##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
 For the quarterly period ended September 30, 2009
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 333-110680
 VIASPACE INC.
 (Exact name of small business issuer as specified in its charter)
 Nevada
(State or other jurisdiction of 
incorporation or organization)
    
    76-0742386
(I.R.S. Employer Identification No.)
 2102 Business Center Drive, Suite 130, Irvine, CA 92612
 (626) 768-3360
 YES þ NO o
 YES o NO o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 YES o NO þ




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##### 



VIASPACE INC.
 INDEX
QUARTER ENDED SEPTEMBER 30, 2009
 PagePart I. Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008
    
    
    3Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2009 and 2008
(Unaudited) and Consolidated Statements of Comprehensive Loss For the Three and Nine Months Ended
September 30, 2009 and 2008 (Unaudited)
    
    
    4-5Consolidated Statements of Stockholders Equity as of September 30, 2009 (Unaudited) and December 31, 2008
    
    
    6Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2009 and 2008 (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35Part II. Other InformationItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    38Signatures
    
    
    39Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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##### Table of Contents



PART
I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 VIASPACE INC.
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,213,000
    
    
    $
    2,666,000Accounts receivable, net of allowance for doubtful accounts
    
    
    557,000
    
    
    
    279,000Inventory
    
    
    337,000
    
    
    
    377,000Prepaid expenses
    
    
    523,000
    
    
    
    797,000Related party receivables
    
    
    1,919,000
    
    
    
    921,000Other current assets
    
    
    48,000
    
    
    
    6,000TOTAL CURRENT ASSETS
    
    
    4,597,000
    
    
    
    5,046,000FIXED ASSETS:Fixed assets, net of accumulated depreciation
    
    
    764,000
    
    
    
    793,000OTHER ASSETS:Land use right, net of accumulated amortization
    
    
    557,000
    
    
    
    514,000Intellectual property, net of accumulated amortization
    
    
    167,000
    
    
    
    179,000Grass license, net of accumulated amortization
    
    
    484,000
    
    
    
    503,000Goodwill
    
    
    12,322,000
    
    
    
    12,322,000Other assets
    
    
    3,000
    
    
    
    13,000TOTAL OTHER ASSETS
    
    
    13,533,000
    
    
    
    13,531,000TOTAL ASSETS
    
    $
    18,894,000
    
    
    $
    19,370,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    533,000
    
    
    $
    778,000Accrued expenses
    
    
    569,000
    
    
    
    161,000Current portion of long-term debt
    
    
    44,000
    
    
    
    44,000Loan from related party
    
    
    4,800,000
    
    
    
    4,800,000Related party payable
    
    
    509,000
    
    
    
    422,000TOTAL CURRENT LIABILITIES
    
    
    6,455,000
    
    
    
    6,205,000COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, $0.001 par value, 10,000,000 shares
authorized, zero shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, 1,500,000,000 shares
authorized, 881,896,366 and 814,336,863 issued and
outstanding in 2009 and 2008, respectively
    
    
    882,000
    
    
    
    814,000Additional paid in capital
    
    
    36,447,000
    
    
    
    35,168,000Accumulated deficit
    
    
    (31,874,000
    )
    
    
    (29,804,000
    )Total stockholders equity
    
    
    5,455,000
    
    
    
    6,178,000Noncontrolling interest
    
    
    6,984,000
    
    
    
    6,987,000Total equity
    
    
    12,439,000
    
    
    
    13,165,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    18,894,000
    
    
    $
    19,370,000
   3




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##### Table of Contents



VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008REVENUESGovernment contracts
    
    $
    171,000
    
    
    $
    62,000
    
    
    $
    533,000
    
    
    $
    80,000Commercial contracts
    
    
    
    
    
    
    37,000
    
    
    
    57,000
    
    
    
    40,000Framed artwork sales
    
    
    1,064,000
    
    
    
    
    
    
    
    2,935,000
    
    
    
    Total revenues
    
    
    1,235,000
    
    
    
    99,000
    
    
    
    3,525,000
    
    
    
    120,000COST OF REVENUES
    
    
    762,000
    
    
    
    76,000
    
    
    
    2,145,000
    
    
    
    85,000GROSS PROFIT
    
    
    473,000
    
    
    
    23,000
    
    
    
    1,380,000
    
    
    
    35,000OPERATING EXPENSESResearch and development
    
    
    6,000
    
    
    
