UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





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





Commission
file number: 333-110680





VIASPACE
GREEN ENERGY INC.


(Exact
name of registrant as specified in its charter)





British Virgin Islands
            Not Applicable(State
      or other jurisdiction of
            (I.R.S.
      Employer Identification No.)incorporation
      or organization)2102
      Business Center Drive, Suite 130Irvine, California
            92612(Address
      of principal executive offices)
            (Zip
      Code)





(626)
768-3360


Issuer’s
telephone number





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


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





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





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





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





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





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





Large
accelerated filer o   Accelerated
filer o  
Non-accelerated filer o, and Smaller reporting
filer x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o No þ





State
issuer’s revenue for its most recent fiscal year: $3,618,000





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of March 30,
2010: N/A





State the
number of shares outstanding of each of issuer’s classes of common equity, as of
March 30, 2010: 8,600,000














VIASPACE
GREEN ENERGY INC.


TABLE
OF CONTENTS





PagePart
      IItem
      1.
            Business
            3Item
      1A.
            Risk
      FactorsItem
      2.
            Properties
            19Item
      3.
            Legal
      Proceedings
            19Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            20Part
      IIItem
      5.
            Market
      for Common Equity and Related Stockholder Matters
            20Item
      6.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
            21Item
      7.
            Financial
      Statements
            26
      (F-1 to F-34)Item
      8.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            26Item
      8A.
            Controls
      and Procedures
            26Item
      8B.
            Other
      Information
            26Part
      IIIItem
      9.
            Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(a) of the Exchange Act
            28Item
      10.
            Executive
      Compensation
            32Item
      11.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            38Item
      12.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            40Item
      13.
            Exhibits
            41Item
      14.
            Principal
      Accountant Fees and Services
            46Signatures
            
            47





2


FORWARD-LOOKING
STATEMENTS





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





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





•
            our
      ability to successfully implement our business
  strategy,





•
            market
      acceptance of our products and product
  development,





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





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





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





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





PART
I





ITEM
1. DESCRIPTION OF BUSINESS





VIASPACE Green Energy Inc.
Overview





VIASPACE
Green Energy Inc., a British Virgin Islands (“BVI”) company (“we”, “us”, “VGE”
or the “Company”) is the parent company of Inter Pacific Arts Corporation, a
British Virgin Islands international business company (“IPA BVI”) and Guangzhou
Inter Pacific Arts, a Peoples Republic of China (“PRC”) company (“IPA
China”).  IPA China is a wholly-owned foreign enterprise headquartered
in Guangdong province of China.  IPA BVI owns all equity interests of
IPA China.  IPA BVI and IPA China specialize in the manufacturing of
high quality, copyrighted, framed artwork sold in U.S. retail chain stores. IPA
China also has a sublicense to a fast-growing, high yield, low carbon, nonfood
energy crop called Giant King Grass (“GKG”) which can be burned in 100% biomass
power plants to generate electricity; made into pellets that can be burned
together with coal to reduce carbon emissions from existing power plants;
generate bio methane through anaerobic digestion, and can be used as a feedstock
for low carbon liquid biofuels for transportation.  Cellulosic ethanol
and other liquid biofuels, collectively called Grassoline, do not use corn or
other food sources as feedstock.  GKG can also be used as animal feed.
GKG and other plants absorb and store carbon dioxide from the atmosphere as they
grow. When they are burned, they release the carbon dioxide back into the
atmosphere, but it is the same carbon dioxide that was removed from the
atmosphere, and that the process is carbon neutral. Small amounts of fossil fuel
are used by the farm equipment, transportation of  GKG and fertilizer,
so that the overall process has some carbon dioxide emissions, but much lower
than burning coal or other fossil fuels directly.   GKG has been
independently tested by customers and been shown to have excellent energy
content and very high bio methane production.  We do not build the
power plant or biofuel plant; rather we grow GKG that is needed as the fuel or
feedstock.  We are growing GKG on 250 acres of leased land in China to
serve as a nursery for expansion, a demonstration plot for potential partners
and customers, to provide samples for potential customers, and as a grass source
for our own products.   VGE is based in California with business
activities in China.





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





3


Corporate
History





On
October 21, 2008, VIASPACE Inc., our parent company (“VIASPACE”), and we entered
into a Securities Purchase Agreement (the "Purchase Agreement") with Sung Hsien
Chang ("Chang"), and China Gate Technology Co., Ltd., a Brunei Darussalam
company ("Licensor"). Under the Purchase Agreement, we agreed to acquire 100% of
IPA BVI, and the entire equity interest of IPA China from Chang, the sole
shareholder of IPA BVI and IPA China. In exchange, VIASPACE agreed to pay $16
million in a combination of cash, and newly-issued shares of VIASPACE and our
ordinary shares.  In addition, VIASPACE issued shares of its common
stock to Licensor and in exchange Licensor sub licensed certain fast growing
grass technology to IPA China.





The
transactions under the Purchase Agreement ("Acquisition") were to involve two
phases.  At the first closing on October 21, 2008, we issued 3,500,000
newly-issued shares to Chang and his designees.  VIASPACE issued
215,384,615 shares of its common stock to Chang and 30,576,007 shares of common
stock to Licensor.  Chang delivered 70% of the outstanding common
stock of IPA BVI to us.  At that point, we controlled 70% of IPA
BVI.  Accordingly, we consolidate their results, assets and
liabilities in our financial statements.  In addition, we executed
employment agreements with certain persons, including Sung Hsien Chang; Carl
Kukkonen, VIASPACE’s Chief Executive Officer; Stephen Muzi, the VIASPACE’s Chief
Financial Officer; and Maclean Wang, the sole shareholder of the
Licensor.  Our shareholders also entered into an agreement with Chang
regarding the rights as our shareholders ("Shareholders Agreement") to elect
directors.  IPA China became a wholly-owned subsidiary of IPA BVI (and
indirectly, our subsidiary) subsequent to the First Closing on June 9,
2009.





The
remaining 30% of IPA BVI equity were to be delivered to us at a second closing
in exchange for, among other things, VIASPACE delivering $4.8 million in cash to
Chang prior to February 15, 2010.  The conditions to VIASPACE’s and
our obligations to consummate the second closing included: (1) representations
and warranties of Chang and Licensor remained true at closing; (2) Chang
complied with the material covenants under the agreement; (3) the issuance of
the securities to Chang and Licensor were exempt from registration, including
under  Regulation D for which the issuance of the first closing shares
relied upon; (4) Chang executed certain compliance certificates; (5) customary
permits, consents and waivers were obtained; (6) books and records were
delivered to VIASPACE; (7) an officer’s certificate regarding each target’s
charter documents were delivered; (8) due diligence had been satisfactorily
completed; and (9) Chang shall have transferred his entire equity interest in
IPA China to IPA BVI.





The
conditions to Chang’s and Licensor’s obligation to consummate the second closing
included: (1) representations and warranties of VIASPACE and us remained true at
closing; (2) VIASPACE and we complied with the material covenants under the
agreement; (3) books and records of VIASPACE were delivered or made available to
Chang and his counsel; (4) any necessary third party consents shall have been
obtained; and (5) VIASPACE shall be prepared to deliver $4.8 million plus
interest in cash to Chang.  To our knowledge, all of these criteria,
other than the cash payment were met.  Even if the Second Closing did
not occur, the remaining 30% of IPA BVI was to be transferred by Chang to VGE
prior to the Second Closing deadline.





In
addition, the Licensor and Sung Hsien Chang, the seller of IPA China and IPA
BVI, each represented that at least 100 hectares of arable land in Guangdong
province in China will be available for grass farming by IPA China within 12
months after the First Closing Date.  IPA China secured 45 hectares of
arable land in the first quarter of 2009 and leased an additional 55 ha in the
third quarter of 2009.  The requirement was met.





On August
21, 2009, the parties entered into a second Amendment to the Purchase Agreement
whereby VIASPACE irrevocably assigned to Chang and Licensor the
VIASPACE shares issued to Chang and Licensor in the First Closing of the
Purchase Agreement.  Licensor agreed to limit sales of VIASPACE common
shares issued at the First Closing to 8,800,000 shares in any 90-day
period.





As
required by the Purchase Agreement, VGE filed a Form S-1 Registration Statement
with the Securities and Exchange Commission ("SEC") on June 3, 2009 covering the
resale of a portion of VGE common stock issued pursuant to the Purchase
Agreement as permitted by SEC regulations.  The SEC declared the VGE
Form S-1 Registration Statement effective on December 31, 2009.  On
January 14, 2010, VGE received approval from the Financial Industry Regulatory
Authority (“FINRA”) that its shares of common stock are approved for listing on
the OTC Bulletin Board under the ticker symbol VGREF.OB.  This
satisfied the requirement in the Purchase Agreement that VGE stock be listed on
a Trading Market.





Following
various additional amendments to the Purchase Agreement, the deadline for the
Second Closing in which the remaining minority interest of 30% of IPA BVI equity
holdings would be transferred to us was February 15, 2010 ("Second
Closing").  At the Second Closing deadline, VIASPACE was to pay $4.8
million ("Cash Consideration") plus Interest (as determined below) since the
First Closing, in cash to Chang. Interest on the Cash Consideration shall accrue
at 6% for the first six months after the First Closing, and then 18% until June
10, 2009, and then at an annual rate of 6%  thereafter. As of March 24,
2010, the entire amount of Cash Consideration due from VIASPACE to Chang was
$5.291 million.   We have control of the assets of IPA BVI through our
majority ownership position and there is no restriction on the Company’s ability
to transfer or capitalize on such assets at any time, including prior to the
cash payment due Chang from VIASPACE.





4


The
Second Closing did not occur on the February 15, 2010 deadline.  As a
result, VIASPACE has a contractual obligation to deliver all of the VGE shares
it holds to Chang and Chang has an obligation to deliver the remaining 30% of
IPA BVI equity to us.  To date, neither of these actions have
occurred.   However, Chang, VIASPACE and the Company agreed to
continue and have continued negotiating an alternative closing and purchase
of IPA and those negotiations are continuing as of the filing date of this Form
10-K.





Management
expects that VGE will hold 100% of IPA BVI after VIASPACE and Chang ultimately
agree upon a mutually acceptable arrangement.





Our Business





Grass Business
Division





Through
our acquisition of IPA BVI and IPA China we indirectly obtained a worldwide
sublicense to cultivate and sell GKG, a natural hybrid, non-genetically
modified, fast-growing, perennial grass which we are growing as a dedicated
energy crop that can be used to generate low carbon and renewable electricity by
direct burning in a biomass power plant, and can be made into pellets that can
replace some of the coal in existing power plants thus reducing carbon
emissions.  GKG may also be used to produce bio methane through
anaerobic digestion and as a feedstock for non-food liquid biofuels. This
perennial grass can grow up to 14 feet in height.   It can be
harvested several times a year in tropical and semitropical areas with a yield
of up to 375 metric tons per hectare (freshly cut, referred to as wet
yield).  We believe that GKG has the highest yield of any
crop.  Note that one hectare (ha) is 10,000 square meters and equal to
2.47 US acres or approximately the size of two US football fields.





GKG has
been independently tested by several potential customers. The results have been
very positive and consistent. GKG has excellent energy content of 18.4
megajoules (MJ) per dry kilogram. Its chemical and physical properties are very
similar to corn straw, which is material left behind from the corn plant after
the ears of corn have been harvested. Corn straw is used as fuel in many biomass
power plants, and DP Clean Tech has declared GKG as suitable for their power
plants. The bio methane production from GKG has been tested in three customer
laboratories and shows the outstanding production of 91 liters of methane per
kilogram of fresh grass. The methane can be used to generate clean electricity
or can be burned to produce process heat. There are thousands of biogas plants
worldwide that can use GKG.  A potential pellet customer has tested
GKG examined prototype pellets made from GKG.  In addition to these
current markets, GKG can be used  as animal feed for cattle, sheep,
horses, rabbits, pigs, poultry and fish.





GKG can
also be used as a feedstock to make cellulosic biofuels such as ethanol,
methanol and green gasoline, collectively called Grassoline.  British
Petroleum recently announced plans to build a cellulosic ethanol plant in
Florida using grass as a feedstock, and in the March 23, 2009 issue of Time
magazine, a Toyota advertising section stated that the carbon footprint for its
plug-in hybrid can be reduced by fueling the engine with cellulosic ethanol.
Liquid biofuels are one of the potential future uses for our grass.





GKG as a
dedicated energy crop has generated widespread interest from the renewable
energy community. VIASPACE was invited to make presentations on GKG at
international conferences in the US, China, Indonesia, Mexico and India. The
latest presentation is available on the VIASPACE website www.VIASPACE.com. We
have held meetings with dozens of potential customers in China, Indonesia,
Thailand, Philippines, Singapore Malaysia, US and India.





The July
2009 issue of Scientific American has a cover story entitled “Grassoline” which
discusses renewable low carbon, non-food, liquid biofuels made from grass and
other feedstock.  The Scientific American article only covers grass
grown in the U.S.  We are growing GKG, a different and more productive
grass compared to those considered in the Scientific American article, in
Guangdong Province China and are exploring opportunities in other semitropical
and tropical areas.





Energy
pellets made from dried GKG can be used as a replacement for coal in electricity
generating power plants.  Reports by the U.S. Department of Energy
state that 15% to 20% of coal may be replaced by burning grass in an existing
power plant with only minor modifications. This process called co-firing allows
utilization of the large capital investment in existing coal fired power plants
while reducing their carbon dioxide emissions by 15 to 20%. GKG and other
biomass have lower mercury, arsenic and sulfur emissions than coal.





5


There is
a growing trend towards small dedicated power plants (5-30 megawatts) that
are fueled exclusively by biomass such as grass and agricultural
waste.  For example, since its founding in 2004, Dragon Power in China
has built and is operating 19 power plants powered by 100%
biomass.  China’s A-Power Energy Generation Systems Ltd. (Nasdaq:APWR)
announced in April, May and June 2009 that it has received three contracts to
build a total of five biomass fueled electricity generation plants in China by
the end of 2010.





On
September 2, 2009, VGE and our parent VIASPACE signed a non-binding Memorandum
of Understanding (“MOU”) with DP Cleantech Co. Ltd. of Beijing China, a
subsidiary of Dragon Power Group.  Pursuant to the Memorandum of
Understanding, the parties agreed to (i) review the potential of running DP’s
power plants solely with GKG or in combination with agricultural waste; (ii)
investigate of suitable areas to grow GKG and co-locate a new power plant; (iii)
and burn significant quantities of GKG in an existing  DP Cleantech power
plant.  As part of their due diligence, DP Cleantech commissioned an
independent analysis of GKG by the China National Center for Quality Supervision
and Test of Coal which confirmed that GKG has an energy content of 18.4
megajoules (MJ) per dry kilogram (4402 kilocalories (kcal) per kilogram). DP
Cleantech declared GKG suitable as a renewable feedstock for generating electric
power in their power plants.





Our
strategy is to first build up our grass production capabilities in China where
we have 100 ha (247 acres) under cultivation. This 100 ha serves as a
demonstration plot and also allows us to provide samples to potential partners
and customers; the harvested grass is used in our factory to produce initial
products which will be released shortly into the marketplace; and it is a
nursery to provide seedlings for a major expansion.  We plan to
partner with customers worldwide on GKG plantations co-located with power
plants, pellet mills, biogas facilities and biofuel plants.





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





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





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





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





Transportation
applications requiring liquid fuels and biofuels have great
potential.  Most biofuels are made from plants which are a renewable
resource, and use of some biofuels can significantly reduce carbon
emissions.  Growing grass or any plant matter absorbs carbon dioxide
from the atmosphere during photosynthesis and stores it in the plant
tissue.  Subsequent burning of the grass does emit carbon dioxide into
the atmosphere; however the next crop of grass 60 days later absorbs the carbon
dioxide. If the process of growing, fertilizing, harvesting and transporting the
grass can be done with minimal use of fossil fuels, a grass-based fuel can be a
carbon neutral or low carbon process.  Burning coal, oil, or natural
gas emits carbon dioxide and there is no mechanism to remove this carbon dioxide
from the atmosphere.





6


Ethanol,
which is the same alcohol in beer, wine or liquor, is the most well-known
biofuel. Ethanol is blended with gasoline and burned in conventional automobile
engines that have minor modifications.  In the U.S. today almost all
ethanol is made from corn.  Government subsidies for ethanol have made
ethanol price competitive with gasoline and much of the US corn crop now goes
toward ethanol production.  These subsidies have led to an increased demand
for corn for ethanol production.  According to the Money Morning Corn Price
Report (quoting the US Department of Agriculture), one third of U.S. corn is
devoted to ethanol production, and this is expected to increase in the
future.  Corn prices have risen from about $2.00 per bushel at the
beginning of 2006 to a peak of $7.65 in mid-2008.  Corn is currently
$3.66 per bushel.  More land in the U.S. is devoted to corn production
at the expense of other crops and the prices of these other crops have risen as
well.





Higher
food prices have led to food shortages around the globe and it has been argued
that people are starving so we can make the fuel to drive our cars.
  This argument has resonated with many world leaders and resulted in
a global effort to derive biofuels from plants that are not in the human food
chain.  These are called cellulosic biofuels.





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





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





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





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





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





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





Framed Art Business
Division





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





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





The
acquisition of IPA was a strategic move to acquire its revenue and profit from
its current framed art business, as well as the grass business. With the
profits from the framed art business, we are aggressively building the grass
business without having to access external capital. . We plan to continue
and grow the framed art business.





IPA art
designers work with buyers from retail chains to choose prints and other art
forms from catalogs of copyrighted and licensed work. We only purchase prints
from reputable publishing companies with whom we have long-standing
relationships, and such companies have guaranteed to us that there are no
counterfeits and that all royalties have been paid.  IPA designers
then mockup mattes and frames for the customer.  Once the customer
decides on a print, matte and frame combination, we ship the print to our
factory in Guangzhou, China.  The mattes, frame moldings and glass are
sourced in China.  A typical order is 1,400 units of a specific design
and a customer usually orders several different designs which are packed in
several containers and shipped directly to the customer in the
U.S.  We provide prints, frames and packaging that are all of high
quality.  An example of quality packaging is our use of protective
clear plastic covers on the corners of the frame.  The covers provide
protection during shipping and handling, but are transparent and do not obscure
the artwork on the display shelf as conventional cardboard corner protectors
do.  Our framed artwork typically retails for $50-$300.





