UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM 20-F o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE
  SECURITIES EXCHANGE ACT OF 1934ORx
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
  EXCHANGE ACT OF 1934For the
  fiscal year ended March 31, 2006.ORo
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
  EXCHANGE ACT OF 1934OR.o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
  EXCHANGE ACT OF 1934 Date of event
requiring this shell company report________________. For the transition period from
__________________ to ________________. Commission File Number: 0-30858 VALCENT PRODUCTS INC.Province of Alberta, Canada(Jurisdiction of incorporation or organization) 420 - 475 Howe Street, Vancouver
British Columbia V6C 2B3(Address of principal executive offices) Securities
registered or to be registered pursuant to Section 12(b) of the Act. None
NoneTitle of each class
Name of each exchange on which
registered Securities
registered or to be registered pursuant to Section 12(g) of the Act.   Common Shares, without par value(Title of Class)Securities for
which there is a reporting obligation pursuant to Section 15(d) of the Act:

None(Title of Class)Indicate the
number of outstanding shares of each of the issuers classes of capital or
common shares at March 31, 2006 - 15,787,835.

Indicate by
check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.     Yes x
No o

Indicate by
check mark which financial statement item the Registrant has elected to
follow.   x    Item
17   o     Item
18

If this is an
annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).    Yes o
No x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS IN THE PAST FIVE YEARS)

Indicate by
check mark whether the registrant has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities plan confirmed by a
court.    Yes o No
o

ii

TABLE OF CONTENTS

Page
  NumberPart
  I



1ITEM
  1

Identity
  of Directors, Senior Management and Advisors

1ITEM
  2

Offer
  Statistics and Expected Timetable

2ITEM
  3

Key
  Information

2ITEM
  4

Information
  on the Company

14ITEM
  5

Operating
  and Financial Review and Prospects

27ITEM
  6

Directors,
  Senior Management and Employees

35ITEM
  7

Major
  Shareholders and Related Party Transactions

43ITEM
  8

Financial
  Information

50ITEM
  9

The
  Offer and Listing

51ITEM
  10

Additional
  Information

52ITEM
  11

Quantitative
  and Qualitative Disclosures About Market Risk

68ITEM
  12

Description
  of Securities Other than Equity Securities

68PART
  II



69ITEM
  13

Defaults,
  Dividends, Arrearages and Delinquencies

69ITEM
  14

Material
  Modifications to the Rights of Security Holders and Use of Proceeds

69ITEM
  15

Control
  and Procedures

69ITEM 16

[Reserved]ITEM
  16A

Audit
  Committee Financial Expert

70ITEM
  16B

Code
  of Ethics

70ITEM
  16C

Principal
  Accountant Fees and Services

70ITEM
  16D

Exemptions
  from the Listing Standards for Audit Committee

70ITEM
  16E

Purchase
  of Equity Securities by the Issuer and Affiliated Purchasers

70PART
  III



F-1ITEM
  17

Financial
  Statements

F-1ITEM
  18

Financial
  Statements

F-18ITEM
  19

Exhibits

F-18iii

(VALCENT LOGO)

PART I

CAUTIONARY NOTICE REGARDING FORWARD LOOKING
STATEMENTS

Certain
written and oral statements made by our Company and subsidiaries of our Company
may constitute forward-looking statements as defined under the Private
Securities Litigation Reform Act of 1995. This includes statements made in this
report, in other filings with the Securities and Exchange Commission (SEC),
in press releases, and in certain other oral and written presentations.
Generally, the words anticipates, believes, expects, plans,
may,
will, should, seeks, estimates, project,
predict, potential,
continue, intends, and other similar words identify forward-looking
statements. All statements that address operating results, events or
developments that we expect or anticipate will occur in the future, including
statements related to sales, earnings per share results, and statements
expressing general expectations about future operating results, are
forward-looking statements and are based upon the Companys current
expectations and various assumptions. The Company believes there is a
reasonable basis for its expectations and assumptions, but there can be no
assurance that the Company will realize its expectations or that the Companys
assumptions will prove correct. Forward-looking statements are subject to risks
that could cause them to differ materially from actual results. Accordingly,
the Company cautions readers not to place undue reliance on forward-looking
statements. We believe that these risks include but are not limited to the
risks described in this report under Part I, Item 3, Subsection D entitled
Risk Factors and Part I, Item 5, entitled Operating and Financial Review and
Prospects and that are otherwise described from time to time in our SEC
reports filed after this report. These statements appear in a number of places
in this Form 20-F and include all statements that are not statements of
historical fact regarding the intent, belief or current expectations of us, our
directors or our officers, with respect to, among other things: (i) our
liquidity and capital resources, (ii) our financing opportunities and plans,
(iii) our ability to attract customers to generate revenues, (iv) competition
in our business segment, (v) market and other trends affecting our future
financial condition or results of operations, (vi) our growth strategy and
operating strategy, and (vii) the declaration and/or payment of dividends.

Investors and
prospective investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors. The factors that
might cause such differences include, among others, those set forth in. we
undertake no obligation to update any of the forward-looking statements in this
annual report on Form 20-F after the date of this report.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISERS

Not
applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE

Not
applicable.

1

ITEM 3. KEY INFORMATION

SELECTED FINANCIAL DATA

The following
selected financial data has been derived from our audited financial statements
and related notes for the preceding five years and has been prepared and
presented in accordance with Canadian generally accepted accounting principles.
Effective March 24, 2004, we disposed of our interest in Nettron Media Group,
formerly our wholly-owned subsidiary. The comparative financial results of
Nettron Media Group for the year ended March 31, 2004 have been segregated and
presented as discontinued operations on the Statements of Operations and
Deficit and Cash Flows in our audited financial statements.  For comparative purposes this selected
financial data for the years ended March 31, 2002, 2003, 2004, 20054 and 2006
is also presented as though it were prepared under United States generally
accepted accounting principles. Our audited financial statements for the year
ended March 31, 2006 have been prepared in accordance with Canadian generally
accepted accounting principles, which, as set forth in Note 2 and 13, conform
in all material respects with those of the United States and with the
requirements of the Securities and Exchange Commission.

Valcent Products Inc.
  Selected Financial Data
  (Expressed in Canadian Dollars)

March 31,
  2006
  12 Months

March 31,
  2005
  12 Months

March 31,
  2004
  12 Months

March 31,
  2003
  12 Months

March 31,
  2002
  12 MonthsNet Operating Revenues per
  Canadian and U.S. GAAP

$
0.00

$
0.00

$
0.00

$
0.00

$
0.00Loss
  (Income) from operations

$
3,734,599

$
45,694

$
25,885

$
(81,637
)
$
123,144Loss (Income) from operations
  U.S. GAAP

$
3,699,724

$
45,694

$
25,885

$
(81,637
)
$
123,144Loss (Income) from continued
  operations per Canadian GAAP

$
3,734,599

$
45,694

$
25,885

$
(82,433
)
$
136,885Loss (Income) from discontinued
  operations per Canadian GAAP

$
0.00

$
0.00

$
(2,238
)
$
0.00

$
0.00Net (Income) loss per Canadian
  GAAP

$
3,734,599

$
45,694

$
23,647

$
(82,433
)
$
136,885Loss (Income) from continued
  operations per U.S. GAAP

$
3,699,724

$
45,694

$
25,885

$
(82,433
)
$
136,885Loss (Income) from discontinued
  operations per U.S. GAAP

$
0.00

$
0.00

$
(2,238
)
$
0.00

$
0.00Net (Income)
  loss per U.S. GAAP

$
3,699,724

$
15,694

$
23,647

$
(82,433
)
$
136,885Loss
(Income) per share from
  continued operations - basic,
  Canadian GAAP

$
0.354

$
0.007

$
0.01

$
(0.01
)
$
0.02Loss per
share from discontinued
  operations, Canadian GAAP

$
0.00

$
0.00

$
0.00

$
0.00

$
0.00Loss
(Income) per share after2

discontinued operations,
  Canadian GAAP

$
0.354

$
0.007

$
0.01

$
(0.01
)
$
0.02Loss
(Income) per share from
  continued operations, U.S. GAAP

$
0.351

$
0.007

$
0.01

$
(0.01
)
$
0.02Loss
(Income) per share from
  discontinued operations, U.S.
  GAAP

$
0.00

$
0.00

$
0.01

$
0.00

$
0.00Loss
(Income) per share after
  discontinued operations, U.S.
  GAAP

$
0.351

$
0.007

$
0.01

$
(0.01
)
$
0.02Share
capital per Canadian GAAP

$
4,099,870

$
2,999,420

$
2,999,420

$
2,999,420

$
2,999,420Share
capital per U.S. GAAP

$
4,391,371

$
2,999,420

$
2,999,420

$
3,383,540

$
3,383,540Common
shares issued


15,787,835


6,435,374


6,435,374


6,435,374


6,435,374Weighted
average shares
  outstanding per Canadian GAAP


10,548,042


6,435,374


6,435,374


6,435,374


6,447,041Weighted
average shares
  outstanding per U.S. GAAP


10,548,042


6,435,374


6,435,374


6,435,374


6,447,041Total
Assets per Canadian GAAP

$
1,392,801

$
936

$
2,059

$
18,866

$
24,527Total
Assets per U.S. GAAP

$
1,392,801

$
936

$
2,059

$
18,866

$
24,527Net assets
(liabilities) per Canadian GAAP

$
(441,099
)
$
(237,950
)
$
192,256

$
(168,609
)
$
(251,042
)Net assets
(liabilities) per U.S.
  GAAP

$
(590,697
)
$
(237,950
)
$
192,256

$
(168,609
)
$
(251,042
)Convertible
debentures (current
  and long term portions) per U.S. GAAP)

$
0.00

$
0.00

$
0.00

$
0.00

$
0.00Cash
Dividends Declared per
  common shares, Canadian and
  U.S. GAAP

$
0.00

$
0.00

$
0.00

$
0.00

$
0.00Exchange
Rates (CND to USD)
  Period Average

$
0.8385

$
0.7842

$
0.7403

$
0.6458

$
0.63933

Exchange Rates (CND to USD)
  for six most recent months

Period
  High

Period
  LowMarch 2006

$
0.8850

$
0.8512April 2006

$
0.8762

$
0.8714May 2006

$
0.9045

$
0.8983June 2006

$
0.9009

$
0.8945July 2006

$
0.8888

$
0.8831August 2006

$
0.9025

$
0.8837Exchange
Rate (CND to USD)
  September 25, 2006

$
0.8952CAPITALIZATION AND INDEBTEDNESS

Not
Applicable.

REASONS
FOR THE OFFER AND USE OF PROCEEDS

Not
Applicable.

RISK
FACTORS

Our business
entails a significant degree of risk, and an investment in our securities
should be considered highly speculative. An investment in our securities should
only be undertaken by persons who can afford the loss of their entire
investment. The following is a general description of material risks, which may
adversely affect our business, our financial condition, including liquidity and
profitability, and our results of operations, ultimately affecting the value of
an investment in shares of our common stock.

GENERAL
BUSINESS RISKS

We are a development
stage company and based on our historical operating losses and negative cash flows
from operating activities there is uncertainty as to our ability to continue as
a going concern.

We have a
history of operating losses and negative cash flows from operating activities,
resulting in our continued dependence on external financing arrangements. In
the event that we are unable to achieve or sustain profitability or are
otherwise unable to secure additional external financing, we may not be able to
meet our obligations as they come due, raising substantial doubts as to our
ability to continue as a going concern. Any such inability to continue as a
going concern may result in our security holders losing their entire
investment. Our financial statements, which have been prepared in accordance
with Canadian GAAP, contemplate that we will continue as a going concern and do
not contain any adjustments that might result if we were unable to continue as
a going concern. Changes in our operating plans, our existing and anticipated
working capital needs, the acceleration or modification of our expansion plans,
lower than anticipated revenues, increased expenses, potential acquisitions or
other events will all affect our ability to continue as a going concern. See
Managements Discussion and Analysis of Financial Condition and Results of
OperationsOverview.

From inception, we
have historically generated minimal revenues while sustaining substantial
operating losses and we anticipate incurring continued operating losses and
negative cash flows in the foreseeable future resulting in uncertainty of future
profitability and limitation on our operations.

4

From
inception, we have generated minimal revenues and experienced negative cash
flows from operating losses. We anticipate continuing to incur such operating
losses and negative cash flows in the foreseeable future, and to accumulate
increasing deficits as we increase our expenditures for (i) technology, (ii)
infrastructure, (iii) research and development, (iv) sales and marketing, (v)
interest charges and expenses related to previous equity and debt financings,
and (v) general business enhancements. Any increases in our operating expenses
will require us to achieve significant revenue before we can attain
profitability. In the event that we are unable to achieve profitability or
raise sufficient funding to cover our losses we may not be able to meet our obligations
as they come due, raising substantial doubts as to our ability to continue as a
going concern. See Managements Discussion and Analysis of Financial Condition
and Results of OperationsLiquidity and Capital Resources.

Our accumulated
deficit makes it more difficult to borrow funds.

As of the year
ended March 31, 2006, and as a result of historical operating losses from prior
operations we had a deficit of $3,237,370 and a deficit of $3,734,599 from
losses accumulated during our development stage, our total accumulated deficit
was $6,971,969. Lenders generally regard an accumulated deficit as a negative
factor in assessing creditworthiness, and for this reason, the extent of our
accumulated deficit coupled with our historical operating losses will
negatively impact our ability to borrow funds if and when required. Any
inability to borrow funds, or a reduction in favorability of terms upon which
we are able to borrow funds, including the amount available to us, the
applicable interest rate and the collateralization required, may affect our
ability to meet our obligations as they come due, and adversely affect on our
business, financial condition, and results of operations, raising substantial
doubts as to our ability to continue as a going concern. See Managements
Discussion and Analysis of Financial Condition and Results of
OperationsOverview.

Our having recently
undergone a change in business direction and significant restructuring coupled
with our limited experience as a publicly traded company with substantial
operations in several different industries, may increase our expenses and place
significant demands on our management.

From inception
we have undergone several changes in business direction and consequently have
previously had only limited operations. As a result of our most recent change
in business direction, significant restructuring and our limited experience as
a publicly traded company with substantial operations in several different
industries, responding to our regulatory and reporting obligations could
increase our general, administrative, legal and auditing costs and place
substantial time demands on our management. We anticipate that, due to the
increased complexity of our corporate structure and our simultaneous pursuit of
various product lines in different industries, our regulatory and reporting
obligations will require further expenditures to train additional personnel and
retain appropriate legal and accounting professional services. In the event
that these expenditures precede or are not subsequently followed by revenues or
that we are unable to raise sufficient funding to cover any increase in our
expenses, we may not be able to meet our obligations as they come due, and our
business, financial condition, and results of operations may be negatively
affected, raising substantial doubts as to our ability to continue as a going
concern.

RISKS
ASSOCIATED WITH OUR BUSINESSES AND INDUSTRIES

We face serious
competition in our business segments from new market entrants as well as a
number of established companies with greater resources and existing customer
bases.

The markets
for our potential products rapidly evolve and are intensely competitive as new
consumer retail products are regularly introduced. Competition in our market
segments is based primarily upon:


brand name
  recognition;
availability
  of financial resources;
the quality
  of products;5


reviews
  received for products from independent reviewers who publish in magazines,
  websites, newspapers and other industry publications;
availability
  of access to retail shelf space;
the price of
  each product; and
the number
  of products then available.We face
competition from other consumer retail manufacturers, all of whom generally
sell through the same combination of channels as we intend to, including
retail, wholesale, direct-response and online marketing sales.

To remain
competitive in our market segments we rely heavily upon what we believe to be
our superior potential product quality, marketing and sales abilities,
proprietary technology, product development capabilities and our managements
experience. However, we may not be able to effectively compete in these
intensely competitive markets, as some of our competitors have longer operating
histories, larger customer bases and greater financial, marketing, service,
support, technical and other resources, affording them the ability to undertake
more extensive marketing campaigns and adopt more aggressive pricing policies,
than we can. Moreover, we believe that competition from new entrants will
increase as the market for each of our potential products expands. If our
potential product lines are not successful, our business, financial condition
and results of operations will be negatively affected. See
BusinessCompetition.

Our intellectual
property may not be adequately protected from unauthorized use by others, which
could increase our litigation costs and adversely affect our sales.

Our
intellectual properties are the most important assets that we possess in our
ability to generate revenues and profits and we will rely very significantly on
these intellectual property assets in being able to effectively compete in our
markets. However, our intellectual property rights may not provide meaningful
protection from unauthorized use by others, which could result in an increase
in competing products and a reduction in our own sales. Moreover, if we must
pursue litigation in the future to enforce or otherwise protect our
intellectual property rights, or to determine the validity and scope of the
proprietary rights of others, we may not prevail and will likely have to make
substantial expenditures and divert valuable resources in any case. We may not
have adequate remedies if our proprietary content is appropriated. See
BusinessIntellectual Property.

If our potential
products infringe upon proprietary rights of others, lawsuits may be brought
requiring us to pay large legal expenses and judgments and redesign or discontinue
selling one or more of our potential products.

We are not
aware of any circumstances under which our potential products infringe upon any
valid existing proprietary rights of third parties. Infringement claims,
however, could arise at any time, whether or not meritorious, and could result
in costly litigation or require us to enter into royalty or licensing
agreements. If we are found to have infringed the proprietary rights of others,
we could be required to pay damages, redesign our potential products or
discontinue their sale. Any of these outcomes, individually or collectively,
would negatively affect on our business, financial condition and results of
operations. See BusinessIntellectual Property.

Should our Nova Skin
Care System be classified as a medical device and should we fail to obtain and
maintain the necessary United States Food and Drug Administration clearances
our business will be adversely affected.

While we do
not believe that our Nova Skin Care System is a medical device as defined by
section 201(h) of the United States Federal Food, Drug and Cosmetic Act, it may
nevertheless be classified as such and subject to regulation by the Food and
Drug Administration or other federal, state and local authorities.

6

Generally,
these regulations relate to the manufacture, labeling, sale, promotion,
distribution, import, export and shipping of products that are deemed medical
devices. In the United States, before a new medical device may be marketed the
manufacturer must first receive, unless there exists an applicable exemption,
either clearance under section 510(k) of the Federal Food, Drug and Cosmetic
Act or pre-market approval from the Food and Drug Administration. The Food and
Drug Administrations 510(k) clearance process usually takes anywhere from
three to twelve months, or longer, while the process of obtaining pre-market
approval is much more costly and uncertain and generally takes from one to
three years, or longer.

Medical
devices may be marketed only for those indications for which they are approved
or cleared. Should we be required to seek clearance or pre-market approval, the
Food and Drug Administration may not approve or clear indications that are
necessary or desirable for successful commercialization of our Nova Skin Care
System. Indeed, the Food and Drug Administration may refuse requests for 510(k)
clearance or pre-market approval altogether, or, if granted, clearances may be
revoked if safety or effectiveness problems were to arise. If this were to
occur, our business, financial condition and results of operations will be
negatively affected. See BusinessRegulation.

If we are unable to
successfully break into new markets, implement our growth strategy or manage
our business as it does grow, our future operating results could suffer.

As a
development stage company we face several challenges in entering each of the
consumer retail markets for our respective potential products, particularly
consumers lack of awareness of our company and our potential product lines,
competing for market share with established consumer retail product
manufacturers and difficulties in competing for, hiring and retaining
representative personnel in each of our respective potential markets. In
addition, we face several challenges common to any new market entrant,
including problems typically associated with unfamiliarity of local market
conditions and market demographics. Each new market we enter may also have
different competitive conditions, consumer tastes and discretionary spending
patterns, which may require us to adjust our growth strategy or modify the way
in which we manage our business. To the extent that we are unable to break into
or meet the challenges associated with establishing ourselves in a new market,
our future operating results could suffer and our financial condition and
business may be negatively affected. See BusinessMarketing and Advertising.

Changes in consumer
preferences or discretionary spending may negatively affect our future
operating results.

Within the
businesses and industries in which we intend to operateconsumer retail
productsrevenues are largely generated by consumer preferences and
discretionary spending. Our success as a potential manufacturer and retailer of
consumer products will depend, in part, on the popularity of each of our
potential product lines. Any shift in consumer sentiment away from our
potential products or product lines could have a negative affect on our ability
to achieve future profitability. Our success also depends on a number of factors
affecting levels of consumer discretionary income and spending, including, the
following, among other, social and economic conditions:


general
  business conditions;
interest
  rates;
inflation;
consumer
  debt levels;
the
  availability of consumer credit;
taxation;
fuel prices
  and electrical power rates;7


unemployment
  trends;
natural
  disasters;
terrorist
  attacks and acts of war; and
other
  matters that influences consumer confidence and spending.Consumer
purchases of discretionary items, including our potential products and product
lines, could decline during periods in which discretionary income is lower or
actual or perceived unfavorable economic conditions exist. Should this occurs,
and if we are unable to introduce new products and product lines that consumers
find appealing, our business, financial condition and results of operations
will be negatively affected. See BusinessOur Potential Markets.

We may be subject to
adverse publicity or claims by consumers arising out of use of our potential
product lines.

We may be
subject to complaints from or litigation by consumers, whether or not
meritorious, relating to quality, health or operational aspects of our potential
product lines. Such claims could arise at any time and, should they arise, we
may not be successful in defending them. Any litigation, regardless of the
outcome, would entail significant costs and use of management time, which could
impair our ability to generate revenue and profit. For these reasons or, should
we be found liable with regard to a claim arising out of any of our potential
product lines, our business, financial condition, and results of operations
would be negatively affected.

We face substantial
competition in attracting and retaining qualified senior management and key
personnel and may be unable to develop and grow our business if we cannot
attract and retain senior management and key personnel as necessary, or if we
were to lose our existing senior management and key personnel.

As a development stage company,
our success, to a large extent, depends upon our ability to attract, hire and
retain highly qualified and knowledgeable senior management and key personnel
who possess the skills and experience necessary to satisfy our business and
client service needs. Our ability to attract and retain such senior management
and key personnel will depend on numerous factors, including our ability to
offer salaries, benefits and professional growth opportunities that are
comparable with and competitive to those offered by more established consumer
retail product manufacturers. We may be required to invest significant time and
resources in attracting and retaining, as necessary, additional senior management
and key personnel, and many of the companies with which we will compete for any
such individuals have greater financial and other resources which afford them
the ability to undertake more extensive and aggressive hiring campaigns than we
can. Furthermore, an important component to the overall compensation offered to
our senior management and key personnel will be equity. If our stock prices do
not appreciate over time, it may be difficult for us to attract and retain
senior management and key personnel. Moreover, should we lose any members of
our senior management or key personnel, we may be unable to prevent the
unauthorized disclosure or use of our trade secrets, including our technical
knowledge, practices, procedures or client lists by such individuals. The
normal running of our operations may be interrupted, and our financial
condition and results of operations negatively affected, as a result of any
inability on our part to attract or retain the services of qualified and
experienced senior management and key personnel, any member of our existing
senior management or key personnel leaving and a suitable replacement not
found, or should any of our former senior management or key personnel disclose
our trade secrets. See BusinessTrade Secrets and BusinessEmployees.

8

RISKS ASSOCIATED WITH AN INVESTMENT IN OUR
COMMON STOCK

We have incurred and
continue to face serious financial penalties for our continuing failure to meet
our registration obligations under the terms of a recent series of related
private offering transactions.

During the
period of July 25, 2005 through August 5, 2005 we consummated a series of
related private offering transactions with and among a syndicated group of
institutional and other investors pursuant to which we agreed to issue, in the
aggregate, USD$1,277,200 in 8% per annum convertible notes and three-year
warrants to acquire (i) up to 1,702,924 shares of common stock at prices per
share of between USD$0.40 and USD$0.50, and (ii) up to an additional 1,702,924
shares of common stock at prices per share of between USD$0.90 and USD$1.00. In
conjunction with these private offering transactions we paid a finders fees of
(i) USD$127,720 in cash, representing 10% of the gross proceeds realized, (ii)
425,735 shares of common stock, (iii) three-year warrants to purchase up to
255,440 shares of common stock at a price per share of USD$0.50, and (iv)
three-year warrants to purchase up to 425,733 shares of common stock at a price
per share of USD$0.75. As part of the financing transaction, we also granted
certain registration rights to each of the investors and finders pursuant to
which we became committed to registering all of the shares issued as part of
such transactions, including 200% of those shares issuable upon conversion of
the notes and all shares issuable upon exercise of the warrants, by filing a
registration statement on Form F-1 covering such shares within sixty days of
the closing date, or by September 27, 2005. Under the terms of the registration
provisions, we had until January 25, 2006 to cause such registration statement
to be declared effective by the SEC, with any delays in meeting this obligation
subjecting us to liability in an amount, payable in cash, at a rate of 2% of
the outstanding amount on the convertible notes per thirty day period for the
duration of any such delay. As of the date of this filing, these convertible
notes are due and payable on demand.

As a
consequence, among other reasons, of ongoing delays resulting from our having
recently undergone a significant restructuring and change in business
direction, and the unavailability of certain information necessary for
preparing our filing we experienced delays in meeting our registration
obligation under the terms of the series of related private offering
transactions. As a result, on April 6, 2006, we reached a verbal agreement with
the syndicated group of institutional and other investors, wherein we agreed to
convert the accruing penalties associated with the July 25, 2005 through August
5, 2005 transactions, an aggregate of USD$82,200, into convertible penalty
notes carrying terms similar to those notes issued in the original series of
private offering transactions, and in addition to issue each investor one
three-year penalty warrant for each USD$0.75 of penalties owed to purchase, in
the aggregate, up to an additional 109,600 shares of common stock at a price
per share of USD$0.75. As part of this verbal agreement we also granted certain
additional registration rights to each of the investors pursuant to which we
became committed to registering all of the shares issued as part of the July
25, 2005 through August 5, 2005 transactions as well as all of the shares
issued in satisfaction of the accruing penalties within fourteen days of the
April 6, 2006 agreement, or by April 20, 2006, and to cause such registration
statement to be declared effective by the SEC by June 5, 2006. Furthermore, in
accordance with the verbal agreement, any delays in meeting our obligation to
file a registration statement by April 20, 2006 subject us to additional
liability in the form of a reduction in the exercise price of the Class A and
Class B warrants issued as part of the original series of related private
offering transactions in an amount of USD$0.10 per week for the duration of any
such delay.

On April 6,
2006, in order to retire certain short-term obligations and existing
liabilities and to provide additional general corporate and working capital to
pursue our business plan, we consummated a follow-on private offering
transaction with and among a syndicated group of institutional investors,
pursuant to which we issued, in the aggregate, USD$551,666 in 8% per annum
convertible notes and three-year warrants to acquire (i) up to 735,544 shares
of our common stock at a price per share of USD$0.40, and (ii) up to an
additional 735,544 shares of our common stock at a price per share of USD$0.90.
Subject to certain limitations, the principal amount of the notes, together
with any accrued interest may be converted into shares of our common stock at
the lesser of (i) 70% of the average of the five lowest closing bid prices for
our common stock for the ten trading days prior to conversion, or (ii)
USD$0.55. The convertible notes carry a redemption feature which allows us to
retire them, in whole or in part, for an amount equal to 130% of that portion
of the face amount being redeemed, but only in the event that our common shares
have a

9

closing price
of USD$1.50 per share for at least twenty consecutive trading days and there
has otherwise been no default. The common stock purchase warrants carry a net
cashless exercise feature allowing the holder thereof, under certain limited
circumstances, to exercise the warrants without payment of the stated exercise
price, but rather solely in exchange for the cancellation of that number of
common shares into which such warrants are exercisable. In conjunction with
these private offering transactions we also paid a finders fees of (i)
USD$55,166 in cash, representing 10% of the gross proceeds realized, (ii)
183,886 shares of common stock, (iii) three-year warrants to purchase up to
110,320 shares of common stock at a price per share of USD$0.50, and (iv)
three-year warrants to purchase up to 183,867 shares of common stock at a price
per share of USD$0.75.

Our
registration statement on Form F-1 was originally filed with the SEC on April 27,
2006, which delay resulted in a reduction in the exercise price of the Class A
and Class B warrants issued as part of the July 25, 2005 through August 5, 2005
transactions from USD$0.50 and USD$1.00 to USD$0.40 and USD$0.90, respectively.
Moreover, as of the date of this annual report, we are accruing penalties at a
rate of 2% per thirty day period for having failed to have our registration
statement declared effective by June 5, 2006 in addition to other penalties. As
of September 13, 2006, we have accrued $123,094 in penalties related to the
registration rights granted and have included in this registration statement up
to 447,614 common shares in satisfaction of this amount, exclusive of those
penalties previously converted into convertible penalty notes and warrants. Our
management is hopeful that we will cause such registration statement to be
declared effective in the near future, however, the penalties which we have
accumulated to date, and any penalties which we may accumulate for future
delays, will negatively affect our business, our financial condition and our
results of operations, including a corresponding reduction in our net income
and the likelihood of a net loss for the year.

When our
registration statement on Form F-1 is declared effective by the SEC, up to
11,254,778 shares of our common stock will become eligible for immediate public
sale which is likely to have an adverse affect on the market price of our
common stock.

When our
registration statement is declared effective by the SEC, 1,594,091 shares of
our common stock will become eligible for immediate public sale and up to
9,660,687 shares of our common stock underlying convertible notes, including
interest and penalties, and warrants, upon their conversion or exercise, will
be eligible for immediate public sale. As a percentage of our total outstanding
common stock as of the date of the  annual report, this represents 61.13%. If a
significant number of shares are offered for sale simultaneously, which is
likely to occur, it would have a depressive effect on the trading price of our
common stock on the public market. Any such depressive effect may encourage
short positions and short sales, which could place further downward pressure on
the price of our common stock. Moreover, all of the shares sold in the offering
will be freely transferable thereafter without restriction or further
registration under the Securities Act (except for any shares purchased by our affiliates,
as defined in Rule 144 of the Securities Act), which could place even further
downward pressure on the price of our common stock. Furthermore, should a
simultaneous sell-off occur, and due to the thinly-traded market for our common
stock, shareholders may have difficulty selling shares of our common stock, at
or above the price paid, at a fair market value or even at all. See Principal
and Selling Shareholders and Plan of Distribution.

Unless an active
trading market develops for our securities, you may not be able to sell your
shares.

