10-K 1 viaspace_10k-123109.htm VIASPACE, INC. 10-K viaspace_10k-123109.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

R
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the fiscal year ended December 31, 2009
   
 
                                                                                OR
   
£
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-110680

VIASPACE INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
76-0742386
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
   
     
2102 Business Center Drive, Suite 130
   
Irvine, California
 
92612
(Address of principal executive offices)
 
(Zip Code)

(626) 768-3360
Issuer’s telephone number

Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [X] No [_]

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check One):

Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [_], and Smaller reporting filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No R

State issuer’s revenue for its most recent fiscal year: $4,376,000

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of March 29, 2010: $10,461,000

State the number of shares outstanding of each of issuer’s classes of common equity, as of March 29, 2010: 923,458,602


 
 

 
VIASPACE INC.
TABLE OF CONTENTS

   
Page
 
Part I
   
Item 1.
Business
3
Item 1A.
Risk Factors
11
Item 2.
Properties
25
Item 3.
Legal Proceedings
25
Item 4.
Submission of Matters to a Vote of Security Holders
25
     
Part II
   
Item 5.
Market for Common Equity and Related Stockholder Matters
25
Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
26
Item 7.
Financial Statements
31 (F-1 to F-29)
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
31
Item 8A.
Controls and Procedures
31
Item 8B.
Other Information
32
     
Part III
   
Item 9.
Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act
33
Item 10.
Executive Compensation
38
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
44
Item 12.
Certain Relationships and Related Transactions, and Director Independence
46
Item 13.
Exhibits
48
Item 14.
Principal Accountant Fees and Services
52
     
Signatures
 
53
 
 
 
 

 

 
FORWARD-LOOKING STATEMENTS

This document and the documents incorporated by reference herein contain forward-looking statements. We have based these statements on our beliefs and assumptions, based on information currently available to us.  These forward-looking statements are subject to risks and uncertainties.  Forward-looking statements include the information concerning our possible or assumed future results of operations, our total market opportunity and our business plans and objectives set forth under the sections entitled “Description of Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are not guarantees of performance.  Our future results and requirements may differ materially from those described in the forward-looking statements.  Many of the factors that will determine these results and requirements are beyond our control.  In addition to the risks and uncertainties discussed in “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” investors should consider those discussed under “Risk Factors Which May Affect Future Results” and, among others, the following:

 
our ability to successfully implement our business strategy,

 
market acceptance of our products and product development,

 
the effect of regulation on our ability to commercialize our products,

 
the impact of competition and changes to the competitive environment on our products and services, and

 
other factors detailed from time to time in our filings with the Securities and Exchange Commission.

These forward-looking statements speak only as of the date of this report. We do not intend to update or revise any forward-looking statements to reflect changes in our business anticipated results of our operations, strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events, except as required by law.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

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 fast-growing, high yield, low carbon, nonfood energy crop called Giant King Grass (“GKG”) 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.  Cellulosic ethanol and other liquid biofuels, collectively called Grassoline, do not use corn or other food sources as feedstock.  GKG can also be used as animal feed. GKG and other plants absorb and store carbon dioxide from the atmosphere as they grow. When they are burned, they release the carbon dioxide back into the atmosphere, but it is the same carbon dioxide that was removed from the atmosphere, and that the process is carbon neutral. Small amounts of fossil fuel are used by the farm equipment, transportation of GKG and fertilizer, so that the overall process is low carbon, but much lower than burning coal or other fossil fuels directly.   GKG has been independently tested by customers and been shown to have excellent energy content and very high bio methane production. We also manufacture framed copyrighted artwork in China and market and sell the artwork in the U.S.  We produce disposable fuel cartridges that provide the energy source for portable electronics powered by fuel cells. We do not build the power plant or biofuel plant; rather we grow GKG that is needed as the fuel or feedstock. 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 large and recurring revenue streams.  We are growing GKG on 250 acres of leased land in China to serve as a nursery for expansion, a demonstration plot for potential partners and customers, to provide samples for potential customers, and as a grass source for our own products.   VIASPACE is based in California with business activities in China, Korea and Japan.
 
 
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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.  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 People’s 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 GKG.  Under the current Securities Purchase Agreement dated October 21, 2008 by and among us, Chang, VGE and other parties, as amended, if the Second Closing did not occur by February 15, 2010, then we are contractually obligated to return all equity interests of VGE we hold to Chang.  However, we are negotiating with Chang in good faith to agree upon an alternate arrangement under which we would own a substantial interest in VGE and in turn, we would provide Chang debt and equity consideration.  Management is confident such an arrangement can be finalized.  To date, Chang has not demanded delivery of the VGE stock certificates from us.  However, we cannot assure you that we will enter into any such arrangement successfully.  In the event that we ultimately are unable to agree upon an alternate arrangement with Chang, then we will lose all of our equity interests in VGE.

The Company’s web site is www.VIASPACE.com.

Grass Business Division

Through our acquisition of IPA BVI and IPA China we indirectly obtained a worldwide sublicense to cultivate and sell GKG, a natural hybrid, non-genetically modified, fast-growing, perennial grass which we are growing as a dedicated energy crop that can be used to generate low carbon and renewable electricity by direct burning in a biomass power plant, and can be made into pellets that can replace some of the coal in existing power plants thus reducing carbon emissions.  GKG may also be used to produce bio methane through anaerobic digestion and as a feedstock for non-food liquid biofuels. This perennial grass can grow up to 14 feet in height. It can be harvested several times a year in tropical and semitropical areas with a yield of up to 375 metric tons per hectare (freshly cut, referred to as wet yield).  We believe that GKG has the highest yield of any crop.  Note that one hectare (ha) is 10,000 square meters and equal to 2.47 US acres or approximately the size of two US football fields.
 
GKG has been independently tested by several potential customers. The results have been very positive and consistent. GKG has excellent energy content of 18.4 megajoules (MJ) per dry kilogram. Its chemical and physical properties are very similar to corn straw, which is material left behind from the corn plant after the ears of corn have been harvested. Corn straw is used as fuel in many biomass power plants, and DP Clean Tech has declared GKG as suitable for their power plants. The bio methane production from GKG has been tested in three customer laboratories and shows the outstanding production of 91 liters of methane per kilogram of fresh grass. The methane can be used to generate clean electricity or can be burned to produce process heat. There are thousands of biogas plants worldwide that can use GKG.  A potential pellet customer has tested and examined prototype pellets made from GKG.  In addition to these current markets, GKG can be used  as animal feed for cattle, sheep, horses, rabbits, pigs, poultry and fish.
 
GKG can also be used as a feedstock to make cellulosic biofuels such as ethanol, methanol and green gasoline, collectively called Grassoline.  British Petroleum recently announced plans to build a cellulosic ethanol plant in Florida using grass as a feedstock, and in the March 23, 2009 issue of Time magazine, a Toyota advertising section stated that the carbon footprint for its plug-in hybrid can be reduced by fueling the engine with cellulosic ethanol. Liquid biofuels are one of the potential future uses for our grass.

GKG as a dedicated energy crop has generated widespread interest from the renewable energy community. VIASPACE was invited to make presentations on GKG at international conferences in the US, China, Indonesia, Mexico and India. The latest presentation is available on the VIASPACE website. We have held meetings with dozens of potential customers in China, Indonesia, Thailand, Philippines, Singapore Malaysia, US and India.
 
The July 2009 issue of Scientific American has a cover story entitled “Grassoline” which discusses renewable low carbon, non-food, liquid biofuels made from grass and other feedstock.  The Scientific American article only covers grass grown in the U.S.  We are growing GKG, a different and more productive grass compared to those considered in the Scientific American article, in Guangdong Province China and are exploring opportunities in other semitropical and tropical areas.

Energy pellets made from dried GKG can be used as a replacement for coal in electricity generating power plants.  Reports by the U.S. Department of Energy state that 15% to 20% of coal may be replaced by burning grass in an existing power plant with only minor modifications. This process called co-firing allows utilization of the large capital investment in existing coal fired power plants while reducing their carbon dioxide emissions by 15 to 20%. GKG and other biomass have lower mercury, arsenic and sulfur emissions than coal.
 
 
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There is a growing trend towards small dedicated power plants (5-30 megawatts) fueled exclusively by biomass such as grass and agricultural waste.  For example, since its founding in 2004, Dragon Power in China has built and is operating 19 power plants powered by 100% biomass.  China’s A-Power Energy Generation Systems Ltd. (Nasdaq:APWR) announced in April, May and June 2009 it has received three contracts to build a total of five biomass fueled electricity generation plants in China by the end of 2010.

On September 2, 2009, VIASPACE and VGE signed a non-binding Memorandum of Understanding (“MOU”) with DP Cleantech Co. Ltd. of Beijing China, a subsidiary of Dragon Power Group.  Pursuant to the MOU, the parties agreed to (i) review the potential of running DP’s power plants solely with GKG or in combination with agricultural waste; (ii) investigate suitable areas to grow GKG and co-locate a new power plant; (iii) and burn significant quantities of GKG in an existing  DP Cleantech power plant.  As part of their due diligence, DP Cleantech commissioned an independent analysis of GKG by the China National Center for Quality Supervision and Test of Coal which confirmed that GKG has an energy content of 18.4 megajoules (MJ) per dry kilogram (4402 kilocalories (kcal) per kilogram). DP Cleantech declared GKG suitable as a renewable feedstock for generating electric power in their power plants.
 
Our strategy is to first build up our grass production capabilities in China where we have 100 ha (247 acres) under cultivation. This 100 ha serves as a demonstration plot and also allows us to provide samples to potential partners and customers; the harvested grass is used in our factory to produce initial products which will be released shortly into the marketplace; and it is a nursery to provide seedlings for a major expansion.  We plan to partner with customers worldwide on GKG plantations co-located with power plants, pellet mills, biogas facilities and biofuel plants.

We initially planted 1.2 million seedlings on land adjacent to the framed art factory in Guangzhou, Guangdong province, China.  We then obtained a 20 year lease on 45 hectares (112 acres) north of Guangzhou.  Approximately three million seedlings generated from the Guangzhou land were planted here. In the third quarter of 2009, VGE signed a lease of about 29 years for approximately 55 hectares (136 acres) of additional land in Guangdong province.  We are negotiating to lease additional land in China.  We plan to expand our grass business into other areas of the world, and have had discussions with owners and developers of power plants, pellet mills and biogas facilities in Indonesia, Thailand, Malaysia, Cambodia, Singapore, Philippines, India, Africa, United States and Europe.

Having an assured source of feedstock is critical for all energy users of biomass. Today, power plants and pellet mills use agricultural and forestry waste such as corn straw, rice husks and sawdust as feedstock. Increasing demand for biomass has caused the price of this agricultural and forestry waste to rise dramatically and in some places it is in short supply. Biomass supply issues have caused power plants to become unprofitable, idle or abandoned. It is now well-recognized that dedicated energy crops such as GKG are necessary for successful operation of biomass processing facilities. Agricultural waste will still be used, but the dedicated energy crop will provide a reliable and consistent base. Because of the feedstock uncertainty, many proposed biomass power plant and biogas projects have been unable to obtain financing. A dedicated energy crop will also solve this problem.

Because of its extremely high yield, GKG provides feedstock with the lowest use of land and therefore the lowest cost.  Any other energy crop with half the yield requires twice the land and other costs are nearly doubled. GKG not only allows a reliable source of feedstock supply, but offers lower cost.

Another major advantage of GKG is that it is not tied to a food crop, and it can be harvested at any time-- particularly in a tropical or subtropical area.  When corn straw is used, you have to wait for the corn to mature before you have any feedstock. At the corn harvest, a lot of feedstock is available all at one time. This corn straw has to be collected, stored and used until the next corn harvest. This is a major logistics issue. If the climate permits, GKG can be planted so that it matures continuously and allows just-in-time harvesting.

Transportation applications requiring liquid fuels and biofuels have great potential.  Most biofuels are made from plants which are a renewable resource, and use of some biofuels can significantly reduce carbon emissions.  Growing grass or any plant matter absorbs carbon dioxide from the atmosphere during photosynthesis and stores it in the plant tissue.  Subsequent burning of the grass does emit carbon dioxide into the atmosphere; however the next crop of grass 60 days later absorbs the carbon dioxide. If the process of growing, fertilizing, harvesting and transporting the grass can be done with minimal use of fossil fuels, a grass-based fuel can be a carbon neutral or low carbon process.  Burning coal, oil, or natural gas emits carbon dioxide and there is no mechanism to remove this carbon dioxide from the atmosphere.
 
 
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Ethanol, which is the same alcohol in beer, wine or liquor, is the most well-known biofuel. Ethanol is blended with gasoline and burned in conventional automobile engines that have minor modifications.  In the U.S. today almost all ethanol is made from corn.  Government subsidies for ethanol have made ethanol price competitive with gasoline and much of the US corn crop now goes toward ethanol production.  These subsidies led to an increased demand for corn for ethanol production.  According to the Money Morning Corn Price Report (quoting the US Department of Agriculture), one third of U.S. corn is devoted to ethanol production, and this is expected to increase in the future.  Corn prices rose from about $2.00 per bushel at the beginning of 2006 to $7.65 in mid-2008.  Corn is currently $3.66 per bushel.  More land in the U.S. is devoted to corn production at the expense of other crops and the prices of these other crops have risen as well.
 
Higher food prices have led to food shortages around the globe and it has been argued that people are starving so we can make the fuel to drive our cars.   This argument has resonated with many world leaders and resulted in a global effort to derive biofuels from plants that are not in the human food chain.  These are called cellulosic biofuels.

Cellulosic biofuels are based on nonfood plants including grass, shrubs and trees.  These plants do not have a lot of sugar and cannot be fermented directly like corn.  They do, however, have a lot of cellulose in their leaves, stalks and branches which contain carbon and hydrogen which can then be converted into ethanol called cellulosic ethanol.

VGE has two distinct revenue models for GKG: integrated grass/fuel supply under company control, and contract support/licensing with a joint venture partner.

In the integrated grass/fuel supply model we are pursuing in China, we own or lease land and employ labor and management to grow GKG that will be used to supply domestic biomass energy markets, or exported, likely in pelletized form, to energy markets globally.  We will manage and control the supply chain from initial land preparation through the FOB source shipment point for the feed or energy market. We may pursue this model using only our own capital resources, or we may elect to use joint ventures with domestic landowners, energy equipment manufacturers, power plant owner/operators and/or capital providers like energy investment funds.  The terms of these joint ventures will be negotiated on a case-by-case basis.

Under a contract/licensing model, the joint venture partner would provide the land, labor and management and be responsible for growing GKG. We will provide initial seedlings, crop management services and knowledge transfer for a negotiated price.  In addition, there would be an ongoing fee based on grass production.

VGE has leased land and directly employs workers where GKG is grown today in Guangdong province in southern China. This is under the integrated grass/fuel supply model. We are also in discussions with potential joint venture partners that have land and the ability to grow the grass in other regions of China and in other countries in Asia, Africa, India and South America.

Management believes both models will be important contributors to our revenue streams. Initial revenues will be 100% from the integrated grass/fuel supply model. Rapid global expansion requires local joint venture partners that have land and labor, but lack the energy crop and the expertise to grow it. The contract/licensing model with joint venture partners will be used for these remote projects.
 
Framed Art Business Division

Our subsidiaries, IPA BVI and IPA China (collectively “IPA”) manufacture high quality, copyrighted, framed artwork in its factory in Guangzhou China, and sell the art to large U.S. retailers through its sales organization in Atlanta, Georgia. IPA is a manufacturer and wholesaler of framed art.

The factory is on 1.6 hectares of land in China including two manufacturing buildings and one employee dorm and a dining facility.  IPA, with its framed art business, has an established and stable production facility in China and a sales and distribution network in the United States.

The acquisition of IPA was a strategic move to acquire its revenue and profit from its current framed art business, as well as the grass business. With the profits from the framed art business, we are aggressively building the grass business without having to access external capital. We plan to continue and grow the framed art business.
 
IPA art designers work with buyers from retail chains to choose prints and other art forms from catalogs of copyrighted and licensed work. We only purchase prints from reputable publishing companies with whom we have long-standing relationships, and such companies have guaranteed to us that there are no counterfeits and that all royalties have been paid.  IPA designers then mockup mattes and frames for the customer.  Once the customer decides on a print, matte and frame combination, we ship the print to our factory in Guangzhou, China.  The mattes, frame moldings and glass are sourced in China.  A typical order is 1,400 units of a specific design and a customer usually orders several different designs which are packed in several containers and shipped directly to the customer in the U.S.  We provide prints, frames and packaging that are all of high quality.  An example of quality packaging is our use of protective clear plastic covers on the corners of the frame.  The covers provide protection during shipping and handling, but are transparent and do not obscure the artwork on the display shelf as conventional cardboard corner protectors do.  Our framed artwork typically retails for $50-$300.