7


Research and
Development





The
Company does not spend funds on research and development expenses.





Competition





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





There are
many framed art companies that compete with IPA.  For example, ICA
Home Decor, Crown Arts, Wendover Art, Midwest Art and many more in the U.S. and
China.  IPA benefits from having its own factory in China and
concentrates on large customers that typically order framed art work by the
container load with a typical order of 1,400 copies of a single
design.  These customers generally have many retail stores in their
chains.  IPA only manufactures art after an order is placed and has
virtually no inventory of framed art.  IPA guarantees its customers
that all art is legitimate with full royalties paid, and that it will not sell
the same product to another customer.   IPA sources high quality frame
moldings, mattes and glass in China, and assembles the framed art in its factory
in China.  IPA is able to control its expenses through its
relationships with suppliers and control quality by assembly at its factory in
China. We believe that these processes allow IPA's products to be sold at a
favorable price in a competitive environment.





Grass Business
Division





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





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





Customers





All of
our current framed artwork customers are national U.S. retailers.  For
2009 and 2008, sales to one customer, Hobby Lobby Stores, comprised 92% and 85%,
respectively, of our total revenues.  We believe this concentration of
sales made to a small number of customers will continue in the near
future.  A loss of any customer by us could significantly reduce our
future revenues.





Our grass
business has not generated revenue yet.  On May 15, 2009 we signed a
Memorandum of Understanding with Auro Infra to develop a project to grow grass
in Tanzania, Africa to feed cattle and sheep, and explore the opportunity for
biomass fueled power plants.  We have been meeting with potential
customers in China.  We have also received inquiries from Indonesia,
Brazil and the Philippines.





Suppliers





We
purchase raw materials such as glass panes and mattes for our picture frames
from third party vendors.  We do not rely on any sole source
vendor.  We believe we have a multiple source supplier base that
allows us to utilize numerous vendors and obtain reduced prices for our
supplies, components and reduce product costs.





8


We could
obtain seedlings to the GKG from our Licensor.





Marketing





We
typically deploy a targeted partner-customer approach intended to establish key
relationships with the appropriate decision makers of our broad market. This
approach also includes valuable participation at the appropriate related trade
industry events.





We send
e-mails to current and prospective users and partners regularly that contain
invitations to visit various pages or features on our websites. Our ongoing
effort to update our customer list is also an opportunity to build and reinforce
the personal contacts that are critical in servicing our customer’s
needs.





Intellectual
Properties





Grass
License





IPA China
received its sublicense authority to obtain and grow GKG from China Gate
Technology Co. Ltd., a Brunei Darussalam company ("Licensor"), in an agreement
dated November 11, 2008. IPA China purchased 1.2 million seedlings under the
agreement, which also provided that China Gate agreed to refer any of its future
sales over small quantities (20,000 seedlings) in Guangdong province China and
in North America to IPA China.  China Gate also agreed to provide IPA
China with technical support to assist in planting. The agreement does not
provide any limitation on IPA China’s ability to grow, harvest and market the
grass anywhere in the world.  In addition to GKG, the
license/agreement covers elephant grass and Purple King Grass. We plan on
evaluating opportunities for these grasses as well.   No term
length was specified in the agreement.  To our knowledge, China Gate
has not entered into such license agreements with any other
party.  The agreement between China Gate and IPA China enables us to
plant our seedlings in other geographic regions outside Guangdong province and
North America.





Art
License





We
purchase the copyrighted artwork that is placed into our picture frames from
reputable publishers who pay the appropriate royalties to the
artists.  These are companies we have longstanding relationships with,
and we believe the chances that such artwork copyrights have not been obtained
is minimal.





Employees





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





Regulatory
Issues





None





Trademarks





The
Company has made a trademark application for “GIANT KING” grass.







ITEM1A.RISKFACTORS





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





9


Risks
Related to Our Business





Risks
Relating to Our Entire Business





Our
limited operating history makes it difficult to evaluate our future prospects
and results of operations.





We have a
limited operating history. Our consolidated affiliated entities, IPA BVI and IPA
China, each commenced operations in the artwork business in 2003 and although we
have profit from our artwork business, we have yet to achieve profitability from
our grass business.  Accordingly, you should consider our future
prospects in light of the risks and uncertainties experienced by early stage
companies in the manufacturing and agricultural industries in China. Some of
these risks and uncertainties relate to our ability to:





●
            maintain
      or establish a competitive position in China and compete in each of our
      business segments with Chinese and international companies, many of which
      have longer operating histories and greater financial resources than we
      do, and thus making it difficult to compete;●
            continue
      to offer commercially successful products to attract and retain a larger
      base of customers of both of our artwork and grass business goods and
      products;●
            retain
      access to the crop land we currently use for production of our products
      and obtain access to additional crop land for
expansion;●
            maintain
      effective control of our costs and expenses in the grass business due to
      our early start-up nature and inexperience in managing growth;
      and●
            retain
      our management, including our Chief Executive Officer Carl Kukkonen and
      our President Sung Hsien Chang, and skilled technical staff and recruit
      additional key employees.





If we are
unsuccessful in addressing any of these risks and uncertainties, our business,
financial condition and results of operations may be materially and adversely
affected.





Our
senior management team has worked together for a short period of time, which may
make it difficult for you to evaluate their effectiveness and ability to address
challenges.





Due to
our recent restructuring and additions to our corporate management team, our
senior management has worked together at our company for a short
period.  As a result, it may be difficult for you to evaluate the
effectiveness of our senior management and their ability to address future
challenges to our business. In addition, we may not be able to successfully
execute our plan to recruit qualified candidates with substantial experience in
the global agricultural industry to join our senior management team in the
future. Even if we recruit qualified senior management personnel, such new
senior management personnel may not be able to work with our existing management
to effectively execute our growth strategy and address future challenges to our
business.





In
addition, VIASPACE, Carl Kukkonen and Stephen Muzi have agreed to
non-competition covenants with our grass and framed art businesses upon a
failure to close the Second Closing unless otherwise waived by Mr.
Chang.  Upon such event, we would lose two of our key executives and
our connection with our current parent company, VIASPACE.





Our
future growth prospects may be affected if we are unable to obtain additional
capital.





While we
believe we have sufficient cash for the next 12 months, we may require
additional cash to grow our grass business.  The sale or issuance of
additional equity securities could result in dilution to our shareholders. The
incurrence of indebtedness would result in increased debt service obligations
and could result in operating and financing covenants that would restrict our
operations. We may not be able to obtain financing in amounts or on terms
acceptable to us, if at all. We may also not be able to secure or repay debt
incurred to fund operations. As a result, our operating results and financial
condition may be materially and adversely affected.








10


Failure
to achieve and maintain effective internal controls could have a material and
adverse effect on the trading price of our securities.





We will
become subject to reporting obligations under the U.S. securities laws. The
Securities and Exchange Commission, as required under Section 404 of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring
public companies to include a report of management on the effectiveness of such
companies’ internal control over financial reporting in their annual reports. In
addition, an independent registered public accounting firm for a public company
must report the effectiveness of our Company’s internal control over financial
reporting. These requirements will first apply to our annual report on Form 10-K
for the fiscal year ending December 31, 2010. Management may conclude our
internal control over financial reporting is not effective. Moreover, even if
our management concludes our internal control over financial reporting is
effective, our independent registered public accounting firm may issue a report
that is qualified if such firm is not satisfied with our internal control over
financial reporting or the level at which our controls are documented, designed,
operated or reviewed, or if such firm interprets the relevant requirements
differently from us. In addition, during the course of such evaluation,
documentation and testing, we may identify deficiencies which we may not be able
to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404.





We were a
private company with limited accounting personnel and other resources to address
our internal controls and procedures. As a result, we will likely have a number
of internal control deficiencies. If we fail to implement measures to remediate
these material weaknesses and other control deficiencies in time to meet the
deadline imposed by Section 404 of the Sarbanes-Oxley Act, we may not be able to
conclude, on an ongoing basis, that we have effective internal control over
financial reporting in accordance with the Sarbanes-Oxley Act. Moreover,
effective internal controls, particularly those related to revenue recognition,
are necessary for us to produce reliable financial reports and are important to
help prevent fraud. As a result, any failure to achieve and maintain effective
internal control over financial reporting could result in our inability to
conclude we have effective internal control over financial reporting in
accordance with the Sarbanes-Oxley Act, causing the loss of investor confidence
in the reliability of our financial statements, which in turn could negatively
impact the trading price of our securities. Furthermore, we may need to incur
significant costs and use significant management and other resources in an
effort to comply with Section 404 of the Sarbanes-Oxley Act and other
requirements.





Our
anticipated and any other employee share options, restricted shares or other
share incentives in the future, will adversely affect our net
income.





We
adopted a 2009 share incentive plan and granted 1,400,000 share options under
the plan in June 2009.  We intend to issue options to purchase
ordinary shares, and ordinary shares under the plan.  We are required
to account for share-based compensation in accordance with Financial Accounting
Standards Board Statement No. 123(R) (codified in FASB ASC Topic 718),
Share-Based Payment, which requires a company to recognize, as an expense, the
fair value of share options and other share-based compensation to employees
based on the fair value of equity awards on the date of the grant (taking into
account the prices payable by the award recipients), with the compensation
expense recognized over the period in which the recipient is required to provide
service in exchange for the equity award.  There were no stock options
issued and outstanding at December 31, 2009.  We originally planned to
issue Messrs. Chang and Wang approximately 688,000 options upon the Second
Closing.  This did not occur so these options were not
issued.





If we
grant any options, restricted shares or other equity incentives in the future,
we could incur significant compensation charges equal to the fair value of the
additional options, restricted shares and other equity incentives (taking into
account the prices payable by the award recipients) and our net income could be
adversely affected.





We
are substantially dependent upon our key personnel, particularly Dr. Carl
Kukkonen, our Chief Executive Officer, Mr. Sung Hsien Chang, our President
and Mr. Stephen Muzi, our Chief Financial Officer.





Our
performance is substantially dependent on the performance of our executive
officers and key employees. In particular, the services of:





·
            Dr. Carl
      Kukkonen, Chief Executive Officer.·
            Mr. Sung
      Hsien Chang, President.·
            Mr. Stephen
      Muzi, Chief Financial Officer.





would be
difficult to replace. We do not have “key person” life insurance policies on any
of our employees. The loss of the services of any of our executive officers or
other key employees could substantially impair our ability to successfully
implement our business plan.





We rely
on our management’s experience in product development, business operations,
sales and marketing, and on their relationships with distributors and relevant
government authorities. If one or more of our key management personnel are
unable or unwilling to continue in their present positions, we may not be able
to replace them easily or at all. The loss of the services of our key management
personnel, in the absence of suitable replacements, could have a material
adverse effect on our operations and financial condition, and we may incur
additional expenses to recruit and train personnel. Each member of our
management team has entered into an employment agreement with us.





11


We
may lose the services of our U.S.-based officers and directors





Under the
terms of the Purchase Agreement, as amended, if the parties do not make other
arrangements in light of the failure of the second closing to occur, then Mr.
Kukkonen and Mr. Muzi, our CEO and CFO may be terminated from our Company as
officers and directors.  We cannot assure you that we would find
suitable replacements.





If
we were to lose some or all of our equity interests in  IPA BVI or IPA
China, then we would be materially and adversely affected.





We
control 70% of IPA BVI and IPA BVI controls 100% of IPA China and upon the
conclusion of negotiations between Chang and VIASPACE, expect to control 100% of
IPA BVI.  Through the Purchase Agreement, we were informed that all
IPA BVI and IPA China equity has been delivered free and clear of any liens or
encumbrances.  If for some reason, Chang did not deliver all of the
IPA BVI or IPA China equity or if such equity had perfected liens which
ultimately force us to relinquish some of our ownership, then our business would
be materially and adversely affected.








We
may not pay dividends.





We have
not previously paid any cash dividends, and we do not anticipate paying any
dividends on our ordinary shares. Dividend policy is subject to the discretion
of our Board of Directors and will depend on, among other things, our earnings,
financial condition, capital requirements and other factors. Under BVI law, we
may only pay dividends from profits or credit from the share premium account
(the amount paid over par value), and we must be solvent before and after the
dividend payment. If we determine to pay dividends on any of our ordinary shares
in the future, as a holding company, we will be dependent on receipt of funds
from our operating subsidiary. See “Dividend Policy.”





Risks
related to our Grass Business





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





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





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





We
recently signed a MOU with DP Cleantech, a subsidiary of Dragon Power, the
largest biomass power plant builder and operator in China. Dragon has
independently tested GKG and found it suitable for their power
plants.  A Dragon 30 MW power plant burning 50% GKG and 50%
agricultural waste would require 487-701 hectares of land. Currently we have 45
hectares under cultivation and are actively seeking more land.  If we
are unable to secure this additional land, a biomass power plant operator may
not enter into a long-term supply contract with us.  The GKG growing
on the 45 hectares is being used for propagation. A single GKG plant can
generate 20 to 35 new seedlings each year. Therefore the current land is able to
supply seedlings for 900-1575 hectares.  Grass production capability
can increase by a minimum of 20 times each year.  We believe we have
sufficient financial resources to lease this much land but there are no
assurances we will be able to do so.  If we are unable to secure
sufficient amounts of land, seedlings and other resources, we may be unable to
attract customers and our business model may fail.





We
could be subject to intellectual property rights claims regarding the
seedlings.





We are
subject to the risk that the seedlings we license infringe or will infringe upon
patents, copyrights, trademarks or other intellectual property rights held by
third parties.   We acquired rights to grow GKG from a seller which we
believe held such rights.  If that party does not hold such rights, we may
be subject to legal proceedings and claims relating to the intellectual property
of others.  If any such claim arises in the future, litigation or
other dispute resolution proceedings may be necessary to retain our ability to
offer our current and future products, which could result in substantial costs
and diversion of our management resources and attention even if we prevail in
contesting such claims. If we are found to have violated the intellectual
property rights of others, we may be enjoined from using such intellectual
property rights, incur additional costs to license or develop alternative
products and be forced to pay fines and damages, any of which could materially
and adversely affect our business and results of operations, or terminate our
grass business entirely.





12


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





We
sublicense our intellectual property to the GKG from China Gate which licenses
the intellectual property from the original licensor.  The term of
this license is not specified.  China Gate has informed us that they
have an exclusive license to the GKG in Guangdong province and North America and
have granted us an exclusive sublicense to the same
region.   However, because we do not have a direct relationship
with the holder of the intellectual property, any material adverse effect to the
GKG license held by our sublicensor would affect our rights as the
sublicensee.  The original licensor is aware of our sublicense and has
consented to it.  For instance, if our sublicensor fails to perform
its obligations under its license with the original licensor, we would have no
recourse against the original licensor and our rights with respect to the
sublicense may be materially affected.





Natural
or man-made disasters could damage our crop production, which would cause us to
suffer losses of production and a material reduction of revenues.





We
produce GKG in the Guangdong province of China.  This grass is subject
to the risks associated with growing crops, including natural disasters such as
drought, pestilence, plant diseases and insect infestations, and man-made
disasters such as environmental contamination. Other man-made incidents may
damage our products, such as arson or other acts that may adversely affect our
grass inventory in the winter storage season.  Furthermore, natural or
man-made disasters may cause farmers to migrate from the farmland, which would
decrease the number of end users of our products. We are particularly
susceptible to disasters or other incidents in the Guangdong province, where we
have the greatest concentration of our operations. In the event of a widespread
failure of our grass, we could likely sustain substantial loss of revenues and
suffer substantial operating losses. We do not have insurance to protect against
such a risk and we are not aware of the availability of any such insurance in
China.





Our
growth prospects may be materially and adversely affected if we are unable to
develop or acquire new products or to produce our existing products in
sufficient quantities.





We
believe the future growth of our Company will depend on the value of our grass
business for biofuel, power plant, or animal feed purposes.   The
ability to develop orders from customers, if at all, is uncertain due to several
factors, many of which are beyond our control. These include changing customer
preferences, competitive price pressures, the failure to adapt products to meet
the evolving demands of customers in China, the development of higher-quality
products by our competitors, and general economic conditions. If we are unable
to develop or acquire additional products that meet the demands of our
customers, if our competitors develop products that are favored by our customers
in China, or if we are unable to produce our existing products in sufficient
quantities, our growth prospects may be materially and adversely affected and
our revenues and profitability may decline.





Our
plans to increase production capacity in the grass business and expand into new
markets may not be successful, which could adversely affect our operating
results.





Our plans
to develop our grass business and its production capacity has placed and will
continue to place, substantial demands on our managerial, operational,
technological and other resources. We are addressing three markets for GKG:
feedstock for low-carbon liquid biofuels for transportation; fuel to burn in
electricity generating power plants; and animal feed. We are also reviewing
opportunities to grow grass in other areas of China, India, Indonesia, other
areas of Southeast Asia and South America.  These represent great
opportunities for the company, but also represent a potential risk in losing
focus and diluting management attention. If we fail to establish and manage the
growth of our product offerings, operations and distribution channels
effectively and efficiently in such business, we could suffer a material and
adverse effect on our operations and our ability to capitalize on new business
opportunities, either of which could materially and adversely affect our
operating results.





We will
need to develop new sales channels into the biofuel, electric power plant, and
animal feed markets. Expansion into new markets may present operating and
marketing challenges. If we are unable to anticipate the changing demands that
expanding operations will impose on our production systems and distribution
channels, or if we fail to develop our production systems and distribution
channels to meet the demand, we could experience an increase in expenses and our
results of operations could be adversely affected.





13


Our
financial results are sensitive to fluctuations in market prices of the products
that we offer.





The
profitability of our operations is affected by the selling prices of our
products. We intend to benchmark the prices of our grass against the prevailing
domestic market prices of grass of similar quality and attributes, and set the
prices accordingly.  Historically, prices of grass and other
agricultural products in China have been volatile, primarily due to fluctuations
in supply and demand.  If the prices for such products decline in the
future, and we are unable sell more products and/or reduce our cost of sales,
our revenues will decrease and our profitability will be adversely
affected.





We
have limited insurance coverage in China.





The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited insurance products. Other than automobile
insurance on certain vehicles and property and casualty insurance on some of our
assets, we do not have insurance coverage on our other assets or inventories and
do not have insurance to cover our business or interruption of our business,
litigation or product liability. We determined the costs of insuring these risks
and the difficulties associated with acquiring such insurance on commercially
reasonable terms make it impractical for us to have such insurance. Any
uninsured occurrence of loss or damage to property, litigation or business
disruption may result in our incurring substantial costs and the diversion of
resources, which could have an adverse effect on our operating results and
financial condition.