    266,000
    
    
    
    24,000
    
    
    
    460,000Selling, general and administrative expenses
    
    
    1,041,000
    
    
    
    2,554,000
    
    
    
    3,325,000
    
    
    
    5,966,000Total operating expenses
    
    
    1,047,000
    
    
    
    2,820,000
    
    
    
    3,349,000
    
    
    
    6,426,000LOSS FROM OPERATIONS
    
    
    (574,000
    )
    
    
    (2,797,000
    )
    
    
    (1,969,000
    )
    
    
    (6,391,000
    )OTHER INCOME (EXPENSE)Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Interest expense
    
    
    (71,000
    )
    
    
    (11,000
    )
    
    
    (356,000
    )
    
    
    (33,000
    )Other income
    
    
    1,000
    
    
    
    70,000
    
    
    
    68,000
    
    
    
    212,000Other expense
    
    
    (1,000
    )
    
    
    
    
    
    
    (3,000
    )
    
    
    Gain on sale of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,000Gain on sale of humidity sensor product line
    
    
    
    
    
    
    
    
    
    
    176,000
    
    
    
    Total other income (expense)
    
    
    (71,000
    )
    
    
    59,000
    
    
    
    (115,000
    )
    
    
    214,000LOSS BEFORE DISCONTINUED OPERATIONS, NONCONTROLLING
INTEREST AND INCOME TAXES
    
    
    (645,000
    )
    
    
    (2,738,000
    )
    
    
    (2,084,000
    )
    
    
    (6,177,000
    )Discontinued operations
    
    
    
    
    
    
    (794,000
    )
    
    
    12,000
    
    
    
    (1,583,000
    )Income taxes
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    Net loss (income) contributed to noncontrolling
interest
    
    
    (21,000
    )
    
    
    (5,000
    )
    
    
    2,000
    
    
    
    (4,000
    )NET LOSS
    
    $
    (664,000
    )
    
    $
    (3,537,000
    )
    
    $
    (2,070,000
    )
    
    $
    (7,764,000
    )LOSS PER SHARE OF COMMON STOCK BEFORE DISCONTINUED
OPERATIONS AND MINORITY INTERESTBasic and diluted
    
    $
    *
    
    
    $
    (0.01
    )
    
    $
    *
    
    
    $
    (0.02
    )Discontinued operations
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *Noncontrolling interest in consolidated subsidiaries
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *NET LOSS PER SHARE OF COMMON STOCKBasic and diluted
    
    $
    *
    
    
    $
    (0.01
    )
    
    $
    *
    
    
    $
    (0.02
    )WEIGHTED AVERAGE SHARES OUTSTANDINGBasic and
diluted
    
    
    878,922,545
    
    
    
    458,693,837
    
    
    
    858,652,181
    
    
    
    415,897,314
 
 *
    
    Less than $0.005 per common share.  4




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##### Table of Contents



CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 NET LOSS
    
    $
    (664,000
    )
    
    $
    (3,537,000
    )
    
    $
    (2,070,000
    )
    
    $
    (7,764,000
    )Other Comprehensive Income:Unrealized holding gain (loss) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,000
    )Less reclassification adjustment for
realized gain on securities included in net
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,000
    )Subtotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78,000
    )COMPREHENSIVE LOSS
    
    $
    (664,000
    )
    
    $
    (3,537,000
    )
    
    $
    (2,070,000
    )
    
    $
    (7,842,000
    )
   5




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##### Table of Contents



VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (Unaudited)
 Common Stock
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    OtherPaid in
    
    
    Treasury
    
    
    Comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Income
    
    
    Deficit
    
    
    TotalBALANCE, DECEMBER 31, 2008
    
    
    814,336,863
    
    
    $
    814,000
    
    
    $
    35,168,000
    
    
    $
    
    
    
    $
    
    
    
    $
    (29,804,000
    )
    
    $
    6,178,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,070,000
    )
    
    
    (2,070,000
    )Stock compensation expense
related to stock options
    
    
    
    
    
    
    
    
    
    
    190,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190,000Shares issued to
consultants, vendors,
employees and directors
for services
    
    
    67,559,503
    
    
    
    68,000
    
    
    
    1,089,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,157,000BALANCE, SEPTEMBER 30, 2009
    
