’s common stock on September 30, 2013, and falls under Level 1 of the U.S. GAAP fair value hierarchy as defined by ASC Topic 820-10-35. During the three months ended September 30, 2013, the Company recorded an unrealized holding gain of approximately $122,000, as a component of accumulated other comprehensive loss on the condensed consolidated balance sheet. During the nine months ended September 30, 2013, the Company recorded an unrealized holding gain of approximately $196,000, as a component of accumulated other comprehensive loss on the condensed consolidated balance sheet.
Below is a summary of changes in the Company’s investment in VSPC for the nine months ended September 30, 2013:
| Balance as of January 1, 2013 | | $ | 455,000 | |
| Additional shares transferred to Company at fair market value | | | 1,221,000 | |
| Subtotal | | | 1,676,000 | |
| Unrealized holding gain | | | 196,000 | |
| Balance as of September 30, 2013 | | $ | 1,872,000 | |
NOTE 3 – RELATED PARTIES
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
Included in the Company’s consolidated balance sheets at September 30, 2013 and December 31, 2012 are Related Party Receivables and Payables. The Related Party Receivables and Payables are as follows. Sung Hsien Chang is a director and president of the Company and CEO of IPA China and IPA BVI. Chang is also an owner of JJ. As discussed in Note 2, JJ paid down $1,221,426 of the amount owed to the Company on April 5, 2013 with shares of VSPC common stock. As of September 30, 2013 and December 31, 2012, the Company had a receivable due from JJ in the amount of $81,000 and $1,241,000, respectively. This balance consists of the following:
| | · | Loan made to JJ by IPA BVI in the amount of $0 and $400,000 at September 30, 2013 and December 31, 2012, respectively. |
| | · | Advances made to JJ by IPA BVI and VGE. Expenses that JJ pays on behalf of IPA BVI and VGE reduce these advances. As of September 30, 2013 and December 31, 2012, included in the Due from JJ receivable shown below are net advances made to JJ in the amount of $7,000 and $20,000, respectively. Additionally, at September 30, 2013, $27,000 owed by IPA BVI to JJ is included in the related party payables summary below. |
| | · | Interest accruing on the loan receivable and other outstanding balances due to IPA BVI. For the three months ended September 30, 2013 and 2012, the Company recorded interest income from JJ in the amount of $0 and $9,000, respectively, which is included in Other Income in the Company’s Consolidated Statements of Operations. For the nine months ended September 30, 2013 and 2012, the Company recorded interest income from JJ in the amount of $0 and $19,000, respectively, which is included in Other Income in the Company’s Consolidated Statements of Operations. As of September 30, 2013 and December 31, 2012, included in the Due from JJ receivable shown below is cumulative interest charged to JJ in the amount of $0 and $176,000, respectively. |
| | · | IPA China recorded revenues of $9,000 and $51,000 for sales made to JJ for the three months ended September 30, 2013 and 2012, respectively. IPA China recorded revenues of $73,000 and $94,000 for sales made to JJ for the nine months ended September 30, 2013 and 2012, respectively.As of September 30, 2013 and December 31, 2012, included in the Due from JJ receivable are trade receivables of $74,000 and $645,000, respectively. |
The following table represents a summary of Related Party Receivables at September 30, 2013 and December 31, 2012:
| | | 2013 | | | 2012 | |
| Short Term | | | | | | | | |
| Due from JJ International | | $ | 81,000 | | | $ | 20,000 | |
| Due from employee of IPA China | | | 30,000 | | | | 146,000 | |
| Total short term | | | 111,000 | | | | 166,000 | |
| Long Term | | | | | | | | |
| Due from JJ International | | | ― | | | | 1,221,000 | |
| Due from VIASPACE | | | 40,000 | | | | 40,000 | |
| Total long term | | | 40,000 | | | | 1,261,000 | |
| Total short term and long term | | $ | 151,000 | | | $ | 1,427,000 | |
VIASPACE has agreed to pay the Company $40,000 as reimbursement for legal fees and costs in connection with the separation of the Company and VIASPACE. This amount is due by September 30, 2014.