The
Chinese agricultural market is highly competitive and our growth and results of
operations may be adversely affected if we are unable to compete
effectively.





The
agricultural market in China is highly fragmented, largely regional and
competitive and we expect competition to increase and intensify within the
sector. We face significant competition in our grass business.  Many
of our competitors have greater financial, research and development and other
resources than we have. Competition may also develop from consolidation or other
market forces within the grass industry in China.  Because our
licensor has no restrictions outside of Guangdong province and North America, we
have no means to restrict our licensor from selling GKG to third parties
throughout the rest of the world.   Although we believe we are the
only business that will grow a significant amount of GKG sufficient to support
biomass related power plants in China, we have no assurance this is the
case.  Other growers of GKG could potentially compete with
us.  In addition, our competitors may develop other types of grasses
that are superior to GKG and more favored by our potential
customers.  Our business could be materially and adversely affected by
such competition.





Our
competitors may be better able to take advantage of industry consolidation and
acquisition opportunities than we are. The reform and restructuring of
state-owned equity in agricultural enterprises could likely lead to the
reallocation of market share in the grass industry, and our competitors may
increase their market share by participating in the restructuring of the
state-owned seed companies. Such privatization would likely mean that these
producers will need to develop more efficient and commercially viable business
models in order to survive. In addition, the PRC government currently restricts
foreign ownership of any domestic agricultural development and production
business to no more than 50% unless otherwise approved by the PRC government.
When and if such restrictions are lifted, multinational corporations engaged in
the seed business may expand into the agricultural market in China. These
companies have significantly greater financial, technological and other
resources than us and may become our major competitors in China. As competition
intensifies, our margins may be compressed by more competitive pricing in the
short term and may continue to be compressed in the long term and we may lose
our market share and experience a reduction in our revenues and
profit.





If
we are unable to estimate customers’ future needs accurately and to match our
production to the demand of our direct customers, our business, financial
condition and results of operations may be materially and adversely
affected.





Due to
the nature of the grass industry, we normally grow according to our production
plan before we sell and deliver grass to distributors and our direct customers.
The potential end users of our grass, such as biofuel providers and livestock
owners, generally make purchasing decisions for our products based on market
prices, economic and weather conditions and other factors that we may not
be able to anticipate accurately in advance. If we fail to accurately estimate
the volume and types of products sought by our customers, we may produce more
grass that is in demand by our distributors resulting in aged crops. In the
event we decide not to sell the crop due to our concerns about the quality, the
aged inventory could eventually be sold at greatly reduced prices. Aged
inventory could result in asset impairment, in which case we would suffer a loss
and incur an increase in our operating expenses. On the other hand, if we
underestimate demand, we may not able to satisfy our customers’ demand for
grass, and thus damage our customer relations and end-user loyalty. Our failure
to estimate our customers’ future needs and to match our production to the
demand of our direct customers may materially and adversely affect our business,
financial condition and results of operations.





14


Grass
prices and sales volumes may decrease in any given year with a corresponding
reduction in sales, margins and profitability.





There may
be periods of instability during which commodity prices and sales volumes may
fluctuate greatly. Commodities can be affected by general economic conditions,
weather, disease outbreaks and factors affecting demand, such as availability of
financing and competition. Our attempts to differentiate our products from those
of other grass producers have not prevented the grass market from having the
characteristics of a commodity market. As a result, the price we are able to
demand for our grass is dependent on the size of the supply of our grass and the
grass of other producers. Therefore, the potential exists for fluctuation in
supply, and consequently in price, in our own markets, even in the absence of
significant external events that might cause volatility. As a result, the amount
of revenue that we receive in any given year is subject to change. As production
levels are determined prior to the time that the volume and the market price for
orders is known, we may have too much or too little product available, which may
materially and adversely affect our revenues, margins and
profitability.





Risks
related to our framed art business





We
are heavily dependent on one major customer for our revenues





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





We
may not be able to compete with existing or potential competitors in our framed
art business





The
visual content and art framing businesses are highly competitive. We believe
competitive factors include quality of images, branding, reputation, service,
breadth of content, depth of content, technology, pricing, and sales and
marketing.  Overall, many of our competitors are significantly larger,
have far greater resources, a notably larger customer base, a far greater
content provider base, significantly more technology infrastructure, and more
well-recognized names in the marketplace than we do, all of which may make it
difficult for us to compete effectively.





We
rely on outside content providers; therefore our revenues will be materially and
adversely affected without adequate supply of content





We rely
on outside sources to provide us visual content for our artwork, which we
aggregate and make available to our customers. Although we work with entities we
believe are reputable vendors, we cannot assure you such outside content
provider will have the resources or personnel to provides us with content and
artwork that is attractive to potential customers. If we are not able to acquire
quality content in sufficient quantities that are favored by our customers, our
revenue will be materially and adversely affected.





We
may be subject to intellectual property rights claims or other claims in the
future which could result in substantial costs and diversion of our financial
and management resources away from our business.





We are
subject to the risk that the products, technology and processes we license
infringe or will infringe upon patents, copyrights, trademarks or other
intellectual property rights held by third parties.  We purchase
copyrighted artwork prints from reputable publishers that have license
agreements with the copyright holders.  These publishers will indemnify us
in the event that an infringement action occurs.  We may be subject to
legal proceedings and claims relating to the intellectual property of others. If
any such claim arises in the future, litigation or other dispute resolution
proceedings may be necessary to retain our ability to offer our current and
future products, which could result in substantial costs and diversion of our
management resources and attention even if we prevail in contesting such claims.
If we are found to have violated the intellectual property rights of others, we
may be enjoined from using such intellectual property rights, incur additional
costs to license or develop alternative products and be forced to pay fines and
damages, any of which could materially and adversely affect our business and
results of operations, or terminate our grass business entirely.





15


Our
failure to protect our intellectual property rights may undermine our
competitive position, and legal action to protect our intellectual property
rights may be costly and divert our management resources.





We rely
primarily on trademark law, and other contractual restrictions to protect our
intellectual property.  We also rely on Licensor and its licensor to
protect our licensed intellectual properties.   These afford only
limited protection and the actions we take to protect our intellectual property
rights may not be adequate. Third parties may infringe or misappropriate our
licensed proprietary technologies or other intellectual property rights, which
could have a material adverse effect on our business, financial condition or
operating results. Preventing unauthorized use of proprietary technology can be
difficult and expensive. Also, litigation may be necessary to enforce our
intellectual property rights, protect our trade secrets or determine the
validity and scope of the proprietary rights of others. There is a risk the
outcome of such potential litigation will not be in our favor. Such litigation
may be costly and may divert management attention as well as expend other
resources which could otherwise have been devoted to our business. An adverse
determination in any such litigation will impair our intellectual property
rights and may harm our business, prospects and reputation. In addition, we have
no insurance coverage against litigation costs and would have to bear all costs
arising from such litigation to the extent we are unable to recover them from
other parties. The occurrence of any of the foregoing may have a material
adverse effect on our business, results of operations and financial
condition.





Historically,
implementation of PRC intellectual property-related laws has been lacking,
primarily because of ambiguities in the PRC laws and difficulties in
enforcement. Accordingly, intellectual property rights and confidentiality
protections in China may not be as effective as in the United States or other
countries, which increases the risk that we may not be able to adequately
protect our intellectual property.





We
may not possess all the licenses required to operate our business, or may fail
to maintain the licenses we currently hold. This could subject us to fines and
other penalties, which could have a material adverse effect on our results of
operations.





We are
required to hold a variety of permits and licenses to conduct our framed art and
grass businesses in China. To our knowledge, we hold all the permits and
licenses required for each of our business segments; however we cannot assure
you we possess all the permits and licenses required for each of our business
segments. In addition, there may be circumstances under which the approvals,
permits or licenses granted by the governmental agencies are subject to change
without substantial advance notice, and it is possible we could fail to obtain
the approvals, permits or licenses required to expand our business as we intend.
If we fail to obtain or to maintain such permits or licenses or renewals are
granted with onerous conditions, we could be subject to fines and other
penalties and be limited in the number or the quality of the products that we
would be able to offer. As a result, our business, result of operations and
financial condition could be materially and adversely affected.





We
may be subject to product quality or liability claims, which may cause us to
incur litigation expenses and to devote significant management time to defending
such claims and, if determined adversely to us, could require us to pay
significant damage awards.





Although
we are not subject to any claims now, we may be subject to legal proceedings and
claims from time to time relating to, among other things, our products in the
future.   The defense of these proceedings and claims could be costly
and time-consuming and significantly divert the efforts and resources of our
management personnel. An adverse determination in any such proceedings could
subject us to significant liability. In addition, any such proceeding, even if
ultimately determined in our favor, could damage our market reputation and
prevent us from maintaining or increasing sales and market share. Protracted
litigation could also result in our customers or potential customers deferring
or limiting their purchase of our products.





Risks
Related to Doing Business in China





PRC
laws and regulations governing our businesses are uncertain. If we are found to
be in violation, we could be subject to sanctions. In addition, changes in such
PRC laws and regulations may materially and adversely affect our
business.





The PRC
government has broad discretion in dealing with violations of laws and
regulations, including levying fines, revoking business and other licenses and
requiring actions necessary for compliance. In particular, licenses and permits
issued or granted to us by relevant governmental bodies may be revoked at a
later time by higher regulatory bodies. We cannot predict the effect of the
interpretation of existing or new PRC laws or regulations on our businesses. We
cannot assure you our current ownership and operating structure would not be
found in violation of any current or future PRC laws or regulations. As a
result, we may be subject to sanctions, including fines, and could be required
to restructure our operations or cease to provide certain services. Any of these
or similar actions could significantly disrupt our business operations or
restrict us from conducting a substantial portion of our business operations,
which could materially and adversely affect our business, financial condition
and results of operations.





16


Adverse
changes in political and economic policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could
reduce the demand for our products and materially adversely affect our
competitive position.





We
conduct substantially all of our operations and generate most of our revenues in
China. Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal
developments in China. The PRC economy differs from the economies of most
developed countries in many respects, including:





●
            the
      higher level of government
involvement;





●
            the
      early stage of development of the market-oriented sector of the
      economy;





●
            the
      rapid growth rate;





●
            the
      higher level of control over foreign exchange;
  and





●
            the
      allocation of resources.





While the
PRC economy has grown significantly since the late 1970s, the growth has been
uneven, both geographically and among various sectors of the economy. The PRC
government has implemented various measures to encourage economic growth and
guide the allocation of resources. Some of these measures benefit the overall
PRC economy, but may also have a negative effect on our business. For example,
our financial condition and results of operations may be adversely affected by
government control over capital investments or changes in tax regulations that
are applicable to us.





The PRC
economy has been transitioning from a planned to a more market-oriented economy.
Although the PRC government has in recent years implemented measures emphasizing
the utilization of market forces for economic reform, the PRC government
continues to exercise significant control over economic growth in China through
the allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and imposing policies that impact
particular industries or companies in different ways.





Uncertainties
with respect to the PRC legal system could limit the legal protections available
to you and us.





We
conduct substantially all of our business through our operating subsidiary in
the PRC, IPA China, which is a wholly foreign owned enterprise in China. IPA
China is generally subject to laws and regulations applicable to foreign
investment in China and, in particular, laws applicable to foreign-invested
enterprises. The PRC legal system is based on written statutes, and prior court
decisions may be cited for reference but have limited precedential value. Since
1979, a series of new PRC laws and regulations has significantly enhanced the
protections afforded to various forms of foreign investments in China. However,
since these laws and regulations are relatively new and the PRC legal system
continues to rapidly evolve, the interpretations of many laws, regulations and
rules are not always uniform and enforcement of these laws, regulations and
rules involve uncertainties, which may limit legal protections available to you
and us. In addition, any litigation in China may be protracted and result in
substantial costs and diversion of resources and management
attention.





A
slowdown in the Chinese economy may slow down our growth and
profitability.





The
Chinese economy has grown at 9 percent average annual rate for more than 25
years, making it the fastest growing major economy in recorded
history.  However, it has begun to slow down.  In 2008,
China’s economy grew by 9.6% but slowed to 7.7% for 2009.





We cannot
assure you growth of the Chinese economy will be steady or that any slowdown
will not have a negative effect on our business. Several years ago, the Chinese
economy experienced deflation, which may recur in the foreseeable future. More
recently, the Chinese government announced its intention to use macroeconomic
tools and regulations to slow the rate of growth of the Chinese economy, the
results of which are difficult to predict. Adverse changes in the Chinese
economy will likely impact the financial performance of the manufacturing and
agricultural industries in China which could, in turn, reduce the demand for our
products.





17


Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.





Most of
our revenues and expenses are denominated in Renminbi. Under PRC law, the
Renminbi is currently convertible under the “current account,” which includes
dividends and trade and service-related foreign exchange transactions, but not
under the “capital account,” which includes foreign direct investment and loans.
Currently, IPA China may purchase foreign currencies for settlement of current
account transactions, including payments of dividends to us, without the
approval of the State Administration of Foreign Exchange, or SAFE, by complying
with certain procedural requirements. However, the relevant PRC government
authorities may limit or eliminate our ability to purchase foreign currencies in
the future. Since a significant amount of our future revenues will be
denominated in Renminbi, any existing and future restrictions on currency
exchange may limit our ability to utilize revenues generated in Renminbi to fund
our business activities outside China that are denominated in foreign
currencies.





Foreign
exchange transactions by IPA China under the capital account continue to be
subject to significant foreign exchange controls and require the approval of or
need to register with PRC government authorities, including SAFE. In particular,
if IPA China borrows foreign currency through loans from us or other foreign
lenders, these loans must be registered with SAFE, and if we finance IPA China
by means of additional capital contributions, these capital contributions must
be approved by certain government authorities, including the National
Development and Reform Commission, or the NDRC, the Ministry of Commerce, or
MOFCOM, or their respective local counterparts. These limitations could affect
IPA China’s ability to obtain foreign exchange through debt or equity
financing.





Recent
PRC regulations relating to the establishment of offshore special purpose
vehicles by PRC residents, if applied to us, may subject the PRC resident
shareholders of us or our parent company to personal liability and limit our
ability to acquire PRC companies or to inject capital into our PRC subsidiary,
limit our PRC subsidiaries’ ability to distribute profits to us or otherwise
materially adversely affect us.





In
October 2005, SAFE issued a public notice, the Notice on Relevant Issues in the
Foreign Exchange Control over Financing and Return Investment Through Special
Purpose Companies by Residents Inside China, or the SAFE notice, which requires
PRC residents, including both legal persons and natural persons, to register
with the competent local SAFE branch before establishing or controlling any
company outside of China, referred to as an “offshore special purpose company,”
for the purpose of overseas equity financing involving onshore assets or equity
interests held by them. In addition, any PRC resident that is the shareholder of
an offshore special purpose company is required to amend its SAFE registration
with the local SAFE branch with respect to that offshore special purpose company
in connection with any increase or decrease of capital, transfer of shares,
merger, division, equity investment or creation of any security interest over
any assets located in China. Moreover, if the offshore special purpose company
was established and owned the onshore assets or equity interests before the
implementation date of the SAFE notice, a retroactive SAFE registration is
required to have been completed before March 31, 2006. If any PRC
shareholder of any offshore special purpose company fails to make the required
SAFE registration and amendment, the PRC subsidiaries of that offshore special
purpose company may be prohibited from distributing their profits and the
proceeds from any reduction in capital, share transfer or liquidation to the
offshore special purpose company. Moreover, failure to comply with the SAFE
registration and amendment requirements described above could result in
liability under PRC laws for evasion of applicable foreign exchange
restrictions.





Due to
lack of official interpretation, some of the terms and provisions in the SAFE
notice remain unclear and implementation by central SAFE and local SAFE branches
of the SAFE notice has been inconsistent since its adoption. Because of
uncertainty over how the SAFE notice will be interpreted and implemented, we
cannot predict how it will affect our business operations or future strategies.
For example, our present and prospective PRC subsidiaries’ ability to conduct
foreign exchange activities, such as the remittance of dividends and foreign
currency-denominated borrowings, may be subject to compliance with the SAFE
notice by our or our parent company’s PRC resident beneficial holders. In
addition, such PRC residents may not always be able to complete the necessary
registration procedures required by the SAFE notice. We also have little control
over either our present or prospective direct or indirect shareholders or the
outcome of such registration procedures. A failure by our PRC resident
beneficial holders or future PRC resident shareholders to comply with the SAFE
notice, if SAFE requires it, could subject us to fines or legal sanctions,
restrict our overseas or cross-border investment activities, limit our
subsidiary’s ability to make distributions or pay dividends or affect our
ownership structure, which could adversely affect our business and
prospects.





The
Chinese government could change its policies toward private enterprise or even
nationalize or expropriate private enterprises, which could result in the total
loss of our investment in that country.





Our
business is subject to significant political and economic uncertainties and may
be adversely affected by political, economic and social developments in China.
Over the past several years, the Chinese government has pursued economic reform
policies including the encouragement of private economic activity and greater
economic decentralization. The Chinese government may not continue to pursue
these policies or may significantly alter them to our detriment from time to
time with little, if any, prior notice.





18


Changes
in policies, laws and regulations or in their interpretation or the imposition
of confiscatory taxation, restrictions on currency conversion, restrictions or
prohibitions on dividend payments to stockholders, devaluations of currency or
the nationalization or other expropriation of private enterprises could have a
material adverse effect on our business. Nationalization or expropriation could
even result in the total loss of our investment in China and in the total loss
of your investment in us.





We
face risks related to health epidemics and other outbreaks.





Adverse
public health epidemics or pandemics could disrupt business and the economies of
the PRC and other countries where we do business. From December 2002 to June
2003, China and other countries experienced an outbreak of a highly contagious
form of atypical pneumonia now known as severe acute respiratory syndrome, or
SARS. On July 5, 2003, the World Health Organization declared that the SARS
outbreak had been contained. However, a number of isolated new cases of SARS
were subsequently reported, most recently in central China in April
2004.  During May and June of 2003, many businesses in China were
closed by the PRC government to prevent transmission of SARS. Moreover, some
Asian countries, including China, have recently encountered swine flu influenza.
We are unable to predict the effect, if any, that avian or swine influenza may
have on our business. In particular, any future outbreak of SARS, influenza or
other similar adverse public developments may, among other things, significantly
disrupt our business and force us to temporarily close our businesses.
Furthermore, an outbreak may severely restrict the level of economic activity in
affected areas, which may in turn materially adversely affect our financial
condition and results of operations. We have not adopted any written preventive
measures or contingency plans to combat any future outbreak of health related
epidemics.





