VIASPACE Updates Shareholders on Chang Note Payment Situation

MARIETTA, Ga., June 11, 2012 /PRNewswire/ -- VIASPACE Inc. (OTC Bulletin Board: VSPC - News), and its subsidiary VIASPACE Green Energy Inc. (OTC Bulletin Board: VGREF) today provides the following update to shareholders.

Following the joint VIASPACE and VIASPACE Green Energy (VGE) board meetings held on April 19, 2012 and reported on in a press release dated April 30, 2012, the company was optimistic about its future because the board unanimously approved a baseline budget that utilized the profits from the framed art division to fund the Giant King Grass business. The budget had all expenses paid in cash with the goal of no additional stock dilution for shareholders.  One-year employment contracts for the CEO and CFO were approved. The board of directors of VIASPACE including Director Sung Chang unanimously voted for these board actions. In the press release of April 30, 2012, Director Kevin Schewe reported "Mr. Sung Chang and I were able to spend time together to discuss our joint convictions and aspirations to make Giant King Grass the rising star of the renewable bioenergy universe. We have developed a close working relationship, and we truly believe that VIASPACE can become one of the first successful renewable biomass/bioenergy companies using our significant corporate knowledge and expertise and having Giant King Grass as our scalable bioenergy platform."  Sung Chang is the largest VIASPACE (VSPC) shareholder and was a member of the board until May 24, 2012. He, his family and related parties own 424,971,710 shares, or 30.7% of the outstanding shares of VIASPACE.  Chang is also a member of the board of VIASPACE Green Energy and serves as its president.

As part of the acquisition of Inter-Pacific Arts in 2008, Sung Chang holds a $5,131,025 secured promissory note from VIASPACE, plus accrued interest of approximately $654,000. Payment on the Note is secured by a guarantee from VIASPACE Green Energy and its two lower tier subsidiaries, along with a stock pledge agreement and various security agreements.  The first installment on the Note in the amount of $866,205 plus $632,000 in accrued interest was due on May 14, 2012.  Chang received $200,000 towards the 2012 payment in 2011.

The first installment on the secured note was originally scheduled for May 14, 2011, but Chang and the company amended the note and delayed the payment till 2012. VIASPACE, VGE or its two lower tier subsidiaries do not have the cash to make the payment, and VIASPACE proposed several settlement options to Chang. One proposal made by VIASPACE was to offset a related party debt under which one of Chang's other companies, JJ International, would repay $1,234,000 that is owed by them to Inter-Pacific Arts, a subsidiary of VGE. Chang rejected this proposal because of potential adverse tax consequences to him.  Chang also had the option to be paid in stock of VIASPACE or VGE to settle the payment due on the note, but he rejected this option as well.

VGE reported gross profits of $2,040,000 in 2011, the majority of which came from Inter-Pacific Arts from its sales of framed art to Hobby Lobby. A portion of that profit remains in the VIASPACE Green Energy bank account. VIASPACE proposed that part of the $710,000 in the VIASPACE Green Energy bank account on March 31, 2012 be used to partially make the note payment to Chang and defer the remaining amount.  Chang rejected this proposal.

On May 15, 2012, Chang informed VIASPACE that his family members and investor friends in Taiwan told him that VIASPACE Green Energy should no longer provide any financial support to VIASPACE for the Giant King Grass business, and that VIASPACE Green Energy should retain the profits from the sales of framed art to Hobby Lobby and the future profits from the pellet mill in China. Chang also requested a proposal for a separation of VIASPACE and VIASPACE Green Energy into two companies, the terms of which included having VIASPACE turn over to Chang the VIASPACE Green Energy shares owned by VIASPACE and pledged as security for the note.

As requested, VIASPACE drafted a proposal for a separation of VIASPACE's ownership of VGE that allowed VIASPACE to continue in the Giant King Grass business, and director Dr. Kevin Schewe and VIASPACE management agreed to fund VIASPACE's continuing operations from a combination of investment by Schewe and salary reductions by CEO Carl Kukkonen and CFO Stephen Muzi. That proposal was rejected by Chang. The VIASPACE board met on May 21, 2012 (Chang did not attend this meeting) to consider a new request from Chang to formulate a new proposal that kept VIASPACE and VIASPACE Green Energy together as they are now, but not to use any of the VIASPACE Green Energy funds for VIASPACE activities. VIASPACE presented such a proposal to Chang whereby VIASPACE was to be funded by Schewe and management. The VIASPACE board stated that both the "separation" proposal and the "stay together" proposal were acceptable to the VIASPACE board.