    
    881,896,366
    
    
    $
    882,000
    
    
    $
    36,447,000
    
    
    $
    
    
    
    $
    
    
    
    $
    (31,874,000
    )
    
    $
    5,455,000
   6




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##### Table of Contents



VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months Ended September 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (2,070,000
    )
    
    $
    (7,764,000
    )Adjustments to reconcile net loss to cash used in operating activities:Depreciation
    
    
    94,000
    
    
    
    53,000Amortization of intangible assets
    
    
    52,000
    
    
    
    18,000Stock option compensation expense
    
    
    189,000
    
    
    
    1,443,000Stock compensation expense related to stock issued
    
    
    1,250,000
    
    
    
    1,248,000Operating expenses paid in stock issued
    
    
    122,000
    
    
    
    4,128,000Noncontrolling interest
    
    
    (3,000
    )
    
    
    (50,000
    )Gain on sale of marketable securities
    
    
    
    
    
    
    (29,000
    )Gain on sale of assets to Landtec
    
    
    (176,000
    )
    
    
    (Increase) decrease in:Accounts receivable
    
    
    (313,000
    )
    
    
    7,000Inventory
    
    
    70,000
    
    
    
    5,000Prepaid expenses and other current assets
    
    
    107,000
    
    
    
    25,000Increase (decrease) in:Accounts payable
    
    
    (245,000
    )
    
    
    (55,000
    )Unearned revenue
    
    
    (13,000
    )
    
    
    Accrued expenses and other
    
    
    391,000
    
    
    
    (33,000
    )Related party, net
    
    
    (176,000
    )
    
    
    173,000Net cash used in operating activities
    
    
    (721,000
    )
    
    
    (831,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Additions to fixed assets
    
    
    (77,000
    )
    
    
    (3,000
    )Proceeds from sale of marketable securities
    
    
    
    
    
    
    29,000Investment in land lease
    
    
    (64,000
    )
    
    
    Proceeds from sale of assets to Landtec
    
    
    210,000
    
    
    
    Net cash provided by investing activities
    
    
    69,000
    
    
    
    26,000CASH FLOWS FROM FINANCING ACTIVITIES:Related party loans
    
    
    (800,000
    )
    
    
    Proceeds from loan
    
    
    
    
    
    
    300,000Payments on long-term debt
    
    
    
    
    
    
    (17,000
    )Proceeds from sale of common stock
    
    
    
    
    
    
    66,000Payments of loans
    
    
    
    
    
    
    (375,000
    )Proceeds from exercise of warrants
    
    
    
    
    
    
    259,000Net cash provided by (used in) financing activities
    
    
    (800,000
    )
    
    
    233,000EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS
    
    
    (1,000
    )
    
    
    NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (1,453,000
    )
    
    
    (572,000
    )CASH AND CASH EQUIVALENTS, Beginning of period
    
    
    2,666,000
    
    
    
    608,000CASH AND CASH EQUIVALENTS, End of period
    
    $
    1,213,000
    
    
    $
    36,000Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    
    
    
    $
    36,000Income taxes
    
    $
    
    
    
    $
    
 Supplemental Disclosure of Non-Cash Activities for 2008
 
    
    The Company issued 108,757,871 shares of the Companys common stock for
future services valued at issuance at $5,585,000. This amount was recorded at
issuance as prepaid expenses.
 Supplemental Disclosure of Non-Cash Activities for 2009
 
    
    The Company issued 13,377,927 shares of the Companys common stock for
future services valued at issuance at $400,000. This amount was recorded at
issuance as prepaid expenses.
   7




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##### Table of Contents



VIASPACE INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of Business
  Company Background
 Basis of Presentation
 Noncontrolling Interest
  8




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##### Table of Contents



Principles of Consolidation
 Fiscal
Year End
 Use of Estimates in the Preparation of the Financial Statements
 Cash and Cash Equivalents
 Concentration
of Credit Risk
 Accounts Receivable Allowance for Doubtful Accounts
 Marketable Securities
 Inventory
 Raw Materials
    
    
    Finished Goods
    
    
    TotalFramed-Artwork
    
    $
    260,000
    
    
    $
    29,000
    
    
    $
    289,000Humidity sensor and battery tester
    
    
    
    
    
    
    
    
    
    
    Grass
    
    
    48,000
    
    
    
    
    
    
    