Shareholder
rights under British Virgin Islands law may differ materially from shareholder
rights in the United States, which could adversely affect the ability of us and
our shareholders to protect our and their interests.





Our
corporate affairs are governed by our amended and restated memorandum and
articles of association, by the Business Companies Act (No 16 of 2004) and the
common law of the BVI. The rights of shareholders to take action against the
directors, actions by minority shareholders, and the fiduciary responsibilities
of our directors to us under BVI law are to a large extent governed by the
common law of the BVI. The common law in the BVI is derived in part from
comparatively limited judicial precedent in the BVI as well as from English
common law, the decisions of whose courts are of persuasive authority but are
not binding on a court in the BVI. The rights of our shareholders and the
fiduciary responsibilities of our directors under BVI law in this area may not
be as clearly established as they would be under statutes or judicial precedent
in existence in some jurisdictions in the United States. In particular, the BVI
has a less developed body of securities laws as compared to the United States,
and some states, such as Delaware, have more fully developed and judicially
interpreted bodies of corporate laws. Moreover, our company could be involved in
a corporate combination in which dissenting shareholders would have no rights
comparable to appraisal rights which would otherwise ordinarily be available to
dissenting shareholders of United States corporations. Also, we are not aware of
a significant number of reported class actions or derivative actions having been
brought in BVI courts. Such actions are ordinarily available in respect of
United States corporations in U.S. courts. Finally, BVI companies may not have
standing to initiate shareholder derivative action before the federal courts of
the United States. As a result, our public shareholders may face different
considerations in protecting their interests in actions against the management,
directors or our controlling shareholders than would shareholders of a
corporation incorporated in a jurisdiction in the United States, and our ability
to protect our interests may be limited if we are harmed in a manner that would
otherwise enable us to sue in a United States federal court.





As
we are a British Virgin Islands company and most of our assets are outside the
United States, it will be extremely difficult to acquire jurisdiction and
enforce liabilities against us and our officers, directors and assets based in
China.





We are a
BVI international business company, and our corporate affairs are governed by
our Memorandum and Articles of Association and by the BVI Business Companies Act
(No 16 of 2004) and other applicable BVI laws. Certain of our directors and
officers primarily reside outside of the United States. In addition, the
Company’s assets will be located outside the United States although we do sell
our products into the United States. As a result, it may be difficult or
impossible to effect service of process within the United States upon our
directors or officers and our subsidiaries, or enforce against any of them court
judgments obtained in United States’ courts, including judgments relating to
United States federal securities laws. In addition, there is uncertainty as to
whether the courts of the BVI and of other offshore jurisdictions would
recognize or enforce judgments of United States’ courts obtained against us
predicated upon the civil liability provisions of the securities laws of the
United States or any state thereof, or be competent to hear original actions
brought in the BVI or other offshore jurisdictions predicated upon the
securities laws of the United States or any state thereof. Furthermore, because
the majority of our assets are located in China, it would also be extremely
difficult to access those assets to satisfy an award entered against us in
United States court.





19


The
laws of the British Virgin Islands provide little protection for minority
shareholders, so minority shareholders will have little or no recourse if the
shareholders are dissatisfied with the conduct of the affairs of our
company.





Under the
laws of the BVI, there is some statutory law for the protection of minority
shareholders under the Act. The principal protection under statutory law is that
shareholders may bring an action to enforce our Amended and Restated Memorandum
and Articles of Association. The Act sets forth the procedure to bring such a
claim. Shareholders are entitled to have the affairs of the company conducted in
accordance with the general law and the Amended and Restated Memorandum and
Amended and Restated Articles of Association. Companies are not obligated to
appoint an independent auditor and shareholders are not entitled to receive the
audited financial statements of the company.





There are
common law rights for the protection of shareholders that may be invoked (such
rights have also now been given statutory footing under the Act), largely
dependent on English company law, since the common law of the BVI for business
companies is limited. Under the general rule pursuant to English company law
known as the rule in Foss v. Harbottle, a court will generally refuse to
interfere with the management of a company at the insistence of a minority of
its shareholders who express dissatisfaction with the conduct of the company’s
affairs by the majority or the board of directors. However, every shareholder is
entitled to have the affairs of the company conducted properly according to law
and the constituent documents of the corporation. As such, if those who control
the company have persistently disregarded the requirements of company law or the
provisions of the company’s memorandum or articles of association, then the
courts will grant relief. Generally, the areas in which the courts will
intervene are the following: (i) an act complained of which is outside the scope
of the authorized business or is illegal or not capable of ratification by the
majority, (ii) acts that constitute fraud on the minority where the wrongdoers
control the company, (iii) acts that infringe on the personal rights of the
shareholders, such as the right to vote, and (iv) where the company has not
complied with provisions requiring approval of a special or extraordinary
majority of shareholders, which are more limited than the rights afforded
minority shareholders under the laws of many states in the U.S.





Risks
Related To An Investment In Our Stock





There
may not be an active, liquid trading market for our ordinary
shares.





We have
received approval for public trading of our Company stock on the OTC Bulletin
Board.  However, as of the date of this filing, there have been no
public trades of our Company stock.  We expect active trading will
occur in our Company stock in the second quarter of 2010.





The
market price for our ordinary shares may be volatile, which could result in
substantial losses to investors.





The
market price for our ordinary shares is likely to be volatile and subject to
wide fluctuations in response to factors including the following:





●
            actual
      or anticipated fluctuations in our quarterly operating
      results;●
            changes
      in the Chinese energy and livestock industries;●
            changes
      in the Chinese economy;●
            announcements
      by our competitors of significant acquisitions, strategic partnerships,
      joint ventures
              or
      capital commitments;●
            additions
      or departures of key personnel; or●
            potential
      litigation.





In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. As a result, to the extent shareholders sell our
ordinary shares in negative market fluctuation, they may not receive a price per
share that is based solely upon our business performance. We cannot guarantee
that shareholders will not lose some of their entire investment in our ordinary
shares.





20


Future
sales of our ordinary shares may depress our share price.





The
market price of our ordinary shares could decline as a result of sales of
substantial amounts of our ordinary shares in the public market, or the
perception that these sales could occur. In addition, these factors could make
it more difficult for us to raise funds through future offerings of ordinary
shares. There will be 8,600,000 ordinary shares outstanding before the
consummation of this offering. All of the ordinary shares sold in our initial
public offering will be freely transferable 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. The remaining
ordinary shares will be “restricted securities” as defined in Rule 144. These
shares may be sold in the future without registration under the Securities Act
to the extent permitted by Rule 144 or other exemptions under the Securities
Act. See “Shares Eligible for Future Sale.”





If
our parent company VIASPACE cannot make the cash payment due to Chang or some
other alternate arrangement is reached, then the second closing will not occur,
and Chang will greatly increase his ownership in our equity securities and have
greater influence on shareholder actions.





Our
parent company VIASPACE must pay Sung Hsien Chang $4.8 million plus interest
(which as of March 24, 2010 was $491,000) at the Second Closing.  At
this time, VIASPACE does not have this cash available and would have to raise
this capital in order to meet such commitment.  If VIASPACE is
ultimately unable to make this cash payment, then the Second Closing will not
occur and unless an alternate arrangement is agreed upon, VIASPACE will transfer
all shares of our common stock it holds to Chang.  This would cause
Mr. Chang to have greater influence on shareholder decisions.





Our
major shareholders, directors and officers will control a majority of our
ordinary shares, decreasing your influence on shareholder
decisions.





Our major
shareholders, officers and directors will, in the aggregate, beneficially own
6,906,000 ordinary shares or approximately 80.3% of our outstanding
shares. If the Second Closing does not occur and an alternate
arrangement is not agreed upon, we will be controlled by Mr. Sung Hsien Chang
rather than our current parent company, VIASPACE Inc. As a result, our officers
and directors will possess substantial ability to impact our management and
affairs and the outcome of matters submitted to shareholders for approval. These
shareholders, acting individually or as a group, could exert control and
substantial influence over matters such as electing directors and approving
mergers or other business combination transactions. This concentration of
ownership and voting power may also discourage, delay or prevent a change in
control of our company, which could deprive our shareholders of an opportunity
to receive a premium for their shares as part of a sale of our company and might
reduce the price of our ordinary shares. These actions may be taken even if they
are opposed by our other shareholders, including those who purchase shares in
this offering. See “Principal Shareholders.”








ITEM
2. PROPERTIES





We
currently operate our office in Irvine, California and our facilities in China.
Our headquarters are located in Guangzhou province in the PRC.  See
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Contractual Obligations and Commercial Commitments.”





Office
            
            Address
            
            TermVIASPACE
      GREEN ENERGY
            
            2102
      Business Center Dr., Suite 130, Irvine,
              California,
      92612
            
            Month-to-month
      rental leaseIPA
      CHINA
            
            San
      Sheng Road, DaLi Village, TaiHe Town,
                Guangzhou,
      China 510540
            
            Building
      owned by Company; Land
                leased
      from PRC governmentIPA
      BVI
            
            No.
      10 Lane 210, Hai Pu Road, Hsin Chu, Taiwan
            
            Month-to-month





Total
rent expense for all locations for 2008 was approximately $78,000.








21


ITEM
3. LEGAL PROCEEDINGS





None








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





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





PART
II





ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS





Market
Prices





The
Company is a newly registered company listed and principally quoted on the OTC
Bulletin Board under the trading symbol “VGREF.OB”.  The Company’s
common stock has not traded yet as of March 30, 2010.





Holders





As of
March 30, 2010, there were 41 shareholders of record of the Company’s Common
Stock.





Dividends





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





Equity Compensation
Plan





The
Company’s equity compensation plan is discussed under the section titled “Equity
Compensation Plan Information” under “Item 11. Security Ownership of Certain
Beneficial Owners and Management and Related Stock Matters” below.





Recent Sales of Unregistered
Securities





There
were no sales of unregistered securities in 2009.








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





VIASPACE Green Energy Inc.
Overview





VIASPACE
Green Energy Inc., a British Virgin Islands (“BVI”) company (“we”, “us”, “VGE”
or the “Company”) is the parent company of Inter Pacific Arts Corporation, a
British Virgin Islands international business company (“IPA BVI”) and Guangzhou
Inter Pacific Arts, a Peoples Republic of China (“PRC”) company (“IPA
China”).  IPA China is a wholly-owned foreign enterprise headquartered
in Guangdong province of China.  IPA BVI owns all equity interests of
IPA China.  IPA BVI and IPA China specialize in the manufacturing of
high quality, copyrighted, framed artwork sold in U.S. retail chain stores. IPA
China also has a sub license to a fast-growing, high yield, low carbon, nonfood
energy crop called GKG which can be burned in 100% biomass power plants to
generate electricity; made into pellets that can be burned together with coal to
reduce carbon emissions from existing power plants; generate bio methane through
anaerobic digestion, and can be used as a feedstock for low carbon liquid
biofuels for transportation.  Cellulosic ethanol and other liquid
biofuels, collectively called Grassoline, do not use corn or other food sources
as feedstock.  GKG can also be used as animal feed. GKG and other
plants absorb and store carbon dioxide from the atmosphere as they grow. When
they are burned, they release the carbon dioxide back into the atmosphere, but
it is the same carbon dioxide that was removed from the atmosphere, and that the
process is carbon neutral. Small amounts of fossil fuel are used by the farm
equipment, transportation of  GKG and fertilizer, so that the overall
process has some carbon dioxide emissions, but much lower than burning coal or
other fossil fuels directly.   GKG has been independently tested
by customers and been shown to have excellent energy content and very high bio
methane production.  We do not build the power plant or biofuel plant;
rather we grow GKG that is needed as the fuel or feedstock.  We are
growing GKG on 250 acres of leased land in China to serve as a nursery for
expansion, a demonstration plot for potential partners and customers, to provide
samples for potential customers, and as a grass source for our own
products.   VIASPACE Green Energy is based in California with
business activities in China.





22


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





Critical accounting policies
and estimates





Financial
Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical
Accounting Policies” (“FRR60”) issued by the SEC, suggests that companies
provide additional disclosure and commentary on those accounting policies
considered most critical.  FRR 60 considers an accounting policy to be
critical if it is important to the Company’s financial condition and results of
operations, and requires significant judgment and estimates on the part of
management in its application.  For a summary of the Company’s
significant accounting policies, including the critical accounting policies
discussed below, see the accompanying notes to the consolidated financial
statements.





The
preparation of the Company’s financial statements in conformity with accounting
principles generally accepted in the United States of America (“US GAAP”)
requires management to make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
expenses during the reporting period.  On an ongoing basis, the
Company evaluates its estimates, which are based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances.  The result of these evaluations forms the basis for
making judgments about the carrying values of assets and liabilities and the
reported amount of expenses that are not readily apparent from other
sources.  Actual results may differ from these estimates under
different assumptions.  The following accounting policies require
significant management judgments and estimates:





In
accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition”
(“SAB No. 104”), IPA BVI and IPA China recognize product revenue provided: (1)
persuasive evidence of an arrangement exists, (2) delivery to the customer has
occurred, (3) the selling price is fixed or determinable and (4) collection is
reasonably assured.  Delivery is considered to have occurred when
title and risk of loss have transferred to the customer. The price is considered
fixed or determinable when it is not subject to refund or
adjustments.  Our standard shipping terms are free on board shipping
point.  Some of the Company’s products are sold in the PRC and are
subject to Chinese value-added tax.  This VAT may be offset by VAT
paid by the Company on raw materials and other materials included in the cost of
producing their finished product.  Revenue is recorded net of VAT
taxes.





The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other
sources.  There is no assurance that actual results will not differ
from these estimates.





See
footnotes in the accompanying financial statements regarding recent financial
accounting developments.








Results of
Operations





Year
Ended December 31, 2009 versus Year Ended December 31, 2008





Note:  The
acquisition of IPA BVI and IPA China by VIASPACE and VGE occurred on October 21,
2008.   The following discussion reflects a comparison of actual
financial results for the year ended December 31, 2009 versus actual results
incurred by VGE, IPA BVI and IPA China for the year ended December 31,
2008.





Revenues





Revenues
were $3,618,000 and $6,624,000 for 2009 and 2008, respectively, a decrease of
$3,006,000 or 45%.  Sales of framed artwork were down by 45% during
2009 compared with 2008 as customer filled orders were lower.   All
revenues recorded during 2009 and 2008 are from the Company’s framed artwork
segment.





23


Cost
of Revenues





Costs of
revenues were $2,020,000 and $3,998,000 for 2009 and 2008, respectively, a
decrease of $1,978,000 or 49%.  Framed artwork costs of revenues were lower
as expected due to a decrease in revenues.  All of the cost of
revenues recorded during 2009 and 2008 are from the Company’s framed artwork
segment.





Gross
Profit





The
resulting effect on these changes in revenues and cost of revenues from 2008 to
2009 was a decrease in gross profits from $2,626,000 in 2008 to $1,598,000 in
2009, a decrease of $1,028,000 or 39%.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses were $1,718,000 and $1,417,000 for 2009 and
2008, respectively, an increase of $301,000 or 21%.





Framed Artwork
Segment


Of the
total amounts, the framed artwork segment had selling, general and
administrative expenses of $839,000 and $1,235,000 for 2009 and 2008,
respectively, a decrease of $396,000 primarily due to lower commissions on
framed artwork sales.





Grass
Segment


Of the
total amounts, the grass segment related to growing GKG in the PRC had selling,
general and administrative expenses of $879,000 and $182,000 for 2009 and 2008,
respectively, an increase of $697,000.  This segment did not have any
corresponding costs incurred in the first nine months of 2008, as it commenced
operations in the fourth quarter of 2008.  Included in the costs of
$879,000 were professional accounting fees of $166,000, payroll and benefits of
$452,000, legal expenses of $89,000, travel expenses of $72,000 and other
expenses of $100,000.





Income
(Loss) from Operations





The
resulting effect on these changes in gross profits, selling, general and
administrative expense was a decrease in income from operations of $1,330,000
from 2008 to 2009.





Framed Artwork
Segment


Of the
total amounts, the framed artwork segment had decreased income from operations
of $633,000 from 2008 to 2009.





Grass
Segment


Of the
total amounts, the grass segment had an increased loss from operations of
$697,000 in 2009 as compared with 2008.





Liquidity and Capital
Resources





Period
from January 1, 2009 through December 31, 2009





Net cash
used in operating activities was $116,000 for the year ended December 31,
2009.  The Company’s net loss was $120,000 for year ended December 31,
2009.  Non-cash expenses totaled $91,000 composed of depreciation of
fixed assets and amortization of land leases.  General working capital
used $75,000 in cash for the year ended December 31,
2009.   Related party, net, used $12,000 in cash.





Net cash
used in investing activities was $371,000 related to $102,000 incurred for
additional land leases entered into in 2009 in the PRC and $269,000 related to
fixed asset capital additions related to expansion of the Company’s GKG business
in the PRC.





Net cash
used in financing activities was $1,045,000 comprised of related party
loans.





The
Company expects cash on hand as of December 31, 2009 and future operating cash
flow to fund operations for a minimum of the next twelve months, and as such,
the Company has no immediate need for additional outside
financing.  However if revenue forecasts are not met or if future
operating expenses or capital requirements increase beyond our control, the
Company may need to seek additional cash resources.  This could be
from the sale of additional equity securities or new debt
securities.








24


Contractual
Obligations





IPA art
designers work with buyers from retail chains to choose prints and other art
forms from catalogs of licensed work. We only purchase prints from companies
with whom we have long-standing relationships, and we guarantee our customers
there are no counterfeits and that all royalties were paid.  The
vendors from whom we purchase prints guarantee that all of the prints they sell
are not counterfeits and that all royalties were paid to the artist of the
prints.  We then pass this guarantee on to our
customers.  Since the time IPA was formed in 2003, we have not
received any legal claims challenging any of the prints we have
sold.