Related Party Payables
The following table is a summary of Related Party Payables at September 30, 2013 and December 31, 2012:
| | | | 2013 | | | | 2012 | |
| Due to employee of IPA China | | $ | ― | | | $ | 23,000 | |
| Due to Cindy Chang | | | ― | | | | 9,000 | |
| Due to JJ International | | | 27,000 | | | | ― | |
| Total | | $ | 27,000 | | | | 32,000 | |
On October 1, 2012, IPA BVI and VGE entered into an office lease agreement with Cindy Chang, spouse of Sung Hsien Chang, whereby IPA BVI and VGE would pay to Cindy Chang $1,200 each per month for rent on the Company’s headquarters in Marietta, Georgia. For the three and nine months ended September 30, 2013, the Company recorded rent expense of $7,200 and $21,600, respectively, under this lease.
NOTE 4 – LAND USE RIGHT
During the nine months ended September 30, 2013, the Company made the final payment of $135,000 for a land lease site of approximately 231 acres to grow Giant King Grass in the PRC. The initial deposit under the land lease of $144,000 was paid during 2012.
NOTE 5 – OPERATING SEGMENTS
The Company evaluates its reportable segments in accordance with FASB ASC Topic 280 “Disclosures about Segments of an Enterprise and Related Information”. As of September 30, 2013, the Company’s President, Sung Hsien Chang, was the Company’s Chief Operating Decision Maker (“CODM”) pursuant to FASB ASC Topic 280. The CODM allocates resources to the segments based on their business prospects, product development and engineering, and marketing and strategy.
The Company operates in two reportable segments:
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 US. |
Grass Segment:
| (i) | VGE (but not including operations of its subsidiaries, IPA China and IPA BVI): VGE grows a fast-growing, high yield, low carbon, nonfood energy crop called Giant King Grass (“GKG”) in the PRC. GKG can be burned in 100% biomass power plants to generate electricity; made into pellets that can be burned together with coal to reduce carbon emissions from existing power plants; generate bio methane through anaerobic digestion, and can be used as a feedstock for low carbon liquid biofuels for transportation. GKG can also be used as animal feed. On September 30, 2012, VGE obtained a worldwide sublicense regarding GKG from IPA China. On the same date, VGE then entered into a sublicense agreement with VIASPACE whereby VGE retains the exclusive rights to the GKG license in China and Taiwan, and VIASPACE has an exclusive GKG worldwide license outside of China and Taiwan. The sublicense agreement has milestones that VIASPACE must meet every two years in order to retain rights to the sublicense. |
The accounting policies of the reportable segments are 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.
Information on reportable segments for the three and nine months ended September 30, 2013 and 2012 are shown below:
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Revenues: | | | | | | | | | | | | | | | | |
| Framed-Artwork | | $ | 705,000 | | | $ | 895,000 | | | $ | 2,442,000 | | | $ | 2,494,000 | |
| Grass | | | 1,000 | | | | ― | | | | 22,000 | | | | 11,000 | |
| Total | | $ | 706,000 | | | $ | 895,000 | | | $ | 2,464,000 | | | $ | 2,505,000 | |
| Income (Loss) From Operations: | | | | | | | | | | | | | | | | |
| Framed-Artwork | | $ | 98,000 | | | $ | 163,000 | | | $ | 405,000 | | | $ | 404,000 | |
| Grass | | | (188,000 | ) | | | (271,000 | ) | | | (561,000 | ) | | | (940,000 | ) |
| Loss From Operations | | $ | (90,000 | ) | | $ | (108,000 | ) | | $ | (156,000 | ) | | $ | (536,000 | ) |
| | | September 30, 2013 | | | December 31, 2012 | |
| Assets: | | | | | | | | |
| Framed-Artwork | | $ | 4,149,000 | | | $ | 4,158,000 | |
| Grass | | | 1,286,000 | | | | 1,314,000 | |
| Total Assets | | $ | 5,435,000 | | | $ | 5,472,000 | |
For the three months ended September 30, 2013 and 2012, the Company had one customer which made up 99% and 94%, respectively, of our total revenues. For the nine months ended September 30, 2013 and 2012, the Company had one customer which made up 97% and 96%, respectively, of our total revenues.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion contains certain statements that may constitute“forward-looking statements.” Such statements appear in a number of places inthis Report, including, without limitation, “Management’s Discussion andAnalysis of Financial Condition or Plan of Operation.” These statements are notguarantees of future performance and involve risks, uncertainties andrequirements that are difficult to predict or are beyond our control. Ourfuture results may differ materially from those currently anticipated dependingon a variety of factors, including those described below under “Item 1A, Risk Factors” and our other filings with the Securities and ExchangeCommission (“SEC”). The following should be read in conjunction with the unauditedConsolidated Financial Statements and notes thereto that appear elsewhere inthis Report and in conjunction with our 2012 Annual Report on Form 10-K as filed with the SEC.
