| VIASPACE Inc. (VSPC)
VIASPACE is a clean energy company providing products and technology for renewable and alternative energy that reduce or eliminate dependence on fossil and high-risk-pollutant energy sources. The Company provides raw material for cellulosic biofuels and develops and markets fuel cell cartridges, products and technology. VIASPACE subsidiary Direct Methanol Fuel Cell Corporation owns a portfolio of fuel cell patents licensed from Pasadena-based California Institute of Technology (Caltech), which manages NASA's Jet Propulsion Laboratory, where the direct methanol fuel cell was invented. VIASPACE also markets the rechargeable lithium-ion batteries. VIASPACE subsidiary Ionfinity has operations in security-related systems and technology for military, defense and commercial applications.
Cohan Research Report
VIASPACE INC. is an exciting high-growth alternative energy company transformed and restructured to focus on renewable energy–through its license for a fast-growing grass as a feedstock for nonfood crop biofuels–and clean energy–through its fuel-cell cartridge business and portfolio of direct methanol fuel cell patents licensed from Caltech, which manages NASA's Jet Propulsion Laboratory where the direct methanol fuel cell was invented.
VIASPACE Inc was founded in 1998 to commercialize proven technology from NASA and the Department of Defense Technology originally developed at the NASA Jet Propulsion Laboratory (JPL). This technology was licensed from the Caltech which manages JPL for NASA. The Company recently announced the acquisition of Inter-Pacific Arts Corp. This company is a profitable framed art business and owns the license for proprietary fast-growing Giant King grass. The Company’s presence in alternative energy along with its experienced management team makes it an exciting investment opportunity.
The Company recently acquired Inter-Pacific Arts (IPA), which has a license for 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. IPA also operates a profitable framed-art business with positive cash flows that will enable the Company to develop and expand its alternative energy businesses.
Highlights:
In fourth-quarter 2008, VIASPACE Inc. (OTC Bulletin Board: VSPC) transformed itself into an alternative energy company with an acquisition of Inter-Pacific Arts (IPA). VIASPACE has reduced its operating costs and sold an unprofitable division and reduced debt. This restructuring and new corporate direction has created an exciting new company with revenue and profit potential that completely turns around the Company's prior financial outlook.
IPA markets high quality, copyrighted, framed artwork that is manufactured in its plant in China and sold in U.S. retail chain stores. IPA reported audited revenues of $5.4 million, a net profit of $1.1 million in 2007, $5 million in unaudited revenue and $1 million of net profit during first three quarters of 2008. In addition, IPA had $3 million in unaudited cash equivalents as of December 31, 2008.
VIASPACE’ renewable energy business is based on a worldwide license, obtained through the acquisition of IPA, to cultivate and sell Giant King Grass, a natural hybrid, non-genetically modified, fast-growing, perennial grass for livestock feed as well as a feedstock for non-food crop biofuel production. This grass grows to four meters in height in two months and produces four crops a year in tropical and subtropical areas of the world. VIASPACE has initially planted 1.2 million seedlings on leased cropland in China, holds options to lease additional acreage in China, and plans to expand the grass business into other areas of the world.
Giant King Grass supports China’ top three national initiatives: improved agriculture to feed its people; alternative energy and a cleaner environment. Burning a grass-based biofuel produces carbon dioxide; however this grass crop absorbs carbon dioxide. The net process is very green.
Giant King Grass has immediate use as animal feed for cattle, sheep, horses, rabbits, pigs, poultry and fish. The $40 billion global animal feed market, according to Feed International reports, has grown by 14% annually for the last ten years.
Biofuels are the Company’ ultimate target. The market for biofuels is expected to grow to more than $86 billion according to latest industry reports. The grass can be used as a non-food source to produce cellulosic ethanol, methanol, biocrude and green gasoline. However the Company expects to make substantial profits in the short-term from animal feed even before biofuels become dominant. Because of this, the Company will not be dependent on timing of construction of biofuel plants.