    48,000Total
    
    $
    308,000
    
    
    $
    29,000
    
    
    $
    337,000
  9




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##### Table of Contents



Raw Materials
    
    
    Finished Goods
    
    
    TotalFramed-Artwork
    
    $
    286,000
    
    
    $
    16,000
    
    
    $
    302,000Humidity sensor and battery tester
    
    
    30,000
    
    
    
    5,000
    
    
    
    35,000Grass
    
    
    40,000
    
    
    
    
    
    
    
    40,000Total
    
    $
    356,000
    
    
    $
    21,000
    
    
    $
    377,000
 Property and Equipment
 Building
    
    
    20 to 30 yearsMachinery and equipment
    
    
    10 yearsOffice equipment
    
    
    5 yearsVehicles
    
    
    5 yearsComputers
    
    
    3 years
 Land
Use Right
 Intangible
Assets
 Impairment of Long-lived Assets
 Fair Value of Financial Instruments
  10




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##### Table of Contents



Income
Taxes
 Revenue Recognition Product Revenue
 Product Development Revenue on Fixed-Price Contracts With Milestone Values Defined
 Framed art sales
 Cost of Goods Sold
 Foreign Currency Translation and Comprehensive Income (Loss)
 Segment Reporting and Geographic Information
  11




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##### Table of Contents



Stock Based Compensation
 Net Income (Loss) Per Share
 Research and Development
 NOTE 2  ACCOUNTS RECEIVABLE
  2009
    
    
    2008(Unaudited)U.S. Government customers
    
    $
    67,000
    
    
    $
    32,000Framed artwork customers
    
    
    508,000
    
    
    
    247,000Total accounts receivable
    
    
    575,000
    
    
    
    279,000Less: Allowance for doubtful accounts
    
    
    (18,000
    )
    
    
    Accounts receivable, net
    
    $
    557,000
    
    
    $
    279,000
 NOTE 3  PREPAID EXPENSES
     12




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##### Table of Contents



NOTE 4  FIXED ASSETS
  2009
    
    
    2008(Unaudited)Computer equipment and office equipment
    
    $
    216,000
    
    
    $
    369,000Machinery and equipment
    
    
    256,000
    
    
    
    206,000Building
    
    
    627,000
    
    
    
    606,000Vehicles
    
    
    144,000
    
    
    
    144,000Leasehold improvements
    
    
    1,000
    
    
    
    26,000Total property and equipment
    
    
    1,244,000
    
    
    
    1,351,000Less: Accumulated depreciation
    
    
    480,000
    
    
    
    558,000Fixed assets, net
    
    $
    764,000
    
    
    $
    793,000
 NOTE 5  LAND USE RIGHT
  2009
    
    
    2008(Unaudited)Land use right
    
    $
    669,000
    
    
    $
    605,000Less: Accumulated amortization
    
    
    112,000
    
    
    
    91,000Land use right, net
    
    $
    557,000
    
    
    $
    514,000
  NOTE 6  INTANGIBLE ASSETS
 Intellectual Property
  2009
    
    
    2008(Unaudited)License to patent
    
    $
    380,000
    
    
    $
    380,000Less: Accumulated amortization
    
    
    213,000
    
    
    
    201,000Intellectual property, net
    
    $
    167,000
    
    
    $
    179,000
  Grass License
  Goodwill
   13




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##### Table of Contents



NOTE 7  OWNERSHIP INTEREST IN AFFILIATED COMPANIES
 DMFCC
 VGE
 Ionfinity
 VIASPACE Security
 Concentric Water
 NOTE 8  ACQUISITION OF IPA
      14




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15




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2008(Unaudited)
    
    
    (Unaudited)Revenues
 as reported
    
    $
    99,000
    
    
    $
    120,000Revenues
 pro forma
    
    $
    2,318,000
    
    
    $
    4,829,000Net Income
 as reported
    
    $
    (3,537,000
    )
    
    $
    (7,764,000
    )Net Income
 pro forma
    
    $
    (3,264,000
    )
    
    $
    (7,345,000
    )Earnings per
share  basic and diluted  as reported
    
    $
    (0.01
    )
    
    $
    (0.02
    )Earnings per
share  basic and diluted  pro forma
    
    $
    (0.01
    )
    
    $
    (0.02
    )
 *
    
    Less than $0.005 per common share NOTE 9  DISCONTINUED OPERATIONS
 Return of Battery License to Caltech
  Sale of Assets of VIASPACE Security
   16