Our Business
VIASPACE Green Energy Inc. was incorporated in the British Virgin Islands as an international business company on July 1, 2008. We are a renewable energy company. Our renewable energy is based on biomass -- in particular our dedicated energy crop with the trademarked name “Giant King™ Grass”. We are the parent company of Inter Pacific Arts Corporation and indirect parent company of Guangzhou Inter Pacific Arts.
IPA BVI and IPA China specialize in the manufacturing of high quality, copyrighted, framed artwork sold in US retail chain stores. IPA China also has a license for and produces Giant King Grass, a proprietary dedicated energy crop, which can be burned in 100% biomass power plants to generate electricity, made into pellets that can be burned together with coal to reduce carbon emissions from existing power plants, generate bio methane through anaerobic digestion, and can be used as a feedstock for low carbon liquid biofuels for transportation, biochemicals and bio plastics. GKG can also be used as animal feed. GKG has been independently tested by customers and been shown to have excellent energy content, high bio methane production, and the cellulosic sugar content needed for biofuels and biochemicals.
We are growing GKG on approximately 457 acres of leased land in China, which serves as a nursery to provide seedlings for large bioenergy projects, a demonstration plantation for potential partners and customers to visit, to provide samples for testing by potential customers, and as a grass source for our own pellet products.
Results of Operations
Three Months Ended September 30, 2013 Compared to September 30, 2012
Revenues
Revenues were $706,000 and $895,000 for the three months ended September 30, 2013 and 2012, respectively, a decrease of $189,000, or 21%, due to lower customer orders for artwork in the US. Approximately $705,000 of revenues recorded during the three months ended September 30, 2013 are from framed artwork sales and $1,000 of revenues are from grass related sales. For the three months ended September 30, 2012, framed artwork sales were $895,000 and there were no grass related revenues.
Cost of Revenues
Costs of revenues were $481,000 and $606,000 for the three months ended September 30, 2013 and 2012, respectively,a decrease of $125,000, or 21%. Cost of revenues in producing framed artwork were $481,000 and $606,000 for the three months ended September 30, 2013 and 2012, respectively. Cost of revenues in grass related sales were $0 for the three months ended September 30, 2013 and 2012.
Gross Profit
The resulting effect on these changes in revenues and cost of revenues for the three months ended September 30, 2013 compared to the same period in 2012 was an decrease in gross profit from $289,000 (gross margin of 32%) for the three months ended September 30, 2012 to $225,000 (gross margin of 32%) for the three months ended September 30, 2013, an decrease of $64,000, or 22%.
Operations Expenses
Operations expenses were $29,000 and $35,000 for the three months ended September 30, 2013 and 2012, respectively, a decrease of $6,000. Operations expenses are composed salaries, consulting, plantation costs, travel costs, depreciation, fertilizer, maintenance, utilities and fuel costs associated with growing Giant King Grass. The decrease is primarily due to lower payroll expenses as well as a decrease in plantation costs because the Company is no longer paying the costs for a test plot growing Giant King Grass in the US.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $286,000 and $362,000 for the three months ended September 30, 2013 and 2012, respectively, a decrease of $76,000, or 21%.
Payroll and benefits increased $15,000 in the three months ended September 30, 2013 due to higher compensation levels in 2013 as compared with 2012. Legal fees decreased $101,000 in 2013 as compared to 2012 due to legal fees paid in the third quarter of 2012 related to the separation of the Company from VIASPACE. Accounting fees increased $7,000 in 2013 as compared with 2012 due to higher audit fees. Rent increased $7,000 during 2013 as compared to 2012 as the Company is now paying rent on its offices in Marietta, Georgia. Travel costs decreased $23,000 in 2013 as compared with 2012 due to reduced travel to the PRC in 2013 as compared with the same period in 2012. Amortization expense increased $12,000 in 2013 as compared with 2012 as additional land was leased in 2013 and is being amortized. Bad debt expense increased $23,000 in 2013 due to the Company recording as uncollectible a loan made to subcontractor. Other selling, general and administrative expenses, net, decreased $16,000 during the three months ended September 30, 2013 compared to the same period in 2012.