Although, we
are a reporting company and our common shares are listed on the OTC Bulletin
Board (owned and operated by the Nasdaq Stock Market, Inc.) under they symbol VCTPF,
there is not currently an active trading market for our common stock and an
active trading market may never develop or, if it does develop, may not be
maintained. Failure to develop or maintain an active trading market will have a
generally negative affect on the price of our common stock, and you may be
unable to sell your common stock or any attempted sale of such common stock may
have the affect of lowering the market price and therefore your investment
could be a partial or complete loss. See Market Information.

10

Under certain
circumstances, some of our outstanding common stock purchase warrants may be
exercised without our receiving any cash.

We currently
have outstanding warrants to purchase up to approximately 7,499,593 shares of
our common stock, each of which are exercisable on a net cashless basis,
which means they can be exercised, without payment of the stated exercise
price, solely in exchange for cancellation of that number of common shares into
which the warrants are exercisable. The number of shares for which any such
warrant would be cancelled under a net cashless exercise would be the number of
shares having a then current market value equal to the aggregate exercise price
of the warrant, in whole or in part, based on its stated exercise price. In
effect, a net cashless exercise of any such warrants would mean that, even
though we would receive no cash, we would have to issue additional shares,
thereby diluting, potentially significantly, our reportable earnings per share.
Although the circumstances under which the net cashless exercise provision may
be elected by the holders of our warrants are limited, any such exercise would
have a negative affect, indirectly, on the market trading price our common
stock. See Description of Securities.

Since our common
stock is thinly traded it is more susceptible to extreme rises or declines in
price, and you may not be able to sell your shares at or above the price paid.

Since our
common stock is thinly traded its trading price is likely to be highly volatile
and could be subject to extreme fluctuations in response to various factors,
many of which are beyond our control, including:


the trading
  volume of our shares;
the number
  of securities analysts, market-makers and brokers following our common stock;
changes in,
  or failure to achieve, financial estimates by securities analysts;
new products
  introduced or announced by us or our competitors;
announcements
  of technological innovations by us or our competitors;
actual or
  anticipated variations in quarterly operating results;
conditions
  or trends in our business industries;
announcements
  by us of significant acquisitions, strategic partnerships, joint ventures or
  capital commitments;
additions or
  departures of key personnel;
sales of our
  common stock; and
general
  stock market price and volume fluctuations of publicly-traded, and
  particularly microcap, companies.You may have
difficulty reselling shares of our common stock, either at or above the price
you paid, or even at fair market value. The stock markets often experience
significant price and volume changes that are not related to the operating performance
of individual companies, and because our common stock is thinly traded it is
particularly susceptible to such changes. These broad market changes may cause
the market price of our common stock to decline regardless of how well we
perform as a company. In addition, securities class action litigation has often
been initiated following periods of volatility in the market price of a companys
securities. A securities class action suit against us could result in
substantial legal fees, potential liabilities and the diversion of managements
attention and resources from our business. Moreover, and as noted below, our
shares are currently traded on the OTC Bulletin Board and, further, are

11

subject to the
penny stock regulations. Price fluctuations in such shares are particularly
volatile and subject to manipulation by market-makers, short-sellers and option
traders.

Trading in our
common stock on the OTC Bulletin Board may be limited thereby making it more
difficult for you to resell any shares you may own.

Our common
stock trades on the OTC Bulletin Board (owned and operated by the Nasdaq Stock
Market, Inc.). The OTC Bulletin Board is not an exchange and, because trading
of securities on the OTC Bulletin Board is often more sporadic than the trading
of securities listed on a national exchange or on the Nasdaq National Market,
you may have difficulty reselling any of the shares of our common stock that
you may own. See Market Information.

Our common stock is
subject to the penny stock regulations, which are likely to make it more
difficult to sell.

Our common
stock is considered a penny stock, which generally is a stock trading under
$5.00 and not registered on a national securities exchange or quoted on the
Nasdaq National Market. The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in penny stocks. These rules
generally have the result of reducing trading in such stocks, restricting the
pool of potential investors for such stocks, and making it more difficult for
investors to sell their shares once acquired. Prior to a transaction in a penny
stock, a broker-dealer is required to:


deliver to a
  prospective investor a standardized risk disclosure document that provides
  information about penny stocks and the nature and level of risks in the penny
  stock market;
provide the
  prospective investor with current bid and ask quotations for the penny stock;
explain to
  the prospective investor the compensation of the broker-dealer and its
  salesperson in the transaction;
provide
  investors monthly account statements showing the market value of each penny
  stock held in the their account; and
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
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that is subject to the penny stock rules.
Since our common stock is subject to the penny stock rules, investors in our
common stock may find it more difficult to sell their shares.

As a foreign private
issuer, we are exempt from certain informational requirements of the Exchange
Act to which domestic United States issuers are subject.

As a foreign
private issuer we are not required to comply with all of the informational
requirements of the Exchange Act. As a result, there may be less information
concerning our company publicly available than if we were a domestic United
States issuer. In addition, our officers, directors and principal shareholders
are exempt from the reporting and short profit provisions of Section 16 of the
Exchange Act and the rules promulgated thereunder. Therefore, our shareholders
may not know on a timely basis when our officers, directors and principal
shareholders purchase or sell shares of our common stock. See Additional
Information.

As we are a Canadian
company with most of our assets and key personnel located outside of the United
States, you may have difficulty in acquiring United States jurisdiction or
enforcing a United States judgment against us, our key personnel or our assets.

12

We are a
Canadian company organized under the Business Corporations Act (Alberta). Many
of our assets and certain of our key personnel, including our directors and
officers, reside outside of the United States. As a result, it may be difficult
or impossible for you to effect service of process within the United States
upon us or any of our key personnel, or to enforce against us or any of our key
personnel judgments obtained in United States courts, including judgments
relating to United States federal securities laws. In addition, Canadian courts
may not permit you to bring an original action in Canada or recognize or
enforce judgments of United States courts obtained against us predicated upon
the civil liability provisions of the federal securities laws of the United
States or of any state thereof. Furthermore, because many of our assets are
located in Canada, it would be extremely difficult to access those assets to
satisfy any award entered against us in a United States court. Accordingly, you
may have more difficulty in protecting your interests in the face of actions
taken by our management, members of our board of directors or our controlling
shareholders than you would otherwise as shareholder in a United States public
company.

We do not intend to
pay any common stock dividends in the foreseeable future.

We have never
declared or paid a dividend on our common stock and, because we have very
limited resources and a substantial accumulated deficit, we do not anticipate
declaring or paying any dividends on our common stock in the foreseeable
future. Rather, we intend to retain earnings, if any, for the continued
operation and expansion of our business. It is unlikely, therefore, that the
holders of our common stock will have an opportunity to profit from anything
other than potential appreciation in the value of our common shares held by
them. If you require dividend income, you should not rely on an investment in
our common stock. See Dividend Policy.

Future issuances of
our common stock may depress our stock price and dilute your interest.

We may issue
additional shares of our common stock in future financings or grant stock
options to our employees, officers, directors and consultants under our stock
incentive plan. Any such issuances could have the affect of depressing the
market price of our common stock and, in any case, would dilute the percentage
ownership interests in our company by our shareholders. In addition, we could
issue serial preferred stock having rights, preferences and privileges senior
to those of our common stock, including the right to receive dividends and/or
preferences upon liquidation, dissolution or winding-up in excess of, or prior
to, the rights of the holders of our common stock. This could depress the value
of our common stock and could reduce or eliminate amounts that would otherwise
have been available to pay dividends on our common stock (which are unlikely in
any case) or to make distributions on liquidation. See Share Capital.

13

ITEM 4. INFORMATION ON OUR COMPANY

BUSINESS

OUR
CORPORATE HISTORY AND DEVELOPMENT

We were
originally incorporated on January 19, 1996 in accordance with the provisions
of the Business Corporations Act (Alberta) as 681673 Alberta Ltd. By certificate
of amendment dated March 13, 1996, we changed our name from 681673 Alberta Ltd.
to Ironclad Systems Inc.

On October 23,
1996, we completed a public offering and our common shares commenced trading as
a junior capital pool companya Canadian corporate structure allowing a company
to raise capital and list its shares for trading prior to the establishment of
a businesson the Alberta Stock Exchange (later becoming part of the Canadian
Venture Exchange which was thereafter acquired and renamed the TSX Venture
Exchange). In connection with this public offering, we amended our certificate
of incorporation, on August 19, 1996, to remove certain technical restrictions
applicable only to privately held entities.

On June 30,
1998, we completed the acquisition of Good Times Roll Bicycle Rentals Inc., a
bicycle rental business operating through hotels in Canada and the United
States and originally incorporated on June 15, 1994 under the Company Act
(British Columbia). We acquired 100% of the issued and outstanding common and
preferred shares of Good Times Roll Bicycle Rentals Inc., in exchange for the
issuance of 427,296 of our common shares and the execution of an assumption
agreement by and among ourselves, Good Times Roll Bicycle Rentals Inc. and its
creditors, pursuant to which we assumed, and settled through issuance of
160,000 common shares and $200,000 of convertible debentures, a total of
$400,000 in debt owed by Good Times Roll Bicycle Rentals Inc.

Also on June
30, 1998, we completed the acquisition of Arizona Outback Adventures LLC, an
Arizona limited liability company, originally organized on April 13, 1996,
offering guided tours of Arizona that ranged from hiking and biking tours to
multiple-day adventure eco-tours to the Grand Canyon. We acquired 100% of the
shares of Arizona Outback Adventures LLC, for $1 plus the assumption of $9,054
in net liabilities.

By certificate
of amendment dated June 30, 1998, we changed our name from Ironclad Systems
Inc. to Bikestar Inc., and by certificate of amendment dated October 28, 1999,
Good Times Roll Bicycle Rentals Inc. changed its name to Bikestar Rentals Inc.

In 1999, our
management identified the internet as a preferred platform for our global
consumer and business strategy and in response, on May 8, 1999, while still
operating our bicycle rental and eco-tour businesses through Bikestar Rentals
Inc., we incorporated Nettron Media Group Inc., as a wholly-owned subsidiary
under the laws of the State of Texas. Nettron Media Group Inc. was a marketing
enterprise focused on products and services that could be marketed through the
internet as well as through traditional point of sale, telecommunications,
voicemail and bricks and mortar business channels. Nettron Media Group Inc.s
primary focus had been Cupids Web, an interactive online dating and marketing
service.

By certificate
of amendment dated July 8, 1999, we changed our name from Bikestar Inc. to
AdventurX.com, Inc., but, due to confusion with another company of similar
name, on September 28, 1999, we again changed our name from AdventurX.com to
Nettron.com, Inc.

On July 7,
2000, and in connection with Cupids Web, we announced the signing of an
agreement in principle to purchase a 100% interest in a group of companies that
operated the The Right One and Together dating service master franchises
worldwide, including fourteen existing franchise operations (with the right to
develop further franchises) and a 100% interest in each of Single File
Magazine, Eight Friends Out dating service, and three dating websites
(collectively the Together Group), in exchange for what would have amounted
to a combination of cash payments, an issuance of common shares and debt, and
the assumption of certain liabilities of the Together Group. In connection with
this contemplated transaction, during the fiscal year ended March 31, 2001, we
incurred and paid for all costs associated with

14

developing the
necessary framework for the proposed acquisition, including all parties legal
and accounting professional service fees, corporate finance and consulting
fees, travel expenses and management time, totaling approximately $576,000. No
consideration was ever exchanged in connection with the July 7, 2000 agreement
in principle, and, thereafter, on January 1, 2001, in order to fully focus on
our interactive dating and marketing services, we disposed of our interest in
Arizona Outback Adventures LLC and Bikestar Rentals Inc. The total proceeds of
the sale of all issued and outstanding capital stock to a single purchaser was
approximately $132,380, with $23,024 in cash received on closing and the
balance of $109,356 representing the assumption of certain debt and payables by
the purchaser. As a condition of the divestiture, on April 10, 2001, we
canceled 280,000 common shares held in escrow.

The
comparative financial results of Arizona Outback Adventures LLC and Bikestar
Rentals Inc., from their respective acquisition dates, have been segregated and
presented as discontinued operations in our audited financial statements.
Combined revenues from these activities were $419,486 at March 31, 2001.

On February
18, 2002, due to general weakness in the equity markets, we terminated the
agreement in principal to acquire the dating service franchise and related
businesses originally entered into in 2000. On March 24, 2004, we disposed of
our interest in Nettron Media Group Inc. and began exploring business
opportunities that might allow us to restart commercial operations.

By certificate
of amendment dated April 15, 2005, we changed our name from Nettron.com, Inc.
to Valcent Products Inc., and on May 3, 2005 we delisted from the TSX Venture
Exchange, maintaining only our OTC Bulletin Board listing and changing our
symbol from NTT.H to VCTPF.

On August 5,
2005, we completed a licensing agreement with MK Enterprises LLC for the
exclusive worldwide marketing rights to certain MK Enterprise potential
products and a right of first offer on future potential products.

On October 19,
2005, we incorporated Valcent USA, Inc., as a wholly-owned subsidiary under the
laws of the State of Nevada. In turn, Valcent USA, Inc., incorporated Valcent
Management, LLC, a wholly-owned limited liability company under the laws of the
State of Nevada, to serve as the general partner in Valcent Manufacturing Ltd.,
a limited partnership also formed by Valcent USA, Inc., under the laws of the
state of Texas, wherein Valcent USA, Inc. serves as limited partner, in order
to conduct operations in Texas and oversee our projects in Mexico and Arizona
related to the manufacturing of our potential consumer retail products.

On August 24,
1999, we had consolidated our common shares on a one-for-five-basis and on May
3, 2005, we again consolidated our common shares on a one-for-three-basis.
Unless otherwise noted, all references to the number of common shares in this
 annual report are stated on a post-consolidation basis. Per share amounts have
also been restated for the share consolidation.

At present we
are a development stage company focused on the refinement and manufacture of
three lines of unrelated potential consumer retail products, two of which we
anticipate to begin marketing and distributing prior to the conclusion of our
current fiscal year, and the third prior to the conclusion of the subsequent
fiscal year. From inception, we have generated minimal revenues and experienced
negative cash flows from operating activities and our history of losses has
resulted in our continued dependence on external financing. Any inability to
achieve or sustain profitability or otherwise secure additional external
financing, will negatively impact our financial condition and raises
substantial doubts as to our ability to continue as a going concern.

Our registered
and records office is located at 3100, 324-8th Avenue S.W., Calgary, Alberta,
T2P 2Z2 and our principal executive offices are located at 420  475 Howe
Street, Vancouver, British Columbia V6C 2B3. Our telephone number is (604)
606-7979.

15

BUSINESS
OVERVIEW

We are a
development stage company focused on the refinement and manufacture of lines of
unrelated potential consumer retail products, two of which we anticipate to
begin marketing and distributing prior to the conclusion of our current fiscal
year, and the third prior to the conclusion of the subsequent fiscal year. In
addition, we have developed an down a patent relating to bio reactor design.

POTENTIAL
CONSUMER PRODUCTS

Our objective
is to become a leading provider of consumer retail products in each of the
respective markets for our potential product lines. To that end, we intend to
use retail, wholesale, direct-response and online marketing to promote our
potential products, initially concentrating on North America, and ultimately
expanding into European and Asian markets.

Over the
course of the next twelve months we intend to focus on the continued
development, marketing and distribution of each of our lines of potential
consumer retail products. In connection therewith, and for each of our potential product lines:


Eric Enciso, our Chief Operating Officer, Valcent Manufacturing Ltd.,
  is responsible for overseeing all aspects of our operations, manufacturing,
  production and product fulfillment activities. He will also act
  as our primary liaison with Solid Integrations, LLC;
Jack Potts, our Director of Sales and Marketing, Valcent
  Manufacturing Ltd., is responsible for formulating, managing and overseeing
  all aspects our marketing strategies, including our retail, infomercial and
  cable television shopping network strategies and sales. He will also be
  responsible for working with our advertising agencies in facilitating our
  entry and sustainability in the direct-response, online and consumer retail
  marketing segments; and
Forrest Ely, our Director of New Product Development, Valcent
  Manufacturing Ltd., under the direction of M. Glen Kertz, our acting
  President and Chief Executive Officer, is responsible for the design and
  engineering and overall product development, including the procurement of
  certain materials and components necessary for manufacture and assembly, of
  our existing potential products. He will also be responsible for new
  potential product research and development and design.Current
potential product lines under development include:

The
Nova Skin Care System

Our Nova Skin
Care System is a personal hygiene product designed to facilitate the action of
skin cleaners and moisturizers through the application of ultrasonic vibrations
by means of a disposable head attached to a base device. The Nova Skin Care
System has three settings, one for daily cleaning, one for deep moisturizing,
and one for weekly exfoliation. Each setting will have a corresponding
detachable and disposable applicator pad designed for a single use. As a final
product, the Nova Skin Care System will include interchangeable attachments and
accessories, as well as an initial supply of disposable applicators. The system
is compact, self-contained and powered by rechargeable batteries. It will be
sold with cleansers and creams designed to maximize its desirable effects, but
can also be used with water or any other cleanser intended for facial use.
Although subject to change, we presently anticipate that our Nova Skin Care
System will be priced at retail at approximately $149.95 per unit.

Our Nova Skin
Care System is currently in the production ramp-up phase, and we anticipate an
initial run of
approximately 70,000 units will be completed by October 2006. We have retained Arizona Natural Resources,
Inc. to formulate and manufacture the creams and lotions which will be included
with our Nova Skin Care System and we entered into an agreement with Solid
Integrations, LLC, for the manufacture and assembly of our Nova Skin Care
System. In addition, all of the raw material components, tooling and

16

fixtures, as well as the packaging and the associated creams and
lotions that will be included with the Nova Skin Care System have been procured
or ordered.

As of the date of this  annual report, we have invested approximately
USD$200,000 in this phase of our operations, and anticipate that an additional
investment of approximately USD$8,750,000 will be required for the purchase of
raw materials, capital equipment and fulfillment over the course
of the next twelve months.

The
Dust Wolf

Our Dust Wolf
is a vacuum attachment intended for use in dusting and cleaning difficult,
uneven or textured surfaces. The Dust Wolf is ergonomically
designed and contains a non-motorized dual impeller brush system which rotates
as a result of negative air pressure. As the Dust Wolfs brush
revolves, its long fibers develop a slight electrostatic charge and attract
dust particles which then travel to the inside of the units cover where the
fibers hit a receptacle, knocking the dust particles free and allowing them to
be sucked into the vacuum. Our Dust Wolf was specifically designed and developed to be suitable for use
among other items, Venetian blinds, shutters, computer keyboards, piano keys,
lampshades, chandeliers, picture frames, television and computer screens and
vehicle dashboards. Although subject to change, we presently anticipate that
our Dust Wolf will be priced at retail at approximately $24.95 per
unit.

Our Dust Wolf
 underwent final engineering reviews and revisions and we anticipate a final fully-functioning
production-level unit received final approval with an initial production run of approximately 50,000 units
to be completed early 2007. Our
Dust Wolf operates under a six-to-eight week lead time. We have
begun to procure or order all of the raw material components, tooling and peripherals
necessary for production ramp-up.

Budgetary projections for the cost of development of our Dust
Wolf are estimated
at approximately USD$535,000 for material components, tooling and peripherals
through October 2006.

The
Tomorrow Garden Kit

Our Tomorrow
Garden Kit is an indoor herb garden kit, designed to offer, direct
to the consumer, an easy to use kit featuring herbs and plants not otherwise
readily available in the marketplace. M. Glen Kertz, our acting
President has conducted 12 years of research in the development, process and technique
 underlying the technology
 in the Tomorrow Garden product line and based on his research believes that the Tomorrow Garden Kit
offers an improved plant lifespan of three to six months, as opposed to the
traditional shelf life of approximately seven to ten days for fresh herbs, and
requires only ambient light, with no watering or other maintenance, to survive.
Our Tomorrow Garden Kit will be capable of supplying all of the
standard herbs traditionally offered in grocery shops today, such as basil,
mint, thyme, rosemary, parsley and cilantro, but may, in addition, supply more
exotic herbs, such as lemon basil, lime basil, grapefruit mint and chocolate
mint. Although subject to change, we presently anticipate that our Tomorrow
Garden Kit will be priced at retail at approximately $29.95 per
unit.

Our Tomorrow
Garden Kit is currently in the very early conceptual, design and
development phase and we presently anticipate launching the Tomorrow Garden
Kit in late September 2007. Budgetary projections for this potential product
have not yet been established.

POTENTIAL
COMMERCIAL PRODUCTS

High
Density Vertical Bio-Reactor

We are in the
preliminary stages of developing technology for a High Density Vertical
Bio-Reactor. The objective of this technology is to produce a renewable source
of bio-diesel by utilizing the waste gas of carbon dioxide capable of growing
micro-algae. Our High Density Vertical Bio Reactor is configured in a manner
intended to promote the rapid growth of various forms of micro-algae which is
later processed to remove volatile oils suitable for the production of
bio-diesel. The design of our technology allows the reactors to be stacked on a
smaller foot print of land than traditional growing methods require. We believe
the potential markets for this technology include industrial, commercial and
manufacturing businesses that

17

produce carbon
dioxide emissions. We hope to launch this technology by December 2007, however,
this date may be delayed for several reasons, including but not limited to,
delays in the successful or economically viable development of the technology
and delays in obtaining applicable regulatory approval of the technology.

OUR
POTENTIAL MARKETS

The
Nova Skin Care System

Based on research contucted by an employee representative of our company,


the skincare
market is one of the largest and fastest growing market segments in the world
today. In 1998, Johnson & Johnson estimated the annual global skincare
market at approximately $48 billion dollars. Between 1996 and 2001, the facial
skincare market segment itself saw a 41.1% growth rate extending across all
demographic boundaries. In 2002, the United States became the single largest
facial skincare market in the world by surpassing Japan. The United States and
Japan alone account for well over one third of global skincare sales. We
believe that our Nova Skin Care System is ideally suited to become a leader
among products in the global skincare market.

The
Dust Wolf

Vacuuming is
part of the daily cleaning regimen in many commercial, institutional and
domestic settings. Vacuuming can account for a substantial portion of time and
labor associated with cleaning and, to make the most of time spent vacuuming,
many vacuum and cleaning product manufacturers offer various tools and
accessories to expand a vacuums abilities beyond the floor. We believe that
our Dust Wolf is ideally suited to become a leader among new and
replacement vacuum accessories in both the industrial and domestic market
segments.

The
Tomorrow Garden Kit

Culinary and
exotic herbs in fresh, dried, frozen, powdered and canned forms are primarily
used in the retail and food services markets, where local products and imports
have traditionally met demand. We believe that our Tomorrow Garden
Kit is ideally suited to become a leader in the retail and food services
markets because of its ability to offer fresh herbs in market segments where
they may not otherwise be available without considerable expense.

MARKETING
AND ADVERTISING

We will
endeavor to create strong brands for each of our potential consumer product
lines and generally market our potential products through:


print
  advertising;
infomercials
  and home shopping television;
celebrity
  endorsements;
internet
  websites;
product
  sampling campaigns;
in-store
  promotions, displays and retailer assisted co-operative advertising;
publicity
  activities; and
trade shows.18

Presently, we
have engaged Sanders, Wingo, Galvin and Morton Advertising Inc., a marketing,
brand strategy and advertising firm, to develop sales books and marketing
materials for use in presentations to possible distributors and retailers for
each of our potential consumer retail products, and Packaging Corporation of
America, a manufacturer of containerboard and corrugated packaging products, to
develop packaging materials for use in shipping our potential products to
consumers. We have also secured toll-free phone numbers for use in sales and
customer service, obtained a U.P.C. company prefix from GS-1, allowing us to
assign and print U.P.C. numbers for each of our potential products, and have
established a merchant account with our financial institution so that we may
accept and process customer credit card transactions.

Going forward,
we intend to adhere to comprehensive sales and marketing plans tailored to each
of our potential product lines and to use a number of venues to create product
awareness and knowledge, including:

Direct-Response
/ Online Marketing

According to
the Direct Marketing Associations DMA
Statistical Fact Book 2005, the United States electronic
direct-response industry, including direct orders, lead generation and traffic
generation for television, radio and internet, reached approximately USD$323
billion in 2005, of this direct-response television accounted for approximately
USD$182 billion and the internet approximately USD$70 billion. According to the
Electronic Retailing Association, more than one-quarter of Americans have
reportedly purchased products advertised via infomercials.

Initially, we
intend to launch direct-response marketing programs tailored to each of our
potential consumer retail product lines, focusing on infomercials that use
celebrity and/or professional endorsements, home shopping channels, our own
website www.valcent.net, and websites we intend to develop specifically for
each or our potential product lines, as well as distribution through other
internet retailers. More specifically, we have taken, or intend to take, the
following steps to facilitate the direct-response and online marketing of each
of our potential consumer retail products:

Nova
Skin Care System

Presently, we
have entered into an agreement with Hawthorne Direct, Inc. for the production
of a thirty minute infomercial featuring our Nova Skin Care System, which we
anticipate to be on-air sometime in late November 2006. We are also in the beginning stages of
developing contacts with and introducing our Nova Skin Care System to several
cable television shopping networks in the United States. We hope to negotiate a
sales package with one such shopping network and to begin showcasing our Nova
Skin Care System thereon sometime within the next four to seven months.
Finally, we have engaged Stanton Street Technology Group, a web development and
design company, to launch a website dedicated exclusively to the promotion and
sale our Nova Skin Care System.

As of the date of this annual report we have invested approximately
USD$45,000 in preparing for the production of our infomercial, and anticipate
making additional investments of approximately USD$2,800,000 to cover the estimated
actual production costs and media buys through April 30, 2007.

Dust
Wolf

Our Dust Wolf is presently undergoing final engineering
reviews and revisions and in October 2006, once a final fully-functioning
production-level unit is ready, we plan to introduce the Dust Wolf
to the same cable television shopping networks that we are presently developing
contacts with which we can introduce our Nova Skin Care System to. We hope to
negotiate a sales package with one such shopping network and to begin
showcasing our Dust Wolf thereon sometime in early 2007. We have
also engaged Stanton Street Technology Group, a web development and design
company, to launch a website dedicated exclusively to our Dust Wolf,
through which we will eventually conduct online sales.

19

Finally, we
are also planning to produce a brief one to two minute infomercial for our Dust
Wolf, which we hope to be on-air sometime in March 2007. Budgetary
projections for the infomercial are estimated at approximately USD$1,500,000 to
cover the estimated actual production costs and media buys through April 30,
2007.

Tomorrow
Garden

Our Tomorrow
Garden is presently in a very early conceptual, design and
development phase and once a final fully-functioning production-level unit is near completion
we will tailor a more comprehensive sales and marketing plan for our
Tomorrow Garden. Initially, however, we plan to launch a website
dedicated exclusively to the Tomorrow Garden and through which we will eventually conduct
online sales.

Retail
Sales

Following the
release of our infomercials and launch of our potential products on one or more
home shopping networks, we intend to begin aggressively promoting our potential
products through large consumer retail chains and high-end department stores,
as appropriate, and plan to reach smaller and mid-sized consumer retail chains
through marketing representatives.

We intend to
approach, develop
contacts with and introduce our Nova Skin Care System to retail buyers of
several high-end department stores chains during the period of October through December 2006. We
also intend to approach, develop
contacts with and introduce our Dust Wolf to several large consumer retail
chains for consideration in early 2007.
 In January 2006, we presented our Tomorrow Garden, though
presently still in a very early conceptual, design and development phase, to a
potential customer in London, England, and once a final fully-functioning production-level unit is ready, we intend
to approach, develop contacts
with and introduce our Tomorrow Garden to several large
consumer retail chains featuring garden centers.

To further
promote our potential products and potentially expand distribution, we also intend
to exhibit each of our potential product lines at large regional and
international trade shows both in the United States and abroad. For example, we
recently attended, though did not present at, the 2006 International Esthetics,
Cosmetics & Spa Conference, in Las Vegas, Nevada, an internationally
attended professional tradeshow exhibiting products and services sold or
distributed exclusively to spas and salons, enabling us to review industry
developments, competitors products and to connect with potential vendors for
our own Nova Skin Care System.

MANUFACTURING,
FULFILLMENT AND SUPPLIERS

We are
presently a development stage company with our Nova Skin Care System in its production ramp-up phase,
pre-production initial prototypes of our Dust Wolf, and our
Tomorrow Garden in the early
conceptual, design and development phase. Once finalized each of our
potential product lines will be manufactured, assembled and packaged by Solid Integrations, LLC, located in the city
of Ciudad Juarez, Chihuahua, Mexico, from where they will be shipped to
our product development, warehouse and distribution center in El Paso, Texas.

We entered
into a manufacturing agreement with Solid Integrations, LLC, for the
manufacture and assembly of our Nova Skin Care System. Under this agreement we
will provide and make available to Solid Integrations, LLC, and its
subcontractor(s), the raw materials, machinery, equipment, tooling and molds
necessary for Solid Integrations, LLC, and its subcontractor(s), to manufacture
and assemble the Nova Skin Care System at a manufacturing facility located in
Mexico. Previously, we had engaged Maroon Product Development of Phoenix
Arizona for engineering and design support, whose work has since been
completed.

As of the date
of this annual report, we have no long-term written agreements and no intentions
of entering into any such agreements with any suppliers or manufactures, other
than Solid
Integrations, LLC, and we

20

are not
substantially dependent, nor do we anticipate becoming substantially dependent,
upon any one or more suppliers, including Solid Integrations, as we believe that
there are many such suppliers available with the capabilities that we will
require.

REGULATIONS

Except as
described below, We are not currently subject to direct regulation by any
foreign or domestic government agency, other than regulations applicable to
businesses generally.