Employment
Agreements





On
October 21, 2008, VGE entered into two-year employment agreements with each of
Carl Kukkonen, Sung Hsien Chang, Stephen Muzi and Maclean Wang.  Dr.
Kukkonen would serve as Chief Executive Officer, Mr. Chang as President, Mr.
Muzi as Chief Financial Officer, Treasurer and Secretary and Mr. Wang as
Managing Director of Grass Development.  Dr. Kukkonen and Mr. Chang
would receive a salary of $240,000 per annum, Mr. Muzi would receive $180,000
per annum and Mr. Wang would receive $84,000 per annum.  Each of them
would be entitled to a bonus as determined by the VGE Board of Directors,
customary insurance and health benefits, 15 days paid leave per year, and
reimbursement for out-of-pocket expenses in the course of his
employment.  Mr. Chang and Mr. Wang’s employment agreements also have
a feature that granted each of them an option to purchase the number shares of
its common stock equal to four percent (4%) of VGE’s total outstanding shares as
of the Second Closing.  These employment agreements terminated on
February 15, 2010 as the Company failed to achieve the Second Closing of IPA BVI
and IPA China as discussed in Note 9.  The Company expects to
negotiate and enter into new employments with Dr. Carl Kukkonen, Mr. Sung Hsien
Chang, and Mr. Stephen Muzi during the second quarter of 2010.





Inflation and
Seasonality





We have
not experienced material inflation during the past two
years.  Seasonality has historically not had a material effect on our
operations.





Off-Balance Sheet
Arrangements





The
Company does not have any off-balance sheet arrangements as of December 31,
2009.





Quantitative
and Qualitative Disclosures about Market Risk





Interest Rate Risk. Our
exposure to interest rate risk primarily relates to interest income generated by
cash invested in liquid investments with original maturities of three months or
less. Such interest-earning instruments carry a degree of interest rate risk. We
have not used any derivative financial instruments to manage our interest rate
exposure. We have not been exposed to material risks due to changes in interest
rates. However, our future interest income may be lower than expected due to
changes in market interest rates.





Foreign Exchange Risk.
Although we use U.S. dollars as our reporting currency and our artwork revenue
is denominated in U.S. dollars, our operations are carried out in RMB and we
maintain RMB denominated bank accounts. We, therefore, are subject to currency
risk. Although the conversion of the RMB is highly regulated in China, the value
of the RMB against the value of the U.S. dollar or any other currency
nonetheless may fluctuate in value within a narrow band against a basket of
certain foreign currencies. China is currently under significant international
pressures to liberalize this government currency policy, and if such
liberalization were to occur, the value of the RMB could appreciate or
depreciate against the U.S. dollar. Unfavorable changes in the exchange rate
between the RMB and the U.S. dollar may result in a material effect upon
accumulated other comprehensive income recorded as a charge in shareholders’
equity. We do not use derivative instruments to reduce our exposure to foreign
currency risk.





In
addition, the RMB is not a freely convertible currency. IPA China, our Chinese
subsidiary, is not permitted to pay outstanding current account obligations in
foreign currency, but rather must present the proper documentation to a
designated foreign exchange bank. We cannot guarantee that all future local
currency can be repatriated.





Inflation. Although China has
experienced an increasing inflation rate, inflation has not had a material
impact on our results of operations during 2008 and 2009.





25


ITEM
7. FINANCIAL STATEMENTS





See the
Company’s audited financial statements on pages F-1 through F-34.








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





None.








ITEM 8A. CONTROLS AND
PROCEDURES





Disclosure
controls and procedures.Disclosure controls are controls and
procedures designed to reasonably assure that information required to be
disclosed in our reports filed under the Exchange Act, such as this Annual
Report, is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms.  Disclosure controls are also
designed to reasonably assure that such information is accumulated and
communicated to our management, including the Chief Executive Officer and the
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.  Disclosure controls and procedures, no matter
how well designed and implemented, can provide only reasonable assurance of
achieving an entity’s disclosure objectives.  The likelihood of
achieving such objectives is affected by limitations inherent in disclosure
controls and procedures.  These include the fact that human judgment
in decision-making can be faulty and that breakdowns in internal control can
occur because of human failures such as simple errors, mistakes or intentional
circumvention of the established processes.





At the
end of the period covered by this report and at the end of each fiscal quarter
therein, the Company’s management, with the participation of our Chief Executive
Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that these disclosure controls and procedures were effective at the
reasonable assurance level described above as of the end of the period covered
in this report.





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





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





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





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


26





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





Changes in
internal controls over financial reporting.Management, with
the participation of the Chief Executive Officer and Chief Financial Officer of
the Company, has evaluated any changes in the Company’s internal control over
financial reporting that occurred during the most recent fiscal quarter. Based
on that evaluation, management, the Chief Executive Officer and the Chief
Financial Officer of the Company have concluded that no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934) occurred during 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.





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








ITEM
8B. OTHER INFORMATION





Not
applicable.





27


PART
III





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





MANAGEMENT





Executive
Officers and Directors





The
following table sets forth our executive officers and directors, their ages and
the positions held by them.   None of the directors listed below are
independent directors:





Name
            
            Age
            
            Position
      HeldMr. Carl
      Kukkonen
            
            64
            
            Chief
      Executive Officer and DirectorMr. Sung
      Hsien Chang
            
            47
            
            President
      and DirectorMr. Amjad
      S. Abdallat
            
            48
            
            DirectorMr. Stephen
      Muzi
            
            46
            
            Chief
      Financial Officer





Carl
Kukkonen.   Dr. Kukkonen has been our Chief Executive
Officer and Director since October 2008.  He is also the Chief
Executive Officer and Director of VIASPACE, Inc., our parent corporation since
2005.  He is also the Chief Executive Officer, President, and
Director, Direct Methanol Fuel Cell Corporation, a subsidiary of
VIASPACE since 2001, and the Chief Executive Officer and Director of
VIASPACE Security Inc., a subsidiary of VSI since 2002.  He was the
Co-founder and Chief Executive Officer of ViaSpace Technologies LLC (predecessor
of VIASPACE) from 1998 to 2005.  Previously, Dr. Kukkonen served
as the Director of the Center for Space Microelectronics Technology and
Manager of Supercomputing at the Caltech NASA Jet Propulsion Laboratory from
1984 to 1998.  From 1977 to 1984, he was the Principal Research
Engineer at Ford Motor Company.  Dr. Kukkonen has a B.S. in physics
from the University of California at Davis and an M.S. and Ph.D. in physics from
Cornell University.  He was also a Post-doctoral fellow at Purdue
University.





Sung Hsien
Chang.  Mr. Chang is the President and Director of VIASPACE
Green Energy since October 2008.  He is also the Chief Executive
Officer and founder of Inter-Pacific Arts, Inc., our subsidiary since
2002.  He worked at Jun Jung Metal prior to 2002.  He
attended Taiwan Junior College.





Amjad S.
Abdallat.   Mr. Abdallat has a Director of the Company
since October 2008.   He is also a Director of VIASPACE, Inc.,
our parent corporation since 2005.  He is also a director of Direct
Methanol Fuel Cell Corporation, a subsidiary of VIASPACE since
2001.  He is also a Director of Ionfinity LLC, a subsidiary of
VIASPACE since 2001.  He was the Co-founder of ViaSpace Technologies
LLC (predecessor of VIASPACE) from 1998 to 2005.  He was with
Hewlett-Packard Company as Business Development, Marketing and Program Capture
from 1989 to 1998, and was in business development at Control Data Corporation
from 1984 to 1989.  He has a BS from the University of California at
Berkeley and a Master’s degree in Engineering from the University of
Missouri.





Stephen Muzi.  Mr.
Muzi is our Chief Financial Officer, Treasurer and Secretary since October
2008.  Since June 2005, he has also been the Chief Financial Officer,
Treasurer and Secretary of VIASPACE Inc., our parent corporation.  He
was the controller for SpectraSensors, Inc., a spun-off former subsidiary of
VIASPACE from 2003 to 2005.  He was also a controller for ViaLogy
Corp., a spun-off former subsidiary of the Company from 2003 to
2005.  From 2004 to 2005, he also served as a consultant to Direct
Methanol Fuel Cell Corporation, VIASPACE Security Inc. and Ionfinity LLC,
subsidiaries of VIASPACE from 2004 to 2005.  Mr. Muzi joined ViaSpace
Technologies LLC (predecessor of VIASPACE) in May 2000.  Mr. Muzi
obtained his B.S. degree from Rochester Institute of Technology and an M.B.A.
from the State University of New York at Buffalo.  He is a Certified
Public Accountant.





28








Board
of Directors and Board Committees





Our board
of directors currently consists of three (3) members. We expect that all
current directors will continue to serve after this offering. There are no
family relationships between any of our executive officers and
directors.





A
director may vote in respect of any contract or transaction in which he is
interested, provided, however that the nature of the interest of any director in
any such contract or transaction shall be disclosed by him at or prior to its
consideration and any vote on that matter. A general notice or disclosure to the
directors or otherwise contained in the minutes of a meeting or a written
resolution of the directors or any committee thereof that a director is a
shareholder of any specified firm or company and is to be regarded as interested
in any transaction with such firm or company shall be sufficient disclosure and
after such general notice it shall not be necessary to give special notice
relating to any particular transaction.





There are
no membership qualifications for directors. Further, there are no share
ownership qualifications for directors unless so fixed by us in a general
meeting.





There are
no other arrangements or understandings pursuant to which our directors are
selected or nominated.





Audit
Committee.  Will be established in 2010.





Compensation
Committee.  Will be established in 2010.





Governance and Nominating
Committee.  Will be established in 2010.








Duties
of Directors





Under BVI
law, our directors have a fiduciary duty to the company to act in good faith in
their dealings with or on behalf of our company and exercise their powers and
fulfill the duties of their office honestly. This duty has four essential
elements:





●
            a
      duty to act in good faith in the best interests of the
      company;●
            a
      duty not to personally profit from opportunities that arise from the
      office of director;●
            a
      duty to avoid conflicts of interest; and●
            a
      duty to exercise powers for the purpose for which such powers were
      intended.





In
general, the Companies Law imposes various duties on officers of a company with
respect to certain matters of management and administration of the company. The
Companies Law imposes fines on persons who fail to satisfy those requirements or
the company itself. However, in many circumstances, an individual is only liable
if he is knowingly guilty of the default or knowingly and willfully authorizes
or permits the default.





Director
Compensation





All
directors hold office until the expiration of their respective terms and until
their successors have been duly elected and qualified. There are no family
relationships among our directors or executive officers. Officers are elected by
and serve at the discretion of the Board of Directors. Employee directors do not
receive any compensation for their services. Non-employee directors may receive
cash, stock or stock options for their service on the Board of Directors. In
addition, non-employee directors are entitled to receive compensation for their
actual travel expenses for each Board of Directors meeting attended.  
None of our directors received any director compensation for serving on the
Board of Directors in 2009.  Directors who are our officers received
only salary which is included in the Summary Compensation Table in Item 10 of
this Form 10-K.








Limitation
of Director and Officer Liability





Pursuant
to our Memorandum and Articles of Association, every director or officer and the
personal representatives of the same shall be indemnified and secured harmless
out of our assets and funds against all actions, proceedings, costs, charges,
expenses, losses, damages or liabilities incurred or sustained by him or her in
or about the conduct of our business or affairs or in the execution or discharge
of his or her duties, powers, authorities or discretions, including without
prejudice to the generality of the foregoing, any costs, expenses, losses or
liabilities incurred by him in defending (whether successfully or otherwise) any
civil proceedings concerning us or our affairs in any court whether in the BVI
or elsewhere. No such director or officer will be liable for: (a) the acts,
receipts, neglects, defaults or omissions of any other such Director or officer
or agent; or (b) any loss on account of defect of title to any of our
property; or (c) account of the insufficiency of any security in or upon
which any of our money shall be invested; or (d) any loss incurred through
any bank, broker or other similar person; or (e) any loss occasioned by any
negligence, default, breach of duty, breach of trust, error of judgment or
oversight on his or her part; or (f) any loss, damage or misfortune
whatsoever which may happen in or arise from the execution or discharge of the
duties, powers authorities, or discretions of his or her office or in relation
thereto, unless the same shall happen through his or her own
dishonesty.





29


Section 16(a) Beneficial
Ownership Reporting Compliance





Not
applicable.





Code of
Ethics





The
Company will adopt a code of ethics that applies to its principal: executive
officers, financial officer, accounting officer or controller, or persons
performing similar functions in 2010.


Family
Relationships




There are
no family relationships between or among any of the current directors, executive
officers or persons nominated or charged by the Company to become directors or
executive officers.




Involvement
in Certain Legal Proceedings





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





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





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





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





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





·
            been
      the subject of, or a party to, any federal or state judicial or
      administrative order, judgment, decree, or finding, not subsequently
      reversed, suspended or vacated, relating to an alleged violation
      of:.(i)
            any
      federal or state securities or commodities law or
    regulation;





30





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





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





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














31


ITEM
10. EXECUTIVE COMPENSATION





The
following table shows the annual compensation paid by us to Mr. Carl
Kukkonen, our principal executive officers, for the year ended December 31, 2009
and our executive officers who were paid more than $100,000 per
annum.  Other than the officers listed, no other officer had total
compensation during either of the previous two years of more than
$100,000.  The Named Executive Officers are the Company’s Chief
Executive Officer, President and Chief Financial Officer.








Summary
Compensation Table


Name(1)
            Year
            
            Salary
            
            
            Bonus
            
            Non-
              Equity
              Incentive
              Plan
              Compensation
            
            Non-
              Qualified
              Deferred
              Compensation
              Earnings
            
            All
      Other
              Compensation
            
            
            TotalCarl
      Kukkonen
            2009
            
            $
            40,000
            
            
            $
            —
            
            
            
            
            
            $
            —
            
            
            $
            40,000Chief
      Executive Officer (Principal Executive Officer)
            2008
            
            $
            ―
            
            
            $
            —
            
            
            
            
            
            $
            —
            
            
            $
            ―Sung
      Hsien Chang
            2009
            
            $
            240,000
            
            
            $
            ―
            
            
            
            
            
            $
            ―
            
            
            $
            240,000President
      and Chief Executive Officer of IPA BVI and IPA China
            2008
            
            $
            40,000
            
            
            $
            ―
            
            
            
            
            
            $
            ―
            
            
            $
            40,000Stephen
      Muzi
            2009
            
            $
            30,000
            
            
            $
            ―
            
            
            
            
            
            $
            ―
            
            
            $
            30,000Chief
      Financial Officer (Principal Financial Officer)
            2008
            
            $
            ―
            
            
            $
            ―
            
            
            
            
            
            $
            ―
            
            
            $
            ―


__________________


(1)
            Amounts
      shown are amounts paid by the Registrant to the officers
      listed.  The Parent also pays salary to Dr. Carl Kukkonen and
      Mr. Stephen Muzi, which amounts are included in their financial statements
      and not the Registrant.





Stock
Incentive Plan





Our Board
of Directors and majority of shareholders adopted a stock incentive plan
that provides for stock option and stock grants for our employees,
directors and consultants. 1,400,000 ordinary shares (16.28% of outstanding
shares at December 31, 2009) will initially be reserved in the stock incentive
plan.  The number of shares in the stock option plan will adjust
annually and remain at 16.28% of outstanding shares. The options will vest at a
rate determined by the company's directors and have an exercise price of at
least 80% of the market price of our shares on the date the options are
granted.  We expect to grant options and common shares to certain
employees as of the closing of this offering; however, we have not yet
determined the number of options or the individuals to whom to grant such
options.








Narrative Disclosure to
Summary Compensation Table





Employment
Agreements and Arrangements





On
October 21, 2008, VGE entered into two-year employment agreements with each of
Carl Kukkonen, Sung Hsien Chang, Stephen Muzi and Maclean Wang.  Dr.
Kukkonen would serve as Chief Executive Officer, Mr. Chang as President, Mr.
Muzi as Chief Financial Officer, Treasurer and Secretary and Mr. Wang as
Managing Director of Grass Development.  Dr. Kukkonen and Mr. Chang
would receive a salary of $240,000 per annum, Mr. Muzi would receive $180,000
per annum and Mr. Wang would receive $84,000 per annum.  Each of them
would be entitled to a bonus as determined by the VGE Board of Directors,
customary insurance and health benefits, 15 days paid leave per year, and
reimbursement for out-of-pocket expenses in the course of his
employment.  Mr. Chang and Mr. Wang’s employment agreements also have
a feature that granted each of them an option to purchase the number shares of
its common stock equal to four percent (4%) of VGE’s total outstanding shares as
of the Second Closing.  These employment agreements terminated on
February 15, 2010 as the Company failed to achieve the Second Closing of IPA BVI
and IPA China as discussed in Note 9.  The Company expects to
negotiate and enter into new employments with Dr. Carl Kukkonen, Mr. Sung Hsien
Chang, and Mr. Stephen Muzi during the second quarter of 2010.





Stock
Option Grants





There
were no stock option grants in 2009.


32





Outstanding Equity Awards at
Fiscal Year End





There are no outstanding equity awards
at December 31, 2009.





Director
Compensation





The
Company did not provide director compensation in 2009.  The Company
will review its compensation plan for the Company’s non-employee directors
during 2010.





Retirement
Plans





The
Company does not have any retirement plans that executives participate in at
December 31, 2009.






























33


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





The
following table sets forth certain information regarding beneficial ownership of
our common stock as of March 29, 2010 by (i) each person who beneficially owns
more than 5% of all outstanding shares of our common stock, (ii) each director
and the executive officer identified below, and (iii) all directors and
executive officers as a group.  Percentage of beneficial ownership is
based on 8,600,000 shares outstanding as of March 29, 2010.





Name
            
            Number
      of
              Shares
              Beneficially
              Owned
            
            
            Exercisable
              Options
              Beneficially
              Owned (a)
            
            
            Total
      Number
              of
      Shares and
              Exercisable
              Options
              Beneficially
              Owned
            
            
            Percent
      of
              Class
      of
              Common
              Stock (b)Directors:Carl
      Kukkonen, CEO
            
            
            ―
            
            
            
            ―
            
            
            
            ―
            
            
            
            ―Amjad
      S. Abdallat
            
            
            ―
            
            
            
            ―
            
            
            
            ―
            
            
            
            ―Sung
      Hsien Chang, President (d)
            
            
            1,806,000
            
            
            
            ―
            
            
            
            1,806,000
            
            
            
            21.0
            %Other
      Named Officers:Stephen
      J. Muzi, CFO
            
            
            ―
            
            
            
            ―
            
            
            
            ―
            
            
            
            ―All
      Named Executive Officers and Directors as a group (6
    persons)
            
            
            1,806,000
            
            
            
            ―
            
            
            
            1,806,000
            
            
            
            21.0
            %Other 5%
      Owners:VIASPACE
      Inc. (c)
            
            
            5,100,000
            
            
            
            ―
            
            
            
            5,100,000
            
            
            
            59.3
            %







*
Represents less than 1%.





