viaspace_10k-123111.htm

10-K 1 viaspace_10k-123111.htm FORM 10-K viaspace_10k-123111.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the fiscal year ended December 31, 2011

	OR

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-110680

VIASPACE INC.

(Exact name of registrant as specified in its charter)

Nevada		76-0742386
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

131 Bells Ferry Lane
Marietta, Georgia		30066
(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 has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o

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 £ No x

State issuer’s revenue for its most recent fiscal year: $6,759,000

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 27, 2012: $8,001,000

State the number of shares outstanding of each of issuer’s classes of common equity, as of March 27, 2012: 1,365,726,245

VIASPACE INC.

TABLE OF CONTENTS

		Page
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	20
Item 3.	Legal Proceedings	20
Item 4.	Mine Safety Disclosures	20

Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 8.	Financial Statements and Supplementary Data	26 (F-1 to F-30)
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	27
Item 9A.	Controls and Procedures	27
Item 9B.	Other Information	28

Part III
Item 10.	Directors, Executive Officers, Promoters, Control Persons and Corporate Governance	29
Item 11.	Executive Compensation	32
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	37
Item 13.	Certain Relationships and Related Transactions, and Director Independence	39
Item 14.	Principal Accountant Fees and Services	40

Part IV
Item 15.	Exhibits and Financial Statement Schedules	41

Signatures		46

FORWARD-LOOKING STATEMENTS

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

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

•

our ability to successfully implement our business strategy,

•

market acceptance of our products and product development,

•

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

•

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

•

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

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

PART I

ITEM 1. BUSINESS

Overview

VIASPACE Inc. (“we”, “us”, “VIASPACE”, or the “Company”) is a renewable energy company with a global reach. Our renewable energy is based on biomass-- in particular our dedicated energy crop with the trademarked name “Giant KingTM Grass”. VIASPACE has a majority ownership in VIASPACE Green Energy Inc., a British Virgin Islands (“BVI”) international business company (“VGE”) who is the parent company of Inter Pacific Arts Corporation, a BVI international business company (“IPA BVI”) and Guangzhou Inter Pacific Arts, a Peoples Republic of China (“PRC” or “China”) 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 US retail chain stores. IPA China also has Giant KingTM Grass (“GKG”), a proprietary dedicated energy crop, 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, biochemicals and bio plastics. Cellulosic ethanol, bio butanol and other liquid cellulosic biofuels, 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 this 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 of growing and burning GKG probably has some net carbon dioxide emissions, but much lower emissions than burning coal or other fossil fuels directly to create the same amount of energy. GKG has been independently tested by customers and been shown to have excellent energy content, high bio methane production, and the cellulosic sugar content needed for biofuels and biochemicals.

We are growing GKG on approximately 226 acres of leased land in China to serve as a nursery to provide seedlings for large bioenergy projects, a demonstration plantation for potential partners and customers to visit, to provide samples for testing by potential customers, and as a grass source for our own Green LogTM and pellet products.

We have two currently inactive subsidiaries, Direct Methanol Fuel Cell Corporation (“DMFCC”), that produced disposable fuel cartridges that provide the energy source for portable electronics powered by fuel cells, and Ionfinity LLC (“Ionfinity”) which had US government contracts for a next-generation mass spectrometry technology for industrial process control and environmental monitoring.

VIASPACE has moved its headquarters to Georgia and has business activities in China.

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

Corporate History

ViaSpace Technologies LLC (“ViaSpace LLC”) was founded in July 1998 as a private company to commercialize proven space and defense technologies from NASA and the Department of Defense. ViaSpace LLC had licensed patents, and software technology from California Institute of Technology (“Caltech”), which manages the Jet Propulsion Laboratory (“JPL”) for NASA. On June 22, 2005, ViaSpace LLC acquired the non-operating shell company Global-Wide Publication Ltd. (“GW”). GW was incorporated in the State of Nevada on July 14, 2003. At merger, GW was renamed VIASPACE Inc. The transaction was accounted for as a reverse merger and a recapitalization of the Company. VIASPACE became a public company on June 22, 2005.