Income (Loss) from Operations
The resulting effect on these changes in gross profits, operations expenses, and selling, general and administrative expenses was a decrease in the loss from operations from $108,000 for the three months ended September 30, 2012 to a loss from operations of $90,000 for the three months ended September 30, 2013, an decrease of $18,000.
Of the total amounts, the framed artwork segment had decreased income from operations of $65,000 for the three months ended September 30, 2013 compared to the same period in 2012. The grass segment had a decreased loss from operations of $83,000 for the three months ended September 30, 2013 compared to the same period in 2012.
Nine Months Ended September 30, 2013 Compared to September 30, 2012
Revenues
Revenues were $2,464,000 and $2,505,000 for the nine months ended September 30, 2013 and 2012, respectively, a decrease of $41,000, or 2%, due to lower customer orders for artwork in the US. Approximately $2,442,000 of revenues recorded during the nine months ended September 30, 2013 are from framed artwork sales and $22,000 of revenues are from grass related sales. For the nine months ended September 30, 2012, framed artwork sales were $2,494,000 and $11,000 of revenues were from grass related sales.
Cost of Revenues
Costs of revenues were $1,646,000 and $1,733,000 for the nine months ended September 30, 2013 and 2012, respectively,a decrease of $87,000, or 5%. Cost of revenues in producing framed artwork were $1,641,000 and $1,723,000 for the nine months ended September 30, 2013 and 2012, respectively. Cost of revenues in grass related sales were $5,000 for the nine months ended September 30, 2013 and $10,000 for the nine months ended September 30, 2012.
Gross Profit
The resulting effect on these changes in revenues and cost of revenues for the nine months ended September 30, 2013 compared to the same period in 2012 was an increase in gross profit from $772,000 (gross margin of 31%) for the nine months ended September 30, 2012 to $818,000 (gross margin of 33%) for the nine months ended September 30, 2013, an increase of $46,000, or 6%.
Operations Expenses
Operations expenses were $86,000 and $133,000 for the nine months ended September 30, 2013 and 2012, respectively, a decrease of $47,000. Operations expenses are composed salaries, consulting, plantation costs, travel costs, depreciation, fertilizer, maintenance, utilities and fuel costs associated with growing Giant King Grass. The decrease is primarily due to lower payroll expenses as well as a decrease in plantation costs because the Company is no longer paying the costs for a test plot growing Giant King Grass in the US.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $888,000 and $1,175,000 for the nine months ended September 30, 2013 and 2012, respectively, a decrease of $287,000, or 24%.
Payroll and benefits decreased $71,000 in the nine months ended September 30, 2013 due to lower compensation levels in 2013 due to the Company not paying compensation for a chief executive officer as a result of the separation from VIASPACE. Stock option compensation expense decreased $111,000 in 2013 as compared with 2012 since stock options completed vesting in the first quarter of 2012 and that was the only period of 2012 with stock option compensation expense. Legal fees decreased $104,000 in 2013 as compared to 2012 due to legal fees paid in the third quarter of 2012 related to the separation of the Company from VIASPACE. Accounting fees increased $15,000 in 2013 as compared with 2012 due to higher audit fees. Travel costs decreased $35,000 in 2013 as compared with 2012 due to reduced travel to the PRC in 2013 as compared with the same period in 2012 and due to no travel costs incurred by the Company’s former Chief Executive Officer in 2013. Rent increased $22,000 during 2013 as compared to 2012 as the Company is now paying rent on its offices in Marietta, Georgia. Insurance costs decreased $25,000 due to the Company not purchasing directors and officers insurance in 2013. Bad debt expense increased $23,000 in 2013 due to the Company recording as uncollectible a loan made to subcontractor. Other selling, general and administrative expenses, net, decreased by $1,000 during the nine months ended September 30, 2013 compared to the same period in 2012.