Food and Drug Administration

Because the Nova Skin Care System is not intended to treat or cure any ailment we do not
believe that it is a medical device as defined by section 201(h) of the United States Federal Food, Drug and Cosmetic
Act.
While we do
not believe that our Nova Skin Care System is a medical device as defined by section
201(h) of the United States Federal Food, Drug and Cosmetic Act, it may
nevertheless be classified as such and subject to regulation by the Food and
Drug Administration or other federal, state and local authorities. These
regulations relate to the manufacture, labeling, sale, promotion, distribution,
import, export and shipping of products that are deemed medical devices. In the
United States, before a new medical device may be marketed, the manufacturer
must first receive, unless there exists an applicable exemption, either
clearance under section 510(k) of the Federal Food, Drug and Cosmetic Act or
pre-market approval from the Food and Drug Administration. The Food and Drug
Administrations 510(k) clearance process usually takes anywhere from three to
twelve months, or longer, while the process of obtaining pre-market approval is
much more costly and uncertain and generally takes from one to three years, or
longer. To obtain pre-market approval and, in some cases, a 510(k) clearance, a manufacturer must
conduct controlled clinical trials designed to test the safety and
effectiveness of the medical device. Conducting clinical trials generally
entails a long, expensive and uncertain process that is subject to delays and
failure at any stage. The data obtained from clinical trials may be inadequate
to support approval or clearance of a submission. In addition, the occurrence
of unexpected findings in connection with clinical trials may prevent or delay
obtaining Food and Drug Administration approval or clearance. If we conduct
clinical trials of the Nova Skin Care System, they may be delayed or halted, or
be inadequate to support approval or clearance, for numerous reasons,
including, among others:


the Food and
  Drug Administration, other regulatory authorities or an institutional review
  board placing a clinical trial on hold;
insufficient
  patient enrollment, higher than anticipated attrition, non-compliance with
  trial protocols or patient follow-up not occurring at expected rates;
institutional
  review boards and third party clinical investigators delaying or rejecting
  our trial protocol;
third party
  clinical investigators declining to participate in a trial or not performing
  a trial on our anticipated schedule or consistent with the clinical trial
  protocol, good clinical practices or other Food and Drug Administration
  requirements;
third party
  organizations not performing data collection and analysis in a timely or
  accurate manner;
regulatory
  inspections of our clinical trials or manufacturing facilities, among other
  things, requiring us to undertake corrective actions or suspend, terminate or
  invalidate our clinical trials;
changes in
  governmental regulations or administrative actions; and
the interim
  or final results of our clinical trials being inconclusive or unfavorable as
  to safety or effectiveness.Medical
devices may be marketed only for the indications for which they are approved or
cleared. The Food and Drug Administration may refuse requests for 510(k) clearance
or pre-market approval or, if

21

granted,
clearances may be revoked if safety or effectiveness problems arise. While we
do not believe that our Nova Skin Care System is a medical device, it may
nevertheless be classified as such.

COMPETITION

Competition in
each of the industries in which we intend to sell our potential consumer retail
products is based primarily upon:


brand name
  recognition;
availability
  of financial resources;
the quality
  of products;
reviews received
  for products from independent reviewers who publish in magazines, websites,
  newspapers and other industry publications;
availability
  of access to retail shelf space;
the price of
  each product; and
the number
  of products then available.We will rely,
for all of our potential product lines, on what we believe to be our superior
product quality, marketing and sales abilities, proprietary technology, product
development capabilities and our managements experience to compete within each
of our market segments. However, we may not be able to effectively compete in
these intensely competitive markets. Moreover, some of our competitors have
longer operating histories, larger customer bases and greater financial,
marketing, service, support, technical and other resources, affording them the
ability to undertake more extensive marketing campaigns and adopt more
aggressive pricing policies, than we can. Furthermore, we believe that
competition from new entrants will increase as the markets for each of our
potential products expand.

The
Nova Skin Care System

In relation to
our Nova Skin Care System, we will face competition from other cosmetic and
personal hygiene retail manufacturers, all of whom generally sell through the same
combination of channels as we intend to, including retail, wholesale,
direct-response and online marketing sales.

There are
currently several cosmetic and personal hygiene retail manufacturers that
employ various technologies intended to assist in cleansing and exfoliating the
skin. The most common products utilize microdermabrasion, a procedure whereby
the skin is sandblasted with aluminum oxide crystals through a wand-like devise
that suctions itself to the skins surface. Other products make use of high-frequency
vibrations or electrical impulses to stimulate, massage and exfoliate the skin.

We currently
anticipate competing with the following companies and products, among others:


Neutrogena 
  Advanced Solutions At-Home Microdermabrasion System;
Homedics 
  Facial Cleansing & Microdermabrasion Set;
DermaNew 
  Microdermabrasion Total Body Experience;
H2O Plus 
  Skin Renewal Microdermabrasion Kit;
Visage
  Naturel  Home Microdermabrasion System;22


DermaPower 
  Home Microdermabrasion System;
Artemis
  Woman  The Healing Gems Microdermabrasion System;
Sharper
  Image  Microdermabrasion System for Professional Skin Rejuvenations;
Yuen Mai
  Industrial Co., Ltd.  Ultrasonic Massager;
Ultrasonic 
  Ultrasonic Face & Body Massager;
Wedian
  Technology Co. Ltd.  Ultrasonic Beauty Stimulator; and
Oxylight 
  Dermawand.The
Dust Wolf

In relation to
our Dust Wolf, we will face competition from other manufacturers
of cleaning accessories as well as competition from vacuum cleaner
manufactures, all of whom generally sell through the same combination of
channels as we intend to, including wholesale and retail markets, and direct
and online sales.

There are
currently several other manufacturers of cleaning supplies and accessories
offering products designed to clean uneven or textured surfaces. The most
common products are of two types, hand-held devices and vacuum attachments. The
hand-held devices include items such as feather dusters and shag cloths, while
the vacuum attachments typically feature brush-like accessories.

We currently
anticipate competing with the following companies and products, among others:


The Vermont
  Country Store  Diva Duster;
Home Focus®
   Mini-Blind Cleaner (2);
Unger 
  Natural Wool Duster;
Rubbermaid®
   Feather Duster;
Beam 
  Mini-Blind/Vertical Blind Attachment;
Wacky Vac 
  Wacky Vac Vacuum Attachment;
Jobar  Mini
  Blind Vacuum Attachment; and
FilterStream
   Ultra Vacuum Powered Duster.The
Tomorrow Garden Kit

In relation to
our Tomorrow Garden Kit, we will face competition from other
manufacturers and providers of dried, frozen, powdered and canned herbs, as
well as competition from local growers and distributors of fresh herbs, all of
whom generally sell through the same combination of channels as we intend to,
including wholesale and retail markets, and direct and online sales.

There are
several other manufacturers and providers of culinary and exotic herbs, the
most common products being prepackaged, dried, frozen or canned herbs or
do-it-yourself kits. We currently anticipate competing with the following
companies and products, among other local growers and distributors:

23


HerbKits.com
   Indoor Herb Gardening Kits; and
New England
  Herb Company.INTELLECTUAL
PROPERTY

Overview

We will rely
for our business on a combination of pending patents, trademarks and trade
secrets in order to protect our intellectual property. Our pending patents,
trademarks and trade secrets are among the most important assets we possess in
our ability to generate revenue and profits and we will depend significantly on
these intellectual property assets in being able to effectively compete in our
markets.

We cannot be
certain that the precautions we have taken to safeguard our pending patents,
trademarks and trade secrets will provide meaningful protection from
unauthorized use. If we must pursue litigation in the future to enforce or
otherwise protect our intellectual property rights, or to determine the
validity and scope of the proprietary rights of others, we may not prevail and
will likely have to make substantial expenditures and divert valuable resources
in the process. Moreover, we may not have adequate remedies if our intellectual
property is appropriated or our trade secrets are disclosed.

Patents
Pending

On July 29,
2005 we entered into a master license agreement with MK Enterprises LLC for
certain patent pending potential products and the expertise which will form the
basis of the patent pending potential products, from which we intend to derive
our revenue. In accordance with the terms of the agreement, and in exchange for
the exclusive worldwide license to manufacture, market and sell the covered
products, we agreed to (i) issue 20,000,000 shares of our common stock to MK
Enterprises, (ii) pay a one-time USD$125,000 license fee to MK Enterprises,
(iii) reimburse MK Enterprises for USD$125,000 in product development costs
incurred since March 17, 2005, and (iv) make certain ongoing royalty and
consulting fee payments to MK Enterprises.

While the
pending patent applications covering the technology and expertise licensed
under the MK Master License may not be granted at all, in the event that
patents are issued to, the title, rights and interests associated with any such
patents shall remain the exclusive property of MK Enterprises consultant, and
our Chief Executive Officer, acting President, Chairman and a member of our
board of directors, Malcolm Glen Kertz.

As of the date
of this annual report, we have received case and/or application numbers for each
of the intellectual property assets for which we are seeking patents. With
respect to our Nova Skin Care System our patent application has been published,
all of our other remaining patent applications are in the preliminary stages of
the application process and remain pending.

We are in the preliminary
stages of developing technology for a High Density Vertical Bio-Reactor. The
objective of this technology is to produce a renewable source of bio-diesel by
utilizing the waste gas of carbon dioxide capable of growing micro-algae. Our
High Density Vertical Bio Reactor is configured in a manner intended to promote
the rapid growth of various forms of micro-algae which is later processed to
remove volatile oils suitable for the production of bio-diesel. The design of
our technology allows the reactors to be stacked on a smaller foot print of
land than traditional growing methods require. We believe the potential markets
for this technology include industrial, commercial and manufacturing businesses
that produce carbon dioxide emissions. We hope to launch this technology by
December 2007, however, this date may be delayed for several reasons, including
but not limited to, delays in the successful or economically viable development
of the technology and delays in obtaining applicable regulatory approval of the
technology.

24

Trademarks

We have
applied for registration of our trademarks in the United States in order to
establish and protect our brand names as part of our intellectual property
assets. We have applied for registration of Dust Wolf, Tomorrow Garden,
Valcent Nova, the Nova logo as well as various designs associated with our
prospective Nova Skin Care product line. As of the date of this annual report, we
have received case and/or application numbers for each of the intellectual
property assets for which we are seeking registration. With respect to our Dust
Wolf application, the mark has been published and we are presently
awaiting receipt of a notice of allowance, all of our other remaining
registrations are in the preliminary stages of the application process and
remain pending.

Trade
Secrets

Whenever we
deem it important for purposes of maintaining competitive advantages, we
require parties with whom we share, or who otherwise are likely to become privy
to, our trade secrets or other confidential information to execute and deliver
to us confidentiality and/or non-disclosure agreements. Among others, this
includes employees, consultants and other advisors, each of whom we require to
execute such an agreement upon commencement of their employment, consulting or
advisory relationships. These agreements generally provide that all
confidential information developed or made known to the individual by us during
the course of the individuals relationship with us is to be kept confidential
and not to be disclosed to third parties except under specific circumstances.

As of the date
of this annual report, we have executed a confidentiality and non-disclosure
agreement with MK Enterprises LLC and are in the process of drafting confidentiality
and/or non-disclosure agreements for our other key employees, consultants and
advisors.

EMPLOYEES

As of
September 13, 2006, we have retained seven full-time employees, no part-time
employee and six consultants. Our key full-time employees and consultants,
their geographic locations and primary responsibilities are as follows:

Full-Time
Employees

Eric Enciso,
our Chief Operating Officer, Valcent Manufacturing Ltd., is located in El Paso,
Texas, and is primarily responsible for the direction and management of our
operations and manufacturing, product development, and sales and marketing. He
is also responsible for overseeing our design, engineering, assembly and
distribution activities, as well as for developing and maintaining customs
relations. Mr. Enciso will act as our primary liaison with Solid Integrations,
LLC.

Stacy
Anderson, our Chief Financial Officer, Valcent USA Inc. and Valcent Products,
Inc., is located in El Paso, Texas, and is primarily responsible for the direction
and management of all of our United States accounting systems, including
payroll, accounts payable, accounts receivable and general accounting matters.
Going forward, she will also be responsible for all future SEC filings for the
parent company, corporate tax filings for our US subsidiaries and the
development and management of our accounting systems, including procurement and
inventory control systems.

Jack Potts,
our Director of Sales and Marketing, Valcent Manufacturing Ltd., is located in
El Paso, Texas, and is primarily responsible for formulating and overseeing
development and marketing strategies for each of our potential consumer retail
product lines. He is responsible for working with Hawthorne Direct in developing and producing
infomercials for each of our potential consumer retail product lines, and will
also be responsible for working with advertising agencies in facilitating our
entry and sustainability in the direct-response, online and consumer retail
marketing segments.

25

Forrest Ely,
our Director of Product Development, Valcent Manufacturing Ltd., is located in
El Paso, Texas, and is primarily responsible for new potential product
research, development and design, as well as potential product manufacturing
and procurement. He will also be involved in all aspects of the development and
launch of any of our new potential consumer retail products and lines.

Consultants

M. Glen Kertz,
our Chief Executive Officer acting President, Chairman and a member of our
board of directors, is located in El Paso, Texas, and is primarily responsible
for the direction and management of all of our research and development
activities, as well as oversight of all aspects of our operations and
manufacturing, potential product development and sales and marketing.

Perry A.
Martin, our Executive Vice President, Valcent Manufacturing Ltd., is located in
El Paso, Texas, and is primarily responsible for the direction and management
of our accounting, administration and human resources activities.

Gaye Davis,
our Vice President of Health & Beauty, Valcent Manufacturing Ltd., is
located in Houston, Texas, and is primarily responsible for researching and
gaining insight into the high-end retailer and consumer demographic and testing
and studying domestic and international competitors and major brands to assist
in the development and launch of our own potential line of health and beauty
products. Dr. Luis
Carlos Fierro is a research consultant, located in Chihuahua, Mexico, and, acting under the direction
of M. Glen Kertz, assists in conceptual, design and development work for
our Tomorrow Garden line of potential consumer retail products.

Solid
Integrations LLC, a design and manufacturing firm, located in the city of Ciudad Juarez,
Chihuahua, Mexico, has been retained as a general and engineering consultant,
and, acting under the direction of Eric Enciso, manages and will perform
all of the manufacturing-related activities for our three lines of potential
consumer retail products, as well as to, as needed, design prototypes and
production flow processes for current and future potential consumer retail
products.

So as to
maintain our competitive position, we may require consultants and other
advisors with whom we contract to execute, among other things, non-competition
agreements upon commencement of their consulting or advisory relationships.
These agreements typically provide that for a reasonable time following the
conclusion of the consulting or advisory relationship such individuals will not
engage directly or indirectly in our business or solicit our customers or
suppliers.

As of the date
of this annual report, we have executed a non-competition agreement with MK
Enterprises.

SEASONALITY

We may
experience slight seasonal fluctuations in the sale of our potential consumer
retail products if consumers elect to defer discretionary spending. However, we
believe that the overall effects of any seasonal variations in sales activity
will be insignificant.

ORGANIZATIONAL
STRUCTURE

The following
organizational chart sets forth our corporate structure and reflects historical
changes in our corporate name and the names of our various entities.

26

Former names:

Valcent Products Inc.

(an Alberta Corporation)

Nettron.com, Inc.; AdventurX.com; Ironclad

Systems Inc.; Bikestar Inc.; and 681673

Alberta Ltd.

100% (sold January 2001)

100% (sold January 2001)

100% (formed October 2005)

100% (discontinued March 2004)

Bikestar Rentals, Inc.

Former names:

Good Times

Roll Bicycle

Rentals, Inc.

Arizona

OutbackAdventures LLC

Valcent USA Inc.(a Nevada Corporation)

Nettron MediaGroup Inc.

100% (formed November 2005)

99% Limited Partner

(formed November 2005)

1.0% General Partner

ValcentManagement,LLC

(a Texas LimitedLiability Company)

ValcentManufacturing,Ltd.

(a Texas LimitedPartnership)




PROPERTY, PLANT AND
EQUIPMENT

Our principal
executive offices are located at 420  475 Howe Street, Vancouver, British
Columbia (Canada) V6C 2B3. Our telephone number is (604) 606-7979.

Through
Valcent Manufacturing, Ltd., we maintain additional leased office, product
development, warehouse and distribution center space in El Paso, Texas for
warehousing, distribution and certain potential product development activity,
including early stage conceptual, design and development work, as well as
development reviews and final approval of each of our potential products. We lease
this 6,000 square foot premises under a three year lease agreement with Sunland
Business Center Partners, L.P. Our monthly rent is $3,543 (USD$3,170)
for a term of three years and, as of March 31, 2006, there were twenty seven
(27) months remaining under the lease.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

The following
discussion and analysis should be read together with our audited financial
statements for the year ended March 31, 2006 and the notes to the financial
statements. Our audited financial statements have been prepared in accordance
with Canadian generally accepted accounting principles which, in accordance
with Note 2 to our March 31, 2006 audited financial statements, conform in all
material respects with those of United States generally accepted accounting
principles and with the requirements of the U.S. Securities and Exchange
Commission.

27

OPERATING LEGACY AND ACCUMULATED LOSSES

We are a
development-stage company focusing on the refinement and manufacture of a line
consumer of products.  From April 1,
2005 through the year ended March 31, 2006, we had no meaningful revenue
generating operations and were exclusively focused on completing (i) a series
of related definitive agreements with MK, under which we acquired the exclusive
worldwide marketing and distribution rights to three unrelated and proprietary
potential consumer retail products, (ii) on the development and anticipated
marketing of the potential consumer retail products acquired in the MK
Agreements, and (iii) on a series of related private offering transactions with
and among a syndicated group of institutional and other investors, pursuant to
which we raised USD$1,277,200.

At March 31,
2006, we had accumulated losses totaling $6,971,969 of which $3,237,370 was accumulated
prior operations and $3,734,599 accumulated from development stage
operations.  We had a working capital
deficit of $1,810,501 and had not yet commenced revenue producing operations.
Our independent auditors have made reference in their auditors report issued
in connection with the March 31, 2006 audited financial statements stating that
existing conditions raise substantial doubt as to our ability to continue as a
going concern. This doubt exists as a result of our accumulated significant
losses to March 31, 2006, and had the audit been conducted in accordance with
United States generally accepted auditing standards, such a modification would
have been included. Under applicable Canadian auditing standards, no such
corresponding or similar reference to going concern is permitted when events
and conditions leading to such a determination are adequately disclosed in the
financial statements.

On July 29,
2005, we entered into a series of related definitive agreements with MK
Enterprises LLC (MK), an entity controlled by Malcolm Glen Kertz, our current
Chief Executive Officer, acting President, Chairman and a member of our board
of directors, including:

(i)
  a master
  license agreement for a term continuing so long as royalty payments continue
  to be made as required, for the exclusive worldwide marketing and
  distribution rights to three unrelated and proprietary potential consumer
  retail products that had previously been developed (the MK Master License),
  certain of which are patent pending by MK, including the Nova Skin Care
  System, the Dust Wolf, and the Tomorrow Garden Kit
  (collectively, and together with any improvements thereon, the Initial
  Products) each of which are described in fuller detail elsewhere in this
  annual report. See BusinessPotential Products and BusinessIntellectual
  Property;(ii)
  the MK
  Master License also includes a license for a term continuing so long as
  royalty payments continue to be made as required, for the exclusive worldwide
  marketing and distribution rights to any ancillary products developed and
  sold for use by consumers in connection with the Initial Products (the Initial
  Ancillaries);(iii)
  a product
  development agreement pursuant to which we were granted a right for an
  initial period of five years to acquire a license for a term continuing so
  long as royalty payments continue to be made as required, for the exclusive
  worldwide marketing and distribution rights to any new products developed by
  MK (any such products, collectively, the Additional Products, and, the
  agreement itself, the MK Product Development Agreement);(iv)
  the MK
  Product Development Agreement also includes a license for a term continuing
  so long as royalty payments continue to be made as required, for the exclusive
  worldwide marketing and distribution rights to any ancillary products
  developed and sold for use by consumers in connection with the Additional
  Products (the Additional Ancillaries); and(v)
  a related
  services agreement pursuant to which MK shall provide consulting support in
  connection with the Initial Products, the Initial Ancillaries, the Additional
  Products and the Additional Ancillaries (the MK Consulting Agreement), in
  exchange for the following:28


  20,000,000
  shares of our common stock;
  a one-time
  USD$125,000 license fee;
  reimbursement
  for USD$125,000 in development costs associated with each of the Initial
  Products since March 17, 2005;
  consulting
  fees of USD$156,000 per year, payable monthly in advance; and
  the greater
  of the following, payable annually beginning in the second license year:(i)
  USD$400,000;
  or(ii)
  the
  aggregate of the following:
  subject to a
  minimum amount of USD$37,500 per Initial Product during the second year of
  the MK Master License, and USD$50,000 each year thereafter, continuing
  royalties payable quarterly at a rate of::  USD$10.00 per Nova Skin Care System unit
  sold;:  USD$2.00 per Dust Wolf unit
  sold;:  4.5% of annual net sales of the Tomorrow
  Garden Kit;and:  3% of annual net sales of Initial
  Ancillaries.
  a one-time
  USD$50,000 license fee for each Additional Product licensed (except for one
  pre-identified product); and
  subject to a
  minimum amount of USD$50,000 per year commencing with the second year of each
  corresponding license, continuing royalties of 4.5% of annual net sales and
  3% on annual net sales of any Additional Ancillaries.The MK
Agreements contain considerably more detail than the summary of key economic
and related provisions set forth above. This summary does not purport to be a
complete description of these agreements, and is qualified in is entirety by
reference to the MK Master License, the MK Product Development Agreement, and
the MK Consulting Agreement respectively, copies of which were filed with our
annual report for the fiscal year ended March 31, 2005 on Form 20-F and which
are incorporated herein by reference. Prospective investors in our common stock
are strongly encouraged to read these agreements in their entirety.

Revenues

For the fiscal
years ended March 31, 2006 and 2005, we had no revenues.

Operating Expenses

Investor
relations fees increased $19,037 for the fiscal year ended March 31, 2006, from
$0 for the fiscal year ended March 31, 2005. The increase is a result of
approximately $8,000 in fees for advisory investor relations services by Steve
McGuire, approximately $9,000 in fees to Nexus Relations Inc., an investment

29

relations
firm, and approximately $1,600 in fees to CCN Mathews, for financial and media
press release services.

Filing and
transfer agent expenses increased $15,650, from $10,600 for the fiscal year
ended March 31, 2005 to $26,250 for the fiscal year ended March 31, 2006. The
increase is primarily attributable to costs associated with our name change and
conducting our annual general meeting

Management
fees decreased $2,000, from $6,000 for the fiscal year ended March 31, 2005 to
$4,000 for the fiscal year ended March 31, 2006. The decrease is a result of
the termination of a contract for management services with one of our directors

Potential
product development expenses increased $685,432 for the fiscal year ended March
31, 2006, from $0 for the fiscal year ended March 31, 2005. The increase is due
to salaries paid to employees and consultants in connection with engineering
issues related to our potential consumer retail products acquired in the MK
Agreements.

Professional
fees increased $152,430, from $23,403 for the fiscal year ended March 31, 2005
to $175,833 for the fiscal year ended March 31, 2006. The increase is primarily
attributable to expenses associated with our having recently undergone a
significant restructuring and change in business direction, as well as costs
associated with the preparation of the MK Agreements, our financing activities,
meeting our SEC reporting obligations, corporate governance and other
compliance matters, and accounting, auditing, executive search and other
professional service fees.

Stock option
compensation expenses increased $533,664 for the fiscal year ended March 31,
2006, from $0 for the fiscal year ended March 31, 2005. The increase is the
result of the issuance of options to various directors, officers, employees and
consultants under our Canadian and U.S. Stock Option Plans.

Rent expenses
increased $50,771, from $6,000 for the fiscal year ended March 31, 2005 to
$56,771 for the fiscal year ended March 31, 2006. The increase is due to costs
incurred for our additional leased office, product development, warehouse and
distribution center space in El Paso, Texas.

Travel
expenses increased $69,600 for the fiscal year ended March 31, 2006, from $0
for the fiscal year ended March 31, 2005. The increase is a result of ramping
up of our operations and the opening of our leased office, product development,
warehouse and distribution center in El Paso, Texas.

Office and
miscellaneous expenses increased $37,206, from $919 for the fiscal year ended
March 31, 2005 to $38,125 for the fiscal year ended March 31, 2006. The
increase is due to costs incurred in relation to ramping up our operations and
outfitting our El Paso, Texas office. Expenses for fixed assets increased
$72,709 for the fiscal year ended March 31, 2006, from $0 for the fiscal year
ended March 31, 2005, and our depreciation and amortization charges increased
$9,382 for the fiscal year ended March 31, 2006, from $0 for the fiscal year
ended March 31, 2005, both also as a result of the outfitting of our El Paso,
Texas office.

Non-cash
financing expenses increased $1,328,337 for the fiscal year ended March 31,
2006, from $0 for the fiscal year ended March 31, 2005. This increase was due
to our issuance of convertible notes and warrants in a series of related
private offering transactions with and among a syndicated group of institutional
and other investors, pursuant to which we raised USD$1,277,200. Also in
conjunction with our issuance of the convertible notes, our issuance costs
increased $570,226 for the fiscal year ended March 31, 2006, including cash
commissions to various finders of USD$127,720, the issuance of 425,735 common
shares to various finders at a deemed cost of approximately $285,242 and
associated legal fees, from $0 for the fiscal year ended March 31, 2005, and
interest and penalty costs on the outstanding convertible notes increased
$193,987 for the fiscal year ended March 31, 2006, from $0 for the fiscal year
ended March 31, 2005.

We incurred a foreign exchange
loss of $23,955 for the fiscal year ended March 31, 2006 due to fluctuations in
the United States dollar in relation to the Canadian dollar, as compared to a
foreign exchange gain of $1,228 for the fiscal year ended March 31, 2005.

30

Net
Loss

Our reported
loss increased $3,688,905, from $45,694 ($0.007 basic loss per share) for the
fiscal year ended March 31, 2005 to $3,734,599 ($0.354 basic loss per share)
for the fiscal year ended March 31, 2006. The increase is primarily attributable
to the ramping up of our operations and opening of our leased office, product
development, warehouse and distribution center in El Paso, Texas, as well as
expenses associated with our having recently undergone a significant
restructuring and change in business direction, the preparation of the MK
Agreements, our financing activities, meeting our SEC reporting obligations,
corporate governance and other compliance matters, and accounting, auditing,
executive search and other professional service fees.

Liquidity
and Capital Resources

Because we are
organized in Canada, our March 31, 2006 financial statements have been prepared
in accordance with Canadian GAAP applicable to a going concern, which
contemplate the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business.

Our total
accumulated losses increased $3,734,599, from $3,237,370 for the fiscal year
ended March 31, 2005 to $6,971,969for
the fiscal year ended March 31, 2006. The increase is primarily due to costs
incurred in relation to our agreements with MK and ramping up our operations
for the development and anticipated marketing of the potential consumer retail
products acquired in the MK Agreements. Our working capital deficit increased
$1,572,551, from $237,950 for the fiscal year ended March 31, 2005 to
$1,810,501 for the fiscal year ended March 31, 2006. As described in Note 1 to
our March 31, 2006 financial statements, these conditions raise substantial
doubt as to our ability to continue as a going concern. While our financial
statements do not include any adjustment that might arise from such
uncertainty, had an audit been conducted in accordance with United States
generally accepted auditing standards, the auditors would have been required to
reflect these concerns in their audit report and would have included an
explanatory paragraph in such report raising concern regarding our ability to
continue as a going concern.

We did not
raise any net cash proceeds from the sale and issuance of common stock during
either of the fiscal years ended March 31, 2006 or 2005. Net cash proceeds from
the issuance of convertible debentures increased $1,565,069 for the fiscal year
ended March 31, 2006, from $0 for the fiscal year ended March 31, 2005. Our
financing activities generated an increase of $11,197 in cash from $1,354 for
the fiscal year ended March 31, 2005 to $12,551 for the fiscal year ended March
31, 2006. Expenditures for fixed assets increased $72,709 for the fiscal year
ended March 31, 2006, from $0 for the fiscal year ended March 31, 2005 as a
result of the outfitting of our El Paso, Texas office.

Our
outstanding balance on loans from directors and other related parties decreased
$84,076, from $153,349 for the fiscal year ended March 31, 2005 to $69,273 for
the fiscal year ended March 31, 2006, Also included in our accounts payable for
the fiscal year ended March 31, 2006, is $98,850 in advances from a related
party.

For the fiscal
year ended March 31, 2006 to finance our obligations under the MK Agreements,
and to provide working capital to pursue our business plan, during the period
of July 25, 2005 through August 5, 2005, we consummated a series of related
private offering transactions (the July/August 2005 Subscription Agreements)
with and among a syndicated group of institutional and other investors pursuant
to which we issued, in the aggregate, USD$1,277,200 in 8% per annum convertible
notes and three-year warrants to acquire (i) up to 1,702,924 shares of common
stock at prices per share of between USD$0.40 and USD$0.50, and (ii) up to an
additional 1,702,924 shares of common stock at prices per share of between
USD$0.90 and USD$1.00. Subject to certain limitations on amount, the principal
amount of the notes, together with any accrued interest may be converted into
shares of our common stock at the lesser of (i) 70% of the average of the five
lowest closing bid prices for the common stock for the ten trading days prior
to conversion, or (ii) USD$0.55. The convertible notes carry a redemption feature
which allows us to retire them, in whole or in part, for an amount equal to
130% of that portion of the face amount being redeemed, but only in the event
that our common shares have a closing price of USD$1.50 per share for at least
twenty

31

consecutive
trading days and there has otherwise been no default. The common stock purchase
warrants carry a net cashless exercise feature allowing the holder thereof,
under certain limited circumstances, to exercise the warrants without payment
of the stated exercise price, but rather solely in exchange for the
cancellation of that number of common shares into which such warrants are
exercisable.

In connection
with the financing described above, compensation in the form of finders fees
was paid which consisted in the aggregate of the following:


USD$127,720
  in cash, representing 10% of the gross proceeds realized;
425,735
  shares of our common stock;
three-year
  warrants to purchase up to 255,440 shares of our common stock at a price of
  USD$0.50; and
three-year
  warrants to purchase up to 425,733 shares of our common stock at a price of
  USD$0.75.As part of
this series of related private offering transactions we also granted certain
registration rights to each of the investors pursuant to which we became committed
to registering all of the shares issued as part of such transaction, including
those issuable upon conversion of the notes and exercise of the warrants, by
filing a registration statement on Form F-1 covering such shares within sixty
days of the closing date and causing such registration statement to be declared
effective by the SEC by January 25, 2006. In accordance with the terms of the
registration provisions any delays in meeting our obligations subjected us to
liability in an amount, payable in cash, at a rate of 2% of the outstanding
amount on the convertible notes per thirty day period for the duration of any
such delay.

As a
consequence, among other reasons, of ongoing delays resulting from having
recently undergone a significant restructuring and change in business
direction, and the unavailability of certain information necessary for
preparing our filing we experienced delays in meeting our registration
obligation under the terms of the series of related private offering
transactions and as of the fiscal year ended March 31, 2006, we had accrued
$143,874 in registration penalties.