 
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VIASPACE Subsidiary - Direct Methanol Fuel Cell Corporation
 
Direct Methanol Fuel Cell Corporation (“DMFCC”), a subsidiary of which VIASPACE owns a 71.4% stake, is engaged in the development of disposable fuel cell cartridges for fuel-cell powered portable electronics such as notebook computers and mobile phones.
 
Fuel cells are expected to replace batteries in some very important portable electronics markets including notebook computers and cell phones in the future according to Frost & Sullivan.  Fuel cells convert a fuel such as methanol directly into electricity without burning.  The fuel cell would be permanently built into the computer or cell phone and there would be a slot to insert a disposable fuel cartridge.

The advantages of the fuel cell over a battery are longer operating time on a single cartridge and instantaneous refueling by replacing the disposable cartridge.  Fuel cells allow complete independence from the electrical grid.  There will be no need to wait several hours while a lithium battery is being recharged.

Fuel cells and fuel cell powered portable electronics are being developed by large electronics companies like Samsung, and by Toshiba commercialized their first product an external power source and battery charger in 2009 .  VIASPACE does not make fuel cells, but rather we make the disposable fuel cartridges that are the energy source for these devices.  The fuel cell and cartridge is analogous to the “razor and blades” business model.  The fuel cell is like a razor and the cartridges are like razor blades.  Cartridges represent a recurring revenue stream.

Direct Methanol Fuel Cell Corporation continues to work as a cartridge partner of Samsung.  DMFCC has also delivered cartridges and cartridge components to other companies.

DMFCC is developing the global capability to manufacture, fill and distribute cartridges through a network of partners.  With these partners in Japan, Korea and the US, we are well positioned for large-scale production.

Fuel cells are electrochemical “engines” that convert a fuel such as methanol directly into electricity without burning.  Fuel cells produce electricity as long as fuel is available.  Fuel cells are being developed by OEMs of portable electronic devices in the fuel cell “engine” and will likely be permanently built into notebook computers or mobile phones. There are also major global efforts to utilize fuel cells in UPS (Uninterrupted Power Supply) applications, along with remote sensing and switching equipment, and hybrid electric/fuel cell powered vehicles.

Safety regulations developed by the International Electro-technical Commission (“IEC”) require that the fuel must be contained in a safe sealed container called a cartridge.  Unlike the gas tank of an automobile, the cartridge should not be refillable by the consumer and is preferably a disposable product.  Fuel cartridges are the consumable in the fuel cell business.

DMFCC is co-located with VIASPACE headquarters and also has representatives in Japan and Korea.  More information on DMFCC can be found on the web site www.DMFCC.com.

DMFCC Disposable Cartridge Design and Safety Certification

DMFCC has expertise in fuel cell cartridge design and safety certification.  Since 2002, DMFCC has been working with the fuel cell industry, Underwriters Laboratories (“UL”), CSA International (“CSA”) and the IEC to develop international standards for the safety and performance of fuel cells and disposable fuel cartridges.  The IEC is the electrical counterpart of the International Standards Organization (“ISO”).  The U.S. Department of Transportation issued a rule in 2008 allowing methanol fuel cell cartridges in the passenger compartment of commercial aircraft.  It was also stipulated that the fuel cartridges should not be refillable by the user.  DMFCC disposable fuel cartridges are designed to comply with the challenging international safety requirements.  DMFCC is focusing on methanol fuel cartridges, but may produce cartridges for any liquid fuel.

 
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DMFCC Cartridge Manufacturing

DMFCC designs, safety tests and markets fuel cell cartridges.  DMFCC’s fuel cell cartridges are manufactured by experienced manufacturing partners that have a track record of supplying critical products to OEMs of consumer electronics.  For example, one of DMFCC’s manufacturing partners Sato Group (“SATO”) which provides printer and toner cartridges to Japanese OEMs, has manufactured DMFCC cartridges for Samsung.  DMFCC will rely on its manufacturing partners’ extensive backgrounds and experience in manufacturing products similar to its fuel cell related products.
 
VIASPACE Energy Products

In 2008, VIASPACE launched a line of alternative energy products which generated revenue in 2008 and early 2009 from sales of its new fuel cell (HS-1000 VIASENSOR) and lithium battery (BA-1000 VIASENSOR) testing equipment.  In 2008, we also entered into an agreement to sell a new line of batteries, established a global sales and distribution network for its testing and fuel cell energy supply products, received inquiries from major auto manufacturers, automotive test systems providers, fuel cell developers and instrumentation companies concerning expanded uses of these products, and identified new areas of opportunity.  The HS-1000 VIASENSOR business unit was sold in 2009.  The BA-1000 VIASENSOR lithium battery business was returned to Caltech in 2009 in exchange for cancellation of license fees due to Caltech.

VIASPACE has expanded into safe lithium batteries with representation of two Asian manufacturers with focus in electric bikes, larger electric vehicles (“EVs”) as well as portable electronics.  The Company is putting a minimal of resources on this product line.

VIASPACE Subsidiary - Ionfinity LLC

Ionfinity is working on a next-generation mass spectrometry (“MS”) technology, which could significantly improve the application of MS for industrial process control and environmental monitoring and could also lead to a new class of detection systems for homeland security.

Ionfinity entered into a new Phase II Army contract with its partners, including JPL, on August 4, 2008 to design a compact, field portable, stand-off high-efficiency, rugged, integrated detection and identification, system for chemical and biowarfare agents.  The Phase II Army contract is a fixed price contract and has a base value of $375,000 with a period of performance through August 3, 2009.  On July 2, 2009, the Army exercised an option for an additional year value of $375,000 to be funded from August 4, 2009 through January 3, 2011.  Approximately $375,000 in revenues was recognized in 2009 by Ionfinity on this Phase II Army contract.
 
 
Ionfinity entered into a new Phase II Navy contract with its partners, including JPL, on October 23, 2008, to develop an innovative smaller, lighter, and more sensitive electronic sniffer sensor that detects chemical, biological, radiological, explosive and illegal drug residue.  The Phase II Navy contract had a base value of $492,000 and a period of performance through April 23, 2010.  The contract is a cost plus fixed fee type of contract.  On March 16, 2010, the Navy exercised an option for Ionfinity on this contract which increased the total value from $492,000 to $1,278,000, an increase of $786,000.  Approximately $317,000 in revenues was recognized in 2009 by Ionfinity on this Phase II Navy contract.

VIASPACE Subsidiary - VIASPACE Security Inc. (formerly Arroyo Sciences, Inc.)

The majority of the assets of VIASPACE Security Inc. (“VIASPACE Security”), a wholly owned subsidiary of VIASPACE, were sold on December 21, 2008, including intellectual property developed at NASA/JPL and licensed from Caltech including a commercialization license for a real-time inference engine (software platform) called SHINE (Spacecraft Health Inference Engine).  The Company sold 100% of the common stock of VIASPACE Security to Mr. Amjad Abdallat, a former executive of VIASPACE on December 2, 2009, for back salary owed to him totaling $62,287.
 
 
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Other VIASPACE Projects

The Company retains a worldwide nonexclusive license to certain patents and patent applications in the areas of interactive radio technology.

Concentric Water Technology LLC, a VIASPACE subsidiary does not have active operations was closed in 2009.

Research and Development

As discussed more fully in the section titled “Results of Operations” below, our research and development (“R&D”) expenses were $30,000 and $1,148,000 for 2009 and 2008, respectively.  The Company is putting its focus on GKG and no longer has current plans to spend money on research and development expenses.

Competition

Framed Art Business (Inter-Pacific arts, Inc. /IPA)

There are many framed art companies that compete with IPA.  For example, ICA Home Decor, Crown Arts, Wendover Art, Midwest Art and many more in the U.S. and China.  IPA benefits from having its own factory in China and concentrates on large customers that typically order framed art work by the container load with a typical order of 1400 copies of a single design.  These customers generally have many retail stores in their chains.  IPA only manufactures art after an order is placed and has virtually no inventory of framed art.  IPA guarantees its customers that all art is legitimate with full royalties paid, and that it will not sell the same product to another customer.   IPA sources high quality frame moldings, mattes and glass in China, and assembles the framed art in its factory in China.  IPA is able to control its expenses through its relationships with suppliers and control quality by assembly at its factory in China. We believe that these processes allow IPA's products to be sold at a favorable price in a competitive environment.

Grass Business Division

Many companies, universities and research laboratories worldwide are investigating grass as a feedstock for cellulosic ethanol.  Monsanto is an example of a large company focusing on grass. Ceres is an example of a startup company focusing on biomass and grass in particular. Much of the competition is looking at miscanthus or switchgrass.  These grasses are suitable for temperate areas. Much of the competition also is focused on selling seeds. The VGE GKG is a natural hybrid grass.  This hybrid is not generally available, and to our knowledge no one else is growing GKG, as a commercial crop. Based on publicly available data on switchgrass and miscanthus, compared to our data on GKG, we believe GKG has significantly higher productivity than these and other competing grasses.  GKG is most suitable for tropical and subtropical areas, which are the focus of the company’s efforts.  GKG is propagated by seedlings not by seeds. VGE is not selling seedlings to third parties, but is focusing on growing the grass and securing long-term supply contracts for biofuel production, as a replacement for coal and electricity generation, and as animal feed.  Once we obtain long-term supply contracts, we plan to capture these recurring revenue streams.

Other grasses such as alfalfa are suitable for animal feed and are also competitors.  

Direct Methanol Fuel Cell Corporation

DMFCC faces competitors in the cartridge business.  BIC Corporation in France and the U.S., and Tokai Corporation and Toyo Seikan in Japan have demonstrated cartridges for direct methanol fuel cells, and may become direct competitors. Other companies may enter the cartridge business.

Ionfinity

The Ionfinity technology is patented.  Competing technologies to soft ionization membranes are standard ionization techniques such as electron filament ionization, electrospray, and others.  Other mass spectrometers may become available and become competitors.

Overall, the markets for our products are highly competitive and many of our competitors have greater resources and better name recognition than we do.  It is our intention to compete primarily by leveraging our intellectual property rights and our unique products.

 
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Regulatory Issues

Companies operating in the portable/micro fuel cell industry, including DMFCC, are subject to current and future state, federal and international regulation, including safety codes and transportation regulations related to methanol fuel cells and cartridges.  The US Department of Transportation gave final approval in 2008 to carry methanol fuel cells and to spare cartridges in the passenger cabin of commercial airplanes.  This action now harmonizes US policy with that of the International Civil Aviation Organization (ICAO).  The same approvals have been given by Canada, United Kingdom Japan and China.  Approval to carry direct methanol fuel cells and cartridges on airplanes is a critical milestone which allows commercialization to move forward.

The International Electrotechnical Commission (“IEC”), the electrical counterpart of the International Standards Organization (“ISO”) and international committee of which DMFCC is a member, developed safety standards for fuel cells and fuel cartridges.  The IEC document PAS 62282 – 6 – 1 Micro Fuel Cells – Safety was published in February 2006.  This document covers small low power “micro” fuel cell systems and fuel cartridges that can easily be carried by hand.  Broadly speaking, the IEC safety standards require the following potential dangers to be mitigated: fire, explosion, leakage, harmful emissions, ignition sources and corrosion.  Extensive and detailed safety tests are required for these fuel cells are fuel cartridges.  The IEC safety standards were critical to obtaining approval to carry fuel cells on airplanes.

The ICAO DGP specified that micro fuel cell cartridges and systems will be added to the exceptions allowed to be carried on aircraft by passengers and crew subject to the following conditions:
 
 
Fuel cell cartridges may only contain liquids (including methanol, formic acid and butane)

 
Fuel cell cartridges must comply with IEC PAS 62282 – 6 – 1 Micro Fuel Cells – Safety (as defined above)

 
Fuel cell cartridges must not be refillable by the user.  Refueling of fuel cell systems is not permitted except that the installation of a spare cartridge is allowed. Fuel cartridges which are used to refill fuel cell systems but which are not designed or intended to remain installed (fuel cell refills) are not permitted to be carried.

 
The maximum quantity of fuel in any fuel cell cartridge may not exceed: for liquids 200 mL; for liquefied gases 120 mL for nonmetallic fuel cell cartridges and 200 mL for metal fuel cell cartridges

 
No more than two spare fuel cell cartridges may be carried by a passenger

 
Fuel cell systems containing fuel and fuel cartridges including spare cartridges are permitted in carry-on baggage only

 
Fuel cell systems whose sole function is to charge a battery in the device are not permitted

 
Fuel cell systems must be of a type that will not charge batteries when the portable electronic device is not in use and must be durably marked “Approved for Carriage in Aircraft Cabin Only”

Dependence on a Few Major Customers

For 2009 and 2008, the Company had one customer which made up 71% and 57%, respectively, of our total revenues.  We believe this concentration of sales made to a small number of customers will continue in the near future.  A loss of any customer by the Company could significantly reduce our future revenues.

Intellectual Property

DMFCC has licensed certain patents to fuel cell technology from Caltech and USC.   DMFCC also has filed for patents related to its cartridge technology.
Ionfinity has five issued patents and two patent applications in the fields of soft ionization device and applications related to its development of improved mass spectrometer technology.  The patents have expiration dates between 2022 and 2024.  Ionfinity has also licensed one patent from Caltech relating to a soft ionization membrane being used as an ion source for a rotating field mass spectrometer. Ionfinity also has a cross license agreement with patent rights in the soft ionization device field, with a commercial company.

Trademarks

The Company has received issued trademarks for “VIASPACE” and “VIASPACE Technologies”.  We have trademark applications for “VIASPACE Energy”, “Ionfinity” and “GIANT KING” grass.
 
 
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VIASPACE History

VIASPACE Inc. (the “Company” or “VIASPACE”), formerly known as Global-Wide Publication Ltd. (“GW”), was incorporated in the State of Nevada on July 14, 2003.  The Company engaged in a reverse merger (the “Merger”) with ViaSpace Technologies, LLC (“ViaSpace LLC”) on June 22, 2005.

On September 30, 2003, the Company acquired all of the issued and outstanding shares of Marco Polo World News Inc. (“MPW”), a British Columbia, Canada corporation that was engaged in the production and distribution of an ethnic bilingual (English/Italian) weekly newspaper called “Marco Polo”, in consideration of 63,000,000 restricted shares on a post-split basis (2,100,000 on a pre-split basis) of the Company’s common stock issued to MPW’s sole shareholder, Rino Vultaggio, who became a director and officer of the Company.  As a result of the transaction, MPW became a wholly owned subsidiary of the Company and, as of the date of completion of the acquisition agreement, the financial operations of the two companies were merged.

On May 19, 2005, the Company entered into an Acquisition Agreement with Mr. Vultaggio, pursuant to which, upon the closing of the Merger, the Company sold 100% of its interest in MPW to Mr. Vultaggio in exchange for 63,000,000 shares on a post-split basis (2,100,000 shares on a pre-split basis) of Company Common Stock.  Thus, as of June 22, 2005, the Company no longer had any ongoing operations related to MPW, or any newspaper publication business.

In addition, on May 19, 2005, the Company entered into a Share Purchase Agreement with Robert Hoegler, a former director and officer of the Company, pursuant to which, upon the closing of the Merger, the Company purchased 72,000,000 shares on a post-split basis (2,400,000 shares on a pre-split basis) of the Company’s common stock for $24,000.

Effective June 22, 2005, the Company acquired ViaSpace LLC via a Merger.  ViaSpace LLC was founded in July 1998 with the objective of transforming proven space and defense technologies from NASA and the Department of Defense into hardware and software solutions that have the potential to solve today’s complex problems. ViaSpace LLC benefited from important patent and software licenses from Caltech, which manages NASA’s Jet Propulsion Laboratory, and from relationships with research laboratories, universities, and other organizations within the advanced technology community.

Pursuant to the Merger, on June 22, 2005:

 
GW, as the surviving entity, changed its name to VIASPACE Inc.;

 
The Company effected a 5 for 1 forward stock split (a 6 for 1 forward stock split was previously effected May 23, 2005);

 
The members of ViaSpace LLC were issued an aggregate of 226,800,000 post-split shares of GW common stock in exchange for their membership interests in ViaSpace LLC at a rate of 5.4 common shares of GW in exchange for each membership unit. All pre-merger activity has been retroactively adjusted and presented to account for this exchange;

 
A total of 54,000,000 post-split shares (1,800,000 shares on a pre-split basis) of the Company’s common stock were held by the pre-existing GW shareholders as of the date of the Merger.