Direct Methanol Fuel Cell Corporation (DMFCC), a subsidiary in which VIASPACE owns a 71.4% stake, remains the third corporate division of the restructured company. DMFCC is engaged in the development of disposable fuel cell cartridges for fuel-cell powered portable electronics such as notebook computers and mobile phones. DFMCC is also developing the cartridge manufacturing and distribution infrastructure. The Company plans to leverage its strong fuel cell patent portfolio licensed from Caltech and USC into key strategic partnerships with market leading OEMs and fuel cell manufacturers by offering them required patent protection.
Since the cartridges are a disposable consumable item, they represent a significant ongoing recurring revenue stream similar to razor blades or printer cartridges. DMFCC is a cartridge partner with Samsung in Korea and other companies in potential multi-billion dollar markets. According to Frost & Sullivan, the market for commercial fuel cells used in portable devices is expected to reach $616 million by 2013.
Valuation Summary
Cohen Independent Research Group valued VIASPACE common stock based on our Discounted Cash Flow (DCF) method of valuation to derive the long-term price target. We used three scenarios–ase Case, Optimistic Case and Pessimistic Case–hile valuing VIASPACE through the DCF valuation methodology.
Based on our valuation approach, we derived a Base Case target price for the stock at $0.09. Even under our Pessimistic Scenario, VSPC is valued at $0.06 per share.
VIASPACE’s alternative energy strategy is to deliver consumable products that produce a recurring revenue stream. Products include the fast-growing Giant King Grass, which is used as a renewable feedstock for nonfood based biofuels (and for animal feed), and disposable fuel cartridges for fuel cell-powered notebook computers and mobile phones. VIASPACE’s products have excellent profit margins and do not require major capital investment. The Company’s fuel cell business is based on breakthrough technologies developed by NASA’s Jet Propulsion Laboratory, which is managed by California Institute of Technology (Caltech), and licensed to VIASPACE’s subsidiary, Direct Methanol Fuel Cell Corporation. The acquisition of Inter-Pacific Arts has enabled the Company to create a presence in the Renewable Energy industry as well as secure a profitable, positive cash flow business to support its growth in renewable and clean energy. VIASPACE is well-positioned to benefit from the expected growth in renewable energy, and its strategy and proven ability to partner with leading fuel-cell OEMs will help the Company to leverage the partners’ customers, channel partners and manufacturers, thus fueling future earnings. In our opinion, VIASPACE’s presence in high growth markets of renewable sources of energy and fuel-cell cartridges is expected to result in a significant market opportunity. VSPC common stock has declined from an all-time high of $5.36 to a recent low of $0.01. This decline has occurred despite a significant restructuring and improvement in the Company's fundamentals, especially post-acquisition of IPA, which should make VSPC a cashpositive Company. We believe this decline has moved share prices close to a bottom, thus providing investors with a unique and extraordinary opportunity for significant share price improvement from current levels. At $0.01 per share, with a valuation target of $0.09, we recommend the purchase of VIASPACE common stock for long-term growth investors.
The growth story is exciting. In 2009E, VIASPACE should generate $8.6 million in top line revenues growing to an estimated $88.0 million by 2013. Between 2009 and 2016, Gross Margins are estimated to settle between 60% and 68%. In 2009E, the Company should generate $1.4 million of EBITDA and $0.001 EPS primarily due to its framed art business. The Company, through its DMFCC subsidiary, is currently developing fuel-cell products and technologies targeting high-growth clean energy markets. The Company’s renewable energy operation is growing and expects to sell Giant King Grass as a vital feedstock source for cellulosic ethanol and other biofuels, as well for animal feed that will generate near-term revenue and profit. IPA’s framed-art business is expected to generate enough cash flows to fuel the Company’s CAPEX for development of its core alternative energy businesses. The Company’s fuel-cell patent portfolio and exclusive license agreements, coupled with the enormous clean and renewable energy markets, will attract partners and leading players in each key business segment, thus leveraging the Company’s customer, networks and manufacturing base.
(Source Cohan Report)
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Management Team
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Dr. Carl Kukkonen: CEO, Chairman, Co-Founder
From its founding in 1998 Dr. Carl Kukkonen has led the VIASPACE team, serving as CEO of ViaSpace Technologies LLC, the predecessor of VIASPACE Inc., and serving as CEO and Chairman today. ViaSpace Technologies incubated several companies based on technologies developed at the NASA Jet Propulsion Laboratory and patents and software licensed from Caltech.