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 grass technology to IPA China.

Initially, the transactions under the Purchase Agreement ("Acquisition") were to involve two phases. At the first closing (“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 its results, assets and liabilities in our financial statements. IPA China became a wholly-owned subsidiary of IPA BVI subsequent to the First Closing on June 9, 2009.

The amount paid by VIASPACE and VGE for the acquisition on October 21, 2008 was $15,832,000 composed of: fair market value of VIASPACE stock issued - $4,589,000; VIASPACE loan to 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 was recorded on the balance sheet of VIASPACE and VGE.

The conditions to VIASPACE’s and VGE’s obligations to consummate the second closing (“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 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 Registration Statement on Form S-1 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 Registration Statement on Form S-1 effective December 31, 2009. On January 14, 2010, VGE received approval from the Financial Industry Regulatory Authority (“FINRA”) that its shares of common stock were approved for listing on the OTC Bulletin Board (“OTCBB”) 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. 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 was to accrue at 6% for the first nine months after the First Closing, and then 18% until June 10, 2009, and then at 6% thereafter. We had control of the assets of IPA BVI through our majority ownership position in VGE and there was 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. As a result, VIASPACE had 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. However, Chang, VIASPACE and VGE continued negotiating an alternative closing and purchase of IPA.

On April 16, 2010, VIASPACE and Chang entered into a Share Purchase Agreement ("Share Purchase Agreement") pursuant to which Chang would transfer controlling interest of VGE to VIASPACE, or 6,506,000 shares of VGE capital stock, and VIASPACE would grant Chang (i) 241,667,000 newly-issued shares of its common stock, (ii) one share of its Series A Preferred Stock which controls 50.1% of the voting power of VIASPACE equity securities, and (iii) a secured promissory note in the principal amount of $5,331,025 (the "Note").

On May 14, 2010, VIASPACE, Chang and other VGE shareholders closed the transactions contemplated by the Share Purchase Agreement (the "Closing") and in connection with the Closing, VIASPACE, VGE, IPA BVI and IPA China entered into certain agreements with Chang. In particular, each executed (i) a Guarantee with Chang pursuant to which each company guaranteed VIASPACE’s repayment of the Note and (ii) a Security Agreement with Chang in which such company granted a security interest in a significant amount of assets of each company. In addition, VIASPACE also executed stock pledge agreement pledging all of the securities it owns in VGE as collateral for repayment of the Note. VIASPACE also executed a registration rights agreement in which it granted Chang rights to register his newly issued shares of VIASPACE common stock. VGE also executed employment agreements for Carl Kukkonen, CEO; Sung Hsien Chang, President; and Stephen Muzi, Chief Financial Officer.

On May 16, 2011, VIASPACE and Chang entered into an Amendment to Secured Promissory Note (the "Note Amendment"). The parties desired to extend the installment payment due dates by one year as part of the Note Amendment. The Note Amendment requires VIASPACE to make five equal annual installment payments of One Million Sixty Six Thousand and Two Hundred and Five Dollars ($1,066,205) each, together with interest per annum of six percent (6%), in arrears on the second, third, fourth, fifth and sixth anniversary dates of the Issue Date rather than the first, second, third, fourth and fifth anniversary dates of the Issue Date. In addition, as part of the Note Amendment, the Holder of the Note has been changed from Sung Hsien Chang to Changs LLC, a limited liability company owned by Mr. Chang and his wife. On September 23, 2011, the Company made an advance payment of $200,000 on the installment payment due to Changs LLC on May 14, 2012. The current amount of the installment payment due to Changs LLC on May 14, 2012 is $866,205.