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##### Table of Contents



Sale of Humidity Sensor Business Unit
   (a)
    
    Sixty Thousand Dollars ($60,000) for the Purchased Assets payable at the time of the closing; and(b)
    
    One Hundred Fifty Thousand ($150,000) for the Support Services of which One Hundred Ten
Thousand Dollars ($110,000) will be payable at the Closing and Forty Thousand Dollars ($40,000)
will be payable sixty (60) days after the Closing conditioned upon performance of the Support
Services.
  (a)
    
    trade and assumed names VIASENSOR; HS-1000, HS-2000, HS-3000, and all variations;(b)
    
    customer lists and customer orders received after Closing;(c)
    
    Sellers patent rights and intellectual property related to the humidity sensor including
issued US patent number 7,499,169, and any other patent applications, brochures, manuals, sales
presentations and assembly drawings, instructions, software, calibration instructions and shipping
instructions;(d)
    
    parts inventory;(e)
    
    prototype and tradeshow demonstration units;(f)
    
    manufacturing equipment and calibration equipment owned by the company including computers and
monitors, IC programmer and oscilloscope;(g)
    
    Drawings of all parts and/or components of the humidity sensor (a complete printed set and the
original CAD);(h)
    
    Assembly drawings for the humidity sensor (a complete printed set and the original CAD files);(i)
    
    Works instructions explaining how to assemble the humidity sensor;
  17




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##### Table of Contents



(j)
    
    Works instructions explaining how to calibrate the humidity sensor including acceptable limits;(k)
    
    A complete bill of materials for the humidity sensor;(l)
    
    A complete list of suppliers of each part or assembly;(m)
    
    Circuit diagrams for all circuits in the humidity sensor including interconnection diagrams;(n)
    
    Printed Circuit Board (PCB) information for each PCB within the humidity sensor, a complete
bill of materials for each PCB, a full set of Gerber files for each PCB;(o)
    
    Original CAD design file for each PCB;(p)
    
    Purchase specification/special considerations for each PCB;(q)
    
    Software files containing original source code;(r)
    
    Software release notes, including known bugs;(s)
    
    Copy of compiler used and any related license;(t)
    
    Copy of compiled code as binary file (so you can still make copies even if compiler problems);(u)
    
    All software documentation;(v)
    
    Software version control log;(w)
    
    Details of development environment;(x)
    
    Any test gear related to the humidity sensor;(y)
    
    List of customers and contact information;(z)
    
    List of distributors and contact information; and(aa)
    
    all inventions, technology, processes, concepts (documented or undocumented), patents (and the
right to recover for past infringements thereof), patent applications, licenses, trade secrets,
trademarks (and the right to recover for past infringements thereof), designs and drawings of
Seller elated to the humidity sensor.(bb)
    
    rights of Seller under all agreements relating to such assets set forth in sub-sections (a)
through (aa), above, including but not limited to distributor, representative, teaming agreements.(cc)
    
    all right, title and interest of Seller in and to all Intellectual Property rights relating to
such assets set forth in sub-sections (a) through (aa) above, including without limitation all
books, payment records; accounts; correspondence; production records; technical, accounting and
procedural manuals; development and design data; and other useful business records utilized in the
conduct of or relating to the Purchased Assets.
  (a)
    
    Sellers rights under this Agreement;(b)
    
    Sellers Accounts Receivable for products or services arising out of transactions prior to
Closing;(c)
    
    Securities of VGE, VIASPACE, DMFCC and all assets of VGE, VIASPACE, DMFCC, and all securities
and assets not explicitly covered under this Agreement.
   (i)
    
    the breach of any representation or warranty made by Seller contained in the Agreement;(ii)
    
    the breach of any covenant or agreement by Seller contained in the Agreement;(iii)
    
    any and all Losses suffered or incurred by Buyer by reason of or in connection with any claim
or cause of action of any third party to the extent arising out of any action, inaction, event,
condition, liability or obligation of Seller occurring or existing prior to the Closing; and,(iv)
    
    all liabilities of Seller, none of which shall be assumed by Buyer.
    18




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##### Table of Contents



NOTE
10   STOCK OPTIONS AND WARRANTS
 VIASPACE Inc. 2005 Stock Incentive Plan
        19