SUBSEQUENT
EVENTS

On April 6,
2006, we consummated a follow-on private offering transaction with and among a
syndicated group of institutional investors to retire certain short-term
obligations and existing liabilities and to provide additional general
corporate and working capital to pursue our business plan, pursuant to which we
issued, in the aggregate, USD$551,666 in 8% per annum convertible notes and
three-year warrants to acquire (i) up to 735,544 shares of our common stock at
a price per share of USD$0.40, and (ii) up to an additional 735,544 shares of
our common stock at a price per share of USD$0.90. Subject to certain
limitations, the principal amount of the notes, together with any accrued
interest may be converted into shares of our common stock at the lesser of (i)
70% of the average of the five lowest closing bid prices for our common stock
for the ten trading days prior to conversion, or (ii) USD$0.55. The convertible
notes carry a redemption feature which allows us to retire them, in whole or in
part, for an amount equal to 130% of that portion of the face amount being
redeemed, but only in the event that our common shares have a closing price of
USD$1.50 per share for at least twenty consecutive trading days and there has
otherwise been no default. The common stock purchase warrants carry a net
cashless exercise feature allowing the holder thereof, under certain limited
circumstances, to exercise the warrants without payment of the stated exercise
price, but rather solely in exchange for the cancellation of that number of
common shares into which such warrants are exercisable.

The agreements
involved in the April 6, 2006 follow-on private offering transaction consisted,
for each investor, of a subscription agreement, a convertible note, a Class A
common stock purchase warrant, and a

32

Class B common
stock purchase warrant (the April 2006 Subscription Agreements). All
individual transactions utilized the same forms of April 2006 Subscription
Agreements.

In connection
with the financing described above, compensation in the form of finders fees
was paid, which fees consisted in the aggregate of the following:


USD$55,166
  in cash, representing 10% of the gross proceeds realized;
183,886
  shares of our common stock;
three-year
  warrants to purchase up to 110,320 shares of our common stock at a price of
  USD$0.50; and
three-year
  warrants to purchase up to 183,867 shares of our common stock at a price of USD$0.75.As part of the
financing transaction, we also granted certain registration rights to each of
the investors and finders pursuant to which we became committed to registering
all of the shares issued as part of such transaction, including those issuable
upon conversion of the notes and exercise of the warrants, by filing a
registration statement on Form F-1 covering such shares within fourteen days of
the closing date, or by April 20, 2006,and causing such registration statement
to be declared effective by the SEC by June 5, 2006. In accordance with the
terms of the registration provisions any delays in meeting our obligations
subject us to liability in an amount, payable in cash, at a rate of 2% of the
outstanding amount on the convertible notes per thirty day period for the
duration of any such delay, and, furthermore, any delays in our filing of a
registration statement by April 20, 2006 subject us to liability in the form of
a reduction in the exercise price of the Class A and Class B warrants issued as
part of such transaction in an amount of USD$0.10 per week for the duration of
any such delay.

The April 2006
Subscription Agreements contain considerably more detail than the summary of
key economic and related provisions set forth above. This summary does not
purport to be a complete description of these agreements, and is qualified in
its entirety by reference to the actual form of subscription agreement,
convertible notes, Class A common stock purchase warrants and Class B common
stock purchase warrants, respectively, copies of which were filed with our
registration statement on Form F-1 on April 27, 2006 and which are incorporated
herein by reference. Prospective investors in our common stock are strongly
encouraged to read these agreements in their entirety.

Our
registration statement on Form F-1 was originally filed with the SEC on April
27, 2006, which delay resulted in a reduction in the exercise price of the
Class A and Class B warrants issued as part of April 6, 2006 transaction from
USD$0.50 and USD$1.00 to USD$0.40 and USD$0.90, respectively. Moreover, as of
the date of this annual report we are accruing penalties at a rate of 2% per
thirty day period for having failed to have our registration statement declared
effective by June 5, 2006. As of September 13, 2006 we have accrued up to
approximately USD$123,094 in penalties, exclusive of those penalties previously
converted into convertible penalty notes and warrants. These penalties are
convertible into 447,614 convertible penalty notes and warrants. Our management
is hopeful that we will cause such registration statement to be declared
effective in the near future, however, the penalties which we have accumulated
to date, and any penalties which we may accumulate for future delays, will
negatively affect our business, our financial condition and our results of
operations, including a corresponding reduction in our net income and the
likelihood of a net loss for the year.

On May 31,
2006, the Company issued 786,700 shares pursuant to the license agreement. As
of June 30, 2006, 7,601,325 common shares remained to be issued pursuant to the
license agreement and are reflected in share subscriptions.

On May 15,
2006, the Company completed a private placement of units whereby it issued a
total of 1,104,165 units at USD $0.60 per unit whereby each unit consisted of
one common share and one share purchase warrant to purchase an additional
common share at USD $0.80. Of the warrants issued, 833,332

33

expire on May
15, 2008 and 270,833 on June 7, 2008. The Company also paid consultants fees
consisting of $58,860 plus 66,666 warrants to purchase that number of common
shares at $0.80 (USD) until May 15, 2008 and 21,666 warrants to purchase that
number of common shares at USD $0.80 until June 7, 2008.

Pursuant to an
Investor Relations Consulting Agreement with a third party for services
provided to Valcent, SmallCap will receive a total of 120,000 shares of common
stock at USD$ 0.41 per share.

On August 18,
2006, the Company completed a private placement of units whereby it issued a
total of 430,000 units at USD $0.60 per unit for a total of $258,000 (USD)
whereby each unit consisted of one common share and one share purchase warrant
to purchase an additional common share at USD $0.80 (USD). The warrants issued
will expire on August 18, 2008. The Company paid consultants fees consisting of
$58,860 plus 24,800 warrants to purchase that number of common shares at USD
$0.80 until August 18, 2008.

We entered
into a manufacturing agreement with Solid Integrations, LLC, for the
manufacture and assembly of our Nova Skin Care System. Under this agreement we
will provide and make available to Solid Integrations, LLC, and its
subcontractor(s), the raw materials, machinery, equipment, tooling and molds
necessary for Solid Integrations, LLC, and its subcontractor(s), to manufacture
and assemble the Nova Skin Care System at a manufacturing facility located in
Mexico.

Fluctuations
in Operating Results

Our annual
operating results are likely to fluctuate significantly in the future as a
result of numerous factors, including, among others:


The availability of adequate financing;
Our ability
  to develop an organizational infrastructure and effective management systems;
The success
  of our advertising and marketing plans;
Market
  acceptance and general consumer demand for our products;
The
  performance of our products;
Our ability
  to effectively distribute our products;
The
  introduction of products that compete with our own;
The adoption
  of new disclosure and/or corporate governance requirements associated with
  the maintenance of our status as a publicly reporting issuer;
Potential
  lawsuits involving our products or other matters; and
General
  business and economic conditions;Impact of Inflation

We do not
believe that inflation has had a material effect on our business.

34

OFF-BALANCE SHEET ARRANGEMENTS

We do not have
any off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that are material to investors.

CONTRACTUAL OBLIGATIONS

As of March
31, 2006, we had the following known contractual obligations:

Payments Due By PeriodContractual Obligations (CND$)

Total

Less Than
  1 Year

1-3 
  Years

3-5 
  Years

More Than 
  5 YearsDebt Obligations(1)

$
1,913,601

$
1,913,601Other Contractual Obligations
(2)


168,124


168,124Operating Lease Obligations
(3)


95,661


42,516


53,145Total

$
1,972,728

$
1,919,583

$
53,145

$
0

$
0(1)
This
  obligation relates to the aggregate principal amount of USD$1,277,200 due
  under the terms of certain promissory notes issued in a series of a private
  offering transactions between July 25, 2005 and August 8, 2005, together with
  accrued interest and accrued penalties of USD$41,222 and USD $82,200
  (convertible into penalty notes and warrants) for late filing.(2)
This
  obligation relates to aggregate loan proceeds received from several of our
  directors and officers. These loans were undocumented and made without oral
  agreement as to interest rate payable, terms of repayment, security or any
  other matter.(3)
Consists of
  an operating lease for our office spaces in El Paso, Texas. The lease has
  twenty-seven (27) months remaining at a monthly rent of USD$3,170
  (CAD$3,543).ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES

DIRECTORS
AND SENIOR MANAGEMENT

The following
table sets forth our directors and executive officers and their ages as of the
date of this report. Unless otherwise stated, the address for each of our
directors and executive officers is c/o Valcent Products Inc., 420  475 Howe
Street, Vancouver, British Columbia (Canada) V6C 2B3.

Name

Age

PositionM. Glen
  Kertz (1)

53

Chief
  Executive Officer, acting President, Chairman of the Board and DirectorF. George
  Orr (2)(3)

44

Chief
  Financial Officer, Secretary and Director,Stacy
  Anderson

43

Chief Financial
  Officer, Valcent USA Inc.Eric T.
  Enciso

36

Chief
  Operating Officer, Valcent Manufacturing, Ltd.Perry Martin

55

Executive
  Vice President, Valcent Manufacturing, Ltd.Douglas E.
  Ford

42

DirectorCarlton
  Parfitt (2)

38

Director(1)
Appointed
  acting President, Chairman of the Board and a director by resolution of the
  board of directors, in35

accordance
  with Section 111 of the Business Corporations Act (Alberta), following the
  resignation of Douglas E. Ford as acting President and Secretary, on July 31,
  2005. Appointed Chief Executive Officer by resolution of the board of
  directors in accordance with Section 121 of the Business Corporations Act
  (Alberta), and Section 6 of our bylaws on November 30, 2005.(2)
Appointed
  director by resolution of the board of directors, in accordance with Section
  111 of the Business Corporations Act (Alberta), following the resignation of
  Larry F. Robb and Malcolm E. Rogers Jr., on July 23, 2005.(3)
Appointed
  Secretary by resolution of the board of directors, in accordance with Section
  111 of the Business Corporations Act (Alberta), following the resignation of
  Douglas E. Ford as acting President and Secretary, on July 31, 2005.
  Appointed Chief Financial Officer by resolution of the board of directors in
  accordance with Section 121 of the Business Corporations Act (Alberta), and
  Section 6 of our bylaws on November 30, 2005.M.
Glen Kertz  Chief Executive Officer, acting President, Chairman of the Board
and Director

M. Glen Kertz
founded, in October 1985, Gruppe Inc., a privately held tissue culture
laboratory and growing operation, which he owned until January 1987. From
October 1987 to May 1991, Mr. Kertz was the President of AgriStar, a publicly
traded company that produced a gas permeable membrane for cell culture
laboratories, and, from June 1999 to July 2004, Pagic, Inc., a consulting
business management and development company. In addition, from June 1999 to
July 2004, Mr. Kertz served as the President and a director of Nettron.com,
Inc., predecessor to Valcent Products Inc., in July of 2005 he was appointed
acting President, Chairman of the Board and a director, and, in November of
2005, he was appointed Chief Executive Officer of Valcent Products Inc.

F.
George Orr, C.A.  Chief Financial Officer, Secretary and Director

F. George Orr
is a self-employed Chartered Accountant with over fifteen years of accounting
and consulting experience in private and public company administration,
governance, audit procedures and reporting requirements. In July of 2005, he
was appointed Secretary and a director, and, in November of 2005, he was
appointed Chief Financial Officer of Valcent Products Inc. Mr. Orr holds a
Bachelor of Commerce from St. Marys University, Halifax.

Stacy
Anderson  Chief Financial Officer, Valcent USA Inc.

Stacy Anderson
joined Valcent USA Inc. in April 2006, as our Chief Financial Officer. Ms.
Anderson began her career with Watson Foodservice, Inc., a general line grocery
merchant wholesaler, where she served as an Assistant Controller from 1989 to
1991. From 1991 to 1993 she served as a Senior Accountant with Kraft
Foodservices, Inc., a division of Kraft Foods North America, Inc., a branded
food and beverage company, from 1993 to 1994 as a Staff Accountant with KPMG,
LLP, an international audit and tax advisory firm and from 1994 to 1996 as a
Financial Accounting Manager with Farah, Inc., a designer, manufacturer and
distributor of apparel lines for men. From 1996 to 1997 Ms. Anderson performed
independent consulting work for a variety of local Texas certified public
accounting firms, after which she joined the Plainview Independent School
District, in Plainview, Texas, as an internal auditor from 1997 to 2000. From
2000 to 2004, Ms. Anderson served as a General Accounting Manager with Helen of
Troy, a personal and hair care products company. From 2004 to 2006, Ms.
Anderson served as an Audit Supervisor with Lauterbach, Borschow & Company,
P.C., a certified public accountant and tax services firm, and acted as an
independent certified public accountant. Ms. Anderson holds a Bachelor of
Business Administration in Finance and Accounting from Texas Tech University
and is a Certified Public Accountant in the State of New Mexico.

36

Eric
T. Enciso  Chief Operating Officer, Valcent Manufacturing, Ltd.

Eric T. Enciso
joined Valcent Manufacturing, Ltd. in November 2005 as our Chief Operating
Officer. He began his career as a Brokerage Manager with W.F. Joffroy Inc., a
customs brokerage company, from April 1988 to September 1992, he served as a
Branch Manager with Emery Customs Brokerage, a customs broker and freight
forwarder, from September 1992 to February 1993 and from February 1993 to
November 1996, Mr. Enciso served as a Compliance Manager with Casas International,
a customs brokerage company. From November 1996 to November 2005, Mr. Enciso
served as a Vice President and Branch Manager with Norman Krieger Inc, a
customs brokerage and freight forwarder. Mr. Enciso received his Customs
Brokerage License in 1993.

Perry
Martin  Executive Vice President, Valcent Manufacturing, Ltd.

Perry Martin
joined Valcent Manufacturing, Ltd. in July 2005 as our Executive Vice
President. Previously, Mr. Martin served as an officer in the United States
Navy from 1972 until 1975, after which he joined Liberty Mutual Insurance
Company, a full line business insurance and financial services company, as a
Loss Prevention Representative. In 1977, Mr. Martin left Liberty Mutual and
assumed the role of Manager of Safety and Environmental Programs for Dresser
Industries, a multinational corporation providing technology, products and
services for use in developing energy and natural resources. In 1987 Mr. Martin
became one of the founding partner of AgriStar, a publicly traded company that
provided patented technology to the plant cell culture market. Upon leaving
AgriStar in 1989, Mr. Martin worked as an independent business consultant until
1992, when he accepted the position of Risk Manager for the City of Port
Arthur, Texas and, from 2001 until 2005, Mr. Martin was a partner in Pagic,
Inc., a business management and development consulting company. Mr. Martin
holds a Bachelor of Science in Industrial Engineering from Louisiana State
University.

Douglas
E. Ford  Director

Douglas E. Ford
has acted as General Manager of Dockside Capital Group Inc., a private merchant
banking and venture capital firm specializing in providing services to, and
arranging funding for, emerging growth companies, since 1987. From October 1998
through September 2000, Mr. Ford served as Vice-President, Operations of
Bugaboos Eyewear Corporation, a distributor of sport-specific eyewear in North
America. He joined Valcent Products Inc., as our Secretary and a Director, in
October 1996. Mr. Ford has also served on the board of directors of
International Gemini Technology Inc., a Canadian shell company, from September
1992 to the present, and Rockgate Capital Corp., a Canadian capital pool
company, from January 2005 to present. Mr. Ford holds a Bachelor of Arts, in political
science, from the University of British Columbia.

Carlton
Parfitt  Director

Mr. Parfitt
founded Elgrande.com, an e-commerce company offering retailers and consumers
direct access to manufactures and distributors, in April 1998, and has served
as Vice President of Marketing and a director from April 1998 to October 2000.
Mr. Parfitt is presently, and has been since August 1998, President of Third Wave Consulting Inc.,
a private company specializing in digital media marketing, project management,
public relations and corporate communications. Mr. Parfitt also serves
on the board of directors and as Secretary of Golden Spirit Gaming Ltd., a
company focusing on mineral exploration and development, from November 2004 to
the present, and as the President and a director of Avalon Resources Inc. a
company focusing on the acquisition and development on mineral properties and
oil and gas interests, from November 2004 to the present. Mr. Parfitt received
a Bachelors of Science in physics from Simon Fraser University, in 1991.

COMPENSATION

The following table sets forth the total compensation paid to each of
our directors and executive officers serving during the fiscal year ended March
31, 2006.

37

Annual Compensation
Long Term CompensationName and
  Principal Position
Year
  Ended
  March 31, 2006
Salary
Bonus/Fees
Awards
  Restricted
  Stock
  Awards
Securities
  Underlying
  Options/SARs (#)M. Glen
  Kertz
  President and Director


Douglas E.
  Ford (1)
  acting President, Secretary and
  Director


4,000
300,000
300,000Carlton
  Parfitt
  Director



100,000
200,000Edward D.
  Ford (1)(2)
  Director




Gary E. Read
  (2)
  Director




Larry F.
  Robb (3)
  Director




Malcolm E.
  Rogers Jr.
  Director (2)




F. George
  Orr (4)


19,500

Eric Enciso,
  Chief Operating
  Officer (5)
-
39,233

-250,000-
---250,000(1)
During the
  year ended March 31, 2006 and 2005, Dockside Capital Group Inc., a private
  company of which Edward D. Ford and Douglas E. Ford are directors and
  officers, was paid a total of $4,000 and $6,000 in management and consulting
  fees. No formal agreements are in place for the provision of these services.
  Under our 2004 U.S. Stock Option Plan, Mr. Ford was granted, and which are
  now fully vested, 300,000 stock options.(2)
Resigned,
  effective July 23, 2005.(3)
Resigned,
  effective July 27, 2005.(4)
Mr. F.
  George Orr was appointed Secretary and a director of the Board, and, in
  November of 2005, he was appointed Chief Financial Officer of Valcent
  Products Inc. He performs these duties as an independent consultant.38

(5)
Employed for
  a partial year during the year ending March 31, 2006. Per employment
  agreement, employee received 250,000 stock options which consist of: (i) a
  fully vested option to purchase 50,000 shares of our common stock, expiring
  March 10, 2009; (ii) an option to purchase 25,000 shares of our common stock
  vesting January 10, 2007 and expiring January 10, 2010; (iii) an option to
  purchase 75,000 shares of our common stock vesting May 10, 2007 and expiring
  May 10, 2010; and (iv) an option to purchase 100,000 shares of our common
  stock vesting upon our attainment of positive cash flow and expiring three
  years from the date thereof.BOARD
PRACTICES

In accordance
with Section 106(3) of the Business Corporations Act (Alberta), each of our
directors holds office for a term of one year, unless otherwise removed or
resigns, with such term expiring at the succeeding annual shareholders
meeting. Officers are appointed by, and serve at the discretion of, our board
of directors.

We currently
have no arrangements in place for the provision of benefits upon the
termination of our directors or officers.

Board of Director
Committees

We have one
standing committee, the audit committee, comprised of members of our board of
directors. Our audit committee was formed in 1996 and in March 2005 adopted a
formal written charter. The current members of our audit committee include
Douglas E. Ford, Carlton J. Parfitt and F. George Orr, and we presently have,
and will continue to have, one member, F. George Orr, who is a financial
expert (as defined in accordance with Item
16A(b) of Form 20-F). Our audit committee meets with our external
auditors annually, prior to completion of our audited financial statements, and
with our management regularly throughout the fiscal year.

We have no
formal compensation committee.

EMPLOYEES

For the fiscal
year ended March 31, 2006, we had 6 salaried employees. As of September 13,
2006, we have retained seven full-time employees, no part-time employees and six
consultants.

Our key
full-time employees and consultants, their geographic locations and primary
responsibilities are as follows:

Full-Time
Employees

Eric Enciso,
our Chief Operating Officer, Valcent Manufacturing Ltd., is located in El Paso,
Texas, and is primarily responsible for the direction and management of our
operations and manufacturing, product development, and sales and marketing. He
is also responsible for overseeing our design, engineering, assembly and
distribution activities, as well as for developing and maintaining customs
relations. Mr. Enciso will act as our primary liaison with Solid Integrations,
LLC.

Stacy
Anderson, our Chief Financial Officer, Valcent USA Inc. and Valcent Products,
Inc., is located in El Paso, Texas, and is primarily responsible for the
direction and management of all of our United States accounting systems,
including payroll, accounts payable, accounts receivable and general accounting
matters. Going forward, she will also be responsible for all future SEC filings
for the parent company, corporate tax filings for our US subsidiaries and the
development and management of our accounting systems, including procurement and
inventory control systems.

Jack Potts,
our Director of Sales and Marketing, Valcent Manufacturing Ltd., is located in
El Paso, Texas, and is primarily responsible for formulating and overseeing
development and marketing strategies for each of our potential consumer retail
product lines. He is responsible for working with Hawthorne Direct in developing and producing
infomercials for each of our potential consumer retail product lines, and will
also

39

be responsible for working with advertising agencies in facilitating
our entry and sustainability in the direct-response, online and consumer retail
marketing segments.

Forrest Ely,
our Director of Product Development, Valcent Manufacturing Ltd., is located in
El Paso, Texas, and is primarily responsible for new potential product
research, development and design, as well as potential product manufacturing
and procurement. He will also be involved in all aspects of the development and
launch of any of our new potential consumer retail products and lines.

Consultants

M. Glen Kertz,
our Chief Executive Officer acting President, Chairman and a member of our
board of directors, is located in El Paso, Texas, and is primarily responsible
for the direction and management of all of our research and development
activities, as well as oversight of all aspects of our operations and manufacturing,
potential product development and sales and marketing.

Perry A.
Martin, our Executive Vice President, Valcent Manufacturing Ltd., is located in
El Paso, Texas, and is primarily responsible for the direction and management
of our accounting, administration and human resources activities.

Gaye Davis,
our Vice President of Health & Beauty, Valcent Manufacturing Ltd., is
located in Houston, Texas, and is primarily responsible for researching and
gaining insight into the high-end retailer and consumer demographic and testing
and studying domestic and international competitors and major brands to assist
in the development and launch of our own potential line of health and beauty
products.

Dr. Luis
Carlos Fierro is a research consultant, located in Chihuahua, Mexico, and, acting under the
direction of M. Glen Kertz, assists in conceptual, design and
development work for our Tomorrow Garden line of potential
consumer retail products.

Solid
Integrations LLC, a design and manufacturing firm, located in the city of Ciudad Juarez,
Chihuahua, Mexico, has been retained as a general and engineering consultant,
and, acting under the direction of Eric Enciso, manages and will perform
all of the manufacturing-related activities for our three lines of potential
consumer retail products, as well as to, as needed, design prototypes and
production flow processes for current and future potential consumer retail
products.

SHARE
OWNERSHIP

The following
table sets forth, as of September 13, 2006, information regarding the
share ownership of our common stock for each of our directors and executive officers serving during
the fiscal year ended March 31, 2006.

40

Name

Amount and
  Nature of Ownership

Percent of Class*M. Glen
  Kertz (1)

3,000,000

16.29
%Douglas E.
  Ford (2)

1,174,858

6.38
%F. George
  Orr (8)_

1,328,205

7.21
%Edward D.
  Ford (3)(4)

841,865

4.57
%Gary E. Read
  (4)

--

--
%Larry F.
  Robb (5)(6)

232,350

1.26
%Malcolm E.
  Rogers Jr. (4)(7)

34,775

**
%Carlton
  Parfitt (9)

100,000

**
%Perry A.
  Martin

--

**
%Eric Enciso
  (10)

250,000

1.36
%All officers
  and directors
  as a group (10 persons)

6,183,848

26.63
%*
No director or executive
  officer has different voting rights from any other holder of our common
  stock.**
Beneficially owns less than
  one percent.(1)
Consists of 3,000,000
  shares of common stock beneficially owned through MK Enterprises LLC. Voting
  and/or investment power over all of these securities is held by M. Glen
  Kertz.(2)
Consists of 32,993 shares
  of common stock directly owned, 841,865 shares of common stock beneficially
  owned through Dockside Capital Group Inc. Voting and/or investment power over
  all of these securities is held by Douglas E. Ford and Edward D. Ford in
  equal portions, and 300,000 fully vested stock options with exercise price of
  USD$0.50 and an expiration date of 2/21/2011 under our 2004 U.S. Stock Option
  Plan.(3)
Consists of 841,865 shares
  of common stock beneficially owned through Dockside Capital Group Inc. Voting
  and/or investment power over all of these securities is held by Douglas E.
  Ford and Edward D. Ford in equal portions.(4)
Resigned, effective July 23,
  2005.(5)
Consists of 232,350 shares
  of common stock directly owned.(6)
Resigned, effective July
  27, 2005.(7)
Consists of 17,387 shares
  of common stock jointly owned with former spouse.(8)
Consists of 550,000
  unregistered shares of common stock directly owned and 778,205 unregistered
  shares of common stock beneficially owned through a spouse.(9)
Consists of 100,000 fully
  vested stock options with exercise price of USD$0.45 and an expiration date
  of 10/17/2007 under our 2004 U.S. Stock Option Plan.41

(10)
Consists of (i) a fully
  vested option to purchase 50,000 shares of our common stock at USD$0.60
  vesting May 10, 2006 and expiring May 10, 2009; (ii) an option, for three
  years following the date on which it vests, to purchase 100,000 shares of our
  common stock at USD$0.60 vesting on the earlier of November 10, 2006 or our
  attainment of positive cash flow; and (iii) an option to purchase 100,000
  shares of our common stock at USD$0.60 vesting May 10, 2007 and expiring May
  10, 2010 under our 2004 U.S. Stock Option Plan.We presently
have in effect two incentive stock option plans, our 2004 U.S. Stock Option
Plan and our Amended 1996 Incentive Stock Option Plan (collectively our Stock
Option Plans); both are designed to encourage our directors, executive
officers, consultants and other key employees to acquire a proprietary interest
in the company. Our Stock Option Plans are administered by the Board of
Directors, or a committee designated thereby, and reserve for issuance thereunder,
in the aggregate, a total of 10% of our issued and outstanding common shares,
on a non-diluted basis, to be increased or decreased as the number of our
issued and outstanding shares change. Our Stock Option Plans provide that the
terms of the options and the option prices shall be fixed by the Board or
committee and subject to the requirements of the exchange on which our common
shares are traded, or any other governing regulatory body, at the time of
exercise. Options granted shall expire after a period of five years or
terminate three months after the recipient ceases to be our employee.

The following
table sets forth information regarding stock options that have been granted and
are outstanding as of the date of this annual report.

Name

Title of shares

Number of
  Securities
  Underlying
  Options
  Granted

Exercise
  Price
  (USD)

Expiration
  DateCarlton
  Parfitt

Common Stock

100,000 (1)

$
0.45

10/17/2007Douglas E.
  Ford

Common Stock

300,000 (1)

$
0.50

02/21/2011Eric T.
  Enciso

Common Stock

250,000 (2)

$
0.60

(2)Jack Potts

Common Stock

250,000 (3)

$
0.60

(3)Edmund
  Forrest Ely

Common Stock

250,000 (4)

$
0.60

(4)Nexus
  Relations Inc.

Common Stock

100,000 (1)

$
0.50

10/17/2006Kristyn Rose

Common Stock

100,000 (1)

$
0.50

10/17/2006Sanders\Wingo
  Advertising Inc.

Common Stock

75,000 (5)

$
1.00

3/31/2010(1)
All options are fully
  vested.(2)
Consists of (i) a fully
  vested option to purchase 50,000 shares of our common stock vesting May 10,
  2006 and expiring May 10, 2009; (ii) an option, for three years following the
  date on which it vests, to purchase 100,000 shares of our common stock
  vesting on the earlier of November 10, 2006 or our attainment of positive
  cash flow; and (iii) an option to purchase 100,000 shares of our common stock
  vesting May 10, 2007 and expiring May 10, 2010.(3)
Consists of (i) a fully vested
  option to purchase 50,000 shares of our common stock, expiring March 10,
  2009; (ii) an option to purchase 25,000 shares of our common stock vesting
  January 10, 2007 and expiring January 10, 2010; (iii) an option to purchase
  75,000 shares of our common stock vesting May 10, 2007 and expiring May 10,
  2010; and (iv) an option to purchase 100,000 shares of our common stock
  vesting upon our attainment of positive cash flow and expiring three years
  from the date thereof.42

(4)
Consists of (i) a fully vested
  option to purchase 50,000 shares of our common stock, expiring March 10,
  2009; (ii) an option to purchase 25,000 shares of our common stock vesting
  January 10, 2007 and expiring January 10, 2010; (iii) an option to purchase
  75,000 shares of our common stock vesting May 10, 2007 and expiring May 10,
  2010; and (iv) an option to purchase 100,000 shares of our common stock
  vesting upon our attainment of positive cash flow and expiring three years
  from the date thereof.(5)
Consists of a fully vested
  option to purchase 75,000 shares of our common stock, expiring March 31,
  2010.ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS

MAJOR
SHAREHOLDERS

As of
September 29, 2006, there were 18,412,586 common shares issued and outstanding.
The table below sets forth certain information, to the extent known or
reasonably ascertainable, regarding our major shareholders, including
beneficial owners of more than 5% of our common stock, as of September 29,
2006.