Grass Business Division

The Company focuses on 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 such as bio ethanol and bio butanol. It can also be used as a feedstock for biochemicals and bio plastics. This perennial grass can grow up to 14 feet in height. It can be harvested at least twice 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 multiple potential customers. Proximate and ultimate analyses are available as well as ash composition, biogas production test data and sugar composition, pretreatment and hydrolysis data are available. To our knowledge, 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 ear of corn has been harvested. Corn straw is used as fuel in many biomass power plants, and a leading international biomass power provider, 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 potentially thousands of biogas plants worldwide that may use GKG. A large European electric utility has tested GKG and examined prototype pellets. In addition to these current markets, GKG can be used as animal feed and has been tested for this purpose.

GKG can also be used as a feedstock to make cellulosic biofuels such as bio ethanol, bio butane and green gasoline. Three companies have recently tested GKG as a potential feedstock for producing biofuels, biochemicals and bio plastics through fermentation method. Laboratory results from these tests show that GKG has almost identical composition including sugar content as corn straw or wheat straw which are the agricultural waste products often targeted as a feedstock for cellulosic biofuels. The projected bio ethanol yield is approximately 80 gallons per dry ton of GKG based on these tests.

Corn straw and wheat straw are the leftovers after food production. This agricultural waste material can only be collected after the food is harvested which means that the feedstock supply is very seasonal and must be stored for a long time--up to one year-- between harvests. To support a single biofuel or power plant, agricultural waste must be collected from farms up to 50 or more miles away. Giant King Grass is a high yield dedicated nonfood energy crop that can be harvested at any time in a tropical or subtropical climate. If the biofuel or power plant is co-located with a GKG plantation, the collection radius will only be about 3 miles. The high yield and logistical advantages mean that GKG can be grown and delivered to a co-located plant at a substantially lower price than currently paid for agricultural waste. The largest operating cost of a biomass power plant or biofuels plant is the cost of the fuel or feedstock, and the low cost and high quality of GKG are of major interest to these customers.

GKG as a dedicated energy crop has generated widespread interest from the renewable energy community. In 2011, the Company made invited presentations on GKG at international conferences in the US, China, Singapore, Korea, India, Ghana and Taiwan.

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 used in the power plant 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.

On November 7, 2011, VIASPACE and Seema Energy Co., Ltd. (“Seema”), a renewable energy development company based in Thailand, signed at MOU to jointly develop the detailed plan for a Giant King Grass plantation to fuel Seema’s proposed 90 MW biomass power plant. VIASPACE and Seema will initially jointly develop a test plot to optimize cultivation of Giant King Grass in Thailand. The MOU provides for the supply of seedlings and development of a 2 hectare (5 acre) testing facility to assess and optimize Giant King Grass cultivation under Thai climate conditions.

Our strategy has been to build up our grass production capabilities in China where we have 91 ha (226 acres) under cultivation. This land serves as a small scale demonstration plantation and also allows us to provide samples to potential partners and customers; the harvested grass is used in our factory to produce Green Log TM fireplace and campfire logs and energy pellets; and it is a nursery to provide seedlings for a major expansion.

We plan to expand our grass business into other areas of the world, and are in 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 a reliable 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, wheat straw, rice husks and wood waste 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. In part because of the feedstock uncertainty issue, many proposed biomass power plant and biogas projects have been unable to obtain financing. A dedicated energy crop will help alleviate this obstacle.

Because of its high yield, GKG provides feedstock with less use of land and we believe therefore lower costs compared to its alternatives. Other energy crops providing half the yield will require twice the land and therefore land and other costs are nearly doubled.

Another major advantage of GKG is that 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 which will be one year later. 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.

Higher food prices have led to food shortages around the globe. 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. GKG has been recently tested and shown to have potential for producing cellulosic biofuels including ethanol and for making biochemicals and bio plastics using a fermentation process.

The Company has two revenue models for GKG: 1. grass plantation integrated with a power plant or processing facility such as a pellet mill under company or joint venture control, and 2. contract plantation establishment, support and licensing for a customer that owns and operates the plantation and power plant.