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##### Table of Contents



September 30, 2009
    
    
    September 30, 2008(Unaudited)
    
    
    (Unaudited)Risk free interest rate
    
    
    2.53%  3.31
    %
    
    
    3.28%  3.42
    %Dividends
    
    
    0
    %
    
    
    0
    %Volatility factor
    
    
    126.13%  134.16
    %
    
    
    118.81%  122.90
    %Expected life
    
    
    6.67 years
    
    
    
    6.67 yearsAnnual forfeiture rate
    
    
    28.6%  49.9
    %
    
    
    0%  16.3
    %
 Employee and Director Option Grants
  Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term In Years
    
    
    ValueOutstanding at December 31, 2008
    
    
    8,130,000
    
    
    $
    0.04Granted
    
    
    18,000,000
    
    
    
    0.02Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2009
    
    
    26,130,000
    
    
    $
    0.03
    
    
    
    8.5
    
    
    $
    79,000Exercisable at September 30, 2009
    
    
    6,786,875
    
    
    $
    0.03
    
    
    
    8.5
    
    
    $
    32,000
   20




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##### Table of Contents



Consultant Option Grants
  Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term In Years
    
    
    ValueOutstanding at December 31, 2008
    
    
    
    
    
    $
    Granted
    
    
    1,538,462
    
    
    
    0.02Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2009
    
    
    1,538,462
    
    
    $
    0.02
    
    
    
    2.8
    
    
    $
    7,000Exercisable at September 30, 2009
    
    
    1,538,462
    
    
    $
    0.02
    
    
    
    2.8
    
    
    $
    7,000
  Direct Methanol Fuel Cell Corporation 2002 Stock Option / Stock Issuance Plan
    Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term In Years
    
    
    ValueOutstanding at December 31, 2008
    
    
    1,396,000
    
    
    $
    .02Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2009
    
    
    1,396,000
    
    
    $
    .02
    
    
    
    5.7
    
    
    $
    45,000Exercisable at September 30, 2009
    
    
    1,396,000
    
    
    $
    .02
    
    
    
    5.7
    
    
    $
    45,000
  Warrants
   21




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##### Table of Contents



NOTE 11  LONG-TERM DEBT
   Summary of Loans and Long-Term Debt
  2009
    
    
    2008(Unaudited)CDC of the County of Los Angeles, secured, with interest at 5% due September 1, 2009
    
    $
    9,000
    
    
    $
    9,000CDC of the County of Los Angeles, secured, with interest at 5% due September 1, 2009
    
    
    35,000
    
    
    
    35,000Total Long-term Debt
    
    
    44,000
    
    
    
    44,000Less Current Portion of Long-term Debt
    
    
    44,000
    
    
    
    44,000Net Long-term Debt
    
    $
    
    
    
    $
    
  NOTE 12  STOCKHOLDERS EQUITY
 Preferred Stock
  Common Stock
   NOTE 13  INCOME TAX
    22




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##### Table of Contents



NOTE 14  RETIREMENT PLAN
  NOTE 15  OPERATING SEGMENTS
    Energy Segment:
 (i)
    
    DMFCC: DMFCC is a provider of disposable fuel cartridges and intellectual property
protection for manufacturers of direct methanol and other liquid hydrocarbon fuel cells.
Direct methanol fuel cells are expected to be replacements for traditional batteries and are
expected to gain a substantial market share in the future because they offer longer
operating time as compared to current lithium ion batteries and may be instantaneously
recharged by simply replacing the disposable fuel cartridge.
 (ii)
    
    VIASPACE Corporate: VIASPACE Corporate is identifying and pursuing additional business
opportunities in areas including batteries and battery test equipment, alternative fuels,
and new products to conserve energy and reduce emissions.
 Security Segment:
 (i)
    
    Ionfinity: Ionfinity is working on a next-generation mass spectrometry technology,
which could significantly improve the application of mass spectrometry for industrial
process control and environmental monitoring and could also spawn a new class of detection
systems for homeland security.
 Framed-Artwork Segment:
 (i)
    
    IPA China and IPA BVI: Specialize in manufacturing high-quality, copyrighted, framed
artwork in the PRC which is sold to retail stores in the U.S.
 Grass Segment:
 (i)
    
    VGE: VGE is growing Giant King Grass in the PRC to be harvested and sold initially as
a livestock feed and in the future as a feedstock for biofuel production and as a clean
alternative to coal in electricity generating power plants,
   23