Employees

As of December 31, 2009 we have 75 full time employees, 70 of whom are based in China and 5 in the U.S.  We also have 25 part time employees in China.  We believe that our relations with our employees are good. We have never had a work stoppage, and our employees are not subject to a collective bargaining agreement.

ITEM 1A. RISK FACTORS

Our business is subject to a number of risks. You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this report, before you decide whether to purchase our common stock. The risks set out below are not the only risks we face.  If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.    We wish to caution that the following important factors, among others, in some cases have affected and in the future could affect our actual results and could cause such results to differ materially from those expressed in forward-looking statements made by or on behalf of us.
 
 
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Risks Related To Our Business

We have incurred losses and anticipate continued losses for the foreseeable future.

Our net loss for 2009 was $2,909,000.  We have not yet achieved profitability and expect to continue to incur net losses until we recognize sufficient revenues from licensing activities, customer contracts, product sales or other sources.  Because we do not have an operating 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 achieving profitability or 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 2009, which expresses substantial doubt about our ability to continue as a going concern.  The inclusion of a going concern explanatory paragraph in Goldman Parks Kurland Mohidin, LLP’s report on our financial statements could have a detrimental effect on our stock price and our ability to raise additional capital if needed.
 
Our financial statements were 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 achieve profitability or to raise capital in order to fund the development and commercialization of our products.  Failure to be profitable or to raise additional capital may result in substantial adverse circumstances, including our inability to continue the development of our products and our liquidation.
 
If we fail to agree with Chang on an alternate arrangement to the Second Closing, we will forfeit our interests in VGE.

Under the Purchase Agreement, as amended, if the Second Closing did not occur by February 15, 2010, then all equity interests of VGE that we own must be returned to Chang.  In addition, Chang is obligated to deliver to VGE the remaining 30% interest of IPA BVI such that VGE would own 100% of IPA BVI (which in turn owns 100% of IPA China).  We are negotiating with Chang in good faith to agree upon an alternate arrangement under which we would own a substantial interest in VGE and in turn, we would provide Chang debt and equity consideration.  Chang is currently a significant Company shareholder. Further, Chang has not demanded delivery of the VGE stock certificates from us.  However, we cannot assure you that we will enter into any such arrangement successfully.  In the event that we ultimately are unable to agree upon an alternate arrangement with Chang, then we will lose all of our equity interests in VGE.

We operate in a changing and unpredictable regulatory environment.

Companies operating in the portable/micro fuel cell industry, including DMFCC, are subject to current and future state, federal and international regulation, including safety codes and transportation regulations related to methanol fuel cells and cartridges.

In 2008, the US Department of Transportation issued final approval of a regulation allowing methanol fuel cells and fuel cartridges to be carried on board aircraft.  This approval is critical for commercialization of fuel cell powered devices.

 
 
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Our success depends upon market acceptance of our technologies and product development.

The markets for our technologies are either new or non-existent at the present time including direct methanol fuel cell cartridges and grass of cellulosic ethanol.  Our success will depend upon the market acceptance of our various products and services.  This acceptance may require in certain instances a modification to the culture and behavior of customers to be more accepting of fuel cell technology and other forms of technology and automation.  Potential customers may be reluctant or slow to adopt changes or new ways of performing processes.  There is no assurance that our current or future products or services will gain widespread acceptance or that we will generate sufficient revenues to allow us to ever achieve profitability.

In addition, our products require continuing improvement and development.  Our products may not succeed or may not succeed as intended.  As a result, we may need to change our product offerings, discontinue certain products and services or pursue alternative product strategies.  There is no assurance that we will be able to successfully improve our current products or that we will continue to develop or market some of our products and services.

We operate in a competitive market against companies that have significantly greater resources than we have.

DMFCC faces competitors in the cartridge business.  BIC Corporation in France and the U.S., and Tokai Corporation and Toyo Seikan in Japan have demonstrated cartridges for direct methanol fuel cells, and are direct competitors.  Other companies may enter the cartridge business.

The Ionfinity technology is patented and to our knowledge is unique.  Competing technologies to the soft ionization membrane approach are standard ionization techniques such as electron filament ionization, electrospray, and others.

Overall, the markets for our products are highly competitive and many of our competitors have greater resources and better name recognition than we do.  We intend to compete primarily by leveraging our intellectual property rights and our unique product value added features.

Due to uncertainties in our business, the capital on hand may not be sufficient to fund our operations until we achieve positive cash flow.

We have expended and will continue to expend substantial amounts of money for research and development, capital expenditures, working capital needs and manufacturing and marketing of our products and services.  Although we have reduced expenses significantly, our business requires funds for operations.

The exact timing and amount of spending required cannot be accurately determined and will depend on several factors, including:

progress of our research and development efforts;

competing technological and market developments;

commercialization of products currently under development by us and our competitors; and

market acceptance and demand for our products and services.

The cost of developing our technologies may require financial resources greater than we currently have available. Therefore, in order to successfully complete development of our technologies, we may be required to obtain additional financing.  We cannot assure you additional financing will be available if needed or on terms acceptable to us.  If adequate and acceptable financing is not available, we may have to delay development or commercialization of certain of our products and services or eliminate some or all of our development activities.  We may also reduce our marketing or other resources devoted to our products and services.  Any of these options could reduce our sales growth and result in continued net losses.

If we lose key personnel or are unable to hire additional qualified personnel, it could impact our ability to grow our business.

We believe our future success will depend in large part upon our ability to attract and retain highly skilled technical, managerial, sales and marketing, finance and operations personnel.  We face intense competition for all such personnel, and we may not be able to attract and retain these individuals.  Our failure to do so could delay product development, affect the quality of our products and services, and/or prevent us from sustaining or growing our business. In addition, employees may leave our company and subsequently compete against us.  Key personnel include Dr. Carl Kukkonen, our CEO and Sung Hsien Chang, President of VGE and CEO of Inter-Pacific Arts, Inc.

We have taken steps to retain our key employees and we have entered into employment agreements with some of our key employees.  The loss of key personnel, especially if without advanced notice, could harm our ability to maintain and build our business operations.  Furthermore, we have no key man life insurance for any of our key employees.
 
 
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Our revenues to date have been to a few customers, the loss of which could result in a material decline in revenues.

For 2009 and 2008, the Company had one customer which made up 71% and 57%, respectively, of our total revenues.  We believe this concentration of sales made to a small number of customers will continue in the near future.  A loss of any customer by the Company could significantly reduce our future revenues.

Our products and services could infringe on the intellectual property rights of others, which may lead to costly litigation, lead to payment of substantial damages or royalties and/or prevent us from manufacturing and selling our current and future products and services.

If third parties assert our products and services or technologies infringe their intellectual property rights, our reputation and ability to license or sell our products and services could be harmed.  Whether or not a claim has merit, it could be time consuming and expensive for us and divert the attention of our technical and management personnel from other work.  In addition, these types of claims could be costly to defend and result in our loss of significant intellectual property rights.

A determination we are infringing the proprietary rights of others could have a material adverse effect on our products and services, revenues and income.  In the event of any infringement by us, we cannot assure you we will be able to successfully redesign our products and services or processes to avoid infringement.  Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products and services and could require us to pay substantial damages and royalties.

Risks Related To the Industry

If we fail to successfully introduce new products and services, our future growth may suffer.  Our areas of anticipated future growth are certain products and services at an early stage of development.

As part of our strategy, we intend to develop and introduce a number of new products and services.  Such products and services are currently in research and development.  We have generated no revenues from such potential products and services and may never generate revenues.  A substantial portion of our resources have been and for the foreseeable future will continue to be dedicated to our research programs and the development of products and services. If we do not introduce these new products and services on a timely basis, or if they are not well accepted by the market, our business and the future growth of our business may suffer.  There is no assurance we will be able to develop a commercial product from these projects.  Our competitors may succeed in developing technologies or products and services that are more effective than ours.

If we do not update and enhance our technologies, they will become obsolete or noncompetitive. Our competitors may succeed in developing products and services faster than we do.

We operate in highly competitive industries and competition is likely to intensify.  Emerging technologies, extensive research and new product introductions characterize the market for our products and services.  We believe our future success will depend in large part upon our ability to conduct successful research in our fields of expertise, to discover new technologies as a result of that research, to develop products and services based on our technologies, and to commercialize those products and services.  If we fail to stay at the forefront of technological development, we will be unable to compete effectively.

Certain of our existing and potential competitors possess substantial financial and technical resources and production and marketing capabilities greater than ours.  We cannot assure you we will be able to compete effectively with existing or potential competitors or that these competitors will not succeed in developing technologies and products and services that would render our technology and products and services obsolete and noncompetitive.  Our position in the market could be eroded rapidly by our competitors’ product advances.

 
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Our success depends, in part, on attracting customers who will embrace the new technologies offered by our products and services.

It is vital to our long-term growth that we establish customer awareness and persuade the market to embrace new technologies offered by our products and services.  This may require in certain instances a modification to the culture and behavior of customers to be more accepting of technology and automation.  Organizations may be reluctant or slow to adopt changes or new ways of performing processes and instead may prefer to resort to habitual behavior within the organization.  Our marketing plan must overcome this obstacle, invalidate deeply entrenched assumptions and reluctance to behavioral change and induce customers to utilize our products and services rather than the familiar options and processes they currently use.  If we fail to attract additional customers at this early stage, our business and the future growth of our business may suffer.

If we fail to comply with our obligations in our intellectual property licenses with Caltech and USC, we could lose license rights that are important to our business.

We are a party to a number of license agreements that are material to our business.  We may enter into additional technology licenses in the future.  Our existing licenses impose and future licenses may impose various minimum royalty commitments, other royalties and other obligations on us. If we fail to comply with these obligations, the licensors may have the right to terminate the license, in which event we might not be able to market any product that is covered by the licensors.  We cannot assure you we will be able to obtain new licenses, or renew existing licenses, on commercially reasonable terms, if at all. Termination of the licenses could have a material adverse affect on our business, operating results and financial condition.

Our success depends, in part, on our ability to protect our intellectual property rights.

Our success is heavily dependent upon the development and protection of proprietary technology.  We rely on patents, trade secrets, copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property rights and protect our products and services.  These legal means, however, afford only limited protection and may not adequately protect our rights.  Litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others.  Litigation could result in substantial costs and diversion of resources and management attention.

We cannot assure you our competitors or other parties have not filed or in the future will not file applications for, or have not received or in the future will not receive, patents or obtain additional proprietary rights relating to products and services or processes used or proposed to be used by us.  In that case, our competitive position could be harmed and we may be required to obtain licenses to patents or proprietary rights of others.

In addition, the laws of some of the countries in which our products and services are or may be sold may not protect our products and services and intellectual property to the same extent as U.S. laws, if at all.  We may be unable to protect our rights in proprietary technology in these countries.

Risks related to our Grass Business

We currently have no customers for our grass business.  If we are unable to attract any customers, our grass business will fail.

We commenced our grass business in October 2008 and currently lack any customers.  While we believe we will be able to attract customers and achieve revenues in 2010, we cannot assure you we will. If we fail to attract a sufficient number of customers that purchase a sufficient amount of grass, our grass business will fail.

We may not have sufficient land, seedlings and other resources to enter into long-term supply contracts with customers.

We recently signed a MOU with DP Cleantech, a subsidiary of Dragon Power, the largest biomass power plant builder and operator in China. Dragon has independently tested GKG and found it suitable for their power plants.  A Dragon 30 MW power plant burning 50% GKG and 50% agricultural waste would require 487-701 hectares of land. Currently we have 45 hectares under cultivation and are actively seeking more land.  If we are unable to secure this additional land, a biomass power plant operator may not enter into a long-term supply contract with us.  The GKG growing on the 45 hectares is being used for propagation. A single GKG plant can generate 20 to 35 new seedlings each year. Therefore the current land is able to supply seedlings for 900-1575 hectares.  Grass production capability can increase by a minimum of 20 times each year.  We believe we have sufficient financial resources to lease this much land but there are no assurances we will be able to do so.  If we are unable to secure sufficient amounts of land, seedlings and other resources, we may be unable to attract customers and our business model may fail.
 
 
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We could be subject to intellectual property rights claims regarding the seedlings.
 
We are subject to the risk that the seedlings we license infringe or will infringe upon patents, copyrights, trademarks or other intellectual property rights held by third parties.   We acquired rights to grow GKG from a seller which we believe held such rights.  If that party does not hold such rights, we may be subject to legal proceedings and claims relating to the intellectual property of others.  If any such claim arises in the future, litigation or other dispute resolution proceedings may be necessary to retain our ability to offer our current and future products, which could result in substantial costs and diversion of our management resources and attention even if we prevail in contesting such claims. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property rights, incur additional costs to license or develop alternative products and be forced to pay fines and damages, any of which could materially and adversely affect our business and results of operations, or terminate our grass business entirely.

We have a sublicense relationship with respect to the Giant King Grass license.  If the license from our sublicensor is cancelled, terminated or otherwise is adversely affected, our sublicense may be materially affected.

We sublicense our intellectual property to the GKG from China Gate which licenses the intellectual property from the original licensor.  The term of this license is not specified.  China Gate has informed us that they have an exclusive license to the GKG in Guangdong province and North America and have granted us an exclusive sublicense to the same region.   However, because we do not have a direct relationship with the holder of the intellectual property, any material adverse effect to the GKG license held by our sublicensor would affect our rights as the sublicensee.  The original licensor is aware of our sublicense and has consented to it.  For instance, if our sublicensor fails to perform its obligations under its license with the original licensor, we would have no recourse against the original licensor and our rights with respect to the sublicense may be materially affected.
 
Natural or man-made disasters could damage our crop production, which would cause us to suffer losses of production and a material reduction of revenues.
 
We produce GKG in the Guangdong province of China.  This grass is subject to the risks associated with growing crops, including natural disasters such as drought, pestilence, plant diseases and insect infestations, and man-made disasters such as environmental contamination. Other man-made incidents may damage our products, such as arson or other acts that may adversely affect our grass inventory in the winter storage season.  Furthermore, natural or man-made disasters may cause farmers to migrate from the farmland, which would decrease the number of end users of our products. We are particularly susceptible to disasters or other incidents in the Guangdong province, where we have the greatest concentration of our operations. In the event of a widespread failure of our grass, we could likely sustain substantial loss of revenues and suffer substantial operating losses. We do not have insurance to protect against such a risk and we are not aware of the availability of any such insurance in China.
 
Our growth prospects may be materially and adversely affected if we are unable to develop or acquire new products or to produce our existing products in sufficient quantities.
 
We believe the future growth of our Company will depend on the value of our grass business for biofuel, power plant, or animal feed purposes.   The ability to develop orders from customers, if at all, is uncertain due to several factors, many of which are beyond our control. These include changing customer preferences, competitive price pressures, the failure to adapt products to meet the evolving demands of customers in China, the development of higher-quality products by our competitors, and general economic conditions. If we are unable to develop or acquire additional products that meet the demands of our customers, if our competitors develop products that are favored by our customers in China, or if we are unable to produce our existing products in sufficient quantities, our growth prospects may be materially and adversely affected and our revenues and profitability may decline.
 
Our plans to increase production capacity in the grass business and expand into new markets may not be successful, which could adversely affect our operating results.
 
Our plans to develop our grass business and its production capacity has placed and will continue to place, substantial demands on our managerial, operational, technological and other resources. We are addressing three markets for GKG: feedstock for low-carbon liquid biofuels for transportation; fuel to burn in electricity generating power plants; and animal feed. We are also reviewing opportunities to grow grass in other areas of China, India, Indonesia, other areas of Southeast Asia and South America.  These represent great opportunities for the company, but also represent a potential risk in losing focus and diluting management attention. If we fail to establish and manage the growth of our product offerings, operations and distribution channels effectively and efficiently in such business, we could suffer a material and adverse effect on our operations and our ability to capitalize on new business opportunities, either of which could materially and adversely affect our operating results.
 
 
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We will need to develop new sales channels into the biofuel, electric power plant, and animal feed markets. Expansion into new markets may present operating and marketing challenges. If we are unable to anticipate the changing demands that expanding operations will impose on our production systems and distribution channels, or if we fail to develop our production systems and distribution channels to meet the demand, we could experience an increase in expenses and our results of operations could be adversely affected.
 
Our financial results are sensitive to fluctuations in market prices of the products that we offer.
 
The profitability of our operations is affected by the selling prices of our products. We intend to benchmark the prices of our grass against the prevailing domestic market prices of grass of similar quality and attributes, and set the prices accordingly.  Historically, prices of grass and other agricultural products in China have been volatile, primarily due to fluctuations in supply and demand.  If the prices for such products decline in the future, and we are unable sell more products and/or reduce our cost of sales, our revenues will decrease and our profitability will be adversely affected.
 