In China we are pursuing the integrated plantation and processing facility model. We lease the land and employ labor and management to grow GKG and use it to produce Green LogsTM and pellets in our factory. The grass is to be used to supply domestic Chinese biomass energy markets, or exported 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 local landowners, energy equipment manufacturers, power plant owner/operators and/or capital providers. The terms of these joint ventures will be negotiated on a case-by-case basis.

Under a contract plantation establishment and licensing model, the customer 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 license fee based on grass production.

We are in discussions with potential joint venture partners and customers that have land and the ability to grow the grass in other countries in Asia, Africa, India and the Americas.

Management believes both models will be important contributors to our revenue streams. We believe all our revenues initially will result from the integrated plantation & end-user 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 plantation establishment and licensing model with joint venture partners will be used for most of these projects. The company may also serve as developer for integrated Giant King Grass plantations and bioenergy 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 US 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 developing the grass business without having to access external capital. We are committed to grow the framed art business by providing top-quality product at an attractive price for our retail chain and other customers.

The Company works with buyers from retail chains and their in-house designers 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 represented to us that there are no counterfeits and that all royalties have been paid. We then create mockup versions of combinations of art, mattes and frames for the customer. Once the customer decides on a print, matte and frame combination, we ship the prints 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 US 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 customers interact closely with our quality control department in China. The customers make detailed inspections of the artwork before they authorize shipment to the US. Our framed artwork typically retails for $50-$300.

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 while maintaining high quality.

Marketing

We deploy a targeted partner-customer approach intended to establish key relationships with the appropriate decision makers of our broad market. This approach also includes invited presentations at industry workshops and conferences and participation at 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.

VIASPACE Subsidiary - Direct Methanol Fuel Cell Corporation (“DMFCC”)

DMFCC, currently inactive, is engaged in the development of disposable fuel cell cartridges for fuel-cell powered portable electronics such as notebook computers and mobile phones. VIASPACE owns 71.4% of the outstanding common shares of DMFCC.

VIASPACE Subsidiary - Ionfinity LLC (“Ionfinity”)

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

Other VIASPACE Projects

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

Research and Development

The Company did not record any research and development activities in 2011 or 2010. If we do in the future, it will be expensed as incurred.

Competition

Framed Art Business

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 US, China and other countries. 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 and other applications. Monsanto is an example of a large company focusing on grass. Ceres is an example of 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. GKG is a natural hybrid that is not genetically modified nor 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 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. Because GKG is propagated by seedlings and not by seeds, it is not an invasive species. The Company is focusing on projects involving growing the grass and securing long-term supply contracts for biofuel production, as a replacement for coal and electricity generation, and as animal feed. With long-term supply contracts and joint ventures, we plan to capture these recurring revenue streams.

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

Dependence on a Few Major Customers

For 2011 and 2010, the Company had one customer in our framed artwork business, which made up 97% and 74%, respectively, of our total revenues. We believe this concentration of sales made to a small number of customers will continue in the near future. A loss of any customer by the Company could significantly reduce our future revenues.

Intellectual Property

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. The agreement does not provide any limitation on IPA China’s ability to grow, harvest and market the grass anywhere in the world. 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.

DMFCC

DMFCC has licensed certain patents to fuel cell technology from Caltech and USC. DMFCC also has filed for patents related to its cartridge technology. DMFCC is currently inactive.

Ionfinity

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

Employees

As of December 31, 2011 we have 70 full time employees, 64 of whom are based in China and 6 in the US. We also have 34 part time employees, 32 of whom are based in China and 2 in the US. 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 trademark registrations for “VIASPACE” and “GREEN LOG” and it has an allowed pending trademark application for “GIANT KING”.

ITEM 1A. RISK FACTORS

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

Risks Related To Our Business

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

Our net loss for 2011 was $9,359,000. We have not yet achieved profitability and expect to continue to incur net losses until we recognize sufficient revenues from licensing activities, customer contracts, product sales or other sources. Because we do not have an operating history upon which an evaluation of our prospects can be based, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies seeking to develop new and rapidly evolving technologies. To address these risks, we must, among other things, respond to competitive factors, continue to attract, retain and motivate qualified personnel and commercialize and continue to develop our technologies. We may not be successful in addressing these risks. We can give no assurance that we will achieve or sustain profitability.