Shares
  Beneficially OwnedMajor Shareholders
Number
PercentMK
  Enterprises LLC (1)
3,000,000
16.29
%West Peak
  Ventures of Canada Ltd. (2)
2,200,000
11.95
%Platinum
  Partners Macro Fund LP (3)(4)
1,916,306
10.41
%Alpha
  Capital Aktiengesellschaft (3)(6)
2,213,863
12.02
%Monarch
  Capital Fund Ltd. (3)(7)
2,092,829
11.37
%CMS Capital
  (3)(8)
1,106,930
6.01
%Platinum
  Long Term Growth III (3)(9)
1,259,515
6.84
%FindersViscount
  Investment, Ltd. (5)(10)
1,063,074
5.78
%Total
16,214,574
88.06
%(1)
Includes 3,000,000
  unregistered shares of common stock issued as of August 11, 2005, pursuant to
  the private offering exemption of Section 4(2) of the Securities Act and/or
  the private offering safe harbor provision of Rule 506 of Regulation D
  promulgated thereunder, in partial consideration of a license agreement for
  the exclusive worldwide marketing and distribution rights to three unrelated
  and proprietary potential consumer retail products. The value attributed to
  the issuance was $180,000, as based on the value of our common shares on the
  date of issuance. Voting and/or investment power over these common shares is
  held by M. Glen Kertz of MK Enterprises LLC.(2)
Includes 2,200,000
  unregistered shares of common stock directly owned. Voting and/or investment
  power over these common shares is held by Timothy Brock of West Peak Ventures
  of Canada Ltd.43

(3)
  Under the
  terms of the registration provisions, we are committed to registering and
  holding in reserve for the benefit of each convertible promissory note
  holders, a number of our common shares equal to 200% of those shares issuable
  upon conversion of the face amount each note. Further, each convertible
  promissory note carries interest at a rate of eight percent (8%) per annum.
  Together with the common shares issuable upon conversion of the face amount
  of the notes, and in accordance with the provisions of such notes, we are
  registering that number of additional common shares which may be issued upon
  conversion of any interest accrued through July 29, 2006, should we elect to
  pay any such interest in the form of registered, freely-trading common
  shares, at a value of USD$0.40 per common share, rather than in cash, which
  determination to do so is entirely at our option.(4)
  Includes the
  following:(i)
  454,545 unregistered shares of common stock underlying a convertible note, an
  unregistered common stock warrant to purchase up to 333,333 common shares at
  a price of USD$0.50 per share, and an unregistered common stock warrant to
  purchase up to 333,333 common shares at a price of USD$0.90 per share, each
  issued as of July 29 2005 pursuant to the private offering exemption of
  Section 4(2) of the Securities Act and/or the private offering safe harbor
  provision of Rule 506 of Regulation D promulgated thereunder, for
  consideration in the amount of USD$250,000, as part of a series of related
  private offering transactions with and among a syndicated group of
  institutional and other investors during the period of July 25, 2005 through
  August 5, 2005;(ii)
  54,545 unregistered shares of common stock underlying a convertible note, and
  an unregistered common stock warrant to purchase up to 40,000 common shares
  at a price of USD$0.75 per share, each issued as of April 6, 2006 pursuant to
  the private offering exemption of Section 4(2) of the Securities Act and/or
  the private offering safe harbor provision of Rule 506 of Regulation D
  promulgated thereunder, for consideration in the amount of USD$30,000, as
  part of an agreement to convert that amount of penalties accrued as a result
  of our having failed to file a registration statement on Form F-1 within
  sixty days of the closing of the July 25, 2005 through August 5, 2005 series
  of related private offering transactions into convertible penalty notes and
  warrants carrying terms similar to those notes and warrants issued in the
  original series of transactions; and(iii)
  96,430 unregistered common shares which may be issued at our option upon
  conversion of any interest accrued on the convertible notes through October
  31, 2006 and 95,030 unregistered common shares issued for late registration
  penalties.Voting
  and/or investment power over the common shares underlying the convertible
  notes and warrants is held by Harry Adler of Platinum Partners Macro Fund LP.(5)
  In
  accordance with the terms of the documentation pursuant to which this
  stockholder has acquired its securities, and unless waived, neither it nor
  any of its affiliates are permitted to convert or exercise any amount of such
  securities which, if the did, would cause such stockholder to beneficially
  own, in the aggregate, more than 4.99% of our total outstanding common shares
  at any give time.(6)
  Includes the
  following:(i)
  363,636 unregistered shares of common stock underlying a convertible note, an
  unregistered common stock warrant to purchase up to 266,666 common shares at
  a price of USD$.40 per share, and an unregistered common stock warrant to
  purchase up to 266,666 common shares at a price of USD$0.90 per share, each
  issued as of July 29, 2005 pursuant to the private offering exemption of
  Section 4(2) of the Securities Act and/or the private offering safe harbor
  provision of Rule 506 of Regulation D promulgated thereunder, for
  consideration in the amount of USD$200,000, as part of a series of related
  private offering transactions with and among a syndicated group of
  institutional and other investors during the period of July 25, 2005 through
  August 5, 2005;(ii)
  181,818 unregistered shares of common stock underlying a convertible note, an
  unregistered common stock warrant to purchase up to 133,333 common shares at
  a price of USD$.40 per share, and an unregistered common stock warrant to
  purchase up to 133,333 common shares at a price of USD$0.90 per share, each
  issued as of April 6, 2006 pursuant to the private offering exemption of
  Section 4(2) of the Securities Act and/or the private offering safe harbor
  provision of Rule 506 of Regulation D promulgated thereunder, for
  consideration in the amount of USD$100,000, as part of a private offering
  transactions with and among a syndicated group of institutional investors on
  April 6, 2006;(iii)
  43,636 unregistered shares of common stock underlying a convertible note, and
  an unregistered common stock warrant to purchase up to 32,000 common shares
  at a price of USD$0.75 per share, each issued as of April 6, 2006 pursuant to
  the private offering exemption of Section 4(2) of the Securities Act and/or
  the private offering safe harbor provision of Rule 506 of Regulation D
  promulgated thereunder, for consideration in the amount of USD$24,000, as
  part of an agreement to convert that amount of penalties accrued as a result
  of our having failed to file a registration statement on Form F-1 within
  sixty days of the closing of the July 25, 2005 through August 5, 2005 series
  of related private offering transactions into convertible penalty notes and
  warrants carrying terms similar to those notes and warrants issued in the
  original series of transactions; and44

(iv)
  93,721 unregistered common shares which may be issued at our option upon
  conversion of any interest accrued on the convertible notes through October
  31, 2006 and 109,964 unregistered common shares issued for late registration
  penalties.Voting
  and/or investment power over the common shares underlying the convertible
  notes and warrants is held in equal portions by Konrad Ackerman and Rainer
  Posch of Alpha Capital Aktiengesellschaft.(7)
  Includes the
  following:(i)
  227,273 unregistered shares of common stock underlying a convertible note, an
  unregistered common stock warrant to purchase up to 166,666 common shares at
  a price of USD$.40 per share, and an unregistered common stock warrant to
  purchase up to 166,666 common shares at a price of USD$0.90 per share, each
  issued as of July 29 2005 pursuant to the private offering exemption of
  Section 4(2) of the Securities Act and/or the private offering safe harbor
  provision of Rule 506 of Regulation D promulgated thereunder, for
  consideration in the amount of USD$125,000, as part of a series of related
  private offering transactions with and among a syndicated group of
  institutional and other investors during the period of July 25, 2005 through
  August 5, 2005;(ii)
  303,018 unregistered shares of common stock underlying a convertible note, an
  unregistered common stock warrant to purchase up to 222,213 common shares at
  a price of USD$.40 per share, and an unregistered common stock warrant to
  purchase up to 222,213 common shares at a price of USD$0.90 per share, each
  issued as of April 6, 2006 pursuant to the private offering exemption of
  Section 4(2) of the Securities Act and/or the private offering safe harbor
  provision of Rule 506 of Regulation D promulgated thereunder, for
  consideration in the amount of USD$166,660, as part of a private offering
  transactions with and among a syndicated group of institutional investors on
  April 6, 2006;(iii)
  27,273 unregistered shares of common stock underlying a convertible note, and
  an unregistered common stock warrant to purchase up to 20,000 common shares
  at a price of USD$0.75 per share, each issued as of April 6, 2006 pursuant to
  the private offering exemption of Section 4(2) of the Securities Act and/or
  the private offering safe harbor provision of Rule 506 of Regulation D
  promulgated thereunder, for consideration in the amount of USD$15,000, as
  part of an agreement to convert that amount of penalties accrued as a result
  of our having failed to file a registration statement on Form F-1 within
  sixty days of the closing of the July 25, 2005 through August 5, 2005 series
  of related private offering transactions into convertible penalty notes and
  warrants carrying terms similar to those notes and warrants issued in the
  original series of transactions; and(iv)
  75,843 unregistered common shares which may be issued at our option upon
  conversion of any interest accrued on the convertible notes through October
  31, 2006 and 104,079 unregistered common shares issued for late registration
  penalties.(v) Voting
  and/or investment power over the common shares underlying the convertible
  notes and warrants is held by Joseph Franck of Monarch Capital Fund Ltd.(8)
  Includes the
  following:(i)
  181,818 unregistered shares of common stock underlying a convertible note, an
  unregistered common stock warrant to purchase up to 133,333 common shares at
  a price of USD$.50 per share, and an unregistered common stock warrant to
  purchase up to 133,333 common shares at a price of USD$1.00 per share, each
  issued as of July 29 2005 pursuant to the private offering exemption of Section
  4(2) of the Securities Act and/or the private offering safe harbor provision
  of Rule 506 of Regulation D promulgated thereunder, for consideration in the
  amount of USD$100,000, as part of a series of related private offering
  transactions with and among a syndicated group of institutional and other
  investors during the period of July 25, 2005 through August 5, 2005;(ii)
  90,909 unregistered shares of common stock underlying a convertible note, an
  unregistered common stock warrant to purchase up to 66,666 common shares at a
  price of USD$0.50 per share, and an unregistered common stock warrant to
  purchase up to 66,666 common shares at a price of USD$1.00 per share, each
  issued as of April 6, 2006 pursuant to the private offering exemption of
  Section 4(2) of the Securities Act and/or the private offering safe harbor
  provision of Rule 506 of Regulation D promulgated thereunder, for
  consideration in the amount of USD$50,000, as part of a private offering
  transactions with and among a syndicated group of institutional investors on
  April 6, 2006;(iii)
  21,818 unregistered shares of common stock underlying a convertible note, and
  an unregistered common stock warrants to purchase up to 16,000 common shares
  at a price of USD$0.75 per share, each issued as of April 6, 2006 pursuant to
  the private offering exemption of Section 4(2) of the Securities Act and/or
  the private offering safe harbor provision of Rule 506 of Regulation D
  promulgated thereunder, for consideration in the amount of USD$12,000, as
  part of an agreement to convert that amount of penalties accrued as a result
  of our having failed to file a registration statement on Form F-1 within
  sixty days of the closing of the July 25, 2005 through August 5, 2005 series
  of related private offering transactions into convertible penalty notes and
  warrants carrying terms similar to those notes and warrants issued in the
  original series of transactions; and45

(iv)
  46,860 unregistered common shares which may be issued at our option upon
  conversion of any interest accrued on the convertible notes through October
  31, 2006 and 54,982 unregistered common shares issued for late registration
  penalties.Voting
  and/or investment power over the common shares underlying the convertible
  notes and warrants is held by Menachem Lipsker of CMS Capital.(9)
  Includes the
  following:(i)
  336,364 unregistered shares of common stock underlying a convertible note, an
  unregistered common stock warrant to purchase up to 246,666 common shares at
  a price of USD$0.50 per share, and an unregistered common stock warrant to
  purchase up to 246,666 common shares at a price of USD$1.00 per share, each
  issued as of April 6, 2006 pursuant to the private offering exemption of
  Section 4(2) of the Securities Act and/or the private offering safe harbor
  provision of Rule 506 of Regulation D promulgated thereunder, for
  consideration in the amount of USD$185,000, as part of a private offering
  transactions with and among a syndicated group of institutional investors on
  April 6, 2006; and(ii)
  30,668 unregistered common shares which may be issued at our option upon
  conversion of any interest accrued on the convertible notes through October
  31, 2006 and 62,788 unregistered common shares issued for late registration
  penalties.Voting
  and/or investment power over the common shares underlying the convertible
  notes and warrants is held by Mark Nordlicht of Platinum Long Term Growth
  III.(10)
  Includes the
  following:(i)
  225,000 unregistered shares of common stock directly owned, an unregistered
  common stock warrant to purchase up to 135,000 common shares at a price of
  USD$0.50 per share, and an unregistered common stock warrant to purchase up
  to 225,000 common shares at a price of USD$0.75 per share, each issued as of
  August 5, 2005 pursuant to the private offering exemption of Section 4(2) of
  the Securities Act and/or the private offering safe harbor provision of Rule
  506 of Regulation D promulgated thereunder, as finders fees related to a
  series of related private offering transactions with and among a syndicated
  group of institutional and other investors during the period of July 25, 2005
  through August 5, 2005, and(i)
  183,886 unregistered shares of common stock directly owned, two unregistered
  common stock warrants to purchase up to 110,320 common shares at a price of
  USD$0.50 per share and two unregistered common stock warrants to purchase up
  to 183,867 common shares at a price of USD$0.75 per share each issued as of
  April 6, 2006 pursuant to the private offering exemption of Section 4(2) of
  the Securities Act and/or the private offering safe harbor provision of Rule
  506 of Regulation D promulgated thereunder, as finders fees related to a
  private offering transactions with and among a syndicated group of
  institutional and other investors on April 6, 2006.Voting
  and/or investment power over the common shares underlying the convertible
  notes and warrants is held by Joseph Frand of Viscount Investments Ltd.At of September 13, 2006, we
had ninety-seven (97) shareholders of record, of which forty-three were United
States residents. These United States shareholders held 6,296,017 shares of our
common stock, representing approximately 35.0% of the issued and outstanding
shares of our common stock.

We are not directly or
indirectly owned or controlled by another corporation, by any foreign
government or by another natural or legal person, severally or jointly and we
have no knowledge of any arrangements, the operation of which may at a
subsequent date result in a change in our control.

RELATED PARTY TRANSACTIONS

The following information is
provided in connection with all transactions or loans dating back to April 1,
2003 between us and (a) enterprises that directly or indirectly through one or
more intermediaries, control or are controlled by, or are under common control
with, us, (b) associates, (c) individuals owning, directly or indirectly,
securities representing an interest in our voting power that gives them
significant influence over us, and close members of any such individuals families,
(d) key management personnel including those persons having authority and
responsibility for planning, directing, and controlling our activities, such as
directors and senior management and close members of any such individuals
families, and (e)

46

enterprises in which a
substantial interest in the voting power is owned, directly or indirectly, by
any person described in (c) or (d) or over which such a person is able to
exercise significant influence:

MANAGEMENT
FEES

In each of the fiscal years
ended March 31, 2004, 2005 and 2006, a management fee was paid to Dockside
Capital Group Inc., a private company of which Edward D. Ford and Douglas E.
Ford are directors and officers. No formal agreements are in place for the
provision of these services. For the fiscal years ended March 31, 2004, 2005
and 2006, the total amount of such management fee was $6,000, $6,000 and
$4,000, respectively. Although we believe that the management fees paid are as
fair as those which could have been obtained in an arms length transaction with
unaffiliated third parties, the fact that these fees were paid to a company of
which are own directors are officers and directors gives rise to the potential
that the fees may have been less favorable to us than would otherwise have been
the case.

OFFICE
LEASE RENT

In each of the fiscal years
ended March 31, 2004, 2005 and 2006, rent was paid to Dockside Capital Group
Inc., a private company of which Edward D. Ford and Douglas E. Ford are
directors and officers. No formal agreements are in place for the provision of
these services. For the fiscal years ended March 31, 2004 and 2005, the total
amount of such rent was $6,000 per year, and for the fiscal year ended March
31, 2006, the amount was $1,750. Although we believe that the rent paid has
been as fair as that which could have been obtained in an arms length
transaction with unaffiliated third parties, the fact that this rent was paid
to a company of which are own directors are officers and directors gives rise
to the potential that the terms may have been less favorable to us than would
otherwise have been the case.

LOANS

From
Directors

As of March 31, 2006, we had
obtained aggregate loan advances in an amount totaling $58,380 (2005 - $158,359
and 2004 - $119,729) from several of our directors and officers. These loan
advances were without interest or specific terms of repayment.

On July 4, 2005, after
having obtained shareholder authorization on April 14, 2005 to settle certain
of our outstanding obligations by way of common stock conversions at a rate
equal to $0.05 per share, $153,349 of the then outstanding indebtedness under
these loans was converted to 1,106,486 shares of our common stock, representing
a price per share of $0.14 (the balance of the obligation having been paid in
cash). Although we believe that the ratio applied for purposes of the
conversion to common stock was as fair as that which could have been obtained
in an arms length transaction with unaffiliated third parties, the fact that
the loans were obtained from our officers and directors gives rise to the
potential that the terms may have been less favorable to us than would
otherwise have been the case.

From
Shareholders

As of March 31, 2006, we
have obtained aggregate loan advances in an amount totaling approximately $110,000
from Timothy Brock, the 100% beneficial owner of West Peak Ventures of Canada,
Inc., which is a beneficial owner of greater than 5% of our common shares.

PROFESSIONAL
FEES

During the year ended March
31, 2006 and 2005, professional fees in the amount of $19,500 and $0 were paid
to F. George Orr, our director, for the provision of certain accounting
services. During the year ended March 31, 2006 and 2005, consulting fees in the
amount of $2,080 and $0 were paid to Doug E. Ford, our director, for the
provision of certain management services.

47

MK ENTERPRISES LICENSE AND RELATED
TRANSACTIONS

On July 29, 2005, we entered
into a series of related definitive agreements with MK Enterprises LLC (MK),
an entity controlled by Malcolm Glen Kertz, our current Chief Executive
Officer, acting President, Chairman and a member of our board of directors,
including:

(i)
  a master license agreement
  for a term continuing so long as royalty payments continue to be made as
  required, for the exclusive worldwide marketing and distribution rights to
  three unrelated and proprietary potential consumer retail products that had
  previously been developed (the MK Master License), certain of which are
  patent pending, including the Nova Skin Care System, the Dust Wolf,
  and the Tomorrow Garden Kit (collectively, and together with any
  improvements thereon, the Initial Products) each of which are described in
  fuller detail elsewhere in this annual report. See BusinessPotential Products
  and BusinessIntellectual Property;(vi)
  the MK Master License also
  includes a license for a term continuing so long as royalty payments continue
  to be made as required, for the exclusive worldwide marketing and
  distribution rights to any ancillary products developed and sold for use by
  consumers in connection with the Initial Products (the Initial Ancillaries);(vii)
  a product development
  agreement pursuant to which we were granted a right for an initial period of
  five years to acquire a license for a term continuing so long as royalty
  payments continue to be made as required, for the exclusive worldwide
  marketing and distribution rights to any new products developed by MK (any
  such products, collectively, the Additional Products, and, the agreement
  itself, the MK Product Development Agreement);(viii)
  the MK Product Development
  Agreement also includes a license for a term continuing so long as royalty
  payments continue to be made as required, for the exclusive worldwide
  marketing and distribution rights to any ancillary products developed and
  sold for use by consumers in connection with the Additional Products (the Additional
  Ancillaries); and(ix)
  a related services
  agreement pursuant to which MK shall provide consulting support in connection
  with the Initial Products, the Initial Ancillaries, the Additional Products
  and the Additional Ancillaries (the MK Consulting Agreement), in exchange
  for the following:
  20,000,000 shares of our
  common stock;
  a one-time USD$125,000
  license fee;
  reimbursement for
  USD$125,000 in development costs associated with each of the Initial Products
  since March 17, 2005;
  consulting fees of
  USD$156,000 per year, payable monthly in advance; and
  the greater of the
  following, payable annually beginning in the second license year:(i)
  USD$400,000; or(ii)
  the aggregate of the
  following:
  subject to a minimum
  amount of USD$37,500 per Initial Product during the second year of the MK
  Master License, and USD$50,000 each year thereafter, continuing royalties
  payable quarterly at a rate of:48

: USD$10.00 per Nova Skin
  Care System unit sold;: USD$2.00 per Dust Wolf
  unit sold;: 4.5% of annual net sales
  of the Tomorrow Garden Kit;and: 3% of annual net sales
  of Initial Ancillaries.
  a one-time USD$50,000
  license fee for each Additional Product licensed (except for one
  pre-identified product); and
  subject to a minimum
  amount of USD$50,000 per year commencing with the second year of each
  corresponding license, continuing royalties of 4.5% of annual net sales and
  3% on annual net sales of any Additional Ancillaries.Although Mr. Kertz was
neither an officer nor a director at the time we entered into the MK
Agreements, he was both an officer and a director prior to July 2004 and
assumed his current positions immediately following our entering into these
agreements. During the year ended March 31, 2006, we paid approximately
$121,447 in product development fees to MK respectfully. Although we believe that the
terms of the MK Agreements, and the fees paid to MK thereunder, are as fair as
that which could have been obtained in an arms length transaction with
unaffiliated third parties, the conflict of interest which existed as a result
of Mr. Kertzs prior involvement with us gives rise to the potential that the
contractual terms may be less favorable to us than would otherwise have been
the case.

FINDERS FEES

In connection with our July
25, 2005 through August 5, 2005 related private offering transactions, in the
aggregate amount of USD$1,277,200, compensation in the form of finders fees
was paid which consisted, in the aggregate, of the following:


  USD$127,720 in cash,
  representing 10% of the gross proceeds realized;
  425,735 shares of our
  common stock;
  Three-year warrants to
  purchase up to 255,440 shares of our common stock at a price of USD$0.50; and
  Three-year warrants to
  purchase up to 425,733 shares of our common stock at a price of USD$0.75.From the aggregate finders
fee compensation identified above, West Peak Ventures of Canada, Inc., a
beneficial owner of greater than 5% of our common shares, and an entity
beneficially owned 100% by Timothy Brock, received USD$73,271 in cash, 241,667
shares of our common sock, a three-year warrant to purchase up to 145,000
shares of our common stock at a price of USD$0.50 per share, and a three-year
warrant to purchase up to 241,667 shares of our common stock at a price of
USD$0.75 per share.

INTERESTS
OF EXPERTS AND COUNSEL

Not applicable.

49

ITEM 8. FINANCIAL
INFORMATION

CONSOLIDATED STATEMENTS AND
OTHER FINANCIAL
INFORMATION

See Item 17
and our financial statement and accompanying notes beginning on page F-1.

Legal
proceedings

There are no
pending, and we are not aware of any contemplated, legal, governmental or
arbitration proceedings, including those related to bankruptcy, receivership or
those involving a third party which have, or may have, significant effects on
our financial position or profitability.

Dividend
Policy

We have never
paid a dividend and have no intentions of doing so in the foreseeable future.

SIGNIFICANT
CHANGES


To retire
  certain short-term obligations and existing liabilities and to provide
  additional general corporate and working capital to pursue our business plan,
  on April 6, 2006, we consummated a follow-on private offering transaction
  with and among a syndicated group of institutional investors pursuant to
  which we issued, in the aggregate, USD$551,666 in 8% per annum convertible
  notes and three-year warrants to acquire (i) up to 735,544 shares of our
  common stock at a price per share of USD$0.40, and (ii) up to an additional
  735,544 shares of our common stock at a price per share of USD$0.90. Subject
  to certain limitations, the principal amount of the notes, together with any
  accrued interest may be converted into shares of our common stock at the
  lesser of (i) 70% of the average of the five lowest closing bid prices for
  our common stock for the ten trading days prior to conversion, or (ii)
  USD$0.55. The convertible notes carry a redemption feature which allows us to
  retire them, in whole or in part, for an amount equal to 130% of that portion
  of the face amount being redeemed, but only in the event that our common
  shares have a closing price of USD$1.50 per share for at least twenty
  consecutive trading days and there has otherwise been no default. The common
  stock purchase warrants carry a net cashless exercise feature allowing the
  holder thereof, under certain limited circumstances, to exercise the warrants
  without payment of the stated exercise price, but rather solely in exchange
  for the cancellation of that number of common shares into which such warrants
  are exercisable.
Also in
  connection with the follow-on private offering transaction, we issued 183,886
  shares of our common stock and three-year warrants to purchase up to an
  additional 110,320 shares of our common stock at a price per share of
  USD$0.50 and up to an additional 183,867 shares of our common stock at a
  price of USD$0.75 as partial compensation in the form of a finders fee.
Our
  registration statement on Form F-1 was originally filed with the SEC on April
  27, 2006, which delay resulted in a reduction in the exercise price of the
  Class A and Class B warrants issued as part of the July 25, 2005 through
  August 5, 2005 and April 6, 2006 transactions from USD$0.50 and USD$1.00 to
  USD$0.40 and USD$0.90, respectively. Moreover, as of the date of this
  annual report we are accruing penalties at a rate of 2% per thirty day period
  for having failed to have our registration statement declared effective by
  June 5, 2006. As of September 13, 2006, we have accrued up to approximately
  USD$123,094 in penalties under the terms of the registration provisions of
  each of the July 25, 2005 through August 5, 2005 and April 6, 2006
  transactions, exclusive of those penalties previously converted into
  convertible penalty notes and warrants. The penalties which we have
  accumulated to date, and any penalties which we may accumulate for future
  delays, will negatively affect our business, our financial condition and our
  results of operations, leading to a corresponding reduction in our net income
  and the likelihood of a net loss50

for the year
  in which they are incurred. The delays in meeting our registration obligations
  are a consequence, among other reasons, of ongoing delays resulting from our
  having recently undergone a significant restructuring and change in business
  direction, and the unavailability of certain information necessary for
  preparing the filing. Our management is hopeful that we will cause our
  registration statement to be declared effective in the near future.
In
  connection with the July 25, 2005 through August 5, 2005 transactions, on
  April 6, 2006 we reached a verbal agreement with the syndicated group of
  institutional and other investors, to convert accruing penalties associated
  with delays in our filing of a registration statement under the terms of the
  transactions, an aggregate of USD$82,200, into convertible penalty notes
  carrying terms similar to those notes issued in the original series of
  private offering transactions, and in addition to issue each investor one
  three-year penalty warrant for each USD$0.75 of penalties owed to purchase,
  in the aggregate, up to an additional 109,600 shares of common stock at a
  price per share of USD$0.75.
Pursuant to
  an Investor Relations Consulting Agreement with a third party for services
  provided to Valcent, SmallCap Partners Ltd. received 120,000 shares of common
  stock at USD$0.41 per share.
On May 31,
  2006, the Company issued 786,700 shares pursuant to the license agreement. As
  of June 30, 2006, 7,601,325 common shares remained to be issued pursuant to
  the license agreement and are reflected in share subscription.
On May 15,
  2006, the Company completed a private placement of units whereby it issued a
  total of 1,104,165 units at USD $0.60 per unit whereby each unit consisted of
  one common share and one share purchase warrant to purchase an additional
  common share at USD $0.80. Of the warrants issued, 833,332 expire on May 15,
  2008 and 270,833 on June 7, 2008. The Company also paid consultants fees
  consisting of $58,860 plus 66,666 warrants to purchase that number of common
  shares at $0.80 (USD) until May 15, 2008 and 21,666 warrants to purchase that
  number of common shares at USD $0.80 until June 7, 2008.·
On August
  18, 2006, the Company completed a private placement of units whereby it
  issued a total of 430,000 units at USD $0.60 per unit for a total of $258,000
  (USD) whereby each unit consisted of one common share and one share purchase
  warrant to purchase an additional common share at USD $0.80 (USD). The
  warrants issued will expire on August 18, 2008. The Company paid consultants
  fees consisting of $58,860 plus 24,800 warrants to purchase that number of
  common shares at USD $0.80 until August 18, 2008.
We entered
  into a manufacturing agreement with Solid Integrations, LLC, for the
  manufacture and assembly of our Nova Skin Care System. Under this agreement
  we will provide and make available to Solid Integrations, LLC, and its
  subcontractor(s), the raw materials, machinery, equipment, tooling and molds
  necessary for Solid Integrations, LLC, and its subcontractor(s), to
  manufacture and assemble the Nova Skin Care System at a manufacturing
  facility located in Mexico.ITEM 9. THE
OFFER AND LISTING

OFFERING AND LISTING
DETAILS

The table
below sets forth certain information regarding the price history of our common
shares, including (i) annual high and low market prices for each of the five
most recent fiscal years, (ii) quarterly high and low market prices for each
full quarter of the two most recent fiscal years, and (iii) monthly high and
low market prices for each month of the six most recent months. The prices have
been adjusted to reflect a one-for-three common share consolidation effective
May 3, 2005.

51

Our common
shares are presently quoted on the United States OTC Bulletin Board, under the
symbol VCTPF (formerly NTTRF). Effective May 3, 2005, we changed our
name
from Nettron.com, Inc. to Valcent Products Inc. and delisted our common shares
from the TSX-Venture Exchange, Inc. (formerly The Canadian Venture Exchange),
where we had been trading under the symbol NTT.H, maintaining only our
listing only on the United States OTC Bulletin Board. Prior to our delisting
from the TSX-Venture Exchange we had been quoted thereon under the symbol
NTT.H from August 18, 2003 though May 2, 2005, NTT.T from February
18, 2003
to August 17, 2003 and NTT prior to February 18, 2003.


Period

OTC Bulletin Board
  (USD)

TSX Venture Exchange
  (CND)High

Low

High

LowFiscal year ended March 31,2002

$
0.750

$
0.033

$
1.35

$
0.0602003

$
0.300

$
0.009

$
1.17

$
0.0302004

$
0.075

$
0.0144

$
0.090

$
0.0302005*

$
0.600

$
0.030

$
0.555

$
2006

$
0.950

$
0.250

$


$
Quarter endedJune 30,
  2004

$
0.030

$
0.030

$
0.090

$
0.075September
  30, 2004*

$
0.033

$
0.030

$


$
December 31,
  2004*

$
0.060

$
0.033

$


$
March 31,
  2005*

$
0.600

$
0.033

$


$
June 30,
  2005

$
0.650

$
0.360

$


$
September
  30, 2005

$
0.570

$
0.400

$


$
December 31,
  2005

$
0.750

$
0.410

$


$
March 31,
  2006

$
0.600

$
0.330

$


$
June 30,
  2006

$
0.950

$
0.520

$


$
Month endedMarch 31,
  2006

$
0.880

$
0.520

$


$
April 30,
  2006

$
0.409

$
0.303

$


$
May 31, 2006

$
0.500

$
0.410

$


$
June 30, 2006

$
0.840

$
0.700

$


$
July 31,
  2006

$
0.740

$
0.520

$


$
August 31,
  2006

$
0.700

$
0.500

$


$

*
Historical
  price information for shares of our common stock traded on the TSX Venture
  Exchange between September 2004 and May 2005 could not reasonably be
  obtained. We voluntarily delisted from the TSX Venture Exchange on May 3,
  2005.MARKETS

At present,
and since May 3, 2005, our common shares are quoted solely on the OTC Bulletin
Board, under the symbol VCTPF.

ITEM 10.
ADDITIONAL INFORMATION

SHARE CAPITAL

Not
applicable.

52

MEMORANDUM AND
ARTICLES OF ASSOCIATION

Organization,
Object and Purpose

We were
incorporated in Canada on January 19, 1996, in accordance with the provision of
the Business Corporations Act (Alberta). Article 5 of our articles of
incorporation provides that we are neither restricted from carrying on any
business nor required to carry on a certain business.