We have limited insurance coverage in China.
 
The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited insurance products. Other than automobile insurance on certain vehicles and property and casualty insurance on some of our assets, we do not have insurance coverage on our other assets or inventories and do not have insurance to cover our business or interruption of our business, litigation or product liability. We determined the costs of insuring these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured occurrence of loss or damage to property, litigation or business disruption may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our operating results and financial condition.
 
The Chinese agricultural market is highly competitive and our growth and results of operations may be adversely affected if we are unable to compete effectively.
 
The agricultural market in China is highly fragmented, largely regional and competitive and we expect competition to increase and intensify within the sector. We face significant competition in our grass business.  Many of our competitors have greater financial, research and development and other resources than we have. Competition may also develop from consolidation or other market forces within the grass industry in China.  Because our licensor has no restrictions outside of Guangdong province and North America, we have no means to restrict our licensor from selling GKG to third parties throughout the rest of the world.   Although we believe we are the only business that will grow a significant amount of GKG sufficient to support biomass related power plants in China, we have no assurance this is the case.  Other growers of GKG could potentially compete with us.  In addition, our competitors may develop other types of grasses that are superior to GKG and more favored by our potential customers.  Our business could be materially and adversely affected by such competition.
 
Our competitors may be better able to take advantage of industry consolidation and acquisition opportunities than we are. The reform and restructuring of state-owned equity in agricultural enterprises could likely lead to the reallocation of market share in the grass industry, and our competitors may increase their market share by participating in the restructuring of the state-owned seed companies. Such privatization would likely mean that these producers will need to develop more efficient and commercially viable business models in order to survive. In addition, the PRC government currently restricts foreign ownership of any domestic agricultural development and production business to no more than 50% unless otherwise approved by the PRC government. When and if such restrictions are lifted, multinational corporations engaged in the seed business may expand into the agricultural market in China. These companies have significantly greater financial, technological and other resources than us and may become our major competitors in China. As competition intensifies, our margins may be compressed by more competitive pricing in the short term and may continue to be compressed in the long term and we may lose our market share and experience a reduction in our revenues and profit.
 
 
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If we are unable to estimate customers’ future needs accurately and to match our production to the demand of our direct customers, our business, financial condition and results of operations may be materially and adversely affected.
 
Due to the nature of the grass industry, we normally grow according to our production plan before we sell and deliver grass to distributors and our direct customers. The potential end users of our grass, such as biofuel providers and livestock owners, generally make purchasing decisions for our products based on market prices, economic and weather conditions and other factors that we may not be able to anticipate accurately in advance. If we fail to accurately estimate the volume and types of products sought by our customers, we may produce more grass that is in demand by our distributors resulting in aged crops. In the event we decide not to sell the crop due to our concerns about the quality, the aged inventory could eventually be sold at greatly reduced prices. Aged inventory could result in asset impairment, in which case we would suffer a loss and incur an increase in our operating expenses. On the other hand, if we underestimate demand, we may not able to satisfy our customers’ demand for grass, and thus damage our customer relations and end-user loyalty. Our failure to estimate our customers’ future needs and to match our production to the demand of our direct customers may materially and adversely affect our business, financial condition and results of operations.
 
Grass prices and sales volumes may decrease in any given year with a corresponding reduction in sales, margins and profitability.
 
There may be periods of instability during which commodity prices and sales volumes may fluctuate greatly. Commodities can be affected by general economic conditions, weather, disease outbreaks and factors affecting demand, such as availability of financing and competition. Our attempts to differentiate our products from those of other grass producers have not prevented the grass market from having the characteristics of a commodity market. As a result, the price we are able to demand for our grass is dependent on the size of the supply of our grass and the grass of other producers. Therefore, the potential exists for fluctuation in supply, and consequently in price, in our own markets, even in the absence of significant external events that might cause volatility. As a result, the amount of revenue that we receive in any given year is subject to change. As production levels are determined prior to the time that the volume and the market price for orders is known, we may have too much or too little product available, which may materially and adversely affect our revenues, margins and profitability.
 
Risks related to our framed art business

We are heavily dependent on one major customer for our revenues

For 2009 and 2008, sales to one customer, Hobby Lobby Stores, comprised 92% and 85%, respectively, of our total revenues for our VGE subsidiary.  We believe this concentration of sales to a small number of customers will continue in the near future. We do not have a long-term contract with Hobby Lobby Stores. A loss of Hobby Lobby Stores as a customer or even a dramatic reduction in sales to Hobby Lobby Stores could significantly reduce our future revenues.

We may not be able to compete with existing or potential competitors in our framed art business  
 
The visual content and art framing businesses are highly competitive. We believe competitive factors include quality of images, branding, reputation, service, breadth of content, depth of content, technology, pricing, and sales and marketing.  Overall, many of our competitors are significantly larger, have far greater resources, a notably larger customer base, a far greater content provider base, significantly more technology infrastructure, and more well-recognized names in the marketplace than we do, all of which may make it difficult for us to compete effectively.
 
We rely on outside content providers; therefore our revenues will be materially and adversely affected without adequate supply of content
 
We rely on outside sources to provide us visual content for our artwork, which we aggregate and make available to our customers. Although we work with entities we believe are reputable vendors, we cannot assure you such outside content provider will have the resources or personnel to provides us with content and artwork that is attractive to potential customers. If we are not able to acquire quality content in sufficient quantities that are favored by our customers, our revenue will be materially and adversely affected.
 
 
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We may be subject to intellectual property rights claims or other claims in the future which could result in substantial costs and diversion of our financial and management resources away from our business.
 
We are subject to the risk that the products, technology and processes we license infringe or will infringe upon patents, copyrights, trademarks or other intellectual property rights held by third parties.  We purchase copyrighted artwork prints from reputable publishers that have license agreements with the copyright holders.  These publishers will indemnify us in the event that an infringement action occurs.  We may be subject to legal proceedings and claims relating to the intellectual property of others. If any such claim arises in the future, litigation or other dispute resolution proceedings may be necessary to retain our ability to offer our current and future products, which could result in substantial costs and diversion of our management resources and attention even if we prevail in contesting such claims. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property rights, incur additional costs to license or develop alternative products and be forced to pay fines and damages, any of which could materially and adversely affect our business and results of operations, or terminate our grass business entirely.
 
Our failure to protect our intellectual property rights may undermine our competitive position, and legal action to protect our intellectual property rights may be costly and divert our management resources.
 
We rely primarily on trademark law, and other contractual restrictions to protect our intellectual property.  We also rely on third parties to protect our licensed intellectual properties.   These afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our licensed proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial condition or operating results. Preventing unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. There is a risk the outcome of such potential litigation will not be in our favor. Such litigation may be costly and may divert management attention as well as expend other resources which could otherwise have been devoted to our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing may have a material adverse effect on our business, results of operations and financial condition.
 
Historically, implementation of PRC intellectual property-related laws has been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries, which increases the risk that we may not be able to adequately protect our intellectual property.
 
We may not possess all the licenses required to operate our business, or may fail to maintain the licenses we currently hold. This could subject us to fines and other penalties, which could have a material adverse effect on our results of operations.
 
We are required to hold a variety of permits and licenses to conduct our framed art and grass businesses in China. To our knowledge, we hold all the permits and licenses required for each of our business segments; however we cannot assure you we possess all the permits and licenses required for each of our business segments. In addition, there may be circumstances under which the approvals, permits or licenses granted by the governmental agencies are subject to change without substantial advance notice, and it is possible we could fail to obtain the approvals, permits or licenses required to expand our business as we intend. If we fail to obtain or to maintain such permits or licenses or renewals are granted with onerous conditions, we could be subject to fines and other penalties and be limited in the number or the quality of the products that we would be able to offer. As a result, our business, result of operations and financial condition could be materially and adversely affected.
 
We may be subject to product quality or liability claims, which may cause us to incur litigation expenses and to devote significant management time to defending such claims and, if determined adversely to us, could require us to pay significant damage awards.
 
Although we are not subject to any claims now, we may be subject to legal proceedings and claims from time to time relating to, among other things, our products in the future.   The defense of these proceedings and claims could be costly and time-consuming and significantly divert the efforts and resources of our management personnel. An adverse determination in any such proceedings could subject us to significant liability. In addition, any such proceeding, even if ultimately determined in our favor, could damage our market reputation and prevent us from maintaining or increasing sales and market share. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase of our products.
 
 
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Risks Related to Doing Business in China
 
PRC laws and regulations governing our businesses are uncertain. If we are found to be in violation, we could be subject to sanctions. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.
 
The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially adversely affect our competitive position.
 
We conduct a significant amount of our operations and generate most of our revenues in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including:
 
 
the higher level of government involvement;
 
 
the early stage of development of the market-oriented sector of the economy;
 
 
the rapid growth rate;
 
 
the higher level of control over foreign exchange; and
 
 
the allocation of resources.
 
While the PRC economy has grown significantly since the late 1970s, the growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on our business. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.
 
The PRC economy has been transitioning from a planned to a more market-oriented economy. Although the PRC government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the PRC government continues to exercise significant control over economic growth in China through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways.
 
Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.
 
We conduct substantially all of our business through our operating subsidiary in the PRC, IPA China, which is a wholly foreign owned enterprise in China. IPA China is generally subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations has significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.
 
 
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A slowdown in the Chinese economy may slow down our growth and profitability.
 
The Chinese economy has grown at 9 percent average annual rate for more than 25 years, making it the fastest growing major economy in recorded history.  However, it has begun to slow down.  In 2008, China’s economy grew by 9.6% but slowed to 7.7% for 2009.
 
We cannot assure you growth of the Chinese economy will be steady or that any slowdown will not have a negative effect on our business. Several years ago, the Chinese economy experienced deflation, which may recur in the foreseeable future. More recently, the Chinese government announced its intention to use macroeconomic tools and regulations to slow the rate of growth of the Chinese economy, the results of which are difficult to predict. Adverse changes in the Chinese economy will likely impact the financial performance of the manufacturing and agricultural industries in China which could, in turn, reduce the demand for our products.
 
Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.
 
Most of our revenues and expenses are denominated in Renminbi. Under PRC law, the Renminbi is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, IPA China may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, the relevant PRC government authorities may limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenues will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in Renminbi to fund our business activities outside China that are denominated in foreign currencies.
 
Foreign exchange transactions by IPA China under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if IPA China borrows foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance IPA China by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the National Development and Reform Commission, or the NDRC, the Ministry of Commerce, or MOFCOM, or their respective local counterparts. These limitations could affect IPA China’s ability to obtain foreign exchange through debt or equity financing.
 
Recent PRC regulations relating to the establishment of offshore special purpose vehicles by PRC residents, if applied to us, may subject the PRC resident shareholders of us or our parent company to personal liability and limit our ability to acquire PRC companies or to inject capital into our PRC subsidiary, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.
 
In October 2005, SAFE issued a public notice, the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, or the SAFE notice, which requires PRC residents, including both legal persons and natural persons, to register with the competent local SAFE branch before establishing or controlling any company outside of China, referred to as an “offshore special purpose company,” for the purpose of overseas equity financing involving onshore assets or equity interests held by them. In addition, any PRC resident that is the shareholder of an offshore special purpose company is required to amend its SAFE registration with the local SAFE branch with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China. Moreover, if the offshore special purpose company was established and owned the onshore assets or equity interests before the implementation date of the SAFE notice, a retroactive SAFE registration is required to have been completed before March 31, 2006. If any PRC shareholder of any offshore special purpose company fails to make the required SAFE registration and amendment, the PRC subsidiaries of that offshore special purpose company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the offshore special purpose company. Moreover, failure to comply with the SAFE registration and amendment requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.
 
Due to lack of official interpretation, some of the terms and provisions in the SAFE notice remain unclear and implementation by central SAFE and local SAFE branches of the SAFE notice has been inconsistent since its adoption. Because of uncertainty over how the SAFE notice will be interpreted and implemented, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with the SAFE notice by our or our parent company’s PRC resident beneficial holders. In addition, such PRC residents may not always be able to complete the necessary registration procedures required by the SAFE notice. We also have little control over either our present or prospective direct or indirect shareholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident shareholders to comply with the SAFE notice, if SAFE requires it, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiary’s ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
 
 
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The Chinese government could change its policies toward private enterprise or even nationalize or expropriate private enterprises, which could result in the total loss of our investment in that country.
 
Our business is subject to significant political and economic uncertainties and may be adversely affected by political, economic and social developments in China. Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time with little, if any, prior notice.
 
Changes in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to stockholders, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business. Nationalization or expropriation could even result in the total loss of our investment in China and in the total loss of your investment in us.
 
We face risks related to health epidemics and other outbreaks.
 
Adverse public health epidemics or pandemics could disrupt business and the economies of the PRC and other countries where we do business. From December 2002 to June 2003, China and other countries experienced an outbreak of a highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared that the SARS outbreak had been contained. However, a number of isolated new cases of SARS were subsequently reported, most recently in central China in April 2004.  During May and June of 2003, many businesses in China were closed by the PRC government to prevent transmission of SARS. Moreover, some Asian countries, including China, have recently encountered swine flu influenza. We are unable to predict the effect, if any, that avian or swine influenza may have on our business. In particular, any future outbreak of SARS, influenza or other similar adverse public developments may, among other things, significantly disrupt our business and force us to temporarily close our businesses. Furthermore, an outbreak may severely restrict the level of economic activity in affected areas, which may in turn materially adversely affect our financial condition and results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of health related epidemics.
 
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 depress the price of our common stock.  In particular, we anticipate that the issuance of newly-issued shares to Chang in connection with an alternate arrangement to enable us to hold interests in VGE, and in turn, IPA BVI and IPA China may be very dilutive.  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 903,505,407 were issued and outstanding as of December 31, 2009.  Of these issued and outstanding shares, 366,182,962 shares (40.5% 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, Director; Mr. Sung Hsien Chang, President of VGE; 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 December 31, 2009, 369,847,397 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 533,658,010 shares of the Company’s common stock are accounted for by our transfer agent as free trading shares at December 31, 2009.
 
 
 
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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.

Our stock price is likely to be highly volatile because of several factors, including a limited public float.

The market price of our stock is likely to be highly volatile because there has been a relatively thin trading market for our stock, which causes trades of small blocks of stock to have a significant impact on our stock price.  You may not be able to resell our common stock following periods of volatility because of the market’s adverse reaction to volatility.

Other factors that could cause such volatility may include:

actual or anticipated fluctuations in our operating results;

announcements concerning our business or those of our competitors or customers;

changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;

announcements of technological innovations;

conditions or trends in the industry;

introduction or withdrawal of products and services;

variation in quarterly results due to the fact our revenues are generated by sales to a limited number of customers which may vary from period to period;

litigation;

patents or proprietary rights;

departure of key personnel;

failure to hire key personnel; and

general market conditions.

Our executive officers, directors and principal shareholders own 40.5% of our voting stock, which may allow them to control substantially all matters requiring shareholder approval, and their interests may not align with the interests of our other stockholders.

Our executive officers, directors and principal shareholders hold, in the aggregate, 40.5% of our outstanding shares.  This percentage will increase once the Company finalizes its arrangement with Chang. Accordingly, some of these shareholders may decide to act in concert, and can control us through their ability to determine the election of our directors, to amend our certificate of incorporation and bylaws and to take other actions requiring the vote or consent of shareholders, including mergers, going private transactions and extraordinary transactions, and the terms of these transactions.

Because our common stock is considered a “penny stock” any investment in our common stock is considered to be a high-risk investment and is subject to restrictions on marketability.

Our common stock is currently traded on the Over-The-Counter Bulletin Board (“OTC Bulletin Board”) and is considered a “penny stock.”  The OTC Bulletin Board is generally regarded as a less efficient trading market than the NASDAQ Small Cap Market.

 
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The SEC adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.”  Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market.  The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account.  In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock.

Since our common stock is subject to the regulations applicable to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations on penny stocks could limit the ability of broker-dealers to sell our common stock and thus your ability to sell our common stock in the secondary market.  There is no assurance our common stock will be quoted on NASDAQ or the NYSE or listed on any exchange, even if eligible.

We have additional securities available for issuance, including preferred stock, which if issued could adversely affect the rights of the holders of our common stock.

Our articles of incorporation authorize issuance of 1,500,000,000 shares of common and 10,000,000 shares of preferred stock.  The common and preferred stock can be issued by, and the terms of the preferred stock, including dividend rights, voting rights, liquidation preference and conversion rights can generally be determined by, our board of directors without stockholder approval.  Any issuance of preferred stock could adversely affect the rights of the holders of common stock by, among other things, establishing preferential dividends, liquidation rights or voting powers.  Accordingly, our stockholders will be dependent upon the judgment of our management in connection with the future issuance and sale of shares of our common and preferred stock, in the event buyers can be found therefore. Any future issuances of common or preferred stock would further dilute the percentage ownership of our Company held by the public stockholders.  Furthermore, the issuance of preferred stock could be used to discourage or prevent efforts to acquire control of our Company through acquisition of shares of common stock.