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





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





(c)
              VIASPACE
      Inc. is the parent company of VIASPACE Green Energy Inc.  The natural
      person with voting and dispositive power of ordinary shares held by
      VIASPACE Inc. is Carl Kukkonen, CEO of VIASPACE and VIASPACE Green Energy
      Inc.  Mr. Kukkonen disavows ownership of such shares.





(d)
              Includes
      350,000 shares held by his wife, 526,000 shares held by a company of which
      his wife is the control person, and 400,000 shares held by his two sons,
      all of whom reside in the same
household.





Equity Compensation
Plans





Our
current stock option plan is explained in detail in the footnotes to the
accompanying consolidated financial statements and provides for the grant of
incentive stock options, non-qualified stock options, stock appreciation rights,
restricted stock and other awards to the Company’s employees, officers,
directors or consultants.





There are
no issued and outstanding stock options under the plan at December 31,
2009.





Changes in Control
Arrangements





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





34


ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE





Other
than as listed below, we have not been a party to any significant transactions,
proposed transactions, or series of transactions, and in which, to our
knowledge, any of our directors, officers, five percent beneficial security
holders, or any member of the immediate family of the foregoing persons has had
or will have a direct or indirect material interest.





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





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





2009
            
            
            2008Due
      from Sung Hsien Chang
            
            $
            759,000
            
            
            $
            209,000Due
      from JJ International
            
            
            1,134,000
            
            
            
            657,000Due
      from employee of IPA China
            
            
            18,000
            
            
            
            ―Total
            
            $
            1,911,000
            
            
            $
            866,000





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





2009
            
            
            2008Due
      to employee of IPA China
            
            $
            20,000
            
            
            $
            21,000Due
      to JJ International
            
            
            29,000
            
            
            
            ―Due
      to Parent
            
            
            35,000
            
            
            
            ―Due
      to related party vendor of IPA China
            
            
            ―
            
            
            
            75,000Total
            
            $
            84,000
            
            
            $
            96,000





Employment
Agreements





On
October 21, 2008, VGE entered into two-year employment agreements with each of
Carl Kukkonen, Sung Hsien Chang, Stephen Muzi and Maclean Wang.  Dr.
Kukkonen would serve as Chief Executive Officer, Mr. Chang as President, Mr.
Muzi as Chief Financial Officer, Treasurer and Secretary and Mr. Wang as
Managing Director of Grass Development.  Dr. Kukkonen and Mr. Chang
would receive a salary of $240,000 per annum, Mr. Muzi would receive $180,000
per annum and Mr. Wang would receive $84,000 per annum.  Each of them
would be entitled to a bonus as determined by the VGE Board of Directors,
customary insurance and health benefits, 15 days paid leave per year, and
reimbursement for out-of-pocket expenses in the course of his
employment.  Mr. Chang and Mr. Wang’s employment agreements also had a
feature that granted each of them an option to purchase the number shares of its
common stock equal to four percent (4%) of VGE’s total outstanding shares as of
the Second Closing.  These employment agreements terminated on
February 15, 2010 as the Company failed to achieve the Second Closing of IPA BVI
and IPA China as discussed in Note 9.  The Company expects to
negotiate and enter into new employments with Dr. Carl Kukkonen, Mr. Sung Hsien
Chang, and Mr. Stephen Muzi during the second quarter of 2010.





Director
Independence





Our Board
of Directors does not currently have any member who qualifies as
"independent" as the term is used in Item 407 of Regulation S-K as promulgated
by the SEC and in the listing standards of The Nasdaq Stock Market, Inc. -
Marketplace Rule 4200.





35


ITEM
13. EXHIBITS








Exhibit
              Number
            
            Description
      of Exhibit3.1
            
            Memorandum
      and Articles of Association of the Registrant (incorporated herein by
      reference to Exhibit 3.2 of the Company’s Registration Statement on Form
      S-1 filed June 3, 2009).3.2
            
            Amended
      and Restated Memorandum and Articles of Association of the Registrant
      (incorporated herein by reference to Exhibit 3.1 of the Company’s
      Registration Statement on Form S-1 filed November 25,
    2009).10.1
            
            Securities
      Purchase Agreement dated as of October 21, 2008 by and among VIASPACE Inc.
      (“VIASPACE”), Sung Hsien Chang (“Chang”), the Registrant and the other
      persons listed therein (incorporated herein by reference to Exhibit 10.1
      of the Company’s Registration Statement on Form S-1 filed June 3,
      2009).10.2
            
            Shareholder
      Agreement dated as of October 21, 2008 by and among VIASPACE, Chang and
      the other persons listed therein, and the Registrant (incorporated herein
      by reference to Exhibit 10.2 of the Company’s Registration Statement on
      Form S-1 filed June 3, 2009).





10.3
            
            Employment
      Agreement dated as of October 21, 2008 by and between the Registrant and
      Carl Kukkonen (incorporated herein by reference to Exhibit 10.3 of the
      Company’s Registration Statement on Form S-1 filed June 3,
      2009).10.4
            
            Employment
      Agreement dated as of October 21, 2008 by and between the Registrant and
      Sung Hsien Chang (incorporated herein by reference to Exhibit 10.4 of the
      Company’s Registration Statement on Form S-1 filed June 3,
      2009).10.5
            
            Employment
      Agreement dated as of October 21, 2008 by and between the Registrant and
      Stephen Muzi (incorporated herein by reference to Exhibit 10.5 of the
      Company’s Registration Statement on Form S-1 filed June 3,
      2009).10.6
            
            Employment
      Agreement dated as of October 21, 2008 by and between the Registrant and
      Maclean Wang (incorporated herein by reference to Exhibit 10.6 of the
      Company’s Registration Statement on Form S-1 filed June 3,
      2009).10.7
            
            2009
      Stock Incentive Plan (incorporated herein by reference to Exhibit 99.1 of
      the Company’s Registration Statement on Form S-1 filed June 3,
      2009).10.8
            
            Agreement
      between IPA China and China Gate Technology Co., Ltd. dated on or about
      October 2008 (incorporated herein by reference to Exhibit 10.7 of the
      Company’s Registration Statement on Form S-1 filed August 12,
      2009).10.9
            
            Memorandum
      of Understanding dated as of September 2, 2009 by and among Dragon Power
      Ltd, the Registrant and VIASPACE Inc. (incorporated herein by reference to
      Exhibit 99.4 of the Company’s Registration Statement on Form S-1 filed
      September 4, 2009).10.10
            
            Amendment
      No. 1 dated as of June 22, 2009 to the Securities Purchase Agreement dated
      as of October 21, 2008 by and among VIASPACE Inc., Sung Hsien Chang, the
      Registrant and the other persons (incorporated herein by reference to
      Exhibit 10.8 of the Company’s Registration Statement on Form S-1 filed
      September 4, 2009).10.11
            
            Amendment
      No. 2 dated as of August 21, 2009 to the Securities Purchase Agreement
      dated as of October 21, 2008 by and among VIASPACE Inc., Sung Hsien Chang,
      the Registrant and the other persons (incorporated herein by reference to
      Exhibit 10.9 of the Company’s Registration Statement on Form S-1 filed
      September 4, 2009).10.12
            
            Amendment
      No. 3 dated as of October 14, 2009 to the Securities Purchase Agreement
      dated as of October 21, 2008 by and among VIASPACE Inc., Sung Hsien Chang,
      the Registrant and the other persons (incorporated herein by reference to
      Exhibit 10.10 of the Company’s Registration Statement on Form S-1 filed
      October 15, 2009).


36





10.13
            
            Amendment
      No. 4 dated as of November 21, 2009 to the Securities Purchase Agreement
      dated as of October 21, 2008 by and among VIASPACE Inc., Sung Hsien Chang,
      the Registrant and the other persons (incorporated herein by reference to
      Exhibit 10.11 of the Company’s Registration Statement on Form S-1 filed
      November 25, 2009).10.14
            
            Amendment
      No. 5 dated as of November 25, 2009 to the Securities Purchase Agreement
      dated as of October 21, 2008 by and among VIASPACE Inc., Sung Hsien Chang,
      the Registrant and the other persons (incorporated herein by reference to
      Exhibit 10.12 of the Company’s Registration Statement on Form S-1 filed
      November 25, 2009).10.15
            
            Amendment
      No. 6 dated as of December 18, 2009 to the Securities Purchase Agreement
      dated as of October 21, 2008 by and among VIASPACE Inc., Sung Hsien Chang,
      the Registrant and the other persons (incorporated herein by reference to
      Exhibit 10.13 of the Company’s Registration Statement on Form S-1 filed
      December 18, 2009).21.1
            
            List
      of Subsidiaries of the Registrant (1)31.1
            
            Certification
      of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
      as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.  (1)31.2
            
            Certification
      of President and Chief Financial Officer pursuant to Exchange Act Rule
      13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley
      Act of 2002.  (1)32
            
            Certification
      of the Company’s Chief Executive Officer and Chief Financial Officer,
      pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.  (1)





(1)
            Filed
      herewith.








37


ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





2009
            
            
            2008Audit
      Fees
            
            $
            168,000
            
            
            $
            95,000Audit-Related
      Fees
            
            
            ―
            
            
            
            ―Tax
      Fees
            
            
            ―
            
            
            
            ―$
            168,000
            
            
            $
            95,000







Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of
Independent Auditors




The
Company will establish an Audit Committee in 2010.  Consistent with
SEC policies regarding auditor independence, our Audit Committee will have the
responsibility for appointing, setting compensation and overseeing the work of
the independent auditor.  In recognition of this responsibility, the
Audit Committee will establish a policy to pre-approve all audit and permissible
non-audit services provided by the independent auditor.




Prior to
engagement of the independent auditor for the next year's audit, management will
submit an aggregate of services expected to be rendered during that year for
each of four categories of services to the Audit Committee for
approval.




1.
              Auditservices include audit work performed in the preparation of
      financial statements, as well as work that generally only the independent
      auditor can reasonably be expected to provide, including comfort letters,
      statutory audits, and attest services and consultation regarding financial
      accounting and/or reporting
standards.




2.
              Audit-Related
      services are for assurance and related services that are traditionally
      performed by the independent auditor, including due diligence related to
      mergers and acquisitions, employee benefit plan audits, and special
      procedures required to meet certain regulatory
    requirements.




3.
              Tax
      services include all services performed by the independent auditor's tax
      personnel except those services specifically related to the audit of the
      financial statements, and includes fees in the areas of tax compliance,
      tax planning, and tax advice.




4.
            Other
      Fees are those associated with services not captured in the other
      categories.




Prior to
the engagement, the Audit Committee will pre-approve these services by category
of service.  The fees are budgeted and the Audit Committee requires
the independent auditor and management to report actual fees versus the budget
periodically throughout the year by category of service.  During the
year, circumstances may arise when it may become necessary to engage the
independent auditor for additional services not contemplated in the original
pre-approval.  In those instances, the Audit Committee requires
specific pre-approval before engaging the independent auditor.





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


38





Signatures





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on March 30, 2010.





VIASPACE
      GREEN ENERGY INC.(Registrant)By:   /s/
      CARL
      KUKKONENName:
      Carl KukkonenTitle: Chief Executive
      Officer(Principal Executive Officer
      and Director)By:
         /s/
      STEPHEN J.
      MUZIName:
      Stephen J. MuziTitle: Chief Financial
      Officer(Principal Financial
      and Accounting
      Officer)





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





SIGNATURE
            TITLE
            DATE/s/ CARL
      KUKKONEN
            Chief
      Executive Officer
            March
      30, 2010Carl
      Kukkonen
            (Principal
      Executive Officer and Director)/s/
      STEPHEN J.
      MUZI
            Chief
      Financial Officer
            March
      30, 2010Stephen
      J. Muzi
            (Principal
      Financial and  Accounting Officer)/s/ AMJAD
      S.
      ABDALLAT
            Director
            March
      30, 2010Amjad
      S. Abdallat/s/ SUNG
      HSIEN
      CHANG
            Director
            March
      30, 2010Sung
      Hsien Chang


39







ITEM
7. FINANCIAL STATEMENTS
 
 VIASPACE
GREEN ENERGY INC.
 
 TABLE
OF CONTENTS
 
 PAGEREPORTS
      OF INDEPENDENT ACCOUNTANTS
              F-2CONSOLIDATED
      FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND
      2008Consolidated
      Balance Sheets
              F-3Consolidated
      Statements of Operations
              F-4Consolidated
      Statements of Stockholders’ Equity
              F-5Consolidated
      Statements of Cash Flows
              F-6Notes
      to Consolidated Financial Statements
              F-8
     F-1
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board of
Directors and Stockholders of
 VIASPACE
Green Energy Inc.
 
 We have
audited the accompanying consolidated balance sheets of VIASPACE Green Energy
Inc. and subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of operations and other comprehensive loss,
stockholders' equity, and cash flows for the years ended December 31, 2009 and
2008.  These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VIASPACE Green
Energy Inc. and Subsidiaries as of December 31, 2009 and 2008 and the
consolidated results of their operations and their consolidated cash flows for
the years ended December 31, 2009 and 2008, in conformity with U.S. generally
accepted accounting principles.
  Goldman
Parks Kurland Mohidin LLP
 Goldman
Parks Kurland Mohidin LLP
 Encino,
California
 March 30,
2010
   F-2
 
 VIASPACE
GREEN ENERGY INC.
 CONSOLIDATED
BALANCE SHEETS
 
 December
      31
              
              
              December
      31,2009
              
              
              2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              984,000
              
              
              $
              2,516,000Accounts
      receivable, net of allowance for doubtful accounts of $18,000 in 2009 and
      zero in 2008
              
              
              188,000
              
              
              
              247,000Inventory
              
              
              455,000
              
              
              
              342,000Prepaid
      expenses
              
              
              36,000
              
              
              
              20,000Related
      party receivables
              
              
              1,911,000
              
              
              
              866,000Other
      current assets
              
              
              4,000
              
              
              
              147,000TOTAL
      CURRENT ASSETS
              
              
              3,578,000
              
              
              
              4,138,000FIXED
      ASSETS, net of accumulated depreciation
              
              
              927,000
              
              
              
              720,000OTHER
      ASSETS:Land
      Use Right, net of accumulated amortization
              
              
              586,000
              
              
              
              514,000License
      to Grass, net of accumulated amortization
              
              
              478,000
              
              
              
              503,000Goodwill
              
              
              12,322,000
              
              
              
              12,322,000Other
      Assets
              
              
              4,000
              
              
              
              ―TOTAL
      OTHER ASSETS
              
              
              13,390,000
              
              
              
              13,399,000TOTAL
      ASSETS
              
              $
              17,895,000
              
              
              $
              18,197,000LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable
              
              $
              344,000
              
              
              $
              536,000Related
      party payable
              
              
              84,000
              
              
              
              96,000Accrued
      expenses
              
              
              113,000
              
              
              
              67,000TOTAL
      CURRENT LIABILITIES
              
              
              541,000
              
              
              
              699,000COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITY:Common
      stock, $0.001 par value, 50,000,000 shares authorized, 8,600,000 issued
      and outstanding in 2009 and 2008
              
              
              9,000
              
              
              
              9,000Additional
      paid in capital
              
              
              17,374,000
              
              
              
              17,398,000Retained
      earnings (Accumulated deficit)
              
              
              (29,000
              )
              
              
              91,000Total
      stockholders’ equity
              
              
              17,354,000
              
              
              
              17,498,000TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              17,895,000
              
              
              $
              18,197,000
 
 See
accompanying notes to consolidated financial statements.
 
 
 F-3
 
 
 VIASPACE
GREEN ENERGY INC.
 CONSOLIDATED
STATEMENT OF OPERATIONS
 AND
OTHER COMPREHENSIVE INCOME (LOSS)
 
 Year
      Ended
                December
      31, 2009
              
              
              July
      1, 2008
                through
                December
      31,
                2008REVENUES
              
              $
              3,618,000
              
              
              $
              866,000COST
      OF  REVENUES
              
              
              2,020,000
              
              
              
              249,000GROSS
      PROFIT
              
              
              1,598,000
              
              
              
              617,000OPERATING
      EXPENSESSelling,
      general and administrative expenses
              
              
              1,718,000
              
              
              
              516,000Total
      operating expenses
              
              
              1,718,000
              
              
              
              516,000INCOME
      (LOSS) FROM OPERATIONS
              
              
              (120,000
              )
              
              
              101,000OTHER
      INCOME (EXPENSE)Other
      expense
              
              
              (7,000
              )
              
              
              (1,000
              )Other
      income
              
              
              7,000
              
              
              
              1,000Total
      other income
              
              
              ―
              
              
              
              ―INCOME
      (LOSS) BEFORE INCOME TAXES
              
              
              (120,000
              )
              
              
              101,000Income
      taxes
              
              
              ―
              
              
              
              10,000NET
      INCOME (LOSS)
              
              $
              (120,000
              )
              
              $
              91,000OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation income
              
              
              ―
              
              
              
              ―COMPREHENSIVE
      INCOME (LOSS)
              
              $
              (120,000
              )
              
              $
              91,000NET
      INCOME (LOSS) PER SHARE OF COMMON STOCK - Basic and
      diluted
              
              $
              (0.01
              )
              
              $
              0.03WEIGHTED
      AVERAGE SHARES OUTSTANDING - Basic and diluted
              
              
              8,600,000
              
              
              
              3,365,223
 
 See
accompanying notes to consolidated financial statements.
 