Prior to founding VIASPACE Dr. Kukkonen was a Caltech employee, serving as Director of the Center for Space Microelectronics Technology (CSMT) and Manager of Supercomputing at the NASA Jet Propulsion Laboratory. At JPL from 1984 to 1998 he managed several technologies and technical subsidiaries. Dr. Kukkonen established and grew the CSMT into a 250-person operation with a $70M annual budget.
From 1977 to 1984 Dr. Kukkonen worked for the Ford Motor Company as Ford's leading expert on hydrogen as an alternative automotive fuel. As a Principal Research Engineer, he also led a team that developed Ford's first turbocharged intercooled direct injection diesel engine. Dr. Kukkonen received a BS in physics from the University of California at Davis. He earned a MS and Ph.D. in physics from Cornell University and was a post-doctoral fellow at Purdue. In 1992 Dr. Kukkonen was awarded the NASA Exceptional Achievement Medal.
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Stephen J. Muzi: CFO and Treasurer
Mr. Stephen J. Muzi is responsible for all accounting, financial reporting, treasury and budgeting activities. He is also responsible for ensuring that proper internal financial controls exist and that procedures are in place to safeguard company assets. Mr. Muzi joined VIASPACE in 2000.
Prior to joining VIASPACE, Mr. Muzi was Corporate Controller of Southwest Water Company, a NASDAQ company with revenues in excess of $100 million. In this position, he was responsible for all SEC reporting requirements as well as Board of Director reporting. He managed the company's line of credit banking relationships, risk management program, internal audit program and income tax requirements. He also made presentations to investment brokers and analysts. Mr. Muzi was with Southwest Water Company from 1988 to 2000.
From 1985 to 1987, Mr. Muzi was a senior auditor with BDO Seidman, a national CPA firm. Mr. Muzi received his BS degree from Rochester Institute of Technology and an MBA from the State University of New York at Buffalo. He is a Certified Public Accountant.
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VIASPACE Board of Directors
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Dr. Carl Kukkonen: CEO, Chairman, Co-Founder
From its founding in 1998 Dr. Carl Kukkonen has led the VIASPACE team, serving as CEO of ViaSpace Technologies LLC, the predecessor of VIASPACE Inc., and serving as CEO and Chairman today. ViaSpace Technologies incubated several companies based on technologies developed at the NASA Jet Propulsion Laboratory and patents and software licensed from Caltech.
Prior to founding VIASPACE Dr. Kukkonen was a Caltech employee, serving as Director of the Center for Space Microelectronics Technology (CSMT) and Manager of Supercomputing at the NASA Jet Propulsion Laboratory. At JPL from 1984 to 1998 he managed several technologies and technical subsidiaries. Dr. Kukkonen established and grew the CSMT into a 250-person operation with a $70M annual budget.
From 1977 to 1984 Dr. Kukkonen worked for the Ford Motor Company as Ford's leading expert on hydrogen as an alternative automotive fuel. As a Principal Research Engineer, he also led a team that developed Ford's first turbocharged intercooled direct injection diesel engine. Dr. Kukkonen received a BS in physics from the University of California at Davis. He earned a MS and Ph.D. in physics from Cornell University and was a post-doctoral fellow at Purdue. In 1992 Dr. Kukkonen was awarded the NASA Exceptional Achievement Medal.
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A.J. Abdallat: VIASPACE Co-Founder
Mr. Amjad Abdallat is a co-founder of VIASPACE and served as the company's COO and VP of Business Development until October 2008. Mr. Abdallat also served as President and Chief Operating Officer of VIASPACE Security, Inc., a VIASPACE subsidiary that focused on government and commercial security applications. Much of the VIASPACE Security business was sold in December 2008.
From 1989 to 1998 Mr. Abdallat was with the Hewlett-Packard Company (HP) working in Business Development, Marketing and Program Capture. From 1984 to 1989 Mr. Abdallat was with Control Data Corporation (CDC), working in Business Development. He led and managed teams to capture large government contracts and successfully won many large and complex deals in the government, aerospace and defense, and manufacturing sectors.
Mr. Abdallat received his Master's degree in Engineering from the University of Missouri and a BS from the University of California at Berkeley.
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