Warrants issued by the Company may have an adverse impact on the market value of our common stock.

The sale of stock issuable upon exercise of the warrants issued or issuable, or even the possibility of their sale, may adversely affect the trading market for our common stock and adversely affect the prevailing market price of our common stock.  The existence of rights under such warrants to acquire our common stock at fixed prices may prove a hindrance to our efforts to raise future equity and debt funding, and the exercise of such rights will dilute the percentage ownership interest of our stockholders and may dilute the value of their ownership.

The warrants may adversely affect our operational flexibility.

The terms of outstanding warrants impose restrictions on us that may affect our ability to successfully operate our business.  The transaction documents contain a number of covenants that may restrict our ability to operate, including, among other things, covenants that restrict our ability:

  
to incur additional indebtedness;

  
to pay dividends on our capital stock (except for our preferred stock);

  
to redeem or repurchase our common stock;

  
to issue shares of common stock, or securities convertible into common stock, in certain circumstances;

  
to use our assets as security in other transactions;

  
to create liens on our assets; and

  
to enter into certain transactions with affiliates.
 
 
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Certain events could result in adjustments in the exercise price of our warrants.

The exercise price of our warrants is subject to adjustment under certain circumstances.  If we sell shares of common stock for a price less than the exercise price of the warrants in effect prior to such sale, in certain circumstances, the exercise price of the warrants could be reduced.  In addition, the exercise price of the warrants could be reduced if we issue options or convertible securities, or in the case of a stock split, stock dividend, recapitalization, combination or otherwise.  Existing stockholders will experience significant dilution from our sale of shares and warrants.
 
Any subsequent sale of shares and warrants will have a dilutive impact on our stockholders. As a result, our net income per share could decrease in future periods, and the market price of our common stock could decline significantly.

Other Matters

We were contacted informally by the Pacific Regional Office of the SEC in March 2006 requesting the voluntary provision of documents concerning the reverse merger of Global-Wide Publication, Ltd. and Viaspace Technologies LLC in June 2005 and related matters. The SEC or its staff has made no indication that any violations of the law have occurred.  We cooperated fully with this inquiry in 2006 and responded to the inquiry in writing in 2006.  There was no further inquiry in 2007, 2008 or 2009.


ITEM 2. PROPERTIES

The Company moved into new office space on April 1, 2009 located on 2102 Business Center Drive, Irvine, CA  92612.  IPA owns its manufacturing facility in Guanzhou, China.  Total rent expense for all locations for 2009 was approximately $65,000.  VGE also leases approximately 250 acres of land in Guangdong province of the PRC.  The Company recorded amortization of $30,000 on these land leases in 2009.
 
 
ITEM 3. LEGAL PROCEEDINGS

None.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters were submitted to a vote of the majority of common security holders during the fourth quarter of 2009.

 
PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Prices

The shares of our common stock have been listed and principally quoted on the OTC Bulletin Board under the trading symbol “VSPC.OB” since June 22, 2005. Prior to June 22, 2005, the Company’s common stock was traded on the OTC Bulletin Board under the symbol “GWPL.OB”.  The first day of trading for the Company’s common stock was June 4, 2004.

 
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The following table sets forth, for the fiscal quarters indicated, the high and low sale price for our common stock, as reported on the OTC Bulletin Board.  The price information in the table below reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.


Quarterly period 
 
High
   
Low
 
Fiscal year ended December 31, 2009:
           
First Quarter
  $ 0.013     $ 0.009  
Second Quarter
  $ 0.044     $ 0.011  
Third Quarter
  $ 0.028     $ 0.019  
Fourth Quarter
  $ 0.032     $ 0.019  
Fiscal year ended December 31, 2008:
               
First Quarter
  $ 0.068     $ 0.031  
Second Quarter
  $ 0.048     $ 0.017  
Third Quarter
  $ 0.039     $ 0.018  
Fourth Quarter
  $ 0.034     $ 0.010  

Holders

As of March 29, 2009, there were approximately 47 shareholders of record of the Company’s Common Stock.

Dividends

We have not paid any cash dividends on our common stock since our inception and do not anticipate paying any cash dividends on our common stock in the foreseeable future.  There are no restrictions in our articles or incorporation or bylaws that prevent us from declaring dividends in the future.  Our future dividend policy will be examined periodically by our board of directors based upon conditions then existing, including our earnings and financial condition, capital requirements and other relevant factors.

Equity Compensation Plan

Our discussion regarding the Company’s and its subsidiary DMFCC’s equity compensation plans under which the Company’s and DMFCC’s equity securities are authorized for issuance are discussed under the section titled “Equity Compensation Plan Information” under “Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters” below.

Recent Sales of Unregistered Securities

On October 16, October 21, and October 23, 2009, the Company issued vendors a total of 2,016,665 unregistered shares of the Company’s common stock for investor relations services valued at $60,000 on the date of issuance.  On December 9, 2009, the Company issued consultants 10,000,000 unregistered shares of the Company’s common stock for future consulting services valued at $228,000 on the date of issuance.  On December 28, 2009, the Company issued Dr. Kukkonen, CEO of the Company, 2,506,501 unregistered shares of the Company’s common stock for salary valued at $50,000 on the date of issuance.  On November 27, 2009 and December 28, 2009, the Company issued Mr. Stephen Muzi, CFO of the Company, 2,683,013 unregistered shares of the Company’s common stock for salary valued at $60,000 on the date of issuance.


ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 fast-growing, high yield, low carbon, nonfood energy crop called GKG 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.  Cellulosic ethanol and other liquid biofuels, collectively called Grassoline, do not use corn or other food sources as feedstock.  GKG can also be used as animal feed. GKG and other plants absorb and store carbon dioxide from the atmosphere as they grow. When they are burned, they release the carbon dioxide back into the atmosphere, but it is the same carbon dioxide that was removed from the atmosphere, and that the process is carbon neutral. Small amounts of fossil fuel are used by the farm equipment, transportation of GKG and fertilizer, so that the overall process is low carbon, but much lower than burning coal or other fossil fuels directly.   GKG has been independently tested by customers and been shown to have excellent energy content and very high bio methane production. We also manufacture framed copyrighted artwork in China and market and sell the artwork in the U.S.  We produce disposable fuel cartridges that provide the energy source for portable electronics powered by fuel cells. We do not build the power plant or biofuel plant; rather we grow GKG that is needed as the fuel or feedstock. 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.  We are growing GKG on 250 acres of leased land in China to serve as a nursery for expansion, a demonstration plot for potential partners and customers, to provide samples for potential customers, and as a grass source for our own products.   VIASPACE is based in California with business activities in China, Korea and Japan.

 
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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.    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 People’s 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 GKG.  Under the current Securities Purchase Agreement dated October 21, 2008 by and among us, Chang, VGE and other parties, as amended, if the Second Closing did not occur by February 15, 2010, then we are contractually obligated to return all equity interests of VGE we hold to Chang.  However, we are negotiating with Chang in good faith to agree upon an alternate arrangement under which we would own a substantial interest in VGE and in turn, we would provide Chang debt and equity consideration.  Management is confident such an arrangement can be finalized.  To date, Chang has not demanded delivery of the VGE stock certificates from us.  However, we cannot assure you that we will enter into any such arrangement successfully.  In the event that we ultimately are unable to agree upon an alternate arrangement with Chang, then we will lose all of our equity interests in VGE.

The Company’s 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 companies provide additional disclosure and commentary on those accounting policies considered most critical.  FRR 60 considers an accounting policy critical if it is important to the Company’s 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 Company’s significant accounting policies, including the critical accounting policies discussed below, see the accompanying notes to the consolidated financial statements.

The preparation of the Company’s 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”) (codified in FASB ASC Topic 605), 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 Company’s 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") (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 No. 104 defined earlier are met.

 
27

 
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 Company’s 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 vendor's 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 grantor's 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

Year Ended December 31, 2009 Compared to December 31, 2008

Revenues

Revenues were $4,376,000 and $1,162,000 for 2009 and 2008, respectively, an increase of $3,214,000.  IPA BVI and IPA China recorded revenues of $3,618,000 from the sales of framed-artwork primarily to retail U.S. customers.  There was $866,000 in framed-artwork revenues recorded after the acquisition of IPA on October 21, 2008 through December 31, 2008.  Ionfinity incurred higher revenues of $476,000 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 decreased sales of $16,000 from 2008 to 2009 related to a fuel cell contract it has with Samsung.

Cost of Revenues

Costs of revenues were $2,686,000 and $497,000 for 2009 and 2008, respectively, an increase of $2,189,000.   IPA BVI and IPA China recorded cost of revenues of $2,019,000 from the sales of framed-artwork.  There was $249,000 in framed-artwork cost of revenues recorded after the acquisition of IPA on October 21, 2008 through December 31, 2008.  Ionfinity recorded increased cost of revenues of $423,000 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 $4,000 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 $665,000 in 2008 to $1,690,000 in 2009, an increase of $1,025,000.

Research and Development

Research and development expenses were $30,000 and $531,000 for 2009 and 2008, respectively, a decrease of $501,000.  Consulting expenses decreased by $386,000 due to the termination of consultants performing research and development assignments.  Payroll and payroll benefits decreased $46,000 in 2009 as compared with 2008 as the Company laid off certain employees.  Other research and development expenses, net, decreased $69,000.  Research and development is expected to continue at DMFCC in 2010 at similar levels to 2009.
 
 
 
28

 
Selling, General and Administrative Expenses

Selling, general and administrative expenses were $4,387,000 and $8,721,000 for 2009 and 2008, respectively, a decrease of $4,334,000.  Selling payroll, payroll benefits and commissions increased $301,000 in 2009 compared with 2008 primarily due to higher commissions in the framed-artwork business segment.  General and administrative payroll and payroll benefit costs increased $199,000 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 $1,149,000 during 2009 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 $118,000 in 2009 compared to the same period in 2008.  The Company’s consulting expenses decreased by $1,689,000 in 2009 compared to 2008 as fewer consultants were used in Company’s operations.  The Company’s accounting fees increased $19,000 due to higher audit fees.  The Company incurred increased legal fees of $283,000 related to patent costs.  The Company incurred lower public relations and investor relations fees of $2,035,000 compared with the same period of 2008.  Other selling, general and administrative expenses, net, decreased by $145,000 during 2009.  Selling, General and Administrative expenses are expected to continue at the Company in 2010 at similar levels to 2009.

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 $8,587,000 in 2008 to $2,727,000 in 2009, a decrease of $5,860,000.

Other Income (Expense), Net

Interest Income

Interest income decreased $7,000 from 2008 to 2009 due to the Company maintaining lower cash balances than the prior year.

Interest Expense

Interest expense increased by $394,000 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 $164,000 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 Seller's 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.

Gain on Sale of Marketable Securities

During 2008, the Company sold 167,848 Cantronic shares in a private sale and recorded a gain on the sale of $29,000.  There were no sales of marketable securities in 2009.

 
29

 
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 $1,402,000 for the year ended December 31, 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 year ended December 31, 2009.

Liquidity and Capital Resources

The Company’s net loss was $2,909,000.  Net cash used in operating activities was $341,000 for year ended December 31, 2009.  Non-cash expenses totaled $2,275,000 for the year ended December 31, 2009 composed primarily of stock compensation expense related to stock issued to employees, directors and consultants.  General working capital provided $293,000 in cash for the year ended December 31, 2009.
 
 Net cash used in investing activities was $178,000 for 2009, related primarily to capital expenditures incurred by VGE in building a new storage facility and purchasing equipment for its GKG business.  In addition, VGE incurred $102,000 in costs associated with entering into new land leases in the PRC to grow GKG.  In addition, the Company received $210,000 in proceeds on the sale of assets to Landtec.

The Company incurred $1,045,000 in cash flows from financing activities in 2009 from related party loans to Mr. Sung Hsien Chang.

At December 31, 2009, the Company has a negative working capital of $2,280,000 and an accumulated deficit of $32,730,000.  Our financial statements were 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.   The Company has addressed this concern by laying off certain of its staff and reducing operating expenses.  In addition, the Company has sold non-core and as yet non-profitable business units.  The Company is now focused primarily on three main business units including the GKG business, framed artwork business and the fuel cell business.

Contractual Obligations

The following table summarizes our long-term contractual obligations at December 31, 2009:
 
   
Total
   
Less than 1 Year
   
1-3 Years
   
3-5 Years
   
More than 5 Years
 
Long-term debt obligations (a)
  $ 34,000     $ 21,000     $ 13,000     $     $  
Employment agreements (b)
  $     $     $     $     $  
 
(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)  
Employment agreements:  On October 21, 2008, VGE entered into two-year employment agreements with each of Carl Kukkonen, Sung Hsien Chang, Stephen Muzi and 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 would receive $180,000 per annum and Mr. Wang would receive $84,000 per annum.  Each of them would be 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.  Mr. Chang and Mr. Wang’s employment agreements also had a feature that granted each of them an option to purchase the number shares of its common stock equal to four percent (4%) of VGE’s total outstanding shares as of the Second Closing.  These employment agreements terminated on February 15, 2010 as the Company failed to achieve the Second Closing of IPA BVI and IPA China as discussed in Note 9.  The Company expects to negotiate and enter into new employments with Dr. Carl Kukkonen, Mr. Sung Hsien Chang, and Mr. Stephen Muzi during the second quarter of 2010.

There are no other major outstanding contractual obligations.

 
30

 
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 December 31, 2009.


ITEM 7. FINANCIAL STATEMENTS

See the Company’s audited financial statements on pages F-1 through F-29.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 8A. 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 Annual Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s 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 entity’s 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 and at the end of each fiscal quarter therein, the Company’s 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.

Management’s Annual Report on Internal Control over Financial Reporting.  Our management is also responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
 
31

 

 
Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.  Based on such assessment, concluded that as of December 31, 2009, our internal controls over financial reporting was effective.

This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual 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 Company’s 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 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The Company is a non-accelerated filer and is required to comply with the internal control reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act for fiscal years ending on or after December 31, 2010.


ITEM 8B. OTHER INFORMATION

Not applicable.
 
 
 
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PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

(a)  Executive Officers
 
The Company’s named executive officers as of December 31, 2009 include the Chief Executive Officer and the Chief Financial Officer.  In addition, one additional officer of the Company’s subsidiary VGE is included in accordance with disclosure requirements.
 
Carl Kukkonen, Ph.D.