 
 F-4
 
 VIASPACE
GREEN ENERGY INC.
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
 
 Common
      StockShares
              
              
              Amount
              
              
              Additional
                Paid
      in
                Capital
              
              
              Accumulated
                Other
      Comprehensive Income
              
              
              Retained
                Earnings
              
              
              TotalBALANCE,
      JULY 1, 2008
              
              
              10
              
              
              $
              10
              
              
              $
              ―
              
              
              $
              ―
              
              
              $
              ―
              
              
              $
              10Net
      income from October 21, 2008 through December 31,
    2008
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              91,000
              
              
              
              91,000Issuance
      of shares on acquisition of Inter-Pacific Arts
              
              
              8,599,990
              
              
              
              8,990
              
              
              
              4,573,000
              
              
              
              ―
              
              
              
              ―
              
              
              
              4,581,990Capital
      contribution from Parent Company related to acquisition of Inter-Pacific
      Arts and Affiliate
              
              
              
              
              
              
              
              
              
              
              12,825,000
              
              
              
              
              
              
              
              
              
              
              
              12,825,000BALANCE,
      DECEMBER 31, 2008
              
              
              8,600,000
              
              
              $
              9,000
              
              
              $
              17,398,000
              
              
              $
              ―
              
              
              $
              91,000
              
              
              $
              17,498,000Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (120,000
              )
              
              
              (120,000
              )Other
      comprehensive expense:Foreign
      currency translation expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              ―
              
              
              
              
              
              
              
              ―Amortization
      of capital contribution from Parent Company related to acquisition of
      Inter-Pacific Arts and Affiliate
              
              
              
              
              
              
              
              
              
              
              (24,000
              )
              
              
              
              
              
              
              
              
              
              
              (24,000
              )BALANCE,
      DECEMBER 31, 2009
              
              
              8,600,000
              
              
              $
              9,000
              
              
              $
              17,374,000
              
              
              $
              ―
              
              
              $
              (29,000
              )
              
              $
              17,354,000
 
 
 See
accompanying notes to consolidated financial statements.
 
 
 F-5
 
 
 VIASPACE
GREEN ENERGY INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 Year
      Ended December 31, 2009
              
              
              July
      1, 2008
                through
                December
      31,
                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
              
              $
              (120,000
              )
              
              $
              91,000Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
              
              
              91,000
              
              
              
              33,000(Increase)
      decrease in:Accounts
      receivable
              
              
              59,000
              
              
              
              764,000Inventory
              
              
              (113,000
              )
              
              
              63,000Related
      party receivable
              
              
              ―
              
              
              
              65,000Prepaid
      expenses
              
              
              (16,000
              )
              
              
              (20,000
              )Other
      current assets
              
              
              143,000
              
              
              
              (113,000
              )Increase
      (decrease) in:Accounts
      payable
              
              
              (192,000
              )
              
              
              (30,000
              )Related
      party payable
              
              
              (12,000
              )
              
              
              23,000Accrued
      expenses
              
              
              44,000
              
              
              
              51,000Net
      cash provided by (used in) operating activities
              
              
              (116,000
              )
              
              
              927,000CASH
      FLOWS FROM INVESTING ACTIVITIES:Additions
      of fixed assets
              
              
              (269,000
              )
              
              
              ―Additions
      of land use rights
              
              
              (102,000
              )
              
              
              ―Acquisition
      of Inter-Pacific Arts, cash acquired
              
              
              ―
              
              
              
              9,000Net
      cash provided by (used in) investing activities
              
              
              (371,000
              )
              
              
              9,000CASH
      FLOWS FROM FINANCING ACTIVITIES:Related
      party loans
              
              
              (1,045,000
              )
              
              
              ―Investment
              
              
              ―
              
              
              
              1,580,000Net
      cash provided by financing activities
              
              
              (1,045,000
              )
              
              
              1,580,000EFFECT
      OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS
              
              
              ―
              
              
              
              ―NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (1,532,000
              )
              
              
              2,516,000CASH
      AND CASH EQUIVALENTS, Beginning of period
              
              
              2,516,000
              
              
              
              ―CASH
      AND CASH EQUIVALENTS, End of period
              
              
              $984,000
              
              
              $
              2,516,000Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the period for:Interest
              
              $
              ―
              
              
              $
              ―Income
      taxes
              
              $
              ―
              
              
              $
              ―
 
 Supplemental
Disclosure of Non-Cash Financing for 2008:
 ·
              In
      connection with the acquisition of Inter-Pacific Arts, Inc., the Company
      issued 3,500,000 shares of Company common stock to the seller of
      Inter-Pacific Arts and 5,090,000 shares of Company common stock to the
      Company’s Parent Company.
 
 
 See
accompanying notes to consolidated financial statements.
   F-6
 VIASPACE
GREEN ENERGY INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 PERIODS
ENDED DECEMBER 31, 2009 AND 2008
 
 Note
1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Description of
Business – VIASPACE Green Energy Inc. (“VGE”), a British Virgin Islands
(“BVI”) international company and its subsidiaries,  Inter-Pacific
Arts Corp. (“IPA BVI”) and Guangzhou Inter-Pacific Arts Corp. (“IPA China”)
(collectively, “the Company”, “we” or “us” ) specialize in manufacturing and
selling high quality, copyrighted, framed artwork to retail
stores.  The Company manufactures its artwork in the People’s Republic
of China (the “PRC”) and sells its products within China and
worldwide.  The Company also has a worldwide sublicense to cultivate
and sell Giant King Grass (GKG”) – a natural hybrid, non-genetically modified,
extremely fast-growing, perennial grass that is suitable for livestock feed as
well as a feedstock for biofuel production.  GKG has the potential to
be used in the production of nonfood crop based biofuels such as cellulosic
ethanol, methanol and green gasoline; burned directly in power plants as a clean
substitute for coal, and in the more immediate term, as animal feed for dairy
cows, pigs, sheep, goats, fish and other animals.  VGE was formed on
July 1, 2008 and was inactive from July 1, 2008 through October 20,
2008.  IPA BVI is a BVI international company formed in 2003 and IPA
China is a Chinese wholly owned foreign enterprise formed in 2003 and registered
in Guangdong province of the PRC.
 
 Basis of
Presentation- The accompanying unaudited consolidated financial
statements of the Company were prepared in accordance with United States
generally accepted accounting principles (“US GAAP”) for financial information
and with Securities and Exchange Commission (“SEC”) instructions to Form
10-K.  In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been reflected in these interim financial statements.  All significant
intercompany accounts and transactions have been eliminated on
consolidation.
 
 Company History– Prior to October 21, 2008, VGE was 100% owned by VIASPACE Inc.
(“VIASPACE” or “Parent Company”) and did not have any active
operations.   On October 21, 2008, the majority shareholder of IPA BVI
and IPA China, Sung Hsien Chang (“Chang”), entered into a Securities Purchase
Agreement (the "Purchase Agreement") with VGE, VIASPACE and China Gate
Technology Co., Ltd., a Brunei Darussalam company ("Licensor").  Under
the Purchase Agreement, VGE acquired 100% of IPA BVI and the entire equity
interest of IPA China from Chang.  In exchange, VIASPACE agreed to pay
approximately $16 million in a combination of cash, and newly-issued shares of
VIASPACE and VGE stock.  In addition, VIASPACE issued shares of its
common stock to Licensor for Licensor’s sublicense of certain fast growing grass
technology to IPA China.
 
 The
acquisition will be completed through two closings.  At the first
closing on October 21, 2008 (“First Closing”), VGE issued 3,500,000 newly-issued
shares to Chang and his designees and 5,090,000 newly-issued shares to
VIASPACE.  VIASPACE issued 215,384,615 shares of its common stock to
Chang and 30,576,007 shares of common stock to Licensor.  Chang
delivered 70% of the outstanding common stock of IPA BVI to VGE.  On
June 22, 2009, the parties entered into an Amendment to the Purchase Agreement
that extended the Second Closing to August 21, 2009.  On August 21,
2009, the parties entered into a second Amendment to the Purchase Agreement that
extended the Second Closing to November 21, 2009.  In addition, on
August 21, 2009, the parties agreed that the VGE shares held by Chang and others
were no longer subject to forfeiture even if the Second Closing did not
occur.
 
 At the
Second Closing, VIASPACE is to pay $4,800,000 plus interest to
Chang.   VIASPACE shall also issue 1.8% of its then outstanding shares
of common stock to Licensor.  Chang shall deliver the remaining 30% of
the outstanding shares of IPA BVI to VGE even if the Second Closing did not
occur.
 
 The value
paid by VIASPACE and VGE for the acquisition of IPA BVI and IPA China was
$15,832,000.   The IPA BVI and IPA China net assets acquired
totaled $3,003,000.  The excess of value paid for the acquisition in
excess of net assets acquired is recorded on the balance sheet of VIASPACE and
was assigned to:  grass license - $507,000 and goodwill -
$12,322,000.
 
 As of
December 31, 2009 and December 31, 2008, VIASPACE owns 59.3% of the outstanding
common shares of VGE.
 
 Principles of
Consolidation– VGE has a controlling interest in IPA BVI and IPA China
and accounts for these subsidiaries under the consolidation
method.  Under this method, an affiliated company’s results of
operations are reflected within the Company’s consolidated statement of
operations. Transactions between consolidated affiliated companies are
eliminated in consolidation. The Company adopted Statement of Financial
Accounting Standards (“SFAS”) No. 141, “Business Combinations” (codified in FASB
ASC Topic 805), which requires use of the purchase method for all business
combinations initiated after June 30, 2001.
   F-7
 
 Fiscal Year End -The Company’s fiscal year ends December 31.
 
 Use of Estimates
in the Preparation of the Financial Statements- The preparation of
financial statements, in conformity with US GAAP, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
 
 Cash and Cash
Equivalents- The Company considers all highly liquid debt instruments,
purchased with an original maturity of three months or less, to be cash
equivalents.
 
 Concentration of
Credit Risk-The Company’s financial instruments that are exposed to concentration of
credit risk consist primarily of cash equivalents, accounts receivable and
related party receivable. The Company maintains all of its cash accounts with
high credit quality institutions. Such balances with any one institution may
exceed FDIC insured limits.
 
 Accounts
Receivable Allowance for Doubtful Accounts - The allowance for doubtful
accounts relates to specifically identified receivables that are evaluated
individually for collectability.  We determine a receivable is
uncollectible when, based on current information and events, it is probable that
we will be unable to collect amounts due according to the original contractual
terms of the receivable agreement, without regard to any subsequent
restructurings. Factors considered in assessing collectability include, but are
not limited to, a customer’s extended delinquency, requests for restructuring
and filings for bankruptcy.  For 2009 and 2008, sales to one customer,
Hobby Lobby Stores, comprised 92% and 85%, respectively, of our total
revenues.
 
 Inventory–Inventory is
stated at the lower of cost or market.  Cost is determined using the
average cost method.  Market is determined using net realizable
value.  The Company writes down its inventory for estimated
obsolescence, excess quantities and other factors in evaluating net realizable
value.  Inventory includes material, direct labor and related
manufacturing overhead.
 
 The
following is a summary of inventory at December 31, 2009:
 
 Raw
                Materials
              
              
              Finished
                Goods
              
              
              TotalFramed-Artwork
              
              $
              399,000
              
              
              $
              ―
              
              
              $
              399,000Grass
              
              
              56,000
              
              
              
              ―
              
              
              
              56,000Total
              
              $
              455,000
              
              
              $
              ―
              
              
              $
              455,000
 
 The
following is a summary of inventory at December 31, 2008:
 
 Raw
                Materials
              
              
              Finished
                Goods
              
              
              TotalFramed-Artwork
              
              $
              286,000
              
              
              $
              16,000
              
              
              $
              302,000Grass
              
              
              40,000
              
              
              
              ―
              
              
              
              40,000Total
              
              $
              326,000
              
              
              $
              16,000
              
              
              $
              342,000
 
 Property and
Equipment - Property and equipment are stated at cost, net of accumulated
depreciation. Expenditures for maintenance and repairs are expensed as incurred;
additions, renewals and betterments are capitalized.  When property
and equipment are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the respective accounts, and any gain
or loss is included in operations. Depreciation of property and equipment is
provided using the straight-line method for substantially all assets and
estimated lives as follows:
 
 Building
              20
      to 30 yearsMachinery
      and equipment
              10
      yearsOffice
      equipment
              5
      yearsVehicles
              5
      years
 
  F-8
  Land Use Right– All land in the PRC is government owned and cannot be sold to any
individual or company.  IPA China acquired land use rights for the
land occupied by its manufacturing facility during 2005 for RMB 5,000,000 or
approximately $605,000.  The land lease is for 30
years.  Accordingly, the land use right is being amortized on the
straight-line method over 30 years.   In the first quarter of 2009,
VGE leased approximately 45 hectares (111 acres) of land in the Guangdong
province of the PRC for 20 years at a cost of RMB 172,080 or approximately
$25,000 every three years.  In the third quarter of 2009, VGE signed a
lease for approximately 55 hectares (136 acres) of land in Guangdong
province.  The lease begins October 1, 2009 with a lease life of about
29 years at a cost of approximately RMB 65,000 or approximately $8,000 per
year.  This land is being used to grow GKG.
 
 License –
IPA China has a license to a grow and sell a new fast-growing hybrid grass known
as GKG to be used for production of biofuels and as feed for
livestock.  IPA China sublicensed this right from China Gate
Technology Co., Ltd. (Licensor) who obtained the original license from the
inventor.  IPA China did not directly pay for the license. 
VIASPACE issued shares of its common stock to Licensor upon the acquisition of
IPA China by VIASPACE and the Company on October 21, 2008.  The
principal of Licensor, Mr. Maclean Wang, is the Director Grass Development of
VGE.  Mr. Wang entered into an employment agreement with VGE on
October 21, 2008.  The principal of Licensor, Mr. Maclean Wang, is the
Director Grass Development of VGE.  Mr. Wang entered into an
employment agreement with VGE on October 21, 2008.  Mr. Wang and Mr.
Chang were business associates prior to the licensing of the hybrid grass, but
the business association did not relate to IPA China.  Mr. Wang had no
involvement with IPA China, IPA BVI, VGE or VIASPACE prior to the licensing of
the hybrid grass.   As discussed in Note 9, in the event that the
Second Closing of the acquisition of IPA BVI and China does not occur, VGE’s
Parent Company will no longer be permitted to operate in the grass business for
three years; however, VGE will continue to be permitted to operate in the grass
business.
 
 In
addition, as discussed in Note 9, the Licensor and Sung Hsien Chang, the seller
of IPA China and IPA BVI, each represented that at least 100 hectares of arable
land in Guangdong province in China will be available for grass farming by IPA
China within 12 months after the First Closing Date.  IPA China
secured 45 hectares of arable land in the first quarter of 2009 and leased an
additional 55 ha in the third quarter of 2009.  The requirement has
been met so this requirement no longer has any impact on our ability to utilize
our grass license rights.
 
 Fair Value of
Financial Instruments- The recorded value of accounts receivables,
related party receivables, related party payables, accounts payable and accrued
expenses approximate their fair values based on their short-term nature. The
recorded values of long-term debt and liabilities approximate fair
value.
 
 Income
Taxes–The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” (codified in FASB
ASC Topic 740),  which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income.  Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be
realized.
 
 The
statutory corporate income tax rate for foreign enterprises in the PRC was 25%
for 2009.  IPA China is subject to local income tax rate of 3% for
2009.
 
 VGE and
IPA BVI are British Virgin Islands international companies and not subject to
United States income taxes.
 
 The
Company does not have any deferred tax assets or liabilities recorded for the
periods covered by the accompanying financial statements due to no significant
book to tax basis differences existing.
 
 Revenue
Recognition – IPA BVI and IPA China have generated revenues to date on
product revenue shipments.  In accordance with Securities and Exchange
Commission (“SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition”
(“SAB No. 104”) (codified in FASB ASC Topic 605), IPA recognizes product revenue
provided that (1) persuasive evidence of an arrangement exists, (2) delivery to
the customer has occurred, (3) the selling price is fixed or determinable and
(4) collection is reasonably assured.  Delivery is considered to have
occurred when title and risk of loss have transferred to the customer. The price
is considered fixed or determinable when it is not subject to refund or
adjustments.  Our standard shipping terms are free on board shipping
point.  Some of the Company’s products are sold in the PRC and are
subject to Chinese value-added tax.  This VAT may be offset by VAT
paid by the Company on raw materials and other materials included in the cost of
producing their finished product.  Revenue is recorded net of VAT
taxes.
 
 Cost of Goods
Sold – Cost of goods sold consists primarily of material costs, employee
compensation, depreciation and related expenses, which are directly attributable
to the production of products.  Any write-down of inventory to lower of
cost or market is also recorded in cost of goods sold.
   F-9
 
 Foreign Currency
Translation and Comprehensive Income (Loss) – IPA China’s functional
currency is the Renminbi (“RMB”).  For financial reporting purposes,
RMB has been translated into United States dollars ("USD") as the reporting
currency.   Assets and liabilities are translated at the exchange
rate in effect at the balance sheet date.  Revenues and expenses are
translated at the average rate of exchange prevailing during the reporting
period.   Translation adjustments arising from the use of
different exchange rates from period to period are included as a component of
stockholders' equity as "Accumulated other comprehensive
income".  Gains and losses resulting from foreign currency
transactions are included in income. There has been no significant fluctuation
in exchange rate for the conversion of RMB to USD after the balance sheet
date.  The sales of IPA BVI are in USD.
 
 Segment Reporting
and Geographic Information – SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (codified in FASB ASC Topic 280) requires
use of the “management approach” model for segment reporting. The management
approach model is based on the way a company's management organizes segments
within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal
structure, management structure, or any other manner in which management
disaggregates a company.  At December 31, 2009, the Company's
operations are conducted in two industry segments, the Consumer Products segment
which specializes in manufacturing and selling high-quality, copyrighted, framed
artwork to retail stores and the Grass segment, through its growing, harvesting
and selling of its GKG as a livestock feed as well as a feedstock for biofuel
production.  From a geographic standpoint, all of the Company’s
revenues for 2009 are to customers in the United States.  All of the
Company’s revenues for 2009 are in the Consumer Products segment.  All
identifiable assets at December 31, 2009 are in the Asia/Pacific region and are
related to the Consumer Products segment, with the exception of inventory, which
is broken down by segment above.
 
 NOTE
2 — FIXED ASSETS
 
 Fixed
assets are comprised of the following at December 31, 2009 and December 31,
2008:
 
 2009
              
              
              2008Building
              
              $
              705,000
              
              
              $
              606,000Machinery
      and equipment
              
              
              356,000
              
              
              
              192,000Office
      equipment
              
              
              73,000
              
              
              
              73,000Vehicles
              
              
              167,000
              
              
              
              144,000Total
      property and equipment
              
              
              1,301,000
              
              
              
              1,015,000Less:
      Accumulated depreciation
              
              
              374,000
              
              
              
              295,000Fixed
      assets, net
              
              $
              927,000
              
              
              $
              720,000
 
 Depreciation
expense was $61,000 for the year ended December 31, 2009 and $28, 000 for the
period October 21, 2008 through December 31, 2008.
 