Directors

Voting
Powers

In accordance
with Section 4.19 of our bylaws and Section 120 of the Business Corporations
Act (Alberta) if one of our directors is party to or has a material interest in
a material contract or proposed material contract with us or with one of our
subsidiaries, that director must disclose the nature and extent of their
interest at the first meeting at which the proposed material contract is
considered, or at the first meeting after which the director becomes an
interested party, either in writing or, at the directors request, entered into
the meeting minutes. All material contracts or proposed material contracts in
which one of our directors has a material interest must be referred to our
board or shareholders for approval, even if not one which, in the ordinary course
of business, would otherwise require approval. A director who is party to or
has a material interest in a material contract or proposed material contract,
shall refrain from voting on any resolution to approve the material contract
unless it is one for (i) an arrangement by way of security for money lent to or
obligations undertaken by the director for our benefit, (ii) a transaction
relating primarily to the directors remuneration, (iii) a contract for
indemnity insurance, or (iv) a contract with an affiliate.

In accordance
with our bylaws and the Business Corporations Act (Alberta) there are no
limitations on the power of our directors, in the absence of an independent
quorum, to vote compensation to themselves.

Borrowing
Powers

In accordance
with Section 3.01 of our bylaws and Section 103 of the Business Corporations
Act (Alberta) our directors may, without shareholder authorization, (i) borrow
money on our credit, (ii) issue, reissue, sell or pledge debt obligations, (iii)
give a guarantee on our behalf to secure performance of an obligation, and (iv)
mortgage, hypothecate, pledge or otherwise create a security interest in all or
any of our property, owned or subsequently acquired, to secure any of our
obligations. These powers can be modified by means of an amendment to our
articles of incorporation or bylaws, or by unanimous shareholder consent.

Indemnification
of Directors and Officers and
Limitation of Liability

In accordance
with Section 7 of our bylaws and Section 124 of the Business Corporations Act
(Alberta), each of our directors and officers is relieved from liability for
the acts, receipts or defaults of any other of our directors, officers or
employees, notwithstanding any loss, damage or expense caused to us, provided,
however, that such director or officer discharges their own duties honestly, in
good faith and with a view toward our best interests, and exercises the care,
diligence and skill that a reasonably prudent person would in comparable
circumstances.

Subject to
certain limitations as set forth in Section 124 of the Business Corporations
Act (Alberta), we have undertaken to indemnify our current or former directors
and officers against all reasonable costs, charges and expenses, including
amounts paid to settle an action or satisfy a judgment, incurred in respect of
any civil, criminal or administrative proceedings to which such director or
officer is made party to by reason of being or having been a director or
officer. Our board of directors may, from time to time, purchase and maintain
insurance policies for the benefit of our directors and officers as against any
such liabilities incurred, except with respect to liability arising out of a
director or officers failure to act honestly, in good faith and with a view
toward our best interests. We do not presently maintain a directors and
officers insurance or reimbursement policy.

53

Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers or controlling persons under the forgoing
provisions, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable as a matter of United States law.

Qualifications

There is no
mandatory retirement age required by our bylaws or the Business Corporations
Act (Alberta) and no requirement that our directors be shareholders of our
company.

Common
Shares

In accordance
with Article 2 and Schedule A of our articles of incorporation filed January
19, 1996, and as amended, there are authorized an unlimited number of common
shares which our directors may issue without nominal or par value.

Dividends

Holders of
shares of our common stock are entitled, subject to the rights privileges,
restrictions and conditions attached to our preferred shares, to receive such
dividends as our directors may from time to time, by resolution, declare.

Voting
Rights

Holders of
shares of our common stock are entitled to receive notice of and vote, on the
basis of one vote for each common share so held, at every meeting of the
shareholders of our company.

Liquidation
Rights

Holders of
shares of our common stock are entitled, subject to the rights, preferences and
privileges, of any authorized and outstanding class and series of our preferred
shares, to receive, in the event of liquidation, dissolution or winding up or
upon the distribution of any of our assets among the holders of shares of our
common stock, other than by way of dividends, their pro rata share of such
distribution.

Preferred
Shares

In accordance
with Article 2 and Schedule B of our articles of incorporation filed January
19, 1996, and as amended, there are authorized an unlimited number of preferred
shares, which our directors may, from time to time, issue without nominal or
par value in one or more series consisting of such number of shares as our
directors may determine. Our directors, by resolution, may fix the designation,
rights, privileges, restrictions and conditions attached to the preferred
shares of each series, including without limiting the generality of the
foregoing, the rate, form, entitlement and payment of preferential dividends,
the redemption price, terms, procedure and conditions for redemption, if any, voting rights and conversion rights, if any, and sinking
fund, purchase fund or other provisions attaching to the preferred shares of
such series.

Dividends

Holders of
shares of our preferred stock shall be entitled to preference over holders of
shares of our common stock and any other of our shares ranking junior with
respect to the payment of dividends as our directors may from time to time, by
resolution, declare. No dividend shall at any time be declared or paid or set
apart for payment on any shares ranking junior to shares of our preferred stock
unless all dividends up to and including the dividends payable for the last
completed period for which such dividends were payable on each series of
preferred shares then issued and outstanding shall have been declared and paid
or set apart for payment at the date, nor shall we call for redemption or
redeem or purchase for cancellation or reduce or otherwise pay off any of our
shares of preferred stock or any shares ranking junior to shares of our

54

preferred
stock unless all dividends up to and including the dividends payable for the
last completed period for which such dividends were payable on each series of
preferred shares then issued and outstanding shall have been declared and paid
or set apart for payment as of the date of such call for redemption, purchase,
reduction or other payment.

Holders of
shares of our preferred stock shall rank on parity with holders of shares of
all other series of our preferred stock with respect to payment of dividends,
exclusive of any conversion rights, and if cumulative dividends are not paid in
full in respect of a series of our preferred stock, the holders of shares of
all series of our preferred stock shall participate ratably.

Voting
Rights

Holders of
shares of our preferred stock shall be entitled to those voting rights which
our directors may, by resolution, designate with respect thereto.

Liquidation
Rights

Holders of
shares of our preferred stock shall be entitled to preference over holders of
shares of our common stock and any other of our shares ranking junior with
respect to the distribution of our assets in the event of liquidation,
dissolution or winding up, whether voluntary or involuntary, and may also be
given such other preferences as our directors may fix, by resolution, prior to issuance.

Holders of
shares our of preferred stock shall rank on parity with holders of shares of
all other series of our preferred stock with respect to distribution of assets
in the event of liquidation, dissolution or winding up, whether voluntary or
involuntary, exclusive of any conversion rights, and if return of capital is
not paid in full in respect of a series of our preferred stock, the holders of
shares of all series of our preferred stock shall participate ratably.

Shareholder
Action

In accordance
with the provisions of the Business Corporations Act (Alberta) ordinary
resolutions, such as those adopting amendments to our bylaws, must be passed by
a majority of shareholders voting thereon, whereas special resolutions require
a majority of not less than two-thirds of the votes cast by shareholders voting
thereon. Special resolutions are required in (i) authorizing share splits where
more than one class of shares exist, (ii) increasing stated capital with
respect to a class or series of shares where the amount to be added is not
received in consideration for the issuance of shares and where more than one
class of shares exist, (iii) decreasing stated capital for any purpose, (iv)
making certain amendments to or restating our articles of incorporation, (v)
approving an amalgamation agreement, (vi) approving a continuance into another
jurisdiction, (vii) selling, leasing or exchanging of all or substantially all
of our property, other than in the ordinary course of business, or (viii) liquidating
our assets and dissolving our company.

Shareholders
Meetings

Annual
Meetings

We normally
hold our annual shareholders meeting shortly after completion of the preceding
fiscal year at our principal executive offices in Canada with the record date
begin set and notice provided to our shareholders not less than twenty-one nor
more than fifty days prior to the meeting. Only those shareholders entitled to
vote at the meeting, the directors, auditors and any other persons required to
attend under any provision of our articles of incorporation, bylaws or the
Business Corporations Act (Alberta) are entitled to attend the meeting.

Special
Meetings

Our board, the
chairman of the board, managing director or president, have the power to call a
special meeting at anytime, and notice of any special meeting shall state the
text of any special resolutions to be submitted at the meeting.

55

Share
Ownership

Although our
shareholder are subject to certain beneficial ownership reporting requirements
as a result of our having a class of securities registered under Section 12 of
the Securities Exchange Act of 1934, there are no provisions in our bylaws
governing the ownership threshold above which shareholder ownership must be
disclosed.

With the
exception of the Investment Canada Act, as amended, and the potential
application of the Competition Act there are no limitations on the ability or
right of persons to own our securities, including the rights of non-resident or
foreign shareholders to hold or exercise voting rights on our securities
imposed by the Business Corporations Act (Alberta) or by our articles of
incorporation or bylaws.

Investment
Canada Act

The Investment
Canada Act, as amended, generally prohibits implementation of any of a number
of enumerated reviewable investments by an individual, government or agency
thereof, corporation, partnership, trust or joint venture that is non-Canadian,
as defined in the Investment Canada Act, unless the Minister responsible for
administration of the Investment Canada Act is satisfied that the investment is
likely to be of a net benefit to Canada.

In accordance
with the provisions of the Investment Canada Act, an investment or series of
investments to directly or indirectly acquire control of a Canadian company by
a non-Canadian that is a WTO Investor or a Canadian company which was
immediately prior to the investment controlled by a WTO Investor, is reviewable
if the value of the assets of the company equal or exceed $256 million, the
threshold established for the year 2006. In succeeding years, the threshold
amount may be increased or decreased in accordance with the provisions of
Section 14.1 of the Investment Canada Act. A WTO Investor is one who is a
member of the World Trade Organization, currently comprised of one hundred
forty-eight member countries, including the United States, or a WTO
Investor-controlled entity, as defined in the Investment Canada Act.

An investment
or series of investments to directly or indirectly acquire control of a
Canadian company by a non-Canadian, other than a WTO Investor, is reviewable if
the value of the assets of the company equal or exceed $5 million, or if an
order for review is made by the Governor in Council on grounds that the
investment is related to Canadas cultural heritage or national identity.

Procedurally,
the Investment Canada Act requires a non-Canadian who is establishing a new
Canadian business or making an investment that will result in the acquisition
of an existing Canadian business, to, depending on the transaction, file with
the Director of Investments either notification of the transaction or an
application for review.

Where an
investment is reviewable in accordance with the provisions of the Investment
Canada Act, an application for review must be filed prior to implementation of
the investment, in response to which the non-Canadian investor will receive a
receipt bearing a certified date. Within forty-five days following certified
date the Minister responsible for administering the Investment Canada Act must
either notify the non-Canadian investor that he is satisfied that the
investment is likely to be of a net benefit to Canada or, if the Minister is
unable to complete the review, notify the non-Canadian investor that the
Minister shall, within thirty days unless a further period is agreed upon,
complete consideration of the investment. Once the thirty day period has
elapsed, the Minister will be deemed to be satisfied that the investment is
likely to be of a net benefit to Canada and the investment may thereafter be
implemented.

The
notification procedure involves filing a brief statement of information at any
time up to thirty days following implementation of the investment, in response
to which the non-Canadian investor will receive a receipt bearing a certified
date and advising the non-Canadian investor that the proposal is either
unconditionally non-reviewable or that it will not be reviewed provided there
is no additional notice of review issued within twenty-one days following the
certified date.
Exempt from the notice and review provisions of the Investment Canada Act are,
among other transactions, those acquisitions carried out (i) in the ordinary
course of ones business, (ii) in connection with the

56

realization of
security granted for a loan, (iii) for the purpose of facilitating financing,
provided the acquirer divest himself of control within two years, and (iv) by
reason of an amalgamation, merger, consolidation, or corporate reorganization,
following which the ultimate control remains unchanged.

Exempt from
the review provisions of the Investment Canada Act are investments to acquire
control of Canadian businesses that (i) engage in the production of uranium,
(ii) provide any financial services, (iii) provide transportation services, or
(iv) constitute a cultural business.

Competition
Act

The
Competition Act, as amended, is designed to maintain and encourage competition
while promoting efficiency and adaptability in the local Canadian economy, as
well as to expand opportunities for Canadian participation in the world
markets.

In accordance
with the provisions of the Competition Act an investment giving rise to the
acquisition or establishment, directly or indirectly, by one or more persons of
control over or a significant interest in the whole or part of a business of a
competitor, supplier, customer or other person may be subject to substantive
review by the Commissioner of Competition, the officer responsible for
administering the Competition Act.

Pre-investment
notification must be made to the Commissioner of Competition by parties of a
proposed transaction where certain party and transaction size thresholds are
satisfied. The party size threshold requires that parties of a proposed
transaction, together with their affiliates, have total assets in Canada or
gross revenues from sales in, from or into Canada that exceed $400 million in the
aggregate. The transaction size threshold requirements vary depending on the
nature of the investment.

Transactions
subject to pre-investment notification may not be completed until (i) the
applicable statutory waiting periods have expired or have been earlier
terminated by the Commissioner of Competition without his having taken action
to prohibit the transactions implementation, or (ii) the Commissioner of
Competition has issued an advance ruling certificate, or has waived the parties
obligation to notify. Transactions involving only affiliates or those in the
public interest, among others, are exempt from pre-investment notification
requirements.

Regardless of
whether pre-investment notification is required, the Commissioner of
Competition may apply to the Competition Tribunal, a specialized tribunal
established by Section 3 if the Competition Tribunal Act and empowered with the
authority to hear and dispose of certain matters arising under the Competition
Act, for substantive review of a transaction.

Where the
Competition Tribunal finds the transaction likely to prevent or lessen
competition substantially it may order the investment not proceed or, if it has
been completed, may order its dissolution or the disposition of some of the
assets or shares involved.

Change
in Control

There are no
provisions in our articles of incorporation or bylaws that would have an effect
of delaying, deferring or preventing a change in our control with respect to a
merger, acquisition or corporate restructuring.

MATERIAL
CONTRACTS

The following
is a summary of certain key economic and related provisions of all material
contracts that we have entered into since October 2003.

57

MK Enterprises
License and Related Transactions

On March 17,
2005, we reached an agreement in principal with MK Enterprises LLC (MK), an
entity controlled by Glen Kertz, our current Chairman, director and acting
president to obtain or otherwise secure the following:

(i)
A license
  for a period lasting so long as royalty payments continue to be made as
  required, for the exclusive worldwide marketing and distribution rights to
  three unrelated and proprietary consumer retail products that had previously
  been developed by MK, including the Ultrasonic Skincare System, the Dust
  Wolf, and the Tomorrow Garden (collectively, and together with any
  improvements thereon, the Initial Products);(ii)
A license
  for a period lasting so long as royalty payments continue to be made as
  required, for the exclusive worldwide marketing and distribution rights to
  any ancillary products developed and sold for use by consumers in connection
  with the Initial Products (Initial Ancillaries);(iii)
A right for
  an initial period of five years to acquire a license for a period lasting so
  long as royalty payments continue to be made as required, for the exclusive
  worldwide marketing and distribution rights to any new products developed by
  MK (collectively, Additional Products);(iv)
A license
  for a period lasting so long as royalty payments continue to be made as
  required, for the exclusive worldwide marketing and distribution rights to
  any ancillary products developed and sold for use by consumers in connection
  with the Additional Products (Additional Ancillaries); and(v)
A related
  services agreement pursuant to which MK would provide consulting support in
  connection with the Initial Products, the Initial Ancillaries, the Additional
  Products and the Additional Ancillaries.On July 29,
2005, we entered into a series of related definitive agreements with MK
(collectively, the MK Agreements), including (i) a master license agreement
for a period lasting so long as royalty payments continue to be made as
required, for the exclusive worldwide marketing and distribution rights to the
Initial Products and the Initial Ancillaries (the MK Master License), (ii) a
product development agreement pursuant to which we were granted a right for an
initial period of five years to acquire a license, for a period lasting so long
as royalty payments continue to be made as required, for the exclusive
worldwide marketing and distribution rights to any Additional Products and any
Additional Ancillaries (the MK Product Development Agreement), and (iii) a
consulting agreement pursuant to which we will receive consulting support from
MK in connection with each of the Initial Products, the Initial Ancillaries,
the Additional Products and the Additional Ancillaries (the MK Consulting
Agreement), in exchange for the following:


20,000,000
  shares of our common stock;
A one-time
  USD $125,000 license fee;
Reimbursement
  for USD $125,000 in development costs associated with each of the Initial
  Products since March 17, 2005;
The greater
  of the following, payable annually:(i)
USD
  $400,000; or58

(ii)
The
  aggregate of the following:
Subject to a
  minimum amount of USD $37,500 per Initial Product during the second year of
  the MK Master License, and USD $50,000 each year thereafter, continuing royalties
  payable quarterly at a rate of::
USD $10.00
  per Ultrasonic Skincare System unit sold;:
USD $2.00
  per Dust Wolf unit sold;:
4.5% of
  annual net sales of the Tomorrow Garden Kit; and:
3% of annual
  net sales of Initial Ancillaries.
A one-time
  USD $50,000 license fee for each Additional Product licensed (except for a
  one pre-identified product);
Subject to a
  minimum amount of USD $50,000 per year commencing with the second year of
  each corresponding license, continuing royalties of 4.5% of annual net sales
  and 3% on annual net sales of any Additional Ancillaries; and
Consulting
  fees of USD $156,000 per year, payable monthly in advance.The MK
Agreements contain considerably more detail than the summary of key economic
and related provisions set forth above. This summary does not purport to be a
complete description of these agreements, and is qualified in is entirety by
reference to the MK Master License, the MK Product Development Agreement, and
the MK Consulting Agreement respectively, copies of which are included as
Exhibits to this filing. Prospective investors in our common stock are strongly
encouraged to read these agreements in their entirety.

July/August 2005
Private Offering Transaction

During the
period July 25, 2005 through August 5, 2005, we consummated a series of related
private offering transactions with and among a syndicated group of
institutional and other investors (United States, Canadian and other) pursuant
to which we issued, in the aggregate, USD $1,277,200 in 8% per annum
convertible notes and three year warrants to acquire (i) up to 1,702,924 shares
of common stock at a price per share of USD $0.50, and (ii) up to an additional
1,702,924 shares of common stock at a price per share of USD $1.00. Subject to
certain limitations on amount, the principal amount of the notes, together with
any accrued interest may be converted into shares of our common stock at the
lesser of (i) 70% of the average of the five lowest closing bid prices for the
common stock for the ten trading days prior to conversion, or (ii) USD $0.55.
The convertible notes carry a redemption feature which allows us to retire
them, in whole or in part, for an amount equal to 130% of the amount being redeemed,
but only in the event that our common shares have a closing price of USD $1.50
per share for at least twenty consecutive trading days and there has otherwise
been no default.

The agreements
involved in the July/August 2005 private offering transactions consisted, for
each investor, of a subscription agreement, a convertible note, a Class A
common stock purchase warrant, and a Class B common stock purchase warrant (the
July/August 2005 Subscription Agreements). All individual transactions
utilized the same forms of July/August 2005 Subscription Agreements, except
that certain of

59

the
representations contained in certain of the agreements differed in minor ways
depending on the country of domicile of the particular investors involved.

In connection
with the financing described above, compensation in the form of finders fees
was paid which consisted in the aggregate of the following:


USD $127,720
  in cash, representing 10% of the gross proceeds realized;
425,735
  shares of our common stock;
Three year
  warrants to purchase up to 255,440 shares of our common stock at a price of
  USD $0.50; and
Three year
  warrants to purchase up to 425,733 shares of our common stock at a price of
  USD $0.75.As part of the
subscription agreement that was part of the July/August 2005 Subscription
Agreements, we agreed to grant certain registration rights to each of the
investors and the finders, pursuant to which we became obligated to registering
all of the shares issuable upon conversion of the promissory notes and under
the warrants. Under the terms of the Subscription Agreement a registration
statement must have been filed on Form F-1 no later than sixty days following
the close of the transaction and must be declared effective not later than one
hundred fifty days following the close of the transaction. Thereafter, on one
occasion, for a period commencing one hundred fifty-one days following the
close of the transaction and not later than two years following the close of
the transaction, any record holder or holders of more than fifty percent (50%)
of the shares of our common stock issued or issuable upon conversion of the
promissory notes or exercise of the warrants may, upon written request, demand
that we prepare and file a registration statement registering shares issuable
upon conversion of all sums due under the convertible promissory notes and
exercisable under the warrants.

The
July/August 2005 Subscription Agreements contain considerably more detail than
the summary of key economic and related provisions set forth above. This
summary does not purport to be a complete description of these agreements, and
is qualified in its entirety by reference to the actual form of subscription
agreement, convertible notes, Class A common stock purchase warrants, and Class
B common stock purchase warrants, respectively, copies of which are included as
Exhibits to this filing. Prospective investors in our common stock are strongly
encouraged to read these agreements in their entirety.

APRIL
2006 FOLLOW-ON PRIVATE OFFERING TRANSACTION

On April 6,
2006, we consummated a follow-on private offering transaction with and among a
syndicated group of institutional investors to retire certain short-term
obligations and existing liabilities and to provide additional general
corporate and working capital to pursue our business plan, pursuant to which we
issued, in the aggregate, USD$551,666 in 8% per annum convertible notes and
three-year warrants to acquire (i) up to 735,544 shares of our common stock at
a price per share of USD$0.40, and (ii) up to an additional 735,544 shares of
our common stock at a price per share of USD$0.90. Subject to certain
limitations, the principal amount of the notes, together with any accrued
interest may be converted into shares of our common stock at the lesser of (i)
70% of the average of the five lowest closing bid prices for our common stock
for the ten trading days prior to conversion, or (ii) USD$0.55. The convertible
notes carry a redemption feature which allows us to retire them, in whole or in
part, for an amount equal to 130% of that portion of the face amount being
redeemed, but only in the event that our common shares have a closing price of
USD$1.50 per share for at least twenty consecutive trading days and there has otherwise
been no default. The common stock purchase warrants carry a net cashless
exercise feature allowing the holder thereof, under certain limited
circumstances, to exercise the warrants without payment of the stated exercise
price, but rather solely in exchange for the cancellation of that number of
common shares into which such warrants are exercisable.

60

The agreements
involved in the April 6, 2006 follow-on private offering transaction consisted,
for each investor, of a subscription agreement, a convertible note, a Class A
common stock purchase warrant, and a Class B common stock purchase warrant (the
April 2006 Subscription Agreements). All individual transactions utilized the
same forms of April 2006 Subscription Agreements.

In connection
with the financing described above, compensation in the form of finders fees
was paid, which fees consisted in the aggregate of the following:


USD$55,166
  in cash, representing 10% of the gross proceeds realized;
183,886
  shares of our common stock;
three-year
  warrants to purchase up to 110,320 shares of our common stock at a price of
  USD$0.50; and
three-year
  warrants to purchase up to 183,867 shares of our common stock at a price of
  USD$0.75.As part of the
financing transaction, we also granted certain registration rights to each of
the investors and finders pursuant to which we became committed to registering
all of the shares issued as part of such transaction, including those issuable
upon conversion of the notes and exercise of the warrants, by filing a
registration statement on Form F-1 covering such shares within fourteen days of
the closing date, or by April 20, 2006,and causing such registration statement
to be declared effective by the SEC by June 5, 2006. In accordance with the
terms of the registration provisions any delays in meeting our obligations
subject us to liability in an amount, payable in cash, at a rate of 2% of the
outstanding amount on the convertible notes per thirty day period for the
duration of any such delay, and, furthermore, any delays in our filing of a
registration statement by April 20, 2006 subject us to liability in the form of
a reduction in the exercise price of the Class A and Class B warrants issued as
part of such transaction in an amount of USD$0.10 per week for the duration of
any such delay.

The April 2006
Subscription Agreements contain considerably more detail than the summary of
key economic and related provisions set forth above. This summary does not
purport to be a complete description of these agreements, and is qualified in
its entirety by reference to the actual form of subscription agreement,
convertible notes, Class A common stock purchase warrants and Class B common
stock purchase warrants, respectively, copies of which were filed with our
registration statement on Form F-1 on April 27, 2006 and which are incorporated
herein by reference. Prospective investors in our common stock are strongly
encouraged to read these agreements in their entirety.

Our
registration statement on Form F-1 was originally filed with the SEC on April
27, 2006, which delay resulted in a reduction in the exercise price of the
Class A and Class B warrants issued as part of April 6, 2006 transaction from
USD$0.50 and USD$1.00 to USD$0.40 and USD$0.90, respectively. Moreover, as of
the date of this annual report we are accruing penalties at a rate of 2% per
thirty day period for having failed to have our registration statement declared
effective by June 5, 2006. As of September 13, 2006 we have accrued up to
approximately USD$123,094 in penalties, exclusive of those penalties previously
converted into convertible penalty notes and warrants. These penalties are
convertible into 447,614 convertible penalty notes and warrants. Our management
is hopeful that we will cause such registration statement to be declared
effective in the near future, however, the penalties which we have accumulated
to date, and any penalties which we may accumulate for future delays, will
negatively affect our business, our financial condition and our results of
operations, including a corresponding reduction in our net income and the
likelihood of a net loss for the year.

MAY/AUGUST
2006

On May 15,
2006, the Company completed a private placement of units whereby it issued a
total of 1,104,165 units at USD $0.60 per unit whereby each unit consisted of
one common share and one share purchase warrant to purchase an additional
common share at USD $0.80. Of the warrants issued, 833,332 expire on May 15,
2008 and 270,833 on June 7, 2008. The Company also paid consultants fees
consisting

61

of $58,860
plus 66,666 warrants to purchase that number of common shares at $0.80 (USD)
until May 15, 2008 and 21,666 warrants to purchase that number of common shares
at USD $0.80 until June 7, 2008.

Pursuant to an
Investor Relations Consulting Agreement with a third party for services
provided to Valcent, SmallCap will receive a total of 120,000 shares of common
stock at USD$ 0.41 per share.

On August 18,
2006, the Company completed a private placement of units whereby it issued a
total of 430,000 units at USD $0.60 per unit for a total of $258,000 (USD)
whereby each unit consisted of one common share and one share purchase warrant
to purchase an additional common share at USD $0.80 (USD). The warrants issued
will expire on August 18, 2008. The Company paid consultants fees consisting of
$58,860 plus 24,800 warrants to purchase that number of common shares at USD
$0.80 until August 18, 2008.

Nova
Skin Care System  Solid Integrations, LLC Manufacturing Agreement

We entered
into a manufacturing agreement with Solid Integrations, LLC, for the
manufacture and assembly of our Nova Skin Care System. Under this agreement we
will provide and make available to Solid Integrations, LLC, and its
subcontractor(s), the raw materials, machinery, equipment, tooling and molds
necessary for Solid Integrations, LLC, and its subcontractor(s), to manufacture
and assemble the Nova Skin Care System at a manufacturing facility located in
Mexico.

EXCHANGE
CONTROLS

There are no
governmental laws, decrees, regulations or other legislation in Canada which
restrict the import or export of capital, including the availability of cash
and cash equivalents. With the exception of withholding tax requirements, there
are no governmental laws, decrees, regulations or other legislation in Canada
which affect the remittance of dividends, interest or other payments, to
non-Canadian resident holders of shares of our securities.

TAXATION

MATERIAL UNITED
STATES FEDERAL INCOME TAX
CONSEQUENCES

The following
is a general discussion of material United States federal income tax
consequences that may apply to holders and prospective holders of shares of our
common stock. This discussion is based on the Internal Revenue Code of 1986, as
amended, (the Code), Treasury Department regulations promulgated thereunder,
published Internal Revenue Service (IRS) rulings and administrative
pronouncements and court decisions of current applicability, any or all of
which may materially and adversely change at any time, possibly on a
retroactive basis. In addition, this discussion does not consider the potential
effects, adverse or beneficial, of any proposed changes in the governing tax
law, whether by judicial, executive or legislative action, which, if effected,
may be applied, possibly on a retroactive basis. Further, no opinion was
requested by us, or has been provided by our counsel or independent registered
public accounting firm, with respect to the United States income tax
consequences described in the following discussion. Accordingly, we urge
holders and prospective holders of shares of our common stock to consult with,
and rely upon, their own tax advisors in analyzing the potential United States
federal, state, local and non-United States tax consequences associated with
purchasing, owning and disposing of shares of our common stock.

As used in
this section the term U.S. Holder denotes the beneficial owner of one or more
shares of our common stock who is:


an
  individual citizen or resident of the United States;
a
  corporation, or entity taxable as a corporation, that is created or organized
  under the laws of the United States or of any political subdivision thereof
  or the District of Columbia;62


an estate
  whose income is taxable in the United States irrespective of source; or
a trust if,
  (i) a court within the United States is able to exercise primary supervision
  over the administration of the trust, and (ii) one or more United States
  persons have the authority to control all substantial decisions of the trust.This
discussion does not address the tax consequences peculiar to, and the term U.S.
Holder does not include, persons subject to special provisions of United States
federal income tax law, such as tax-exempt organizations, qualified retirement
plans, individual retirement accounts and other tax-deferred accounts,
financial institutions, insurance companies, real estate investment trusts,
regulated investment companies, dealers in securities, persons or entities that
have a functional currency other than the United States dollar, shareholders
subject to the alternative minimum tax, shareholders who hold our common shares
as part of a straddle, hedging or a conversion transaction, constructive sale
or other arrangement involving more than one position, partners and other
pass-through entities and persons holding an interest in such entities, and
shareholders who acquired our common shares through the exercise of employee
stock options or otherwise as compensation for services. This discussion is limited
to U.S. Holders who own shares of our common stock as capital assets within the
meaning of Section 1221 of the Code. This discussion does not address the
consequences peculiar to persons or entities holding an interest in a
shareholder or the consequences peculiar to a person of the ownership, exercise
or disposition of any options, warrants or other rights to acquire shares of
our common stock. If a partnership (including an entity treated as a
partnership for United States federal income tax purposes) holds shares of our
common stock, the tax treatment of a partner will generally depend upon the
status of the partner and upon the activities of the partnership. If you are a
partnership, or a partner in a partnership, holding shares of our common stock,
we urge you to consult with, and rely upon, your own tax advisor in analyzing
the potential United States federal, state, local and non-United States tax
consequences associated with purchasing, owning and disposing of shares of our
common stock.