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##### Table of Contents



Three Months Ended
    
    
    Three Months Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009
    
    
    September 30, 2008(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues:Energy
    
    $
    
    
    
    $
    36,000
    
    
    $
    57,000
    
    
    $
    40,000Security
    
    
    171,000
    
    
    
    63,000
    
    
    
    533,000
    
    
    
    80,000Framed-Artwork
    
    
    1,064,000
    
    
    
    
    
    
    
    2,935,000
    
    
    
    Grass
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
Revenues
    
    $
    1,235,000
    
    
    $
    99,000
    
    
    $
    3,525,000
    
    
    $
    120,000Income (Loss) From Operations:Energy
    
    $
    (25,000
    )
    
    $
    (380,000
    )
    
    $
    (45,000
    )
    
    $
    (905,000
    )Security
    
    
    14,000
    
    
    
    15,000
    
    
    
    66,000
    
    
    
    6,000Framed-Artwork
    
    
    186,000
    
    
    
    
    
    
    
    576,000
    
    
    
    Grass
    
    
    (156,000
    )
    
    
    
    
    
    
    (676,000
    )
    
    
    Income (Loss) From Operations by Reportable Segments
    
    
    19,000
    
    
    
    (365,000
    )
    
    
    (79,000
    )
    
    
    (899,000
    )Corporate Administrative Costs
    
    
    (134,000
    )
    
    
    (1,162,000
    )
    
    
    (451,000
    )
    
    
    (3,088,000
    )Corporate Stock Compensation and Warrant
Expense
    
    
    (459,000
    )
    
    
    (1,270,000
    )
    
    
    (1,439,000
    )
    
    
    (2,404,000
    )Loss From Operations
    
    $
    (574,000
    )
    
    $
    (2,797,000
    )
    
    $
    (1,969,000
    )
    
    $
    (6,391,000
    )
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)Assets:Energy
    
    $
    176,000
    
    
    $
    202,000Security
    
    
    182,000
    
    
    
    134,000Framed-Artwork
    
    
    4,922,000
    
    
    
    5,179,000Grass
    
    
    199,000
    
    
    
    193,000VIASPACE Corporate
    
    
    13,415,000
    
    
    
    13,662,000Total Assets
    
    $
    18,894,000
    
    
    $
    19,370,000
  NOTE 16  NET LOSS PER SHARE
   (Unaudited)Nine Months EndedSeptember 30,2009
    
    
    2008Stock Options
    
    
    27,668,462
    
    
    
    16,082,000Warrants
    
    
    624,000
    
    
    
    624,000
  24




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##### Table of Contents



(Unaudited)
    
    
    (Unaudited)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Basic and diluted net loss per share:Numerator:Net loss attributable to common stock
    
    $
    (664,000
    )
    
    $
    (3,537,000
    )
    
    $
    (2,070,000
    )
    
    $
    (7,764,000
    )Denominator:Weighted average shares of common stock outstanding
    
    
    878,922,545
    
    
    
    458,693,837
    
    
    
    858,652,181
    
    
    
    415,897,314Net loss per share of common stock, basic and diluted
    
    $
    *
    
    
    $
    (0.01
    )
    
    $
    *
    
    
    $
    (0.02
    )
 *
    
    Less than $0.005 per share NOTE 17  RELATED PARTY TRANSACTIONS
  Related Party Receivables
  Related Party Payables
       25




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##### Table of Contents



Employment Agreements
  NOTE 18  OTHER COMMITMENTS AND CONTINGENCIES
 Leases
  Fiscal Year2010
    
    $
    96,0002011
    
    
    80,000Total minimum lease payments
    
    $
    176,000
  Operations in the PRC
   Litigation
   26




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##### Table of Contents



NOTE 19  FINANCIAL ACCOUNTING DEVELOPMENTS
        27




---



##### Table of Contents



NOTE 20  GOING CONCERN
  NOTE
21  SUBSEQUENT EVENT
   28




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##### Table of Contents



The following discussion contains certain statements that constitute forward-looking statements.
Such statements appear in a number of places in this Report, including, without limitation,
Managements Discussion and Analysis of Financial Condition or Plan of Operation. These
statements are not guarantees of future performance and involve risks, uncertainties and
requirements that are difficult to predict or are beyond our control. Our future results may
differ materially from those currently anticipated depending on a variety of factors, including
those described below under Risks Related to Our Future Operations and our filings with the
Securities and Exchange Commission. The following should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto that appear elsewhere in this Report and in
conjunction with our 2008 annual report on Form 10-K .
 VIASPACE Overview
    Critical accounting policies and estimates
   29