·  
Age 64
·  
Principal Occupation
o  
Chief Executive Officer and Director of the Company – June 2005 to present
o  
Chief Executive Officer and Director of VGE – October 2008 to present
o  
Chief Executive Officer, President, and Director, Direct Methanol Fuel Cell Corporation, a subsidiary of the Company – 2001 to present
o  
Chief Executive Officer and Director, VIASPACE Security Inc., a subsidiary of the Company – 2002 to present
o  
Chief Executive Officer and Director, Ionfinity LLC, a subsidiary of the Company – 2001 to present
·  
Prior Business Experience
o  
Co-founder and Chief Executive Officer, ViaSpace Technologies LLC (predecessor of the Company) – 1998 to 2005
o  
Director of the Center for Space Microelectronics Technology and Manager of Supercomputing, Caltech NASA Jet Propulsion Laboratory – 1984 to 1998
o  
Principal Research Engineer, Ford Motor Company – 1977 to 1984
·  
Education
o  
BS in physics from the University of California at Davis
o  
MS and Ph.D. in physics from Cornell University
o  
Post-doctoral fellow at Purdue

Stephen J. Muzi

·  
Age 46
·  
Principal Occupation
o  
Chief Financial Officer, Treasurer and Secretary of the Company – June 2005 to present
o  
Chief Financial Officer, Treasurer and Secretary of VGE – October 2008 to present
·  
Prior Business Experience
o  
Controller, ViaSpace Technologies LLC (predecessor of the Company) – 2000 to 2005
o  
Controller, SpectraSensors, Inc., a spun-off former subsidiary of the Company – 2003 to 2005
o  
Controller, ViaLogy Corp., a spun-off former subsidiary of the Company – 2003 to 2005
o  
Consultant to Direct Methanol Fuel Cell Corporation, VIASPACE Security Inc. and Ionfinity LLC, subsidiaries of the Company - 2004 to 2005
o  
Corporate Controller, Assistant Controller and Senior Corporate Financial Analyst, Southwest Water Company, a NASDAQ company and provider of water and wastewater services – 1988 to 2000
o  
Senior Auditor, BDO Seidman – 1985 to 1987
·  
Education
o  
BS degree from Rochester Institute of Technology
o  
MBA from the State University of New York at Buffalo
o  
Certified Public Accountant

Sung Hsien Chang

·  
Age 48
·  
Principal Occupation
o  
President and Director of VGE – October 2008 to present
o  
Chief Executive Officer and founder of Inter-Pacific Arts, Inc. – 2002 to present
·  
Education
o  
Taiwan Junior College
·  
Prior Business Experience
o  
Business development – Jun Jung Metal
 
 
33

 

 
(b)  Directors
 
The Company’s directors are as follows:
 
Carl Kukkonen – See background in Item 9 (a) under Executive Officers

Amjad S. Abdallat

·  
Age 48
·  
Principal Occupation
o  
Director of the Company – June 2005 to present
o  
Director of VGE – October 2008 to present
·  
Prior Business Experience
o  
Vice President Business Development, Chief Operating Officer and Director of the Company – June 2005 to October 2008
o  
President, Chief Operating Officer and Director, VIASPACE Security Inc., a subsidiary of the Company – 2002 to October 2008
o  
Director, Direct Methanol Fuel Cell Corporation – 2001 to October 2008
o  
Director, Ionfinity LLC, a subsidiary of the Company – 2001 to October 2008
o  
Co-founder, Vice President and Chief Operating Officer, ViaSpace Technologies LLC (predecessor of the Company) – 1998 to 2005
o  
Business Development, Marketing and Program Capture, Hewlett-Packard Company – 1989 to 1998
o  
Business Development, Control Data Corporation – 1984 to 1989
·  
Education
o  
BS from the University of California at Berkeley
o  
Master’s degree in Engineering from the University of Missouri

General Bernard P. Randolph

·  
Age 76
·  
Director Since:  April 19, 2006
·  
Committee Memberships of Company
o  
Chairman of the Compensation Committee, Member of the Audit Committee, Member of the Corporate Governance and Nominating Committee
·  
Independent Director:  Yes
·  
Principal Occupation
o  
Senior Consultant to Science Applications International Corporation (SAIC) Space Air and Information Group (SAIG)
·  
Other Directorships
o  
Board of Defense Acquisition University in Fort Belvoir, Virginia
·  
Prior Business Experience
o  
Senior Consultant in the Space Air and Information Group, Space Systems Engineering Division
o  
Senior Consultant to the Aerospace Corporation
o  
35 years of service in the United States Air Force retiring with Rank of General
o  
Final Air Force assignment was as Commander of the Air Force Systems Command charged with the development and procurement of all major defense systems for the Air Force
o  
Key technology management positions in Air Force including:  Vice Commander of the Warner Robins Air Logistics Center; Vice Commander and Deputy Commander of Space Systems acquisition at the Air Force's Space Division; Director of Space Systems and Command, Control and Communications in the Office of the Deputy Chief of Staff; Research, Development and Acquisition at Air Force Headquarters; and program director for such major space systems as the Air Force Satellite Communications Program and Space Defense Program
o  
TRW Space and Electronics Group in Redondo Beach, California dual line and staff roles including as Vice President and General Manager of the Defense Communications Division and Vice President and Special Assistant to the Group General Manager
o  
Member of the Defense Science Board in DoD pursuing adoption of cost saving commercial procurement practices
o  
Member of the Defense Intelligence Agency Scientific advisory Board
o  
Consultant for the Institute for Defense Analyses
o  
Member of the Advisory Board for Lincoln Laboratory at Massachusetts Institute of Technology
·  
Education
o  
Degree in chemistry from Xavier University (New Orleans, Louisiana)
o  
Bachelor's and master's degrees in electrical engineering from the University of North Dakota
o  
Master's degree in business administration from Auburn University
o  
Honorary doctorate of engineering from the University of North Dakota

 
34

 
Angelina Galiteva

·  
Age 43
·  
Director Since:  April 28, 2006
·  
Committee Memberships of Company
o  
Member of the Compensation Committee, Member of the Corporate Governance and Nominating Committee
·  
Independent Director:  Yes
·  
Principal Occupation
o  
Chairperson of the World Council for Renewable Energy (WCRE) specializing in strategic issues related to renewable energy, environmental, energy efficiency and overall sustainable policy programs for public and private entities
o  
Founder and Principal of New Energy Options, Inc.
·  
Other Directorships
o  
Member of Board of Directors of American Distributed Generation, Inc. and TECOGEN
·  
Prior Business Experience
o  
Prior to July 2003, Executive Director-Strategic Planning, for the City of Los Angeles Department of Water and Power (LADWP) responsible for managing the Departments’ Corporate Environmental Services Business Unit as well as all LADWP’s Green LA Programs and New Technology Initiatives
o  
Prior to 1997, worked for the California Independent System Operator and Power Exchange Trusts and Corporations and for the New York Power Authority on conservation, renewable energy and air quality initiatives
·  
Education
o  
Attorney with a JD and Masters’ of Law Degrees in Environmental and Energy Law from Pace University School of Law, New York

Rick Calacci

·  
Age 57
·  
Director Since:  February 1, 2007
·  
Committee Memberships of Company
o  
None
·  
Independent Director:  Yes
·  
Principal Occupation
o  
President of Access Sales Group, a provider of national coverage for “Best in Class”, “Variable Cost” and “Outsourcing Solution” sales, marketing and management services to meet the dynamic ever changing needs of the retail channel for vendor partners.
·  
Other Directorships
o  
None
·  
Prior Business Experience
o  
General Manager / Sr. Vice President of Sales and Market for Hannspree California, Inc., a developer, manufacturer and distributor of LCD display technologies – 2005 to 2006
o  
President of Moxell Technology, Inc., a Motorola consumer electronics licensee for displays, recording media, connectivity, IT and related accessory products in the Americas and Europe - 2003 to 2005
o  
Senior Executive Vice President / Group General Manager – Consumer Electronics of Sharp Electronics Corporation, a leading global consumer electronics and home appliances company - 2001 to 2003
o  
Vice President Sales of Toshiba America Consumer Products, a leading global consumer electronics and computer company from 1995 to 2001.  Served in other roles as Regional General Manager, Central Zone Vice President and Western Sales Group Vice President - 1984 to 1995
o  
Sales Manager positions with Pioneer Video, Inc. and Sony Corporation of America - 1977 to 1983
·  
Education
o  
Business program, Northern Illinois University and Rock Valley Junior College.

 
 
35

 
Family Relationships
 
There are no family relationships between or among any of the current directors, executive officers or persons nominated or charged by the Company to become directors or executive officers.
 
Involvement in Certain Legal Proceedings

None of our directors or executive officers has, during the past five years:

 
·
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

 
·
had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;

 
·
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; or

 
·
been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 
·
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:.

 
(i)
any federal or state securities or commodities law or regulation;
     
 
(ii)
any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 
(iii)
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 
·
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. (covering stock, commodities or derivatives exchanges, or other SROs)..


 
36

 
Section 16(a) Beneficial Ownership Reporting Compliance

Not applicable.

Code of Ethics

The Company adopted a code of ethics that applies to its principal: executive officers, financial officer, accounting officer or controller, or persons performing similar functions. The text of the Company’s code of ethics is available on the Company’s website, www.viaspace.com.  A copy of the Company’s code of ethics may be obtained free of charge by contacting the Company at the address or telephone number listed on the cover page hereof.

Committees of the Board of Directors

Audit Committee.  On October 20, 2005, our Board of Directors established an Audit Committee.  Our Audit Committee has the authority to retain and terminate the services of our independent accountants, reviews annual financial statements, considers matters relating to accounting policy and internal controls and reviews the scope of annual audits.  The Company does not currently have an independent member of the Board of Directors serving as the audit committee’s financial expert that meets the definition under Item 401(e) of Regulation S-B.  The Company intends to identify and recruit a suitable candidate to serve as the audit committee financial expert during 2010.
 
 Compensation Committee.  On October 20, 2005, our Board of Directors established a Compensation Committee.  Our Compensation Committee reviews, approves and makes recommendations regarding our compensation policies, practices and procedures to ensure that legal and fiduciary responsibilities of the Board of Directors are carried out and that such policies, practices and procedures contribute to our success.  The Compensation Committee is responsible for the determination of the compensation of our chief executive officer, and shall conduct its decision making process with respect to that issue without the chief executive officer present.

Governance and Nominating Committee.  On October 20, 2005, our Board of Directors established a Governance and Nominating Committee.  This committee’s role is to make recommendations to the full Board as to the size and composition of the Board and its committees, and to evaluate and make recommendations as to potential candidates.  The Governance and Nominating Committee may consider candidates recommended by stockholders as well as from other sources such as other directors or officers, third party search firms or other appropriate sources. For all potential candidates, the Governance and Nominating Committee may consider all factors it deems relevant, such as a candidate’s personal integrity and sound judgment, business and professional skills and experience, independence, knowledge of the industry in which we operate, possible conflicts of interest, diversity, the extent to which the candidate would fill a present need on the Board, and concern for the long-term interests of the stockholders. In general, persons recommended by stockholders will be considered on the same basis as candidates from other sources.
 
 
37

 
 
ITEM 10. EXECUTIVE COMPENSATION

The following table summarizes the compensation of the Company’s Chief Executive Officer, and each of the other four highest paid executives, if any, whose total compensation exceeded the lower of $120,000 during the year ended December 31, 2009 and 1% of its assets (“Named Executive Officers”) for 2009 and 2008. The Named Executive Officers are the Company’s Chief Executive Officer, President and Chief Financial Officer.

SUMMARY COMPENSATION TABLE

(a)
 
(b)
 
(c)
 
(d)
 
(e)
 
(f)
 
(g)
 
(h)
 
Name and Principal Position
 
Year
 
Salary
($)(3)
 
Bonus
($)
 
Stock Awards
($)
 
Option Awards
 ($) (1)
 
All Other Compensation ($) (2)
 
Total
($)
 
                               
Carl Kukkonen,
Chief Executive Officer of Company
 
2009
 
288,567
 
-
 
414,128
 
35,000
 
13,717
 
751,412
 
 
2008
 
214,352
 
-
 
178,731
 
131,218
 
13,717
 
538,018
 
 
2007
 
288,567
 
-
 
-
 
169,919
 
13,717
 
472,203
 
                               
Stephen J. Muzi,
Chief Financial Officer, Treasurer and Secretary of Company
 
2009
 
180,000
 
-
 
218,244
 
65,417
 
15,210
 
478,871
 
 
2008
 
143,047
 
-
 
118,407
 
501,772
 
-
 
763,226
 
 
2007
 
165,000
 
-
 
-
 
620,539
 
-
 
785,539
 
                               
Sung Hsien Chang, President VIASPACE Green Energy, Inc.
 
2009
 
240,000
 
-
 
-
 
-
 
-
 
240,000
 
 
2008
 
40,000
 
-
 
-
 
-
 
-
 
40,000
 
                             

(1)
Column (f) represents the dollar amount recognized as compensation expense for financial statement reporting purposes for 2009 under SFAS No. 123(R), and not an amount paid to or realized by the Named Executive Officer.  The amount shown includes awards granted in and prior to 2007.  Assumptions used in the calculation of this amount are included in the footnotes to the Company’s consolidated audited financial statements for 2009.  There can be no assurance that the amounts determined by SFAS No. 123(R) amounts will ever by realized.

(2)  
Amounts shown column (g) represent additional compensation paid to Dr. Kukkonen for health insurance coverage (equivalent to the cost to the Company if he was covered under the Company’s plan).  Amounts shown for Mr. Muzi represent health insurance coverage paid by the Company on his behalf.

(3)  
Dr. Kukkonen has earned but unpaid 2008 salary of $74,273 earned by unpaid salary of $100,761 in 2009.

Narrative Disclosure to Summary Compensation Table

Employment Agreements and Arrangements

On October 21, 2008, VGE entered into two-year employment agreements with each of Dr. Carl Kukkonen, Mr. Sung Hsien Chang and Mr. Stephen Muzi.  Dr. Kukkonen would serve as Chief Executive Officer, Mr. Chang as President and Mr. Muzi as Chief Financial Officer, Treasurer and Secretary.  Dr. Kukkonen and Mr. Chang would receive a salary of $240,000 per annum and Mr. Muzi receives $180,000 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 were terminated on February 15, 2010 as the second closing of IPA as discussed in Note 9 did not occur.  Dr. Kukkonen and Mr. Muzi expect to enter into new employment agreements with VGE in the second quarter of 2010.
 
 
38

 

 
Stock Option Grants

The following table provides information on stock options granted in 2009 to each of the Company’s Named Executive Officers. There can be no assurance that the Grant Date Fair Value of Stock and Option Awards will ever be realized.

VIASPACE INC.
GRANTS OF PLAN-BASED AWARDS

Name
 
Grant Date
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
Estimated Future Payouts Under Equity Incentive Plan Awards
All Other Stock Awards: Number of Shares of Stocks or Units
(#)
All Other Option Awards: Number of Securities Underlying Options
(#) (1)
Exercise or Base Price of Option Awards
($/Sh)
Grant Date Fair Value of Stock and Option Awards
(2)
   
Threshold ($)
Target
($)
Maximum ($)
Threshold
($)
Target
($)
Maximum
($)
Carl Kukkonen
 8/19/09
             
 5,000,000
 $0.0225
 $103,860
Steve Muzi
 8/19/09
             
 5,000,000
 $0.0225
 $103,860
Sung Chang
                     

 
(1)
Options allow the grantee to purchase a share of VIASPACE common stock for the fair market value of a share of VIASPACE Common Stock on the grant date. Options vest over 12 months and become exercisable in accordance with the following:  25% vested after 3 months with remaining 75% monthly over the following 9 months.  If a grantee’s employment is terminated, options that are then vested expire within three months of termination and unvested options expire immediately.
 
(2)
Column (g) represents the aggregate SFAS No. 123(R) (codified in FASB ASC Topic 718) values of options granted during the year. There can be no assurance that the options will ever be exercised (in which case no value will be realized by the executive) or that the value on exercise will equal the SFAS No. 123(R) value.
 
 
39

 

 
Outstanding Equity Awards at Fiscal Year End

The following table shows the number of equity awards held by the Company’s Named Executive Officers on December 31, 2009.

VIASPACE INC.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
DECEMBER 31, 2009

OPTION AWARDS
STOCK AWARDS
Name
(a)
Number of Securities Underlying Unexercised Options
(#)
Exercisable
(b)
Number of Securities Underlying Unexercised Options
(#)
Unexercisable
(c)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
(d)
Option Exercise Price
($)
(e)
Option Expiration Date
(f)
Number of Shares or Units of Stock That Have Not Vested
(#)
(g)
Market Value of Shares or Units of Stock That Have Not Vested
($)
(h)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(i)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(j)
Carl Kukkonen
1,250,000
3,750,000
 
$ 0.0225
8/19/19
       
Steve Muzi
1,250,000
3,750,000
 
$ 0.0225
8/19/19
       
Steve Muzi
1,375,000
1,625,000
 
$   0.039
2/14/18
       
Steve Muzi
125,000
125,000
 
$     0.08
12/10/17
       
Sung Chang
                 

There were no shares of the Company’s common stock acquired during 2009 upon the exercise of the options.
 

 
 
40

 
Direct Methanol Fuel Cell Corporation Option Plan

As explained in the footnotes to the Company’s consolidated financial statements, the Company’s subsidiary, Direct Methanol Fuel Cell Corporation (“DMFCC”) also has in place an equity-based stock option plan that allows for the grant of stock options to employees, directors and consultants.

There were no grants of securities underlying options granted in 2009 by DMFCC to the Company’s Named Executive Officers.

There were no shares of DMFCC common stock acquired during 2009 upon the exercise of options by the Company’s Named Executive Officers.

The following table shows the number of shares covered by exercisable and unexercisable options held by the Company’s Named Executive Officers in Direct Methanol Fuel Cell Corporation on December 31, 2009.

DIRECT METHANOL FUEL CELL CORPORATION
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
DECEMBER 31, 2009


(a)
 
(b)
 
(c)
 
(d)
 
(e)
Name
 
Number of Securities Underlying Unexercised Options (#) Exercisable
 
Number of Securities Underlying Unexercised Options (#)
Unexercisable
 
Option Exercise Price
($)
 
Option Expiration Date
                 
Carl Kukkonen
 
1,000,000
 
 
$ 0.005
 
4/18/12
Stephen J. Muzi
 
30,000
 
 
$   0.05
 
11/22/12
Stephen J. Muzi
 
50,000
 
 
 $   0.05
 
1/14/15
Sung Hsien Chang
 
 
 
 


 
41

 
Director Compensation

The following chart summarizes the annual compensation for the Company’s non-employee directors during 2009.