If we fail to make the cash payment due to Chang on May 14, 2012, or some other alternate arrangement is not reached, then Chang, we would be required to forfeit our interests in VGE.

On May 14, 2010, VIASPACE entered into a Secured Promissory Note with Sung Hsien Chang (“Chang”). On May 16, 2011, VIASPACE and Chang entered into an Amendment to Secured Promissory Note (the "Note Amendment"). The parties desired to extend the installment payment due dates by one year as part of the Note Amendment. The Note Amendment requires VIASPACE to make five equal annual installment payments of One Million Sixty Six Thousand and Two Hundred and Five Dollars ($1,066,205) each, together with interest per annum of six percent (6%), in arrears on the second, third, fourth, fifth and sixth anniversary dates of the Issue Date rather than the first, second, third, fourth and fifth anniversary dates of the Issue Date. In addition, as part of the Note Amendment, the Holder of the Note has been changed from Sung Hsien Chang to Changs LLC, a limited liability company owned by Mr. Chang and his wife. On September 23, 2011, the Company made an advance payment of $200,000 on the installment payment due to Changs LLC on May 14, 2012. The current amount of the installment payment due to Changs LLC on May 14, 2012 is $866,205.

Chang may elect to receive payments in cash or VIASPACE equity securities. The Note is secured by certain assets of VIASPACE, including all securities of VGE held by VIASPACE. The Note is also secured by the assets of VGE, IPA BVI and IPA China. The Note may be accelerated upon an event of default under the note which includes failure to repay any amount owed, or breach of certain representations, warranties and covenants. The Note also includes various affirmative covenants, including legal compliance and insurance maintenance; and negative covenants, including VIASPACE maintaining a net worth of $5 million on a consolidated basis. If VIASPACE is ultimately unable to make this cash payment, or some other alternate arrangement is not reached, VIASPACE would be required to transfer all of the shares of VGE it holds to Chang. This would cause Mr. Chang to have greater influence on shareholder decisions.

An impairment in the carrying value of goodwill could negatively impact our consolidated results of operations and net worth.

Goodwill is initially recorded at fair value and is not amortized, but is reviewed for impairment at least annually or more frequently if impairment indicators are present. In assessing the carrying value of goodwill, we make estimates and assumptions about sales, operating margins, growth rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors. Goodwill valuations have been calculated using an income approach based on the present value of future cash flows of each reporting unit and are believed to reflect market participant views which would exist in an exit transaction. Under the income approach, we are required to make various judgmental assumptions about appropriate discount rates. Disruptions in global credit and other financial markets and deterioration of economic conditions, could, among other things, cause us to increase the discount rate used in the goodwill valuations. We could be required to evaluate the recoverability of goodwill prior to the annual assessment if we experience disruptions to the business, unexpected significant declines in operating results, divestiture of a significant component of our business or sustained market capitalization declines. These types of events and the resulting analyses could result in goodwill impairment charges in the future, which could be substantial. On December 31, 2011, the Company recorded impairment expense on goodwill of $7,307,000. Goodwill as of December 31, 2011 has been reduced from $12,322,000 at December 31, 2010 to $5,015,000 at December 31, 2011. Goodwill represents 49.1% of total assets at December 31, 2011.

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

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

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

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

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

Our ability to continue as a going concern is dependent on achieving profitability or future financing.

Hein & Associates LLP, our independent registered public accounting firm, included an explanatory paragraph in its report on our financial statements for 2011, which expresses substantial doubt about our ability to continue as a going concern. The inclusion of a going concern explanatory paragraph in Hein & Associates LLP’s report on our financial statements could have a detrimental effect on our stock price and our ability to raise additional capital if needed.