Chang did not accept either the separation proposal or the stay together proposal that were both acceptable to the VIASPACE board.  After a discussion of his fiduciary responsibility to all VIASPACE (VSPC) shareholders as the director of a publicly traded company, Sung Chang resigned as a board member of VIASPACE effective May 24, 2012.  On May 28, 2012, the board of VIASPACE met again to discuss the negotiations with Chang including a counter-proposal from Chang that was received on May 25, 2012.  They discussed additional attempts to strike an agreement with Chang.  They submitted changes to the counter-proposal on May 30, 2012.  On May 31, 2012, Chang rejected most of VIASPACE's comments.  VIASPACE sent both a revised separation proposal and a new simplified stay together proposal to Chang on June 2, 2012.  Chang rejected both proposals on June 5, 2012.  On June 7, 2012, Chang submitted another version of his counter-proposal, characterized as his final offer to VIASPACE, which was rejected by the VIASPACE board on June 8, 2012.  Negotiations are now at an impasse.  As stated earlier, VIASPACE did not make the payment due to Chang on May 14, 2012 and, upon formal notice, will have defaulted on the Chang note.  As part of the acquisition in 2008, VIASPACE had issued a stock power assigning the VIASPACE Green Energy shares owned by VIASPACE to Chang.  VIASPACE owns 6,503,920 VGREF shares which are currently being held by Chang as security for the note.  These shares are 75.6% of the 8,600,000 total outstanding shares of VIASPACE Green Energy and now belong to Chang.  Chang is the majority shareholder of VIASPACE Green Energy (VGREF).  The market value of these shares is $14,633,820 and the appropriate Form 1099 will be filed with the Internal Revenue Service.

Chang and Chang related parties remain the largest shareholder of VIASPACE with 424,971,710 shares (30.7% of outstanding shares), and Chang retains a preferred share that gives him supermajority (50.1%) voting rights for the common stock.

After the transfer of VGE shares from VIASPACE to Chang, VIASPACE will no longer own VIASPACE Green Energy which in turn owns Inter-Pacific Arts and the Giant King Grass plantation in China. VIASPACE would then no longer be able to report the revenue or have access to the profits from the framed art business. The Giant King Grass license was paid for by VIASPACE. VIASPACE continues to have a cash obligation of $136,000 owed to CEO Carl Kukkonen for back salary.  VIASPACE does not have the cash to pay Kukkonen, and he has indicated that he is willing to defer payment as part of an agreement for VIASPACE business continuation.

The VIASPACE Board of Directors is willing to reopen negotiations with Chang, and has the goal to continue its Giant King Grass bioenergy business and preserve and increase VIASPACE shareholder value.  However, the board has an obligation to inform shareholders that negotiations are at an impasse.

Chang and Chang related parties own 424,971,710 VIASPACE shares, Dr. Kevin Schewe owns 98,000,000 shares, CEO Dr. Carl Kukkonen owns 78,802,954 shares and CFO Stephen Muzi owns 31,689,901 shares.  These represent 633 million shares, or 45.8% of the outstanding common shares of VIASPACE.  The remaining 750 million shares are owned by an estimated 5000+ shareholders.  The board has the goal to find a solution to provide value for all VSPC shareholders.

As stated earlier, Chang is unwilling to utilize profits from the framed art business and future profits from the China pellet mill to continue funding VIASPACE any further.  Schewe is willing to fund VIASPACE operations if VIASPACE continues to have the exclusive license for Giant King Grass, and in addition, is not willing to do so as long as Chang retains the supermajority preferred share.  These are the major issues in the impasse.

VIASPACE CEO Dr. Carl Kukkonen stated, "This is a period of uncertainty for VIASPACE. Shareholders need to be informed and this is the reason for this detailed press release. As a cofounder of VIASPACE in 1998, I am sad to see this impasse. I will work to try to find a solution that benefits all VIASPACE shareholders and VIASPACE customers and benefits VIASPACE Green Energy as well."

About VIASPACE Inc.

VIASPACE is a clean energy company providing products and technology for renewable and alternative energy that reduce or eliminate dependence on fossil and high-pollutant energy sources. The Company grows Giant King Grass as a low-carbon fuel for electricity generating power plants, as a feedstock for bio methane production and cellulosic biofuels, and for other low-carbon, renewable energy products. For more information, please go to www.VIASPACE.com or contact Dr. Jan Vandersande, Director of Communications, at 800-517-8050 or IR@VIASPACE.com.

Safe Harbor Statement

Information in this news release includes forward-looking statements. These forward-looking statements relate to future events or future performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Such factors include, without limitation, risks outlined in our periodic filings with the U.S. Securities and Exchange Commission, including Annual Report on Form 10-K for the year ended December 31, 2011, as well as general economic and business conditions; the ability to acquire and develop specific products and technologies; changes in consumer and business demand for the Company's products; competition from larger companies; changes in demand for alternative and clean energy; risks associated with international transactions; risks related to technological change; and other factors over which VIASPACE has little or no control.

SOURCE VIASPACE Inc.



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