Director Compensation

(a)
 
(b)
 
(c)
 
(d)
 
(e)
 
(f)
Name
 
Fees Earned
($)
 
Stock Awards ($)
 
Option Awards
($) (1)
 
All Other Compensation ($)
 
Total
($)
General Bernard P. Randolph
 
 
 
$  40,500
 
 
$  40,500
Angelina Galiteva
 
 
 
$  40,500
 
 
$  40,500
Rick Calacci
 
 
 
$  30,000
 
 
$  30,000
Amjad Abdallat
 
 
 
$  21,000
 
 
$  21,000
 
(1)  
Column (d) represents the dollar amount recognized as compensation expense for financial statement reporting purposes for 2009 under SFAS No. 123(R) (codified in FASB ASC Topic 718), and not an amount paid to or realized by the Named Executive Officer.  The amount shown includes awards granted in and prior to 2007. Assumptions used in the calculation of this amount are included in Note 7 to the Company’s audited financial statements for 2009.  There can be no assurance that the amounts determined by SFAS No. 123(R) amounts will ever be realized.

Narrative Disclosure to Director Compensation Table

 
Compensation of Non-employee Directors

Directors who are not Company employees are compensated for their service as a director as shown in the chart below:
 
Schedule of Director Fees
December 31, 2009

The table below represents Non-employee Director fees for 2009.   On March 9, 2009, the Directors of the Company voted unanimously that compensation for 2009 will be 1 million stock options each vesting over a one-year period.  No fees were paid in cash for 2009.  On August 19, 2009, the Directors of the Company voted unanimously that compensation for 2010 will be 1 million stock options each vesting over a one-year period.  General Randolph and Ms. Galiteva received an additional grant of 250,000 for their service on committees of the Company.  No cash compensation was paid in 2009 to Directors.

Compensation Item
 
Amount ($)
 
       
Annual Retainer (paid in quarterly installments)
  $ 10,000  
Per Board Meeting Fee (attendance in person)
    1,000  
Per Board Meeting Fee (attendance by teleconference)
    500  
Per Committee Meeting Fee (attendance in person or by teleconference)
    250  
Appointment Fee Upon Election to Board of Directors
    2,500  
Non-qualified stock options
    (1)(2)  

(1)  
On the date of appointment to the Board, new non-employee outside Directors are entitled to a one-time grant of 125,000 non-qualified stock options (or such other number of shares determined by the Board in its discretion as Administrator).

(2)  
For non-employee outside Board members that have served on the Board for at least six months, 50,000 options (or such other number of shares determined by the Board in its discretion as Administrator) will be granted on the first business day of each fiscal year, at the closing price on the date of grant, vesting ratably generally over four years (or such other vesting period as determined by the Board in its discretion as Administrator).
 
 
42

 

 
Stock Options and Stock Awards Granted to Directors

On the date of appointment to the Board, new non-employee outside Directors are entitled to a one-time grant of 125,000 non-qualified stock options (or such other number of shares determined by the Board in its discretion as Administrator) effective on the date of appointment (or such other date as determined by the Board in its discretion as Administrator).  The price of the option is the closing market price on the date of grant, generally vesting over four years for which the Board member holds office (or such other vesting period as determined by the Board in its discretion as Administrator).

In addition, for non-employee outside Board members that have served on the Board for at least 6 months, 50,000 options (or such other number of shares determined by the Board in its discretion as Administrator) will be granted on the first business day of each fiscal year, at the closing price on the date of grant, vesting ratably generally over four years (or such other vesting period as determined by the Board in its discretion as Administrator).  Further, the Board in its discretion as Administrator of the Plan may make additional grants of non-qualified stock options to non-employee directors at any time.  On March 9, 2009, 1,000,000 stock options were each granted to General Randolph, Ms. Galiteva and Mr. Calacci as a stock award for 2009 director fees.  On August 19, 2009, 1,500,000 stock options were each granted to General Randolph and Ms. Galiteva for 2010 director fees.  On August 19, 2009, 1,000,000 stock options were each granted to Mr. Calacci and Mr. Abdallat for 2010 director fees.

Non-employee Directors may also be granted other awards, as referred to in the 2005 Stock Incentive Plan, by the Board in its discretion as Administrator of the Plan such as Stock Appreciation Rights, Dividend Equivalent Rights, Restricted Stock, Performance Unit or Performance Shares.  No awards of this kind were granted to any non-employee Director in 2007.

Directors of the Company, who are employees of the Company or of a related company, do not receive additional compensation for their services as Directors.  During 2009, Dr. Kukkonen, CEO did not receive additional compensation for his service as Director.

Retirement Plans

The Company does not have any retirement plans at December 31, 2009.
 
 
 
43

 
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding beneficial ownership of our common stock as of March 29, 2010 by (i) each person who beneficially owns more than 5% of all outstanding shares of our common stock, (ii) each director and the executive officer identified below, and (iii) all directors and executive officers as a group.

Name
 
Number of Shares Beneficially Owned
   
 
Exercisable Options Beneficially Owned (a)
   
Total Number of Shares and
Exercisable Options Beneficially Owned
   
Percent of Class of
Common Stock (b)
 
                         
Directors:
                       
Carl Kukkonen, CEO (c)
    48,307,770       3,750,000       55,156,965       5.5%  
Amjad S. Abdallat
    17,912,647       750,000       23,936,978       2.0%  
General Bernard P. Randolph
    1,276,596       3,307,292       4,583,888       0.5%  
Angelina Galiteva
    903,764       3,307,292       4,211,056       0.4%  
Rick Calacci
    1,872,995       1,901,042       3,774,037       0.4%  
                                 
Other Named Officers:
                               
Stephen J. Muzi, CFO
    8,751,979       5,588,542       15,340,521       1.5%  
Sung Hsien Chang (e)
    206,594,681             206,594,681       21.9%  
                                 
All Named Executive Officers and Directors as a group (7 persons)
    285,620,432       18,604,168       304,224,600       32.2%  
                                 
Other 5% Owners:
                               
SNK Capital Trust (d)
    61,204,286             61,204,286       6.5%  
_________________
* Represents less than 1%.

(a) 
Includes options that become exercisable on or before May 29, 2010.

(b)
The percent of Common Stock owned is calculated using the sum of the number of shares of Common Stock owned as of March 29, 2010 and the number of options of the beneficial owner that are exercisable on or before May 29, 2010.

(c) 
5,591,392 of shares were gifted to family members in 2009.

(d)
The address of SNK Capital Trust is c/o Gaye Knowles, Trustee, SNK Capital Trust, Second Floor, Cafe Skans Building, Bay Street, Nassau, Bahamas.  On April 10, 2006 SNK Capital Trust agreed to lock-up its shares until April 9, 2011.  Under the signed lock-up agreement, SNK will not offer, sell, contract to sell, pledge, or otherwise dispose of any shares or securities convertible into or exchangeable or exercisable for any shares, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the shares.  SNK Capital Trust retains voting rights in the common shares.

(e)
Mr. Chang is President of VGE and CEO of Inter-Pacific Arts, Inc.


 
44

 
Equity Compensation Plans

The following table summarizes information about the options and warrants under the Company’s equity plans as of the close of business on December 31, 2009.
 
Equity Compensation Plan Information

 
 
 
 
 
 
 
 
 
 
 
 
 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
   
 
 
 
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)
   
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
(c)
 
Equity compensation plans approved by security holders for VIASPACE
    28,292,462     $ 0.04       113,416,692  
Equity compensation plans approved by security holders for DMFCC
    1,396,000       0.02       604,000  
Equity compensation plans not approved by security holders
                 
Total
    29,688,462     $ 0.04       114,020,692  

Our current stock option plans (the “Plans”) are explained in detail in the footnotes to the accompanying consolidated financial statements and provide for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock and other awards to the Company’s employees, officers, directors or consultants. VIASPACE and DMFCC each have separate stock option plans.

The Compensation Committee of our board of directors, with assistance from the executive officers of the Company, administers the Plans, 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 VIASPACE Inc. 2005 Stock Incentive Plan generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of the grant for incentive stock options (110% of the fair market value on the date of the grant for employees that own 10% or more of Company stock).  In the case of non-qualified stock options, the exercise price shall not be less than 85% of fair market value on the date of the grant. The term of the options granted under the Plans cannot be greater than 10 years. Options vest at varying rates generally over four years for employees and non-employee directors. The vesting period for consultant options varies.

Changes in Control Arrangements

No change in control arrangements existed at December 31, 2009.
 
 
45

 

 
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

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.

Included in the Company’s consolidated balance sheet at December 31, 2009 and December 31, 2008 are Related Party Receivables and Related Party Payables.  The Related Party Receivables and Related Party Payables are detailed below.  Sung Hsien Chang is President of VGE and CEO of IPA China and IPA BVI.  JJ International (“JJ”) is a company owned by Sung Hsien Chang that operates separately.  IPA China recorded revenues of $233,000 for the year ended December 31, 2009 from JJ.
 
The following table is a summary of Related Party Receivables at December 31, 2009 and December 31, 2008:

   
2009
   
2008
 
Due from Sung Hsien Chang
 
$
759,000
   
$
209,000
 
Due from JJ International
   
1,134,000
     
657,000
 
Due from employee of IPA China
   
18,000
     
55,000
 
Total
 
$
1,911,000
   
$
921,000
 

At December 31, 2009 and 2008, the Company included as a related party payable $111,000 representing accrued salary and partner draw due to Dr. Kukkonen, CEO 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 December 31, 2009 and 2008, the Company owes $281,000 and $74,000, respectively, to Dr. Kukkonen for earned salary that has not been paid.

At December 31, 2008, the Company included as a related party payable $62,000 representing accrued salary and partner draw due to Mr. Amjad Abdallat, Director of the Company and former VP by 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.  On December 9, 2009, the Company sold the inactive common stock of VIASPACE Security Inc. for the unpaid partner draw existing at December 31, 2008.  At December 31, 2008, the Company owed $49,000 to Mr. Abdallat for earned salary that has not been paid.  On December 9, 2009, the Company issued Mr. Abdallat 2,565,576 shares of the Company’s common stock for the unpaid salary existing at December 31, 2008.

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 December 31, 2009, $11,000 is owed to Mr. Denda.


The following table is a summary of Related Party Payables at December 31, 2009 and December 31, 2008:

   
2009
   
2008
 
Due to employee of IPA China
 
$
20,000
   
$
21,000
 
Due to JJ International
   
29,000
     
 
Due to Carl Kukkonen
   
391,000
     
185,000
 
Due to Amjad Abdallat
   
     
111,000
 
Due to Nobuyuki Denda
   
11,000
     
11,000
 
Due to Sung Hsien Chang
   
24,000
     
 
Due to Directors of Ionfinity
   
3,000
     
 
Due to other employees of Company
   
     
19,000
 
Due to related party vendor of IPA China
   
     
75,000
 
Total
 
$
478,000
   
$
422,000
 

 
46

 
Employment Agreements

On October 21, 2008, VGE entered into two-year employment agreements with each of Carl Kukkonen, Sung Hsien Chang, Stephen Muzi and 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 would receive $180,000 per annum and Mr. Wang would receive $84,000 per annum.  Each of them would be 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.  Mr. Chang and Mr. Wang’s employment agreements also had a feature that granted each of them an option to purchase the number shares of its common stock equal to four percent (4%) of VGE’s total outstanding shares as of the Second Closing.  These employment agreements terminated on February 15, 2010 as the Company failed to achieve the Second Closing of IPA BVI and IPA China as discussed in Note 9.  The Company expects to negotiate and enter into new employments with Dr. Carl Kukkonen, Mr. Sung Hsien Chang, and Mr. Stephen Muzi during the second quarter of 2010.

Due to Sung Hsien Chang

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 December 31, 2009, there is accrued interest of $425,000 related to this loan included in accrued expenses.

Director Independence

Our board of directors has determined that it currently has three members who qualify as "independent" as the term is used in Item 407 of Regulation S-B as promulgated by the SEC and in the listing standards of The Nasdaq Stock Market, Inc. - Marketplace Rule 4200.  The independent directors are: General Bernard P. Randolph, Ms. Angelina Galiteva and Mr. Rick Calacci.
 
 
47

 

ITEM 13. EXHIBITS

Exhibit
Number 
 
 
Description of Exhibit 
2.1
 
Share Purchase Agreement dated August 29, 2003 between Marco Polo World News Inc., Rino Vultaggio and Global-Wide Publication Ltd. (incorporated herein by reference to Exhibit 4.1 of the Company’s SB-2 Registration Statement filed on November 21, 2003).
2.2
 
Agreement and Plan of Merger Among ViaSpace Technologies LLC, Robert Hoegler and Global-Wide Publication Ltd. dated June 15, 2005 (incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K filed on June 20, 2005).
2.3
 
Stock Option Agreement between Global-Wide Publication Ltd., ViaSpace Technologies LLC, and SNK Capital Trust dated June 15, 2005 (incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K filed on June 20, 2005).
2.4
 
Acquisition Agreement between Global-Wide Publication Ltd. and Rino Vultaggio dated May 19, 2005 (incorporated by reference to Exhibit 2.2 of the Company’s Form 8-K filed on June 23, 2005).
2.5
 
Share Purchase Agreement between Global-Wide Publication Ltd. and Robert Hoegler dated May 19, 2005 (incorporated by reference to Exhibit 2.3 of the Company’s Form 8-K filed on June 23, 2005).
3.1 (i)
 
Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 1.1 of the Company’s SB-2 Registration Statement filed on November 21, 2003).
3.2 (i)
 
Amendment to Articles of Incorporation dated August 3, 2005 (incorporated by reference to Item 5.03 of the Company’s Form 8-K filed on August 9, 2005).
3.3 (i)
 
Amendment to Articles of Incorporation dated May 9, 2005 (incorporated herein by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
3.4 (i)
 
Amendment to Articles of Incorporation dated June 1, 2005 (incorporated herein by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
3.5 (i)
 
Articles of Merger between Global-Wide Publication Ltd. and ViaSpace Technologies LLC dated June 17, 2005 (incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
3.6 (i)
 
Amendment to Articles of Incorporation dated October 12, 2006 (incorporated herein by reference to Item 5.03 of the Company’s Form 8-K filed October 17, 2006).
3.7 (i)
 
Amendment to Articles of Incorporation dated December 7, 2007 (incorporated herein by reference to Exhibit 10.3 of the Company’s Form 8-K filed December 13, 2007).
3.8 (i)
 
Amendment to Articles of Incorporation dated February 14, 2008 (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed February 21, 2008).
3.1 (ii)
 
Bylaws of the Company (incorporated herein by reference to Exhibit 2.1 of the Company’s SB-2 Registration Statement filed on November 21, 2003).
3.2 (ii)
 
Amendment to Bylaws of the Company December 7, 2007 (incorporated herein by reference to Exhibit 10.4 of the Company’s Form 8-K filed December 13, 2007).
10.1
 
Employment Agreement dated October 14, 2004 between Direct Methanol Fuel Cell Corporation and Dr. Carl Kukkonen (incorporated herein by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005).
10.2
 
Consulting Agreement between VIASPACE Inc. and Synthetic/A/(America) Ltd., dated August 16, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on August 22, 2005).
10.3
 
Warrant No. 1 between VIASPACE Inc. and Synthetic/A/(America) Ltd., dated August 16, 2005 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on August 22, 2005).
10.4
 
Warrant No. 2 between VIASPACE Inc. and Synthetic/A/(America) Ltd., dated August 16, 2005 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on August 22, 2005).
10.5
 
Warrant No. 3 between VIASPACE Inc. and Synthetic/A/(America) Ltd., dated August 16, 2005 (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed on August 22, 2005)
10.6
 
Direct Methanol Fuel Cell Corporation 2002 Stock Option/Stock Issuance Plan (incorporated herein by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
 
 
 
 
48

 
 
10.7
 
VIASPACE Inc. 2005 Stock Incentive Plan dated October 20, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on October 26, 2005).
10.7A
 
Amendment to 2005 Stock Incentive Plan dated May 18, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on May 23, 2006).
10.7B
 
Amendment to 2005 Stock Incentive Plan dated December 7, 2007 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on December 13, 2007).
10.7C
 
Amendment to 2005 Stock Incentive Plan dated February 14, 2008 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on February 21, 2008).
10.7D
 
Amendment to 2005 Stock Incentive Plan dated February 14, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K/A filed on April 4, 2008).
10.8
 
VIASPACE Inc. 2005 Non-Employee Director Option Plan dated October 20, 2005 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on October 26, 2005).
10.9
 