Dividends

Though we do
not anticipate paying any cash dividends in the foreseeable future, should U.S.
Holders of shares of our common stock receive dividend distributions:


to the
  extent such distributions are paid out of our current or accumulated earnings
  and profits, as determined for United States federal income tax purposes,
  subject to any applicable foreign tax credit, and without a reduction for any
  Canadian income tax withheld from such distributions, such holders would
  generally be required to include, in their gross income for United States
  federal income tax purposes, an amount equal to the United States Dollar
  value of such distributions on the date of receipt (based on the exchange
  rate on such date).
to the
  extent such dividend distributions exceed our current or accumulated earnings
  and profits, as determined for United States federal income tax purposes, the
  amount of any distribution so received will (i) first be applied to reduce a
  U.S. Holders adjusted basis in our common shares, and, as a return of basis,
  will not be subject to United States federal income tax, and (ii) thereafter,
  any residual amount of such distribution will be treated as a gain from the
  sale or exchange of our common shares, which amount is taxable as a capital
  gain.Any taxable
dividends received on shares of our common stock by a U.S. Holder who is an
individual, a trust or an estate (an Individual Holder) will be treated as
qualified dividend income, which is subject to tax at preferential rates
through December 31, 2008, provided that:


we are a
  qualified foreign corporationone eligible for the benefits of a
  comprehensive income tax treaty with the United States, which the United
  States Treasury Department has determined to be satisfactory for this purpose
  and which includes an exchange of information programfor which purposes the
  Canada-US Income Tax Convention (1980) qualifies;63


we are not a
  passive foreign investment company for the taxable year during which the
  dividend is paid or the immediately preceding taxable year (which we do not
  believe we are, have been or anticipate that we will be);
the
  Individual Holder has held the common shares for more than 60 days during the
  121-day period beginning 60 days prior to the date on which the common shares
  become ex-dividend; and
the
  Individual Holder is not obligated to make related payments with respect to
  positions in substantially similar or related property.Special rules
may apply to any extraordinary dividenda dividend equal to or in excess of 10%
of a shareholders adjusted basis, or, under certain circumstances, the fair
market value, of a share of common stockrequiring that such a distribution be
treated as qualified dividend income. Any loss from the sale or exchange of
shares of our common stock with respect to which an Individual Holder has
received an extraordinary dividend treated as qualified dividend income will be
deemed a long-term capital loss to the extent of such dividend. Taxable
extraordinary dividends not treated as qualified dividend income will be taxed
as ordinary income, rather than as capital gains.

Foreign
Tax Credit

A U.S. Holder
who pays, or has withheld from distributions, Canadian income tax with respect
to the ownership of shares of our common stock may be entitled, at his or her
election, to either a deduction or a tax credit for such foreign tax paid or
withheld. Furthermore, a U.S. Holder that is a domestic corporation owning 10%
or more of our voting stock may be eligible to claim a deemed paid foreign tax
credit based on any underlying non-United States income taxes paid by us. The
election to credit or deduct foreign taxes is made on a yearly basis and
applies to all foreign income taxes paid by, or withheld from, the U.S. Holder
during the year.

There are
significant and complex limitations applicable to the foreign tax credit and as
such we urge you to consult with, and rely upon, your own tax advisor regarding
the availability of the foreign tax credit, the deemed paid foreign tax credit
available to certain corporations and the application of limitations on the
credit in light of your particular circumstances.

Sale,
Exchange or other Disposition of Common Shares

Generally, a
U.S. Holder will recognize a taxable gain or loss upon the sale, exchange or
other disposition of shares of our common stock in an amount equal to the
difference between the amount realized by the U.S. Holder from such sale,
exchange or other disposition and the U.S. Holders tax basis in such shares.
Subject to certain qualifications and limitations, such gain or loss will be
treated as a long-term capital gain or loss if the U.S. Holder has held the
common shares for more than one year at the time of the sale, exchange or other
disposition. Preferential tax rates for long-term capital gains may apply to
certain U.S. Holders who satisfy this minimum holding period. There are
presently no preferential tax rates for long-term capital gains recognized by a
corporation.

Special
Rules

Special United
States federal income tax rules apply to shareholders of passive foreign
investment companies and controlled foreign corporations. The preceding
discussions do not address the United States federal income tax consequences to
a U.S. Holder in the event that we were treated as a passive foreign investment
company or controlled foreign corporation. While our management does not
believe that we are, or that we are likely to become, a passive foreign
investment company or a controlled foreign corporation, the circumstances which
would result in our becoming such are not entirely within our control and as
such there always exists the possibility, however remote, that we may become a
passive foreign investment company or controlled foreign corporation in the
future.

64

Passive
Foreign Investment Company

A non-United
States entity treated as a corporation for United States federal income tax
purposes will be a passive foreign investment company in any taxable year in
which, after taking into account the income and assets of the corporation and
certain subsidiaries pursuant to a look through rule, either (i) 75% or more
of its gross income is passive income, such as interest, dividends and certain
rents and royalties, or (ii) at least 50% of the average value of its assets
are attributable to assets that produce passive income or are held for the
production of passive income. Our management does not believe that we are a
passive foreign investment company, or that we will become a passive foreign
investment company in the future, because we are primarily engaged the
refinement and manufacture of three lines of unrelated potential consumer
retail products. Moreover, we have not received 75% or more of our gross income
from passive sources, nor has 50% or more of the fair market value of our
assets been held for the production of passive income, for any taxable year.
Nonetheless, in the event we were treated as a passive foreign investment company
for any taxable year, U.S. Holders of shares of our common stock may be subject
to United States federal income taxes in excess of those previously described
on distributions paid with respect to, or dispositions of, our common shares.

There are significant
and complex issues associated with the taxation of a U.S. Holder of shares of a
passive foreign investment company and as such we urge you to consult with, and
rely upon, your own tax advisor regarding the impact of the passive foreign
investment company rules and the advisability and availability of certain
United States federal income tax elections that may alleviate adverse tax
consequences that may result if we are or were to become a passive foreign
investment company.

Controlled
Foreign Corporation

A controlled
foreign corporation is a foreign corporation of which more than 50% of the
stock, by vote or value, is owned, directly, indirectly or constructively, by
U.S. Holders each of whom, directly, indirectly or constructively, owns 10% or
more of the total combined voting power of all classes of stock of the foreign
corporation (each a CFC Shareholder). If we are a controlled foreign
corporation, a CFC Shareholder would be treated as receiving current distributions
of an allocable share of certain types of our income at the end of each year.
Additionally, such a CFC Shareholder would recognize ordinary income to the
extent of an allocable share of our earnings and profits, rather than capital
gain, on the sale of his or her common shares. Our management does not believe
that we are a controlled foreign corporation, because U.S. Holders who
directly, indirectly or constructively own 10% or more of the total voting
power of our outstanding common shares do not own more than 50% of shares of
our common stock.

United
States Federal Income Taxation of Non-U.S. Holders

For purposes
of this discussion, a beneficial owner of our common shares that is not a U.S.
Holder (other than a partnership or entity treated as a partnership for United
States federal income tax purposes) is a Non-U.S. Holder. If you are a
partnership, or a partner in a partnership, holding shares of our common stock,
we urge you to consult with, and rely upon, your own tax advisor in analyzing
the potential United States federal, state, local and non-United States tax
consequences associated with purchasing, owning and disposing of shares of our
common stock.

Distributions
on our Common Shares

Any distributions we pay to a
Non-U.S. Holder will not be subject to United States federal income tax or
withholding tax if the Non-U.S. Holder is not engaged in a United States trade
or business. If the Non-U.S. Holder is engaged in a United States trade or
business, any distributions we pay will be subject to United States federal
income tax at regular graduated rates if (i) those distributions are treated as
dividends or capital gains (as previously described with respect to U.S.
Holders); (ii) are effectively connected with the Non-U.S. Holders United
States trade or business; and, (iii) if an income tax treaty applies, are
attributable to a permanent establishment maintained by the Non-U.S. Holder in
the United States. In addition, a branch profits tax may be imposed at a 30%
rate, or at such lower rate under an applicable income tax treaty, on the
effectively connected earnings of a Non-U.S. Holder that is a corporation.

65

Sale,
Exchange or other Disposition of Common Shares

Non-U.S.
Holders generally will not be subject to United States federal income tax on
any gain recognized on the disposition of shares of our common stock unless the
gain is effectively connected with the Non-U.S. Holders conduct of a trade or
business in the United States and, if an income tax treaty applies, is
attributable to a permanent establishment maintained by the Non-U.S. Holder in
the United States. If the Non-U.S. Holder is engaged in a United States trade
or business and a gain recognized on the disposition of shares of our common
stock is effectively connected with that trade or business, and, if a tax
treaty applies, is attributable to a permanent establishment maintained by such
Non-U.S. Holder in the United States, such gain will be subject to United
States federal income tax at regular graduated rates and, if the Non-U.S.
Holder is a corporation, a branch profits tax may be imposed at a 30% rate, or
at such lower rate established under an applicable income tax treaty. A
Non-U.S. Holder who is (i) an individual (ii) present in the United States for
183 days or more in a taxable year, and (iii) who meets certain other
requirements will also be subject to United States federal income tax on
capital gains recognized during such year, including such gains realized from a
disposition of our stock.

Information
Reporting and Backup Withholding Tax

Generally,
dividend payments or other taxable distributions made within the United States
will be subject to information reporting requirements and a United States
backup withholding tax if a U.S Holder fails to provide an accurate taxpayer
identification number certified under penalties of perjury, as well as certain
other information, or otherwise establish an exemption from backup withholding.

Non-U.S.
Holders may be required to establish their exemption from information reporting
and backup withholding by certifying their status on an IRS Form W-8BEN, W-8ECI
or W-8IMY as applicable.

If a Non-U.S.
Holder sells shares to or through the United States office of a United States
or foreign broker, the payment of proceeds generally will be subject to
information reporting requirements and a backup withholding tax unless the
Non-U.S. Holder properly certifies its non-United States status under penalties
of perjury or otherwise establishes an exemption and the payer or broker does
not have actual knowledge or reason to know that the holder is a United States
person. Information reporting requirements and backup withholding taxes
generally will not apply to the payment of proceeds of the sale of common
shares effected outside the United States by a foreign office of a broker.
Information reporting requirements (but not backup tax withholding
requirements) will apply, however, to the payment of the sale proceeds if the
broker is a United States person or has certain other contacts with the United
States.

Backup
withholding is not an additional tax. Rather, a holder generally may obtain a
refund of any amounts withheld under the backup withholding rules that exceed
such holders United States federal income tax liability by timely filing a
properly completed claim for refund with the IRS.

MATERIAL
CANADIAN FEDERAL INCOME TAX CONSEQUENCES

The following
summary is a general discussion of material Canadian federal income tax
consequences that may apply to holders and prospective holders of shares of our
common stock that are non-residents of Canada (Non-Canadian Holders). This
discussion is based on the Income Tax Act (Canada), the regulations promulgated
thereunder, all amendments thereto publicly proposed by or on behalf of the
Minster of Finance (Canada) prior to the date hereof, the published
administrative practices of the Canada Revenue Agency and on the current
provisions Canada-United States Income Tax Convention (1980), as amended (the
Canada-US Treaty), any or all of which may materially and adversely change at
any time, possibly on a retroactive basis. In addition, this discussion does
not consider the potential effects, adverse or beneficial, of any proposed
changes in the governing tax law, whether by judicial, executive or legislative
action, which, if effected, may be applied, possibly on a retroactive basis. No
opinion was requested by us, or has been provided by our counsel or independent
registered public accounting firm, with respect to the Canadian income tax
consequences described in the following discussion. Accordingly, we urge
holders and prospective holders of shares of our common stock to consult with,
and rely upon,

66

their own tax
advisors in analyzing the potential Canadian federal, provincial, local and
non-Canadian tax consequences associated with purchasing, owning and disposing
of shares of our common stock.

As used in
this section the term Non-Canadian Holder denoted the beneficial owner of one
or more shares of our common stock who is:


a
  non-resident of Canada;
holds our
  common shares as capital property;
deals with
  us at arms length; and
does not use
  or hold our common shares in or in the course of carrying on business in
  Canada.Dividends

Though we do
not anticipate paying any cash dividends in the foreseeable future, should a
Non-Canadian Holder of shares of our common stock receive dividend
distributions, such holder will be subject to a Canadian withholding tax equal
to 25%, subject to such lower rate as may be available under an applicable tax
treaty, of the gross amount of any distributions paid or deemed to be paid.

In accordance
with the Canada-US Treaty the rate of withholding tax applicable to
distributions paid to a Non-Canadian Holder who is a resident of the United
States is:


to the
  extent such holder beneficially owns at least 10% of our voting stock, 5% of
  the gross amount of such distribution paid; or
to the
  extent such holder beneficially owns less than 10% of our voting stock, 15%
  of the gross amount of such distribution paid.We are
required to withhold the applicable amount from each distribution paid and
remit the withheld amount directly to the Receiver General for Canada for the
account of the Non-Canadian Holder.

In accordance
with the Canada-US Treaty, certain tax-exempt entities residing in the United
States may be exempt from Canadian withholding taxes, including any withholding
taxes levied in respect of dividends received on our common shares.

Sale,
Exchange or other Disposition of Common Shares

A Non-Canadian
Holder who disposes of shares of our common stock, including by deemed
disposition upon death, will not be subject to Canadian federal income tax on
any capital gain (or capital loss) thereby realized unless the common shares
constitute taxable Canadian property as defined by the Income Tax Act
(Canada) and no relief is afforded under any applicable tax treaty. Generally,
our common shares will not constitute taxable Canadian property of a
Non-Canadian Holder unless (i) the common shares are held as capital property
used in carrying on a business (other than an insurance business) in Canada, or
(ii) the Non-Canadian Holder or persons with whom the Non-Canadian Holder did
not deal at arms-length alone or together held or held options to acquire, at
any time within the five years preceding the disposition, 25% or more of the
shares of any class of our capital stock.

A Non-Canadian
Holder who is resident of the United States and realizes a capital gain on
disposition of common shares that are taxable Canadian property will
nevertheless, by virtue of the Canada-US Treaty, generally be exempt from
Canadian tax thereon unless (i) more than 50% of the value of the common shares
are derived from, or forms an interest in, Canadian real estate, including
Canadian mineral resource properties, (ii) the common shares formed part of the
business property of a permanent establishment that the Non-Canadian Holder has
or had in Canada within the twelve months preceding disposition, or (iii) the

67

Non-Canadian
(a) was a resident of Canada at any time within the ten years immediately
preceding the disposition and for a total of 120 months during the twenty
years, preceding the disposition, and (b) owned the common share when he ceased
to be a resident of Canada.

A Non-Canadian
Holder who is subject to Canadian tax in respect of a capital gain on
disposition of common shares must include one-half of the capital gain in
computing his taxable income earned in Canada. The Non-Canadian Holder may,
subject to certain limitations, deduct one half of any capital loss arising on
disposition of taxable Canadian property from taxable capital gains realized in
the year of disposition in respect of taxable Canadian property and, to the
extent not so deductible, from such taxable capital gains of any of the three
preceding years or any subsequent year.

A Non-Canadian
Holder whose common shares constitute taxable Canadian property and who is a
resident of the United States and entitled to benefits under the Canada-US
Treaty generally would be exempt from Canadian tax on any capital gain realized
on a disposition of those shares in any event, provided such shares do not
derive their value principally from Canadian real property (including Canadian
resource properties). Our management is of the view that our common shares do
not derive their value principally from Canadian real property. A Non-Canadian
Holder claiming exemption under the Treaty will, however, have Canadian tax
filing obligations with respect to a disposition of common shares.

DOCUMENTS ON
DISPLAY

All documents
referred to in this annual report may be inspected at our offices during regular
business hours located at 420  475 Howe Street, Vancouver, British Columbia
V6C 2B3, telephone (604) 606-7979.

ITEM 11.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

Not
applicable.

ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN
EQUITY SECURITIES

Not applicable.

68

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES

Not
applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS
OF SECURITY HOLDERS AND USE OF PROCEEDS

Not
applicable.

ITEM 15. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

Our Acting
President and Secretary, performing the function of principal executive and
principal financial officer, respectively, have evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of
the end of the fiscal year covered by this annual report on Form 20-F (in
accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934, as
amended). Based on this evaluation, our Acting President and Secretary have
concluded that these disclosure controls and procedures are effective and
designed to ensure that the information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the requisite time periods.

MANAGEMENTS ANNUAL REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING

Our Acting
President and Secretary, performing the function of principal executive and
principal financial officer, respectively, have evaluated the effectiveness of
the design and operation of our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as
amended) as of the end of the fiscal year covered by this annual report on Form
20-F. Based on this evaluation, our Acting President and Secretary have
concluded that these internal controls over financial reporting are effective
and provide reasonable assurance regarding the reliability of our financial
reporting and the preparation of our financial statements for external purposes
in accordance with generally accepted accounting principles.

During the
course of their evaluation, our Acting President and Secretary did not discover
any fraud involving management or any other personnel who play a significant
role in our disclosure controls and procedures or internal controls over
financial reporting. Furthermore, because there were no significant
deficiencies and/or material weaknesses discovered no remedial measures were
necessary or taken during the period covered by this report to correct any such
deficiencies.

ATTESTATION REPORT OF THE REGISTERED PUBLIC
ACCOUNTING FIRM

Not
applicable.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING

No changes in
our disclosure controls and procedures or other factors have occurred during
the fiscal year covered by this annual report on Form 20-F that would
materially affect or be reasonably likely to materially affect our disclosure
controls and procedures.

69

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

We presently
have, and will continue to have, one audit committee members who is a
financial expert (as defined in accordance with Item 16A(b) of Form 20-F), F.
George Orr. Mr. Orr is not independent as that term is defined in Section
121A of the American Stock Exchange Company Guide and SEC Rule 10A-3 under the
Exchange Act of 1934.

ITEM 16B. CODE OF ETHICS

As of the date
of the filing of this annual report on Form 20-F we have not adopted a code of
ethics (as defined in accordance with Item 16B(a) of Form 20-F), however, we
intend to, as soon as practicable, form a committee to advise on the content
and adoption of a code of ethics.

ITEM 16C. PRINCIPAL ACCOUNTING FEES AND
SERVICES

Our
independent auditors for the fiscal year ended March 31, 2006 and 2005 were
Smythe Ratcliffe, Chartered Accountants.

AUDIT FEES

The aggregate
audit fees billed for the fiscal years ended March 31, 2006 and March 31, 2005
for professional services rendered by Smythe Ratcliffe, Chartered Accountants,
for the audit of our annual financial statements were $6,000 and $5,000,
respectively.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND
PROCEDURES

Our audit
committee charter requires us to request the prior approval of our audit committee
on every occasion for which we engage our principal accountants or their
associated entities to render any audit or non-audit services.

TAX FEES

The aggregate fees billed in the last two fiscal years for professional tax compliance advice and planning
was USD$40,391, of which $23,000 related to the audit.

ITEM 16D. EXEMPTIONS FROM THE LISTING
STANDARDS FOR AUDIT COMMITTEES

Not
applicable.

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY
THE ISSUER AND AFFILIATED PURCHASERS

Not
applicable.

70

PART III

ITEM 17. FINANCIAL STATEMENTS

VALCENT PRODUCTS INC.
(Formerly Nettron.Com, Inc.)

March 31, 2006 and 2005

(Expressed in Canadian Dollars)

Index

PageREPORT OF INDEPENDENT REGISTERED PUBLIC
  ACCOUNTING FIRM

F-2FINANCIAL STATEMENTSBalance
  Sheets

F-3Statements
  of Operations and Deficit

F-4Statements
  of Cash Flows

F-5Notes
  to the Financial Statements

F-6 ~ F-18F-1

SmytheRatcliffe.com7thFloor, Marine
Building355 Burrard StreetVancouver, B.C. V6C 2G8(SMYTHERATCLIFFE LOGO)facsimile: 604.688.4675telephone: 604.687.1231REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

TO THE SHAREHOLDERS OF VALCENT
PRODUCTS INC.(A Development Stage Company)

We have audited the consolidated balance
sheets of Valcent Products Inc. as at March 31, 2006 and 2005 and the
consolidated statements of operations and deficit and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audit in accordance with
generally accepted auditing standards in Canada and the standards of the Public
Company Accounting Oversight Board (PCAOB) in the United States. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
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 financial statement presentation.

In our opinion, these consolidated financial
statements present fairly, in all material respects, the financial position of
the Company as at March 31, 2006 and 2005 and the results of its operations and
its cash flows for the years then ended in accordance with Canadian generally
accepted accounting principles. Accounting principles generally accepted in
Canada differ in certain significant respects from accounting principles
generally accepted in the United States and are discussed in note 13 to these
financial statements.

Smythe Ratcliffe (signed)

Chartered Accountants

Vancouver, Canada
August 2, 2006, except for Note 14 which is as at August 9, 2006

COMMENTS BY AUDITORS FOR U.S.
READERS

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion
paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Companys ability
to continue as a going-concern, such as described in Note 1 to the consolidated financial statements. Our report to the shareholders
dated August 2, 2006, is expressed in accordance with Canadian reporting standards, which do not permit a reference to such events
and conditions in the auditors report when these are adequately disclosed in the financial statements.


Smythe Ratcliffe (signed)

Chartered AccountantsVancouver, CanadaAugust 2, 2006, except for Note 14 which is
  as at August 9, 2006

(PKF LOGO)Smythe Ratcliffe LLP, a British Columbia limited
  liability partnership, is a member of PKF North American Network and PKF
  International, associations of legally independent firms.F-2

Valcent Products
  Inc.(A Development Stage Company)Consolidated Balance Sheets(Expressed in Canadian Dollars)March
  31
  2006

March
  31
  2005AssetsCurrentCash

$
12,773

$
222Accounts
receivable


10,626


71423,399


936Equipment and
  Leaseholds(Note 4)


63,327


Product License(Note 5)


1,306,075


$
1,392,801

$
936Liabilities
  and Shareholders DeficitCurrentAccounts
payable and accrued liabilities

$
199,558

$
85,537Due to related
parties (Note 9)


69,273


153,349Convertible
Notes (Note 7)


1,565,069


$
1,833,900

$
238,886Shareholders Equity (Deficiency)Share capital
(Note 8)


4,099,870


2,999,420Contributed
surplus (Note 8(e))


1,663,067


Conversion
component of convertible note (Note 7)


348,532


Obligation to
issue shares (Notes 5 and 8)


419,401


Accumulated
deficit from prior operations


(3,237,370
)

(3,237,370
)Accumulated
deficit during development stage


(3,734,599
)

(441,099
)

(237,950
)$
1,392,801

$
936Going concern
(Note 1) and commitment (Note 10)On behalf of the board:

Glen Kertz

Director
F. George Orr

DirectorGlen Kertz


F. George OrrSee notes to consolidated financial
statements

F-3

Valcent Products
  Inc.(A Development Stage Company)Consolidated Statements of Operations and Deficit(Expressed in Canadian Dollars)2006

2005
  (Note 14)ExpensesFinancing
expenses

$
1,328,337

$
Product
development


685,432


Convertible
note issuance costs


570,226


Stock option
compensation


533,664


Interest and
penalties


193,987


Professional
fees


175,883


23,403Travel


69,600


Rent


56,771


6,000Office and
miscellaneous


38,125


919Filing and
transfer agent


26,250


10,600Investor
relations


19,037


Depreciation
and amortization


9,382


Management
fees


4,000


6,000Loss from Operations


3,710,644


46,922Other
Income ExpensesForeign
exchange (gain) loss


23,955


(1,228
)Net Loss


3,734,599


45,694Deficit during the development stage,
  beginning


Deficit during the development stage, ending

$
3,734,599Deficit from prior operations, beginning


3,237,370


3,191,676Deficit from prior operations, ending

$
3,237,370

$
3,237,370Loss per share  basic

$
0.354

$
0.007Weighted average number of common shares outstanding


10,548,042


6,435,374See notes to consolidated financial
statements

F-4

Valcent Products
  Inc.(A Development Stage Company)Consolidated Statement of Cash Flows(Expressed in Canadian Dollars)2006

2005
  (Note 14)Cash provided by (used
in)Operating
activatesLoss for
period

$
(3,734,599
)

(45,694
)Items not
involving cashFinancing
expense


1,328,337


Convertible
note issuance costs


285,242


Stock option
compensation


533,664


Depreciation
and amortization


9,382


Charges in
non-cash working capital items


104,109


(97,621
)(1,473,865
)

(143,315
)Investing
ActivitiesProduct
Licence


(306,075
)

Equipment and
leaseholds


(72,709
)

(378,784
)

Financing
ActivitiesAdvances to
(repayment from) related parties


(84,076
)

144,669Convertible
notes (Note 7)


1,565,069


Debt discount
(Note 7)


149,598


Shares issued
for settlement of debt (Note
  8(b))


234,609


1,865,200


144,669Increase in cash during
period12,551


1,354Cash, beginning of
period222


(1,132
)Cash, end of
period$
12,773

$
222Supplemental Cash Flow
InformationShares issued
as finders fees

$
285,242

$
Shares issued
for product license

$
580,599

$
See notes to consolidated financial statements

F-5

Valcent
  Products Inc.Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 20061.
Nature of Business and Ability to Continue as a Going
  ConcernValcent Products Inc. was
  incorporated under the Alberta Business Corporations Act on January 19, 1996
  and was in the business of marketing its interactive dating service Cupids
  Web until March 24, 2004 when these operations were discontinued due to
  difficulties encountered in raising financing. The Company had previously
  been pursuing various business opportunities and effective March 24, 2004 had
  discontinued those operations.During the year ended
  March 31, 2006 the Company acquired a license to certain proprietary
  technology owned by arms-length parties (see Product License Note 5) and the
  development of these products has been the Companys primary business. The
  Company considers its development stage operations to have commenced during
  fiscal 2006. Also during the year ended March 31, 2006 Valcent Products Inc.
  formed a wholly owned Nevada corporation, Valcent USA, Inc. to conduct
  operations in the United States. In turn Valcent USA, Inc. incorporated
  Valcent Management, LLC, a wholly-owned limited liability company under the
  laws of Nevada, to serve as the general partner in Valcent Manufacturing
  Ltd., a limited partnership also formed by Valcent USA, Inc., under the laws
  of Texas, wherein Valcent USA, Inc. serves as its limited partner.These consolidated
  financial statements have been prepared in accordance with Canadian generally
  accepted accounting principles applicable to a going-concern, which
  contemplates the realization of assets and the satisfaction of liabilities
  and commitments in the normal course of business. As at March 31, 2006, the
  Company had accumulated losses during the development stage of $3,734,599,
  total accumulated losses of $6,971,969 and a working capital deficiency of
  $1,810,501. The continuation of the Company is dependent upon the economic
  development and sales of the products underlying its product license as well
  as obtaining long-term financing. While the Company is expending its best
  efforts to achieve the above plans, there is no assurance that any such
  activity will generate funds that will be available for operations.These conditions raise
  substantial doubt about the Companys ability to continue as a going-concern.
  These consolidated financial statements do not include any adjustments that
  might arise from this uncertainty.2.
Significant Accounting PoliciesThese financial statements
  have been prepared in accordance with Canadian generally accepted accounting
  principles (Canadian GAAP). In the case of the Company, Canadian GAAP
  differs in certain respects from accounting principles generally accepted in
  the United States (US GAAP) as explained in Note 13. The significant
  accounting policies used in these consolidated financial statements are as
  follows:a)
Principles of
  ConsolidationThese financial statements
  include the accounts of Valcent Products Inc., its wholly owned subsidiary
  Valcent USA, Inc., Valcent USA, Inc.s wholly owned subsidiary Valcent
  Management, LLC and the limited partnership, Valcent Manufacturing Ltd., in
  which Valcent Management, LLC is the general partner and Valcent USA, Inc. is
  the limited partner (together the Company). All intercompany transactions
  and balances have been eliminated.b)
Product development costsThe Company expenses all
  costs related to product development until such time as the economic
  viability of the product is demonstrated and thereafter will capitalize and
  expense over the expected economic useful life of the product.F-6

Valcent
  Products Inc.Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 20062.
Significant Accounting Policies (Continued)c)
Fixed assetsThe Company amortizes its
  leasehold improvements on a straight-line basis over the life of the lease.
  Computer equipment and furniture and fixtures are depreciated under the
  declining balance method as to 30% and 20%, respectively. During the year of
  acquisition, depreciation is 50% of amounts otherwise determinable.d)
Foreign currency
  transactions and translationAmounts denominated in US
  dollars have been translated into Canadian dollars as follows:i.
Monetary assets and
  liabilities, at the year end exchange rates;ii.
Non-monetary assets and
  liabilities, at exchange rates approximating those prevailing on the dates of
  the transactions; andiii.
Revenue and expense items,
  at the average rate of exchange during the year.Gains and losses arising
  from this translation of foreign currency are included in net loss.e)
Use of estimatesThe preparation of these
  financial statements in accordance with Canadian generally accepted
  accounting principles requires management to make estimates and assumptions
  that affect the reported amounts of assets and liabilities at the date of the
  financial statements, and the reported amounts of revenues and expenses
  during the reporting period. Actual results could differ from managements
  best estimates as additional information becomes available in the future.f)
Loss per shareThe Company uses the Treasury
  Stock Method to calculate loss per common share. Under this method, the
  basic loss per share is calculated based on the weighted average aggregate
  number of common shares outstanding during each period. The diluted earnings
  per share assumes that the outstanding stock options and share purchase
  warrants had been exercised at the beginning of the period to the extent that
  they are dilutive. The assumed conversion of stock options and share purchase
  warrants has an anti-dilutive impact on both 2005 and 2006 and has not been
  recorded.g)
Stock-based compensationThe Company uses the fair
  value based method of accounting for employee stock options as required under
  the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3870,
  Stock-Based Compensation and Other
  Stock-Based Payments. Under the fair value based method,
  compensation cost of a stock option is measured at fair value at the date of
  grant and is expensed over the vesting period of the stock option with a
  corresponding increase to contributed surplus. When the stock options are
  exercised, the proceeds, together with the amount previously recorded in
  contributed surplus, are recorded in share capital.h)
Income taxesThe Company follows the
  asset and liability method of accounting for income taxes. Under this method,
  current income taxes are recognized for the estimated income taxes payable
  for the current period. Future income tax assets and liabilities are
  recognized for temporary differences between the tax and accounting basis of
  assets and liabilities as well as for the benefit of losses available to be
  carried forward to future years for tax purposes. Future tax benefits are
  recognized to the extent it is more likely than not that this can be realized.F-7