Our financial statements were prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have not made any adjustments to the financial statements as a result of the outcome of the uncertainty described above. Accordingly, the value of the Company in liquidation may be different from the amounts set forth in our financial statements.

Our continued success will depend on our ability to achieve profitability or to raise capital in order to fund the development and commercialization of our products. Failure to be profitable or to raise additional capital may result in substantial adverse circumstances, including our inability to continue the development of our products and our liquidation.

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

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

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

●	progress of our research and development efforts;

●	competing technological and market developments;

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

●	market acceptance and demand for our products and services.

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

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

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

We have taken steps to retain our key employees and we have entered into employment agreements with some of our key employees. The loss of key personnel, especially if without advanced notice, could harm our ability to maintain and build our business operations. Furthermore, we have no key man life insurance for any of our key employees.

Our revenues to date have been to a few customers, the loss of which could result in a material decline in revenues.

For 2011 and 2010, the Company had one customer which made up 97% and 74%, respectively, of our total revenues. We believe this concentration of sales made to a small number of customers will continue in the near future. A loss of any customer by the Company could significantly reduce our future revenues.

Failure of our internal controls over financial reporting could harm our business and financial results.

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Our growth place significant additional pressure on our system of internal control over financial reporting. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our common stock.

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

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

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

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.

Risks Related To the Industry

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

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

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

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

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

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

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

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

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

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

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

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

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

Risks Related to our Grass Business

We currently have no meaningful customers for our grass business although we are starting to make progress. If we are unable to attract any customers, our grass business will suffer.

We commenced our grass business in October 2008 and have not recorded substantial revenues yet. While we believe we will be able to attract customers and achieve revenues, we cannot assure you we will. There is no assurance that our potential customers will determine that using GKG for biomass or animal feed purposes will be commercially viable. Further such customers may find other grass or plant products superior to GKG for their needs. If we fail to attract a sufficient number of customers that purchase a sufficient amount of grass, our grass business will 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.

We have a sublicense relationship with respect to the GKG 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.

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.

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.

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 2011 and 2010, sales to one customer comprised 97% and 74%, respectively, of our total revenues. We believe this concentration of sales to one customer will continue in the near future. We do not have a long-term contract with this customer. A loss of this customer or even a dramatic reduction in sales could significantly reduce our future revenues and profitability.

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 provide 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.

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.

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.

China’s economic policies could affect our business.

A substantial portion of our assets are located in China and a significant portion of our revenue is derived from our operations in China. Accordingly, our results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in China. While China’s economy has experienced significant growth in the past twenty years, such growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of the PRC, but they may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by the government control over capital investments or changes in tax regulations. The economy of the PRC has been changing from a planned economy to a more market-oriented economy. In recent years, the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform and the reduction of state ownership of productive assets, and the establishment of corporate governance in business enterprises. However, a substantial portion of productive assets in the PRC are still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over the PRC’s economic growth through the allocation of resources, the control of payment of foreign currency-denominated obligations, the setting of monetary policy and the provision of preferential treatment to particular industries or companies.

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 (“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, the 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.

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.

Risks Related To An Investment In Our Stock

Any future sale of a substantial number of shares of our common stock could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital.

Any sale of a substantial number of shares of our common stock (or the prospect of sales) may depress the price of our common stock. In addition, these sales could lower our value and make it more difficult for us to raise capital. Further, the timing of the sale of the shares of our common stock may occur at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us.

The Company has 1,500,000,000 authorized shares of common stock, of which 1,333,796,601 were issued and outstanding as of December 31, 2011. Of these issued and outstanding shares, 432,901,257 shares (32.5% of the total issued and outstanding shares) were held by our executive officers, directors and principal shareholders (including Dr. Carl Kukkonen, CEO and Director; Mr. Stephen J. Muzi, CFO; Mr. Sung Hsien Chang, Director and President of VGE; Mr. Rick Calacci, Director (resigned January 19, 2012); and Ms. Angelina Galiteva, Director). Of the shares issued and outstanding at December 31, 2011, 525,882,533 are accounted by our transfer agent as restricted under Rule 144. These shares could be released in the future if requested by the holder of the shares, subject to volume and manner of sale restrictions under Rule 144. 807,914,068 shares of the Company’s common stock are accounted for by our transfer agent as free trading at December 31, 2011.