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##### Table of Contents



Results of Operations
 Three Months Ended September 30, 2009 Compared to September 30, 2008
 Revenues
   30




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##### Table of Contents



Cost of Revenues
  Gross Profit
  Research and Development
  Selling, General and Administrative Expenses
  Loss from Operations
  Other Income (Expense), Net
 Interest Expense
  Other Income and Other Expense
   31




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##### Table of Contents



Discontinued Operations
  Nine Months Ended September 30, 2009 Compared to September 30, 2008
 Revenues
  Cost of Revenues
  Gross Profit
  Research and Development
  Selling, General and Administrative Expenses
   32




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##### Table of Contents



Loss from Operations
  Other Income (Expense), Net
 Interest Income
  Interest Expense
  Other Income and Other Expense
  Gain on Sale of Humidity Sensor Product Line
  Discontinued Operations
  Liquidity and Capital Resources
      33




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##### Table of Contents



Contractual Obligations
  Less than 1
    
    
    1-3
    
    
    3-5
    
    

    More thanTotal
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-term debt obligations (a)
    
    $
    44,000
    
    
    $
    44,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations (b)
    
    $
    176,000
    
    
    $
    96,000
    
    
    $
    80,000
    
    
    $
    
    
    
    $
    Employment agreements (c)
    
    $
    806,000
    
    
    $
    744,000
    
    
    $
    62,000
    
    
    $
    
    
    
    $
    
 (a)
    
    The annual installment of principal and interest on the notes payable owed to the
Community Development Commission as discussed in the accompanying footnotes to the
consolidated financial statements are noted.(b)
    
    The Company leased office and laboratory space in Pasadena, California and entered into
a five-year lease on May 1, 2006. The Company vacated its office space on March 1, 2009.
The Company and the landlord are actively looking for a new tenant to assume this lease.
Future minimum lease payments are noted.(c)
    
    Employment agreements: On October 21, 2008, VGE entered into two-year employment
agreements with each of Dr. Carl Kukkonen, Mr. Sung Hsien Chang, Mr. Stephen Muzi and Mr.
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 receives $180,000 per annum and Mr. Wang receives $84,000 per
annum. Each of them is entitled to a bonus as determined by the VGE Board of Directors,
customary insurance and health benefits, 15 days paid leave per year, and reimbursement for
out-of-pocket expenses in the course of his employment. These employment agreements are
terminated if the Company fails to achieve the Second Closing of IPA BVI and IPA China as
discussed in Note 8.  Inflation and Seasonality
  Off-Balance Sheet Arrangements
   34




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure controls and procedures.
  Changes in internal controls over financial reporting.
  35




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 Risk Factors Which May Affect Future Results
   Risks Related To Our Business
 We have incurred losses and anticipate continued losses for the foreseeable future.
  Our ability to continue as a going concern is dependent on future financing.
    Our revenues to date have been to a few customers, the loss of which could result in a severe
decline in revenues.
   36




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##### Table of Contents



Risks Related To An Investment In Our Stock
 Any future sale of a substantial number of shares of our common stock could depress the trading
price of our common stock, lower our value and make it more difficult for us to raise capital.
    
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
   37




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 (a) Exhibits
 10.1
    
    
    Amendment to Securities Purchase Agreement dated October 14, 2009 by and among Registrant, VIASPACE
Green Energy Inc., Sung Hsien Chang and China Gate Technology Co., Ltd. *10.2
    
    

Amendment
No. 2 to Securities Purchase Agreement dated August 21,
2009 by and among the Registrant VIASPACE Green Energy Inc., Sung
Hsien Chang and China Gate Technology Co., Ltd**31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. *
 *
    
    Filed herewith.**
    
    Previously filed.   38




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##### Table of Contents



SIGNATURES
  VIASPACE Inc.
(Registrant)Date: November 16, 2009
    /s/ CARL KUKKONENCarl KukkonenChief Executive OfficerDate: November 16, 2009
    /s/ STEPHEN J. MUZIStephen J. MuziChief Financial Officer  39