VIASPACE Inc. 2006 Non-Employee Director Option Plan dated February 13, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on February 16, 2006).
10.10
 
Compensation Package for Outside Members of the Board Directors of VIASPACE Inc. dated October 20, 2005 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on October 26, 2005).
10.11
 
2006 Compensation Package for Outside Members of the Board of Directors of VIASPACE Inc. dated February 13, 2006 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on February 16, 2006).
10.12
 
Stock Purchase Agreement between VIASPACE Inc. and California Institute of Technology dated October 20, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on October 26, 2005).
10.13
 
** Confidential License Agreement By and Among University of Southern California, California Institute of Technology and Direct Methanol Fuel Cell Corporation dated January 19, 2006 (incorporated by reference to Exhibit 10.13 of the Company’s Form 10-K filed on March 31, 2006).
10.14
 
** Confidential Non-Exclusive License Agreement By and Among University of Southern California, California Institute of Technology and Direct Methanol Fuel Cell Corporation dated January 19, 2006 (incorporated by reference to Exhibit 10.14 of the Company’s Form 10-K filed on March 31, 2006).
10.15
 
VIASPACE Inc. Amended Option Agreement with SNK Capital Trust dated March 21, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on March 22, 2006).
10.16
 
VIASPACE Inc. Stock Purchase Agreement with SNK Capital Trust dated March 21, 2006 (incorporated by reference Exhibit 10.2 of the Company’s Form 8-K filed on March 22, 2006).
10.17
 
VIASPACE Inc. Stock Settlement Agreement dated March 21, 2006 with members of ViaSpace Technologies LLC dated March 21, 2006 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on March 22, 2006).
10.18
 
Nonexclusive Software License Agreement between Arroyo Sciences, Inc. and California Institute of Technology dated June 19, 2003. (incorporated by reference to Exhibit 10.18 of the Company’s Form 10-K filed on March 30, 2007).
10.19
 
Nonexclusive Software License Agreement between Arroyo Sciences, Inc. and California Institute of Technology dated September 28, 2004. (incorporated by reference to Exhibit 10.19 of the Company’s Form 10-K filed on March 30, 2007).
10.20
 
Software License Agreement between VIASPACE Inc. and California Institute of Technology dated March 15, 2006. (incorporated by reference to Exhibit 10.20 of the Company’s Form 10-K filed on March 30, 2007).
10.21
 
Stock Purchase Agreement with SNK Capital Trust dated March 30, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 3, 2006).
10.22
 
Share Lock-Up Agreement with SNK Capital Trust dated April 10, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 13, 2006).
10.23
 
License Agreement between Direct Methanol Fuel Cell Corporation and California Institute of Technology dated May 9, 2006 (incorporated by reference to Exhibit 10.23 of the Company’s Form 10-K filed on March 30, 2007).
10.24
 
Purchase order from L3 Communications to Arroyo Sciences, Inc. dated June 8, 2006 (incorporated by reference to Exhibit 10.24 of the Company’s Form 10-K filed on March 30, 2007).
 
 
 
49

 
 
 
10.25
 
Lease with Pasadena Business Park, LLC dated January 10, 2006, effective beginning May 1, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-QSB filed on August 14, 2006).
10.26
 
Ionfinity contract with US Navy dated August 1, 2006 (incorporated by reference to Exhibit 10.26 of the Company’s Form 10-K filed on March 30, 2007).
10.27
 
Ionfinity contract with US Army dated August 14, 2006 (incorporated by reference to Exhibit 10.27 of the Company’s Form 10-K filed on March 30, 2007).
10.28
 
Ionfinity contract with US Air Force dated September 30, 2006 (incorporated by reference to Exhibit 10.28 of the Company’s Form 10-K filed on March 30, 2007).
10.29
 
Consulting Agreement between VIASPACE Inc. and Denda Associates Co., Ltd. dated October 31, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 6, 2006).
10.30
 
Securities Purchase Agreement dated November 2, 2006 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 8, 2006).
10.31
 
Investor Registration Rights Agreement (relating to the securities issued pursuant to the Securities Purchase Agreement) dated November 2, 2006 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed November 8, 2006).
10.32
 
Security Agreement dated November 2, 2006 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed November 8, 2006).
10.33
 
Form of Secured Convertible Debenture relating to the Securities Purchase Agreement dated November 2, 2006 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed November 8, 2006).
10.34
 
Form of Common Stock Purchase Warrant relating to the Securities Purchase Agreement dated November 2, 2006 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K filed November 8, 2006).
10.35
 
Standby Equity Distribution Agreement dated November 2, 2006 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K filed November 8, 2006).
10.36
 
Registration Rights Agreement (relating to securities to be issued pursuant to the Standby Equity Distribution Agreement) dated November 2, 2006 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.7 of the Company’s Form 8-K filed November 8, 2006).
10.37
 
Secured Convertible Debenture relating to the Securities Purchase Agreement dated November 29, 2006 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed December 4, 2006).
10.38
 
Securities Purchase Agreement dated March 8, 2007 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 13, 2007).
10.39
 
Registration Rights Agreement dated March 8, 2007 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 13, 2007).
10.40
 
Termination Agreement dated March 8, 2007 between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed March 13, 2007).
10.41
 
Promissory Note dated September 10, 2007 between the Company and Rhino Steel Manufacturing Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 11, 2007).
10.42
 
Promissory Noted dated October 18, 2007 between the Company and La Jolla Cove Investors, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 23, 2007).
10.43
 
Form of Stock Purchase Agreement between the Company and La Jolla Cove Investors, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 2, 2007).
10.44
 
Service and Support Agreement dated February 28, 2008 between the Company and E2 Corp. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 5, 2008).
10.45
 
Service and Support Agreement dated February 28, 2008 between the Company and Arroyo Support Group, Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 5, 2008).
10.46
 
Addendum to Promissory Note between the Company and Rhino Steel Manufacturing, Ltd. dated February 11, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed May 15, 2008).
10.47
 
Settlement Agreement and General Release between the Company and La Jolla Cove Investors, Inc. dated March 25, 2008 (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q filed May 15, 2008).
 
 
 
50

 
 
10.47A
 
Amendment to Settlement Agreement and General Release between the Company and La Jolla Cove Investors, Inc. dated June 25, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 1, 2008).
10.47B
 
Continuing Personal Guaranty between La Jolla Cove Investors, Inc. and Carl Kukkonen dated June 25, 2008 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed July 1, 2008).
10.48
 
STTR Phase II Contract between Ionfinity and the U.S. Army for Advanced Robotic Detection of Chemical Agents, Toxic Industrial Gases, and IEDs for Force Health Protection effective August 4, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed August 14, 2008).
10.49
 
Settlement Agreement between the Company and YA Global Investments, L.P. (formerly known as Cornell Capital Partners, L.P.) dated September 8, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 12, 2008).
10.50
 
Securities Purchase Agreement dated October 21, 2008 by and among the Registrant, VIASPACE Green Energy Inc., Sung Hsien Chang and China Gate Technology Co. Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 27, 2008).
10.51
 
Shareholders Agreement dated October 21, 2008 by and among the Registrant, VIASPACE Green Energy Inc., and Sung Hsien Chang (incorporated by reference to Exhibit 10.222 of the Company’s Form 8-K filed October 27, 2008).
10.52
 
Employment Agreement dated October 21, 2008 by and among VIASPACE Green Energy Inc. and Sung Hsien Chang (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed October 27, 2008).
10.53
 
Employment Agreement dated October 21, 2008 by and among VIASPACE Green Energy Inc. and Carl Kukkonen (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed October 27, 2008).
10.54
 
Employment Agreement dated October 21, 2008 by and among VIASPACE Green Energy Inc. and Stephen Muzi (incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K filed October 27, 2008).
10.55
 
Employment Agreement dated October 21, 2008 by and among VIASPACE Green Energy Inc. and Maclean Wang (incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K filed October 27, 2008).
10.56
 
Asset Purchase Agreement dated December 22, 2008 by and between the Company and Knovitech, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed December 29, 2008).
10.57
 
STTR Phase II Contract between Ionfinity and the U.S. Navy for Miniature Electronic Sniffer for Navy Vertical Take off Unmanned Aerial Vehicles (VTUAVs) effective October 23, 2008. (incorporated by reference to Exhibit 10.57 of the Company’s Form 10-K filed March 31, 2009).
14.1
 
VIASPACE Inc. Code of Ethics for Senior Executive Officers and Senior Financial Officers dated October 20, 2005 (incorporated by reference to Exhibit 14.1 of the Company’s Form 8-K filed on October 26, 2005).
21
 
* List of subsidiaries of Company.
23.1
 
* Consent of Goldman Parks Kurland Mohidin LLP dated March 30, 2010.
31.1
 
* Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
* Certification of President and Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32
 
* Certification of the Company’s Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*     Filed herewith
**
Confidential treatment approved by the Securities and Exchange Commission on March 2, 2007.  Exhibit 10.13 received approval for confidential treatment through October 26, 2019.  Exhibit 10.14 received approval for confidential treatment through November 10, 2019.
 
 
 
 
51

 
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 
 
 
 
 
 
2009
   
2008
 
Audit Fees
  $ 195,000     $ 193,000  
Audit-Related Fees
    19,000       4,000  
Tax Fees
    8,000       9,000  
    $ 222,000     $ 206,000  

 
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of Independent Auditors
 
Consistent with SEC policies regarding auditor independence, our Audit Committee has the responsibility for appointing, setting compensation and overseeing the work of the independent auditor.  In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.
 
Prior to engagement of the independent auditor for the next year's audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the Audit Committee for approval.
 
 
1.
Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.
 
 
2.
Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
 
 
3.
Tax services include all services performed by the independent auditor's tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.
 
 
4.
Other Fees are those associated with services not captured in the other categories.
 
Prior to the engagement, the Audit Committee pre-approves these services by category of service.  The fees are budgeted and the Audit Committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service.  During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval.  In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditor.

The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
 
 
52

 

Signatures

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 2010.
 
 
VIASPACE INC.
 
(Registrant)
   
By:
 /s/ CARL KUKKONEN
 
Name: Carl Kukkonen
 
Title: Chief Executive Officer
 
(Principal Executive Officer and Director)
   
By:
/s/ STEPHEN J. MUZI
 
Name: Stephen J. Muzi
 
Title: Chief Financial Officer
 
(Principal Financial and Accounting Officer)

 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE
 
TITLE
 
DATE
         
/s/ CARL KUKKONEN
 
Chief Executive Officer
 
March 30, 2010
Carl Kukkonen
 
(Principal Executive Officer and Director)
   
         
/s/ STEPHEN J. MUZI
 
Chief Financial Officer
 
March 30, 2010
Stephen J. Muzi
 
(Principal Financial and  Accounting Officer)
   
         
/s/ AMJAD S. ABDALLAT
 
Director
 
March 30, 2010
Amjad S. Abdallat
       
         
/s/ GENERAL BERNARD P. RANDOLPH
 
Director
 
March 30, 2010
General Bernard P. Randolph
       
         
/s/ ANGELINA GALITEVA
 
Director
 
March 30, 2010
Angelina Galiteva
       
         
/s/ RICK CALACCI
 
Director
 
March 30, 2010
Rick Calacci
       
 
 
 
53

 
 
ITEM 7. FINANCIAL STATEMENTS

VIASPACE INC.

TABLE OF CONTENTS

   
 
PAGE
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM
F-2
   
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
   
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statements of Stockholders’ Equity (Deficit)
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-8
 
 
 
F-1

 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of
VIASPACE Inc.

We have audited the accompanying consolidated balance sheets of VIASPACE Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations and other comprehensive loss, stockholders' equity (deficit), and cash flows for the years ended December 31, 2009 and 2008.  These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of VIASPACE Inc. and Subsidiaries as of December 31, 2009 and 2008 and the consolidated results of their operations and their consolidated cash flows for the years ended December 31, 2009 and 2008, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements were prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations.  In addition, at December 31, 2009, the Company has a negative working capital of $2,280,000 and an accumulated deficit of $32,730,000.  This raises substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Goldman Parks Kurland Mohidin LLP
Goldman Parks Kurland Mohidin LLP
Encino, California
March 30, 2010
 
 
F-2

 

VIASPACE INC.
CONSOLIDATED BALANCE SHEETS
 
 
December 31,
2009
   
December 31,
2008
 
ASSETS
 
CURRENT ASSETS:
           
    Cash and cash equivalents                                                                                                                         
  $ 1,102,000     $ 2,666,000  
Accounts receivable, net
    262,000       279,000  
Inventory
    455,000       377,000  
Prepaid expenses
    651,000       797,000  
Related party receivables
    1,911,000       921,000  
Other current assets
    52,000       6,000  
TOTAL CURRENT ASSETS
    4,433,000       5,046,000  
                 
FIXED ASSETS:
               
Fixed assets, net of accumulated depreciation
    936,000       793,000  
                 
OTHER ASSETS:
               
Land use right, net of accumulated amortization
    586,000       514,000  
Intellectual property, net of accumulated amortization
    163,000       179,000  
Grass license, net of accumulated amortization
    478,000       503,000  
Goodwill
    12,322,000       12,322,000  
Other assets
    7,000       13,000  
TOTAL OTHER ASSETS
    13,556,000       13,531,000  
                 
TOTAL ASSETS
  $ 18,925,000     $ 19,370,000  
   
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
CURRENT LIABILITIES:
               
Accounts payable
  $ 741,000     $ 778,000  
Accrued expenses
    650,000       161,000  
Current portion of long-term debt
    44,000       44,000  
    Due to related party
    4,800,000       4,800,000  
Related party payable
    478,000       422,000  
TOTAL CURRENT LIABILITIES
    6,713,000       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, 903,505,407 and 814,336,863 issued and outstanding in 2009 and 2008, respectively
    904,000       814,000  
Additional paid in capital
    37,071,000       35,168,000  
Accumulated deficit
    (32,730,000 )     (29,804,000 )
Total stockholders’ equity
    5,245,000       6,178,000  
Noncontrolling interest
    6,967,000       6,987,000  
Total equity
    12,212,000       13,165,000  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 18,925,000     $ 19,370,000  

The accompanying notes are an integral part of the consolidated financial statements.

 
F-3

 

VIASPACE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

 
 
Years Ended December 31,
 
 
 
2009
   
2008
 
REVENUES
           
Government contracts
  $ 701,000     $ 225,000  
Commercial contracts
    57,000       71,000  
Framed artwork sales
    3,618,000       866,000  
Total revenues
    4,376,000       1,162,000  
                 
COST OF  REVENUES
    2,686,000       497,000  
GROSS PROFIT
    1,690,000       665,000  
                 
OPERATING EXPENSES
               
Research and development
    30,000       531,000  
Selling, general and administrative expenses
    4,387,000       8,721,000  
Total operating expenses
    4,417,000       9,252,000  
LOSS FROM OPERATIONS
    (2,727,000 )     (8,587,000 )
                 
OTHER INCOME (EXPENSE)
               
Interest income
          7,000  
Interest expense
    (431,000 )     (37,000 )
Other income
    61,000       225,000  
Gain on sale of marketable securities
          29,000  
Gain on sale of humidity sensor product line
    176,000        
Total other income (expense)
    (194,000 )     224,000  
                 
LOSS INCLUDING NONCONTROLLING INTERESTS AND BEFORE DISCONTINUED OPERATIONS AND INCOME TAXES
    (2,921,000 )     (8,363,000 )
                 
     Discontinued operations
    12,000       (1,402,000 )
     Income taxes expense
          (10,000 )
     Noncontrolling interests
          (42,000 )
NET LOSS ATTRIBUTED TO VIASPACE
  $ (2,909,000 )   $ (9,817,000 )
                 
LOSS PER SHARE OF COMMON STOCK INCLUDING NONCONTROLLING INTERESTS AND BEFORE DISCONTINUED OPERATIONS
               
—Basic and diluted
  $ *     $ (0.02 )
Discontinued operations
    *       *  
Noncontrolling interests
    *       *  
NET LOSS PER SHARE OF COMMON STOCK ATTRIBUTED TO VIASPACE SHAREHOLDERS — Basic and diluted
  $ *     $ (0.02 )
                 
WEIGHTED AVERAGE SHARES OUTSTANDING—Basic and diluted
    866,143,989       507,428,372  
____________
*     Less than $0.01 per common share.
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

NET LOSS
  $ (2,909,000 )   $ (9,817,000 )
                 
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 )
   Net unrealized holding gain (loss) on securities
          (78,000 )
                 
COMPREHENSIVE LOSS
  $ (2,909,000 )   $ (9,895,000 )

The accompanying notes are an integral part of the consolidated financial statements.
 
 
F-4

 
VIASPACE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

   
Common Stock