We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares currently held by management and principal shareholders), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.

If we default on our secured debt to Chang, we may lose our interests in VGE which would impact our stock price.

If VIASPACE defaults in its obligation to Chang, Chang may foreclose on all assets of our Company and/or our subsidiaries. He may also seize the equity interests of VGE. Any of these actions would cause us to relinquish all ownership of our assets and our company would then lose most of its value. Under such circumstances, your securities may lose most of its value. At December 31, 2011, the Company was in violation of the net worth covenant. The Company received a waiver on this violation from Chang.

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

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

Other factors that could cause such volatility may include:

●	actual or anticipated fluctuations in our operating results;

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

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

●	announcements of technological innovations;

●	conditions or trends in the industry;

●	introduction or withdrawal of products and services;

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

●	litigation;

●	patents or proprietary rights;

●	departure of key personnel;

●	failure to hire key personnel; and

●	general market conditions.

Our executive officers, directors and principal shareholders own 32.5% of our voting stock, which may allow them to control substantially all matters requiring shareholder approval, and their interests may not align with the interests of our other stockholders.

Our executive officers, directors and principal shareholders hold 32.5% of our outstanding shares as of December 31, 2011. In addition, on May 14, 2010, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series A Preferred Stock. The Certificate was approved by the BOD and did not require shareholder vote. The Certificate created a new class of preferred stock known as Series A Preferred Stock. There is one share designated as Series A Preferred Stock. One share of Series A Preferred Stock is entitled to 50.1% of the outstanding votes on all shareholder voting matters. Series A Preferred Stock has no dividend rights and no rights upon a liquidation event and is subject to cancellation when certain conditions are met. On May 14, 2010, the Company issued one share of Series A Preferred Stock to Mr. Chang related to the acquisition of IPA by VIASPACE and VGE as discussed in footnotes. This empowers Chang with supermajority voting rights even after he holds less than a majority of outstanding voting securities.

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

Our common stock is currently traded on the OTCBB and is considered a “penny stock.” The OTCBB is generally regarded as a less efficient trading market than the NASDAQ Small Cap Market.

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

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

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

Our articles of incorporation authorize issuance of 1,500,000,000 shares of common and 10,000,000 shares of preferred stock. The common and preferred stock can be issued by, and the terms of the preferred stock, including dividend rights, voting rights, liquidation preference and conversion rights can generally be determined by, our Board of Directors (“BOD”) without stockholder approval. Any issuance of preferred stock could adversely affect the rights of the holders of common stock by, among other things, establishing preferential dividends, liquidation rights or voting powers. Accordingly, our stockholders will be dependent upon the judgment of our management in connection with the future issuance and sale of shares of our common and preferred stock, in the event buyers can be found therefore. Any future issuances of common or preferred stock would further dilute the percentage ownership of our Company held by the public stockholders. Furthermore, the issuance of preferred stock could be used to discourage or prevent efforts to acquire control of our Company through acquisition of shares of common stock. In addition, on May 14, 2010, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series A Preferred Stock. The Certificate was approved by the BOD and did not require shareholder vote. The Certificate created a new class of preferred stock known as Series A Preferred Stock. There is one share designated as Series A Preferred Stock. One share of Series A Preferred Stock is entitled to 50.1% of the outstanding votes on all shareholder voting matters. Series A Preferred Stock has no dividend rights and no rights upon a liquidation event and is subject to cancellation when certain conditions are met. On May 14, 2010, the Company issued one share of Series A Preferred Stock to Mr. Chang related to the acquisition of IPA by VIASPACE and VGE as discussed in footnotes. This empowers Chang with supermajority voting rights even after he holds less than a majority of outstanding voting securities.