 NOTE
3 — LAND USE RIGHT
 
 Land use
right is composed of the following at December 31, 2009 and December 31,
2008:
 
 2009
              
              
              2008Land
      use right
              
              $
              707,000
              
              
              $
              605,000Less:
      Accumulated amortization
              
              
              121,000
              
              
              
              91,000Land
      use right, net
              
              $
              586,000
              
              
              $
              514,000
 
 Amortization
expense was $30,000 for the year ended December 31,
2009.  Amortization expense was $5,000 for the period October 21, 2008
through December 31, 2008.  The amortization for the next five years
will be:  2010 - $38,000; 2011 - $38,000; 2012 - $31,000; 2013 -
$30,000; and 2014 - $30,000.
   F-10
 
 NOTE
4 — INTANGIBLE ASSETS
 
 License to
Grass
 
 As more
fully explained in Note 9, the Company and Parent Company acquired IPA China and
IPA BVI on October 21, 2008.  IPA China has a worldwide license to
cultivate and sell a fast-growing high yield hybrid grass called GKG that has
the potential to be used in the production of nonfood biofuels and, in the more
immediate term, animal feedstock for dairy cows, pigs, sheep, goats, fish and
other animals.  The Parent Company issued 30,576,007 shares to the
licensor of the GKG valued at $507,000 on the date of
acquisition.  The grass license is being amortized over an estimated
useful life of 20 years.  In 2009, $25,000 was recorded as
amortization expense.   Amortization expense was $4,000 for the
period October 21, 2008 through December 31, 2008.  The amortization
expense for the next five years will be $25,000 in each year.
 
 License
to Grass is composed of the following at December 31, 2009 and December 31,
2008:
 
 2009
              
              
              2008License
      to Grass
              
              $
              507,000
              
              
              $
              507,000Less:
      Accumulated amortization
              
              
              29,000
              
              
              
              4,000License
      to Grass, net
              
              $
              478,000
              
              
              $
              503,000
 
 Goodwill
 
 As more
fully explained in Note 9, the Company and Parent Company acquired IPA China and
IPA BVI on October 21, 2008 and recorded goodwill of $12,322,000 related to the
acquisition.
 
 NOTE
5 — RELATED PARTIES
 
 Included
in the Company’s consolidated balance sheet at December 31, 2009 and December
31, 2008 are Related Party Receivables and Related Party
Payables.  The Related Party Receivables and Related Party Payables
are detailed below.  Sung Hsien Chang is President of VGE and CEO of
IPA China and IPA BVI.  JJ International (“JJ”) is a company owned by
Sung Hsien Chang that operates separately.  IPA China recorded
revenues of $233,000 for the year ended December 31, 2009 from JJ.
 
 The
following table represents a summary of Related Party Receivables at December
31, 2009 and December 31, 2008:
 
 2009
              
              
              2008Due
      from Sung Hsien Chang
              
              $
              759,000
              
              
              $
              209,000Due
      from JJ International
              
              
              1,134,000
              
              
              
              657,000Due
      from employee of IPA China
              
              
              18,000
              
              
              
              ―Total
              
              $
              1,911,000
              
              
              $
              866,000
 
 The
following table represents a summary of Related Party Payables at December 31,
2009 and December 31, 2008:
 
 2009
              
              
              2008Due
      to employee of IPA China
              
              $
              20,000
              
              
              $
              21,000Due
      to JJ International
              
              
              29,000
              
              
              
              ―Due
      to Parent
              
              
              35,000
              
              
              
              ―Due
      to related party vendor of IPA China
              
              
              ―
              
              
              
              75,000Total
              
              $
              84,000
              
              
              $
              96,000
    F-11
 
 Employment
Agreements
 
 On
October 21, 2008, VGE entered into two-year employment agreements with each of
Carl Kukkonen, Sung Hsien Chang, Stephen Muzi and Maclean Wang.  Dr.
Kukkonen would serve as Chief Executive Officer, Mr. Chang as President, Mr.
Muzi as Chief Financial Officer, Treasurer and Secretary and Mr. Wang as
Managing Director of Grass Development.  Dr. Kukkonen and Mr. Chang
would receive a salary of $240,000 per annum, Mr. Muzi would receive $180,000
per annum and Mr. Wang would receive $84,000 per annum.  Each of them
would be entitled to a bonus as determined by the VGE Board of Directors,
customary insurance and health benefits, 15 days paid leave per year, and
reimbursement for out-of-pocket expenses in the course of his
employment.  Mr. Chang and Mr. Wang’s employment agreements also have
a feature that granted each of them an option to purchase the number shares of
its common stock equal to four percent (4%) of VGE’s total outstanding shares as
of the Second Closing.  These employment agreements terminated on
February 15, 2010 as the Company failed to achieve the Second Closing of IPA BVI
and IPA China as discussed in Note 9.  The Company expects to
negotiate and enter into new employments with Dr. Carl Kukkonen, Mr. Sung Hsien
Chang, and Mr. Stephen Muzi during the second quarter of
2010.
 
 NOTE
6 — INCOME TAXES
 
 IPA China
is governed by the Income Tax Law of the PRC concerning the private-run
enterprises, which are generally subject to tax at a statutory rate of 25% in
2009 on income reported in the statutory financial statements after appropriated
tax adjustments.  VGE and IPA BVI are British Virgin Islands
international companies and not subject to United States income
taxes.
 
 NOTE
7 — COMMITMENTS AND CONTINGENCIES
 
 Operations in the
PRC
 IPA
China’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
 
 The
Company’s sales, purchases and expenses transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The RMB
is not freely convertible into foreign currencies under the current law. In
China, foreign exchange transactions are required by law to be transacted only
by authorized financial institutions. Remittances in currencies other than RMB
may require certain supporting documentation in order to affect the
remittance.
 
 IPA art
designers work with buyers from retail chains to choose prints and other art
forms from catalogs of licensed work. We only purchase prints from companies
with whom we have long-standing relationships, and we guarantee our customers
there are no counterfeits and that all royalties have been paid.  The
vendors from whom we purchase prints guarantee to us that all of the prints they
are selling are not counterfeits and that all royalties have been paid to the
artist of the prints.  We then pass this guarantee on to our
customers.  Since the time IPA was formed in 2003, we have not
received any legal claims challenging any of the prints we have
sold.
 
 Employment
Agreements
 On
October 21, 2008, VGE entered into two-year employment agreements with each of
Carl Kukkonen, Sung Hsien Chang, Stephen Muzi and Maclean Wang.  Dr.
Kukkonen would serve as Chief Executive Officer, Mr. Chang as President, Mr.
Muzi as Chief Financial Officer, Treasurer and Secretary and Mr. Wang as
Managing Director of Grass Development.  Dr. Kukkonen and Mr. Chang
would receive a salary of $240,000 per annum, Mr. Muzi would receive $180,000
per annum and Mr. Wang would receive $84,000 per annum.  Each of them
would be entitled to a bonus as determined by the VGE Board of Directors,
customary insurance and health benefits, 15 days paid leave per year, and
reimbursement for out-of-pocket expenses in the course of his
employment.  Mr. Chang and Mr. Wang’s employment agreements also have
a feature that granted each of them an option to purchase the number shares of
its common stock equal to four percent (4%) of VGE’s total outstanding shares as
of the Second Closing.  These employment agreements terminated on
February 15, 2010 as the Company failed to achieve the Second Closing of IPA BVI
and IPA China as discussed in Note 9.  The Company expects to
negotiate and enter into new employments with Dr. Carl Kukkonen, Mr. Sung Hsien
Chang, and Mr. Stephen Muzi during the second quarter of 2010.
 
 Litigation
 The
Company is not party to any legal proceedings at the present time.
 
  F-12
 
 NOTE
8 — FINANCIAL ACCOUNTING DEVELOPMENTS
 
 In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP
No. SFAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (“FSP No. SFAS 157-4”). FSP
No. SFAS 157-4, which is codified in FASB ASC Topics 820-10-35-51 and
820-10-50-2, provides additional guidance for estimating fair value and
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
The Company adopted FSP No. SFAS 157-4 beginning April 1, 2009.
This FSP had no material impact on the Company’s financial position, results of
operations or cash flows.
 
 In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments,” which is
codified in FASB ASC Topic 320-10. This FSP modifies the requirements for
recognizing other-than-temporarily impaired debt securities and changes the
existing impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the
security, (2) more likely than not will be required to sell the security
before recovering its cost, or (3) does not expect to recover the
security’s entire amortized cost basis (even if the entity does not intend to
sell). The FSP further indicates that, depending on which of the above
factor(s) causes the impairment to be considered other-than-temporary,
(1) the entire shortfall of the security’s fair value versus its amortized
cost basis or (2) only the credit loss portion would be recognized in
earnings while the remaining shortfall (if any) would be recorded in other
comprehensive income. This FSP requires entities to initially apply the
provisions of the standard to previously other-than-temporarily impaired debt
securities existing as of the date of initial adoption by making a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. The cumulative-effect adjustment potentially reclassifies
the noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulated other comprehensive income. The Company adopted FSP
No. SFAS 115-2 and SFAS 124-2 beginning April 1, 2009. This
FSP had no material impact on the Company’s financial position, results of
operations or cash flows.
 
 In
April 2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments,” which is codified in
FASB ASC Topic 825-10-50.  This FSP essentially expands the disclosure
about fair value of financial instruments that were previously required only
annually to also be required for interim period reporting. In addition, the FSP
requires certain additional disclosures regarding the methods and significant
assumptions used to estimate the fair value of financial instruments. These
additional disclosures were adopted by the Company beginning with the quarter
ending June 30, 2009.
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events,” codified in FASB ASC
Topic 855-10-05, which provides guidance to establish general standards of
accounting for and disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. SFAS
No. 165 also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected.
SFAS No. 165 is effective for interim and annual periods ending after June 15,
2009, and accordingly, the Company adopted this pronouncement during the second
quarter of 2009. SFAS No. 165 requires that public entities evaluate subsequent
events through the date that the financial statements are issued. The Company
has evaluated subsequent events through the time of filing these financial
statements with the SEC on November 9, 2009.
 
 In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140,”  codified as FASB ASC
Topic 860, which requires entities to provide more information regarding sales
of securitized financial assets and similar transactions, particularly if the
entity has continuing exposure to the risks related to transferred financial
assets. SFAS No. 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS No. 166 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS No. 166 will have an impact on its financial condition, results of
operations or cash flows.
 
 In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R),” codified as FASB ASC Topic 810-10, which modifies how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS No.
167 clarifies that the determination of whether a company is required to
consolidate an entity is based on, among other things, an entity’s purpose and
design and a company’s ability to direct the activities of the entity that most
significantly impact the entity’s economic performance. SFAS No. 167 requires an
ongoing reassessment of whether a company is the primary beneficiary of a
variable interest entity. SFAS No. 167 also requires additional disclosures
about a company’s involvement in variable interest entities and any significant
changes in risk exposure due to that involvement. SFAS No. 167 is effective for
fiscal years beginning after November 15, 2009. The Company does not believe the
adoption of SFAS No. 167 will have an impact on its financial condition, results
of operations or cash flows.
  
 F-13
 NOTE 9— ACQUISITION OF IPA BVI AND
IPA CHINA
 
 On
October 21, 2008, VIASPACE and VGE entered into a Securities Purchase Agreement
(the "Purchase Agreement") with Sung Hsien Chang ("Chang"), and China Gate
Technology Co., Ltd., a Brunei Darussalam company ("Licensor"). Under the
Purchase Agreement, we agreed to acquire 100% of Inter-Pacific Arts Corp., a BVI
international business company ("IPA BVI"), and the entire equity interest of
Guangzhou Inter-Pacific Arts Corp., a Chinese wholly owned foreign enterprise
registered in Guangdong province ("IPA China") from Chang, the sole shareholder
of IPA BVI and IPA China. In exchange, VIASPACE agreed to pay $16 million in a
combination of cash, and newly-issued shares of VIASPACE and our ordinary
shares.  In addition, VIASPACE issued shares of its common stock to
Licensor and in exchange Licensor sub licensed certain fast growing grass
technology to IPA China.
 
 The
transactions under the Purchase Agreement ("Acquisition") were to involve two
phases.  At the first closing on October 21, 2008, we issued 3,500,000
newly-issued shares to Chang and his designees.  VIASPACE issued
215,384,615 shares of its common stock to Chang and 30,576,007 shares of common
stock to Licensor.  Chang delivered 70% of the outstanding common
stock of IPA BVI to us.  At that point, we controlled 70% of IPA
BVI.  Accordingly, we consolidated their results, assets and
liabilities in our financial statements.  In addition, we executed
employment agreements with certain persons, including Sung Hsien Chang; Carl
Kukkonen, VIASPACE’s Chief Executive Officer; Stephen Muzi, VIASPACE’s Chief
Financial Officer; and Maclean Wang, the sole shareholder of the
Licensor.  Our shareholders also entered into an agreement with Chang
regarding the rights as our shareholders ("Shareholders Agreement") to elect
directors.  IPA China became a wholly-owned subsidiary of IPA BVI (and
indirectly, our subsidiary) subsequent to the First Closing on June 9,
2009.
 
 The
conditions to VIASPACE’s and our obligations to consummate the second closing
included: (1) representations and warranties of Chang and Licensor remained true
at closing; (2) Chang complied with the material covenants under the agreement;
(3) the issuance of the securities to Chang and Licensor were exempt from
registration, including under  Regulation D for which the issuance of
the first closing shares relied upon; (4) Chang executed certain compliance
certificates; (5) customary permits, consents and waivers were obtained; (6)
books and records were delivered to VIASPACE; (7) an officer’s certificate
regarding each target’s charter documents were delivered; (8) due diligence had
been satisfactorily completed; and (9) Chang shall have transferred his entire
equity interest in IPA China to IPA BVI.
 
 The
conditions to Chang’s and Licensor’s obligation to consummate the second closing
included: (1) representations and warranties of VIASPACE and us remained true at
closing; (2) VIASPACE and we complied with the material covenants under the
agreement; (3) books and records of VIASPACE were delivered or made available to
Chang and his counsel; (4) any necessary third party consents shall have been
obtained; and (5) VIASPACE shall be prepared to deliver $4.8 million plus
interest in cash to Chang.  To our knowledge, all of these criteria,
other than the cash payment were met. Even if the Second Closing did not occur,
the remaining 30% of IPA BVI was to be transferred by Chang to VGE prior to the
Second Closing deadline.
 
 In
addition, the Licensor and Chang, the seller of IPA China and IPA BVI, each
represented that at least 100 hectares of arable land in Guangdong province in
China will be available for grass farming by IPA China within 12 months after
the First Closing Date.  IPA China secured 45 hectares of arable land
in the first quarter of 2009 and leased an additional 55 hectares in the third
quarter of 2009.  The requirement was met.
 
 On August
21, 2009, the parties entered into a second Amendment to the Purchase Agreement
whereby VIASPACE irrevocably assigned to Chang and Licensor the
VIASPACE shares issued to Chang and Licensor in the First Closing of the
Purchase Agreement.  Licensor agreed to limit sales of VIASPACE common
shares issued at the First Closing to 8,800,000 shares in any 90-day
period.
 
 As
required by the Purchase Agreement, VGE filed a Form S-1 Registration Statement
with the SEC on June 3, 2009 covering the resale of a portion of VGE common
stock issued pursuant to the Purchase Agreement as permitted by SEC
regulations.  The SEC declared the VGE Form S-1 Registration Statement
effective on December 31, 2009.  On January 14, 2010, VGE received
approval from the Financial Industry Regulatory Authority (“FINRA”) that its
shares of common stock are approved for listing on the OTC Bulletin Board under
the ticker symbol VGREF.OB. This satisfied the requirement in the Purchase
Agreement that VGE stock be listed on a Trading Market.
 
 F-14
 
 Following
various additional amendments to the Purchase Agreement, the deadline for the
Second Closing in which the remaining minority interest of 30% of IPA BVI equity
holdings would be transferred to us was February 15, 2010 ("Second
Closing").  At the Second Closing deadline, VIASPACE was to pay $4.8
million ("Cash Consideration") plus Interest (as determined below) since the
First Closing, in cash to Chang. Interest on the Cash Consideration shall accrue
at 6% for the first six months after the First Closing, and then 18% until June
10, 2009, and then at an annual rate of 6%  thereafter. As of March 24,
2010, the entire amount of Cash Consideration due from VIASPACE to Chang was
$5.291 million.   We have control of the assets of IPA BVI through our
majority ownership position and there is no restriction on the Company’s ability
to transfer or capitalize on such assets at any time, including prior to the
cash payment due Chang from VIASPACE.
 
 The
Second Closing did not occur on the February 15, 2010
deadline.  However, Chang, VIASPACE and the Company agreed to continue
negotiating an alternative closing and purchase of IPA and those negotiations
are continuing as of the filing date of this Form 10-K.
 
 The value
paid by VIASPACE and VGE for the acquisition was $15,832,000 composed
of:  fair market value of VIASPACE stock issued for assets acquired -
$4,589,000; VIASPACE loan to Mr. Sung Hsien Chang - $4,800,000; and VIASPACE
minority interest in VGE - $6,443,000.  The net assets acquired
totaled $3,003,000.  The excess of value paid for the acquisition in
excess of net assets acquired was assigned to:  grass license -
$507,000 and goodwill - $12,322,000 which are recorded on the balance sheet of
VIASPACE.
 
 The
acquisition of IPA BVI and IPA China occurred on October 21,
2008.  The following table reflects the Company’s consolidated
unaudited results of operations as if the acquisition occurred on January 1,
2008.
 
 2008Revenues
      – as reported
              
              $
              866,000Revenues
      – pro forma
              
              $
              6,624,000Net
      Income – as reported
              
              $
              91,000Net
      Income – pro forma
              
              $
              939,000Earnings
      per share - basic and diluted – as reported
              
              $
              0.01Earnings
      per share - basic and diluted – pro forma
              
              $
              0.11
 
 
 
  F-15