Income (Loss) from Operations
The resulting effect on these changes in gross profits, operations expenses, and selling, general and administrative expenses was a decrease in the loss from operations from $536,000 for the nine months ended September 30, 2012 to loss from operations of $156,000 for the nine months ended September 30, 2013, a decrease of $380,000.
Of the total amounts, the framed artwork segment had increased income from operations of $1,000 for the nine months ended September 30, 2013 compared to the same period in 2012. The grass segment had a decreased loss from operations of $379,000 for the nine months ended September 30, 2013 compared to the same period in 2012.
Liquidity and Capital Resources
The Company’s net loss for the nine months ended September 30, 2013 was $157,000. Non-cash expenses totaled $164,000 for the nine months ended September 30, 2013 composed of depreciation expense of $87,000, amortization expense of $54,000 and bad debt expense of $23,000. Related party receivables and payables, net, provided $49,000 of cash from operating activities. Working capital provided $9,000 in 2013. Total net cash provided by operating activities was $65,000 for the nine months ended September 30, 2013.
Net cash used in investing activities was $203,000 for 2013. Capital expenditures of $66,000 were incurred by the Company related to equipment used for its GKG business and $2,000 for equipment in its framed artwork business. The Company made a land lease payment of $135,000 on new land totaling 231 acres being leased to grow Giant King Grass in the PRC.
The Company expects cash on hand as of September 30, 2013 and future operating cash flow to fund operations for a minimum of the next twelve months, and as such, the Company has no immediate need for additional outside financing. However, if revenue forecasts are not met or if future operating expenses or capital requirements increase beyond our control; the Company may need to seek additional cash resources through the sale of equity securities or debt securities.
Contractual Obligations
The Company does not have any other major outstanding contractual obligations except for the following:
Employment Agreements
On September 30, 2012, Mr. Muzi signed a consulting agreement with VGE that will pay Mr. Muzi $5,000 monthly to serve as the chief financial officer, treasurer and secretary of the Company. This agreement will automatically renew monthly unless either party terminates the agreement.
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, 2013.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is not required of smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
We maintain a system of disclosure controls and procedures that are designed for the purpose of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosures.
For the period ended September 30, 2013, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. In the course of this evaluation, our management considered the material weakness in our internal control over financial reporting as discussed in our Annual Report on Form 10-K for the period ended December 31, 2012. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report on Form 10-Q, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. To overcome this weakness, our principal executive and financial officers have reviewed and provided additional substantive accounting information and data in connection with the preparation of this quarterly report. Therefore, despite the weaknesses identified, our principal executive and financial officers believe that there are no material inaccuracies or omissions of material facts necessary to make the statements included in this report not misleading in light of the circumstances under which they are made.
Changes in Internal Control over Financial Reporting
We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financing reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2013 that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company does not have any material legal proceedings as of September 30, 2013.
ITEM 1A. RISK FACTORS
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, 2012, other than as set forth below:
Risks Related To Our Business
Substantially all of our revenues to date have been to one customer, the loss of which could result in a severe decline in revenues.
For the three months ended September 30, 2013 and 2012, the Company had one customer which made up 99% and 94%, respectively, of our total revenues. For the nine months ended September 30, 2013 and 2012, the Company had one customer which made up 97% and 96%, respectively, of our total revenues. We believe that this trend of revenues to one customer will continue in the near future. A loss of any customer by the Company, and in particular, our leading customer, could significantly reduce recognized revenues.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits
| 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. |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Schema Document |
| 101.CAL | XBRL Calculation Linkbase Document |
| 101.DEF | XBRL Definition Linkbase Document |
| 101.LAB | XBRL Label Linkbase Document |
| 101.PRE | XBRL Presentation Linkbase Document |
[SIGNATURES PAGE FOLLOWS]
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 GREEN ENERGY INC. (Registrant) | |
| | | | |
| Date: November 12, 2013 | By: | /s/ SUNG HSIEN CHANG | |
| | | Sung Hsien Chang | |
| | | President (Principal Executive Officer) | |
| | | | |
| | | | |
| Date: November 12, 2013 | By: | /s/ STEPHEN J. MUZI | |
| | | Stephen J. Muzi | |
| | | Chief Financial Officer (Principal Financial and Accounting Officer) | |