Valcent
  Products Inc.Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 20062.
Significant Accounting Policies (Continued)i)
Non-monetary considerationIn situations where share
  capital is issued, or received, as non-monetary consideration and the fair
  value of the asset received, or given up is not readily determinable, the
  fair value (as defined) of the shares is used to record the transaction. The
  fair value of the shares issued, or received, is based on the trading price
  of those shares on the appropriate Exchange on the date of the agreement to
  issue shares as determined by the Board of Directors.3.
Financial
  Instrumentsa)
Fair valueThe carrying values of cash,
  accounts receivable, accounts payable and accrued liabilities and convertible
  notes approximate their fair values because of the short-term maturity of
  these financial instruments. It is not practicable to determine the fair
  value of amounts due to related parties.b)
Interest rate riskThe Company is not exposed
  to significant interest rate risk due to the short-term maturity of its
  monetary current assets and current liabilities.The Companys convertible
  notes are at fixed interest rates, and therefore, the Companys exposure to
  interest rate risk during the term of the debt is minimized.c)
Credit riskThe Companys financial
  assets that are exposed to credit risk consist of cash and accounts
  receivable. This risk is minimized as cash is placed with well capitalized,
  high quality financial institutions and accounts receivable consist of
  amounts due from the Government of Canada.4.
Equipment
  and LeaseholdsCost

Accumulated
  Depreciation

Balance 
  March 31, 
  2006Leasehold
  improvements

$
20,876

$
2,783

$
18,093Computer
  equipment


28,321


4,248


24,073Furniture
  and fixtures


23,512


2,351


21,161$
72,709

$
9,382

$
63,327F-8

Valcent
  Products Inc.Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 20065.
Product LicenseOn July 29, 2005 the
  Company completed a licensing agreement for the exclusive worldwide marketing
  rights to a Skincare System, a Duster, a Garden Kit and a right of first
  offer on future products developed by MK Enterprises LLC. The Company has
  agreed to issue MK Enterprises LLC and its assigns 20 million common shares
  at a deemed cost of $1,000,000, of which 11,611,975 have been issued with the
  balance reserved for issuance and included in obligation to issue shares, pay
  a $153,037 ($125,000 USD) license fee (paid), pay $153,038 ($125,000 USD) in
  costs related to the development of the products since March 17, 2005 (paid)
  and royalties as to $10 USD per Skincare System unit sold, $2 USD per Duster
  sold and 4.5% of the net sales of the Garden Kit. In addition the Company has
  agreed to pay a royalty of 3% of net sales related to ancillary product sales
  from these products. For future products developed by MK Enterprises LLC,
  that the Company elects to acquire the rights to, it has agreed to pay a
  royalty of 4.5% of net sales of the new product plus 3% of net sales from
  ancillary product sales. Also in order to keep the products under license the
  Company has agreed to a minimum royalty schedule per product for each of the
  Skincare System, Duster and Garden Kit and their related ancillary products
  of $37,500 USD for the second license year and $50,000 USD per year thereafter.
  For any new products acquired they will be subject to minimum royalties of
  $50,000 USD per year also beginning in the second year. To keep the overall
  master license in good standing the Company has agreed that beginning in the
  second license year that the total of royalties plus other fees paid to MK
  Enterprises LLC shall be at least $400,000 USD per year.6.
Accounts
  PayableAccounts payable includes
  a non-interest bearing, unsecured advance (no specified terms of repayment)
  of $98,850 from a shareholder who owns approximately 11% of the Company but
  is not an officer or a director.7.
Convertible NotesTo finance the purchase of
  the Product License (Note 5) and to provide working capital for its
  development, the Company issued one year, unsecured $1,714,667 ($1,277,200
  USD) 8% per annum convertible notes and stock purchase warrants whereby for
  each $0.75 USD in convertible note purchased the holder will receive one
  class A warrant which will entitle him to purchase an additional common share
  at $0.50 USD until August 5, 2008 and one class B warrant which will entitle
  him to purchase an additional common share at $1.00 USD until August 5, 2008.
  The holders of the convertible notes may elect to convert the notes and any
  unpaid interest into common shares of the Company at the lesser of (i) 70% of
  the average of the five lowest closing bid prices for the common stock for
  the ten trading days prior to conversion and (ii) $0.55 USD The Company may,
  subject to notice provisions and the common shares trading above $1.50 USD
  per share for more than twenty consecutive trading days, elect to payout the
  notes and interest due by paying 130% of the amount due under the notes plus
  interest. In conjunction with this financing the Company has paid finders
  fees of 10% of the gross proceeds in cash, which is included in convertible
  note issuance costs, and 425,735 common shares at a deemed value of $285,242.
  There are 255,440 finders A warrants whereby the holders shall have the right
  to purchase 255,440 common shares at $0.50 USD per share until August 5, 2008
  and 425,733 finders B warrants whereby the holders shall have the right to
  purchase 425,733 common shares at $0.75 USD per share until August 5, 2008.
  As a result of the issuance of the warrants in conjunction with the
  convertible notes the Company has recorded a financing expense of $1,328,337.F-9

Valcent
  Products Inc.Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 20067.
Convertible Notes (continued)Certain of the convertible
  notes contain registration rights where the Company is committed to
  registering shares issuable upon conversion and exercise by filing a
  registration statement with the SEC that will permit the public trading of
  the Companys shares in the US. The registration must take place within 60
  days of the closing date of the above mentioned notes, which to date have not
  been met. As at March 31, 2006 the Company has accrued $143,874 in penalties
  pertaining to these registration rights and is subject to a penalty of 2%
  every thirty days thereafter until such time as its meets its registration
  requirements. Subsequent to March 31, 2006 the company filed the required
  registration statement and also amended the terms of the notes subject to
  registration rights (Note12).Details of the Companys
  convertible notes are as follows:2006Issued

$
1,714,667Conversion
  component


(348,532
)Debt
  discount


198,934Balance,
  March 31, 2006

$
1,565,0698.
Share Capital(a)
Authorized:Unlimited
  number of common shares without par valueUnlimited
  number of preferred shares without par value  None issued(b)
Issued:Common
  sharesNumber ofShares

AmountBalance, March 31, 2005
  and 2004


6,435,374

$
2,999,420Consolidates 1 new for 3
  old during the period


(4,290,249
)

Debt settlement


1,605,000


234,609Shares issued for finders
  fees (Note 7)


425,735


285,242Purchase of product
  license (Note 7)


11,611,975


580,59915,787,835

$
4,099,870On April 14, 2005, the
  Company consolidated its common shares three for one and issued 1,605,000
  post-consolidated common shares, for the settlement of $234,609 of debt. The
  Company also entered into a license acquisition agreement (Note 5) and a
  private placement of convertible notes (Note 7), whereby certain common
  shares have been issued or may be issued. As at March 31, 2006, 8,388,025
  common shares remained to be issued pursuant to the license agreement and are
  reflected in obligation to issue shares. Pursuant to the issuance of
  convertible notes the Company also issued to finders 425,735 common shares.(c)
Stock optionsPursuant to the Companys
  1996 Incentive Stock Option Plan (the Plan), a total of 10% of the
  Companys issued common shares are reserved for the granting of stock
  options. The PlanF-10

Valcent
  Products Inc.Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 20068.
Share Capital (Continued)(c)
Stock options (continued)provides that the terms of
  the options and the option price shall be fixed by the Directors and subject
  to the price restrictions and other requirements imposed by the TSX Venture
  Exchange or any other exchange that the Company lists its common shares. The
  Plan also provides that no option shall be granted to any person except on
  recommendations of the Directors of the Company. Stock options granted under
  the Plan may not be for a period longer than five years.Details of the status of
  the Companys stock options as at March 31, 2006 and changes during the year
  then ended are as follows:Number
  of Options

Weighted
  Average
  Exercise
  PriceOptions, March 31, 2005 Granted


1,425,000

$
0.67Options outstanding, March
  31 2006


1,425,000

$
0.67Exercisable, March 31,
  2006


750,000

$
0.59The Company applies the
  fair value method using the Black-Scholes option-pricing model in accounting
  for options. During the year ended March 31, 2006, 1,425,000 (2005 - Nil)
  options were granted, which resulted in a charge to operations totaling
  $533,664 (2005 - Nil).The fair value of each
  option granted is calculated using the following weighted average
  assumptions:2006Expected life (years)


1-5Interest rate


4.19
%Volatility


105.49
%Dividend yield


00.00
%As at March 31, 2006 the
  following share purchase options were outstanding:Expiry
  Date

ExercisePrice

Number of
  SharesOctober 11, 2006

$
0.59


200,000October 17, 2007

$
0.53


100,000November 10, 2009

$
0.71


750,000February 21, 2011

$
0.57


300,000March 1, 2010

$
1.14


75,0001,425,000F-11

Valcent
  Products Inc.Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 20068.
Share Capital (Continued)(c)
Stock options (continued)As at March 31, 2004 the
  Company had outstanding stock options whereby 612,500 shares could be
  acquired as to 512,500 shares at $0.44 until September 10, 2004 and 100,000
  shares at $2.00 until March 27, 2005. All of these options expired
  unexercised and no options remained outstanding as at March 31, 2005.During the year ended
  March 31, 2006 the Company amended the Plan and instituted a new stock option
  plan (the US Plan). The US Plan is applicable to residents of the United
  States and options may be issued under this plan to acquire up to an
  aggregate number of shares, which when combined with options granted under
  the Plan equals 10% of the issued number of common shares. The terms of the
  options and the option price of the US Plan are to be fixed by the Directors,
  subject to a limitation that no one individual may be granted options to
  receive greater than 5% of the issued number of common shares. The amended
  terms of the Plan call for the total aggregate number of options that can be
  granted under both the Plan and the US Plan be no more than 10% of the issued
  number of common shares.Included
  in the number of options outstanding as at March 31, 2006 are 75,000 options
  at $1.14 that vest evenly over five months, 200,000 options at $0.71 that
  vest in one month, 100,000 options at $0.71 that vest in seven months and
  300,000 options at $0.71 that vest in 3 months. These options expire four
  years after they vest. All other options are fully vested.(d)
WarrantsIn conjunction with the
  convertible notes the Company issued various warrants to acquire common
  shares, see Note 3 and Note 12. A summary of the
  status of share purchase warrants as of March 31, 2006 and changes during the
  years ended on those dates is presented below:Number 
  of Shares

WeightedAverage
  Exercise 
  PriceWarrants outstanding and
exercisable, March 31, 2005





Granted


4,087,021

$
0.83Expired





Warrants outstanding and
exercisable, March 31, 2006


4,087,021

$
0.83The Company applies the
  fair value method using the Black-Scholes option-pricing model in accounting
  for warrants. During the year ended March 31, 2006, 4,087,021 (2005 - Nil)
  warrants were granted, which resulted $1,129,403 (2005 - Nil) which is
  included in financing expense.F-12

Valcent
  Products Inc.Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 20068.
Share Capital (Continued)(d)
Warrants (continued)As at March 31, 2006 the
  following share purchase warrants were outstanding:Expiry
  Date

Exercise Price

Number of Warrants(Note 7)July 25, 2008 Class A

$
0.61


1,439,992July 25, 2008 Class B

$
1.21


1,439,992July 25, 2008 Finders A

$
0.67


216,000July 25, 2008 Finders B

$
0.91


360,000August 5, 2008 Class A

$
0.60


262,932August 5, 2008 Class B

$
0.90


262,932August 5, 2008 Finders A

$
0.60


39,440August 5, 2008 Finders B

$
0.60


65,733Total





4,087,021(e)
Contributed SurplusContributed surplus
  increased in connection with the recognition of compensation cost relating to
  stock options and warrants. Contributed surplus is decreased when those stock
  options are exercised:2006

2005Contributed surplus,
  beginning of year

$


$
Financing expense 
  warrants (Note 8(d))


1,129,403


Stock option expense for
  year


553,664


Contributed surplus, end
  of year

$
1,663,067

$
9.
Related Party TransactionsRelated party transactions
  not disclosed elsewhere in these consolidated financial statements are as
  follows:(a) During the year ended
March 31, 2006 $153,349 of accounts payable due to directors or companies
controlled by directors was settled by way of the issuance of 1,106,486 common
shares.

(b) During the year ended
March 31, 2006 and 2005, the Company paid or accrued fees to officers and
directors and companies controlled by directors for the following services:

2006

2005Management fees

$
4,000

$
6,000Rent

$
1,750

$
6,000Product development

$
161,530

$
Consulting fees

$
2,080

$
Professional fees

$
19,500

$
F-13

Valcent
  Products Inc.Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 20069.
Related Party Transactions (Continued)The above transactions are
  in the normal course of operations and are measured at the exchange amount,
  which is the amount of consideration established and agreed to by the related
  parties.10.
CommitmentOn June 28, 2005 Valcent
  Product, Inc. leased development space in El Paso, Texas under a three-year
  lease at a cost of $3,170 USD per month. As at March 31, 2006 there remains
  twenty-six months on the lease.11.
Income
  taxesThe tax effects of the
  temporary differences that give rise to the Companys future tax assets and
  liabilities are as follows:2006

2005Net operating losses

$
1,517,306

$
798,392Net capital losses

$
244,937

$
255,705Valuation allowance

$
(1,762,243
)
$
(1,054,097
)Future tax assets
  (liability)

$


$
The Company evaluates its
  valuation allowance requirements based on projected future operations. When
  circumstances change and this causes a change in managements judgment about
  the recoverability of future tax assets, the impact of the change in the
  valuation allowance will be reflected in current income.The Company has
  non-capital losses available for income tax purposes in Canada and the United
  States totaling $1,517,306 (2005 $2,241,000), which expire in various amounts
  from 2007 to 2013. This amount can be used to reduce taxable income of future
  years. Additionally, the Company has capital losses of $1,435,740, which are
  available to reduce capital gains in future periods.The reconciliation of
  income tax provision computed at statutory rates to the reported income tax provision
  is as follows:2006

200534.12
%

35.62
%Income tax benefit
  computed at Canadian statutory rates

$
886,962

$
16,276Convertible note issuance
  costs


194,561


0Deductible convertible
  note issuance costs


(38,912
)

0Penalties accrued


(42,043
)

0Stock option compensation


(182,086
)

0Financing expense


(453,299
)

0Unrecognized tax losses


(365,183
)

(16,276
)$
0

$
0F-14

Valcent
  Products Inc.
  Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 200612.
Subsequent
  Eventsa)
The Company issued 786,700
  shares pursuant to the license agreement.b)
On April 6, 2006 we consummated
  a private offering transaction with and among a syndicated group of
  institutional investors, pursuant to which we issued, in the aggregate,
  $551,666 USD in 8% per annum convertible notes and three-year warrants to
  acquire (i) up to 735,544 shares of our common stock at a price per share of
  $0.50 USD, and (ii) up to an additional 735,544 shares of our common stock at
  a price per share of $1.00 USD. Subject to certain limitations, the principal
  amount of the notes, together with any accrued interest may be converted into
  shares of our common stock at the lesser of (i) seventy percent (70%) of the
  average of the five lowest closing bid prices for our common stock for the
  ten trading days prior to conversion, or (ii) $0.55 USD. The convertible
  notes carry a redemption feature which allows us to retire them, in whole or
  in part, for an amount equal to 130% of that portion of the face amount being
  redeemed, but only in the event that our common shares have a closing price
  of $1.50 USD per share for at least twenty consecutive trading days and there
  has otherwise been no default. The common stock purchase warrants carry a
  net cashless exercise feature allowing the holder thereof, under certain
  limited circumstances, to exercise the warrants without payment of the stated
  exercise price, but rather solely in exchange for the cancellation of that
  number of common shares into which such warrants are exercisable. In
  conjunction with these private offering transactions we also paid a finders
  fees of (i) $55,166 USD in cash, representing 10% of the gross proceeds
  realized, (ii) 183,886 shares of common stock, (iii) three-year warrants to
  purchase up to 110,320 shares of common stock at a price per share of $0.50
  USD and (iv) three-year warrants to purchase up to 183,867 shares of common
  stock at a price per share of $0.75 USD.In conjunction with the
  private placement we reached a verbal agreement with the syndicated group of
  institutional and other investors, wherein we agreed to convert the accruing
  penalties associated with the July 25, 2005 through August 5, 2005
  transactions, an aggregate of $82,200 USD, into convertible penalty notes
  carrying terms similar to those notes issued in the original series of
  private offering transactions, and in addition to issue each investor one
  three-year penalty warrant for each $0.75 USD of penalties owed to purchase,
  in the aggregate, up to an additional 109,600 shares of common stock at a
  price per share of $0.75 USD.As part of the April 6,
  2006 agreement and the verbal agreement we also granted certain additional
  registration rights whereby the Company has agreed to pay a penalty of 2% of
  the outstanding amount for every thirty days after the April 20, 2006
  registration date plus a reduction in the warrant price of certain of the
  warrants of $0.10 USD per week for the duration of such delay.  The Company filed the required
  registration statement on April 27, 2006 and accordingly has incurred
  penalties of $41,222 USD and as noted above, the warrant prices have been
  reduced from $0.50 USD and $1.00 USD to $0.40 USD and $0.90 USD,
  respectively.The Company also completed
  a private placement of units whereby it issued a total of 1,104,165 units at
  USD $0.60 per unit whereby each unit consisted of one common share and one
  share purchase warrant to purchase an additional common share at $0.80
  USD.  Of the warrants issued 833,332
  expire on May 15, 2008 and 270,833 on June 7, 2008.  The Company also paid consultants fees consisting of
$58,860
  USD plus 66,666 warrants to purchase that number of common shares at  $0.80 USD until May 15, 2008 and 21,666
  warrants to purchase that number of common shares at $0.80 USD until June 7,
  2008.c)
We entered into a
  manufacturing agreement with Solid Integrations, LLC, for the manufacture and
  assembly of our Nova Skin Care System.
  Under this agreement we will provide and makeF-15

Valcent
  Products Inc.
  Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 200612.
Subsequent
  Events (continued)available to Solid
  Integrations, LLC, and its subcontractor(s), the raw materials, machinery,
  equipment, tooling and molds necessary for Solid Integrations, LLC, and its
  subcontractor(s), to manufacture and assemble the Nova Skin Care System at a
  manufacturing facility located in Mexico.13.
Differences
  between Canadian and United States Generally Accepted Accounting PrinciplesAs indicated in Note 2,
  these consolidated financial statements have been prepared in accordance with
  Canadian GAAP, which in the case of the Company, conforms in all material
  respects with US GAAP, except as set forth below.(a)
Recent
  US accounting pronouncements(i)
FAS
  153, Exchanges of Non-Monetary Assets.  The provisions of this statement is
  effective for non-monetary asset exchanges occurring in fiscal periods
  beginning after June 15, 2005. Earlier application is permitted for
  non-monetary asset exchanges occurring in fiscal periods beginning after
  December 16, 2004. The provisions of this statement should be applied
  prospectively. There is no impact on the Companys financial statements.(ii)
FIN
  46(R), Consolidation of Variable Interest
  Entities, applies at different dates to different types of
  enterprises and entities, and special provisions apply to enterprises that
  have fully or partially applied Interpretation 46 prior to issuance of
  Interpretation 46(R).  Application of
  Interpretation 46 or Interpretation 46(R) is required in financial statements
  of public entities that have interests in variable interest entities or
  potential variable interest entities commonly referred to as special purpose
  entities for periods ending after December 15, 2003.  Application by public entities (other than
  small business issuers) for all other types of entities is required in
  financial statements for periods ending after March 15, 2004.  Application by small business issuers to
  entities other than special purpose entities and by non-public entities to
  all types of entities is required at various dates in 2004 and 2005.  In some instances, enterprises have the
  option of applying or continuing to apply Interpretation 46 for a short
  period of time before applying Interpretation 46(R).  There is no impact on the Companys
  financial statements.(iii)
In
  2004, FASB issued a revision of FASB Statement No. 123(R), Accounting for Stock-Based Compensation.
This statement supersedes APB Opinion No.
  25, Accounting for Stock Issued to
  Employees, and its related implementation guidance.  This revised pronouncement requires that
  all stock options and warrants be accounted for using the fair value
  method.  This pronouncement had no
  impact on the Company, as the Company accounts for all options and warrants using
  the fair value method, under Canadian GAAP.F-16

Valcent
  Products Inc.
  Notes to the Consolidated Financial Statements
  (Expressed in Canadian Dollars)
  March 31, 200613. Differences
  between Canadian and United States Generally Accepted Accounting Principles
  (Continued)

Impact
  of Recent United States Accounting PronouncementsManagement is of the
  opinion that recently issued accounting pronouncements in the United States
  will have no material effect on the Companys consolidated financial position
  and results of operations.(b)
Reconciliation of total
  assets, liabilities and shareholders equity March 31:2006Total
  assets for Canadian GAAP

$
1,392,801Adjustments
  to US GAAP


Total
  assets for US GAAP

$
1,392,801Total
  liabilities for Canadian GAAP

$
1,833,900Adjustments
  to US GAAPDifferences in treatment
  of convertible notes


149,598Total
  liabilities for US GAAP

$
1,983,498Total
  shareholders equity (deficit) for Canadian GAAP

$
(441,099
)Adjustments
  to US GAAPDifferences in treatment
  of convertible notes


(149,598
)Total
  equity (deficit) for US GAAP

$
(590,697
)Total
  liabilities, capital stock and shareholders deficit for US GAAP

$
1,392,801(c)
Reconciliation of net
  losses reported in accordance with Canadian GAAP and US GAAP for the year
  ended March 31:2006Net
  loss per Canadian GAAP

$
3,734,599Adjustments decreasing
  (increasing) net lossDifferences in treatment of convertible notes


(34,875
)Net
  loss per US GAAP

$
3,699,724Net
  loss per common share Canadian GAAP - Basic

$
(0.354
)Net
  loss per common share for US GAAP

$
(0.354
)Weighted
  average number of common shares outstanding (Canadian and US GAAP)


10,548,042For US GAAP purposes, the Company accounted for its
convertible notes
with detachable warrants by allocating the proceeds, based upon relative fair
values to the notes and the warrants. The warrants portion is then treated as
an equity component and the resulting discount on the notes is amortized over
the vesting period of the warrant. Then, the convertible notes with the
non-detachable in-the-money conversion feature is recognized and measured
separately by allocating, to the additional paid-in capital (APIC), a portion
of the proceeds equal to the intrinsic value of the conversion feature.  The convertible

F-17

Valcent
  Products Inc.Notes to the Consolidated
  Financial Statements(Expressed in Canadian
  Dollars)March 31, 200613. Differences between Canadian and United States
Generally Accepted Accounting Principles (Continued)

notes are recorded at par
  and a discount is recognized. The discount on the convertible instrument
  (equal to the amount allocated to APIC) is accreted as an expense for debt
  issuances.For Canadian GAAP
  purposes, the company accounted for the convertible notes as two separate
  instruments, the debt is accounted for by assigning to the debt instrument
  the residual amount after deducting from the instrument as a whole the amount
  separately determined for the equity component.The company determined the
  equity component using the black-scholes pricing model and the resulting
  discount is amortized over the term of the debt. The warrants are then
  accounted for in accordance with stock-based compensation accounting.ITEM 18. FINANCIAL STATEMENTS.

Not applicable.

ITEM 19. EXHIBITS.

No.
  
  Description
  of Exhibit3(i)(1)
  
  Articles of Incorporation
  of Valcent Products Inc., dated January 19, 1996, incorporated by reference
  to Exhibit 1(a)(i) on Form 20-F filed October 13, 2005.3(i)(2)
  
  Amendment to Articles of
  Incorporation of Valcent Products Inc., dated March 12, 1996, incorporated by
  reference to Exhibit 1(a)(ii) on Form 20-F filed October 13, 2005.3(i)(3)
  
  Amendment to Articles of
  Incorporation of Valcent Products Inc., dated August 19, 1996, incorporated
  by reference to Exhibit 1(a)(i) on Form 20-F filed October 13, 2005.3(i)(4)
  
  Amendment to Articles of
  Incorporation of Valcent Products Inc., dated June 30, 1998, incorporated by
  reference to Exhibit 1(a)(iv) on Form 20-F filed October 13, 2005.3(i)(5)
  
  Amendment to Articles of
  Incorporation of Valcent Products Inc., dated July 8, 1999, incorporated by
  reference to Exhibit 1(a)(v) on Form 20-F filed October 13, 2005.3(i)(6)
  
  Amendment to Articles of
  Incorporation of Valcent Products Inc., dated September 28, 1999,
  incorporated by reference to Exhibit 1(a)(vi) on Form 20-F filed October 13,
  2005.3(i)(7)
  
  Amendment to Articles of
  Incorporation of Valcent Products Inc., dated April 15, 2005, incorporated by
  reference to Exhibit 1(a)(vii) on Form 20-F filed October 13, 2005.3(ii)
  
  By-laws of Valcent
  Products Inc., dated March 26, 1996, incorporated by reference to Exhibit
  1(b) on Form 20-F filed October 13, 2005.4.1
  
  Form of United States
  convertible note purchase agreement, including warrant agreements between
  Valcent Products Inc., and United States note holders, dated July 31, 2005,
  incorporated by reference to Exhibit 2(b)(i) on Form 20-F filed October 13,
  2005.F-18

4.2
  
  Form of Canadian
  convertible note purchase agreement, including Warrant Agreements between
  Valcent Products Inc., and Canadian note holders, dated July 31, 2005,
  incorporated by reference to Exhibit 2(b)(ii) on Form 20-F filed October 13,
  2005.4.3
  
  Form of finders warrants
  between Valcent Products Inc., and Viscount Investment Ltd., dated July 31,
  2005, incorporated by reference to Exhibit 2(b)(iii) on Form 20-F filed
  October 13, 2005.10.1
  
  Master license agreement
  between Valcent Products Inc. and MK Enterprises LLC, dated July 29, 2005,
  incorporated by reference to Exhibit 4(a)(i) on Form 20-F filed October 13,
  2005.10.2
  
  Product development
  agreement between Valcent Products Inc. and MK Enterprises LLC, dated July
  29, 2005, incorporated by reference to Exhibit 4(a)(ii) on Form 20-F filed
  October 13, 2005.10.3
  
  Invention license
  agreement between Valcent Products Inc. and MK Enterprises LLC, dated July
  29, 2005, incorporated by reference to Exhibit 4(a)(iii) on Form 20-F filed
  October 13, 2005.10.4
  
  Consulting agreement
  between Valcent Products Inc. and Malcolm Glen Kertz, dated July 29, 2005,
  incorporated by reference to Exhibit 4(a)(iv) on Form 20-F filed October 13,
  2005.10.5
  
  Consulting agreement
  between Valcent Products Inc. and MK Enterprises LLC, dated July 29, 2005,
  incorporated by reference to Exhibit 4(a)(v) on Form 20-F filed October 13,
  2005.10.6
  
  Form of subscription
  agreement between Valcent Products Inc., and certain institutional note
  holders, dated April 6, 2006, incorporated by reference to Exhibit 10.6 on
  Form F-1 filed April 27, 2006.10.7
  
  Form of convertible note
  agreement between Valcent Products Inc., and certain institutional note
  holders, dated April 6, 2006, incorporated by reference to Exhibit 10.7 on
  Form F-1 filed April 27, 2006.10.8
  
  Form of Class A warrant
  agreement between Valcent Products Inc., and certain institutional note
  holders, dated April 6, 2006, incorporated by reference to Exhibit 10.8 on
  Form F-1 filed April 27, 2006.10.9
  
  Form of Class B warrant
  agreement between Valcent Products Inc., and certain institutional note
  holders, dated April 6, 2006, incorporated by reference to Exhibit 10.9 on
  Form F-1 filed April 27, 2006.10.10
  
  Form of Class A finders
  warrant agreement between Valcent Products Inc., and Viscount Investments
  Ltd., dated April 6, 2006, incorporated by reference to Exhibit 10.10 on Form
  F-1 filed April 27, 2006.10.11
  
  Form of Class B finders
  warrant agreement between Valcent Products Inc., and Viscount Investments
  Ltd., dated April 6, 2006, incorporated by reference to Exhibit 10.11 on Form
  F-1 filed April 27, 2006.10.12
  
  Form of liquidated damages
  convertible note agreement between Valcent Products Inc., and certain
  institutional note holders, dated April 6, 2006, incorporated by reference to
  Exhibit 10.12 on Form F-1/A filed June 30, 2006..F-19




10.13
  
  Form of liquidated damages
  warrant agreement between Valcent Products Inc., and certain institutional
  note holders, dated April 6, 2006, incorporated by reference to Exhibit 10.13
  on Form F-1/A filed June 30, 2006.10.14
  
  Creative and production
  services agreement between Valcent Products Inc., and Hawthorne Direct, dated
  June 14, 2006, incorporated by reference to Exhibit 10.14 on Form F-1/A filed
  June 30, 2006.10.15
  
  Media services agreement
  between Valcent Products Inc., and Hawthorne Direct, dated June 14, 2006,
  incorporated by reference to Exhibit 10.15 on Form F-1/A filed June 30, 2006.10.16
  
  Manufacturing agreement
  between Valcent Manufacturing Ltd. and Solid Integrations LLC dated September
  22, 2006, incorporated by reference to Exhibit 10.16 on Form F-1/A filed October 2, 2006.12(a)(iii)
  
  Certification pursuant to Rule 13A-14(A) in Accordance with Section 302 of the Sarbanes-Oxley Act of 2002


FILED HEREWITH.12(a)(iiii)
  
  Certification pursuant to Rule 13A-14(A) in Accordance with Section 302 of the Sarbanes-Oxley Act of 2002


FILED HEREWITH.13(a)(iii)
  
  Certification pursuant to 18 U.S.C. Section 1350 as Adopted pursuant to Section 906 of the of the Sarbanes-Oxley Act of 2002


FILED HEREWITH.13(a)(iiii)
  
  Certification pursuant to 18 U.S.C. Section 1350 as Adopted pursuant to Section 906 of the of the Sarbanes-Oxley Act of 2002


FILED HEREWITH.21.1
  
  Subsidiaries of Valcent
  Products Inc., as of April 24, 2006, incorporated by reference to Exhibit
  21.1 on Form F-1 filed April 27, 2006.F-20

SIGNATURES

The registrant here
certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.

VALCENT
  PRODUCTS, INC.Date: September 29,
  2006
  By:
  /s/ M. Glen KertzM. Glen KertzChief Executive Officer and Acting President