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

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

The warrants may adversely affect our operational flexibility.

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

●	to incur additional indebtedness;

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

●	to redeem or repurchase our common stock;

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

●	to use our assets as security in other transactions;

●	to create liens on our assets; and

●	to enter into certain transactions with affiliates.

Certain events could result in adjustments in the exercise price of our warrants.

The exercise price of our warrants is subject to adjustment under certain circumstances. If we sell shares of common stock for a price less than the exercise price of the warrants in effect prior to such sale, in certain circumstances, the exercise price of the warrants could be reduced. In addition, the exercise price of the warrants could be reduced if we issue options or convertible securities, or in the case of a stock split, stock dividend, recapitalization, combination or otherwise. Existing stockholders will experience significant dilution from our sale of shares and warrants.

Any subsequent sale of shares and warrants will have a dilutive impact on our stockholders. As a result, our net income per share could decrease in future periods, and the market price of our common stock could decline significantly.

Other Matters

We were contacted informally by the Pacific Regional Office of the SEC in March 2006 requesting the voluntary provision of documents concerning the reverse merger of Global-Wide Publication, Ltd. and Viaspace Technologies LLC in June 2005 and related matters. The SEC or its staff has made no indication that any violations of the law have occurred. We cooperated fully with this inquiry in 2006 and responded to the inquiry in writing in 2006. There was no further inquiry in 2007, 2008, 2009, 2010 or 2011.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company maintained a corporate office in Irvine, California through March 31, 2012. Effective April 1, 2012, our corporate office is being relocated to Marietta, Georgia. IPA owns its manufacturing facility in Guangzhou, China. Total rent expense for all locations for 2011 was approximately $36,000. VGE also leases approximately 226 acres of land in Guangdong province of the PRC. The Company recorded amortization of $41,000 on these land leases in 2011.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Prices

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

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

Quarterly period	High		Low
Fiscal year ended December 31, 2011:
First Quarter	$	0.018	$	0.0055
Second Quarter	$	0.0175	$	0.01
Third Quarter	$	0.014	$	0.0075
Fourth Quarter	$	0.011	$	0.0067
Fiscal year ended December 31, 2010:
First Quarter	$	0.024	$	0.012
Second Quarter	$	0.019	$	0.014
Third Quarter	$	0.018	$	0.012
Fourth Quarter	$	0.014	$	0.009

Holders

As of March 27, 2012, there were approximately 50 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 of incorporation or bylaws that prevent us from declaring dividends in the future. Our future dividend policy will be examined periodically by our BOD based upon conditions then existing, including our earnings and financial condition, capital requirements and other relevant factors.

Equity Compensation Plan

Our discussion regarding the Company’s, DMFCC’s and VGE’s equity compensation plans under which the Company’s and DMFCC’s and VGE’s equity securities are authorized for issuance are discussed under the section titled “Equity Compensation Plan Information” under “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters” below.

Recent Sales of Unregistered Securities

On October 3, 2011, the Company issued Mr. Stephen Muzi, CFO of the Company, 3,529,412 unregistered shares of the Company’s common stock for salary valued at $30,000. On October 13, 2011, the Company issued consultants 3,000,000 unregistered shares of the Company’s common stock for consulting services valued at $24,000. On October 31, 2011, the Company issued Mr. Muzi, 4,285,714 unregistered shares of the Company’s common stock for salary valued at $30,000. On November 4, 2011, the Company issued consultants 2,000,000 unregistered shares of the Company’s common stock for consulting services valued at $14,000. On December 2, 2011, the Company issued Mr. Muzi, 3,614,458 unregistered shares of the Company’s common stock for salary valued at $30,000.

The shares were issued in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. We made a determination that these parties were sophisticated investors with enough knowledge and experience in business to evaluate the risks and merits of accepting our shares as payment for their services and the Company believes that each party was given or had access to detailed financial and other information with respect to the Company. These vendors acquired the shares for investment purposes without view to distribution, and there was no general advertising or general solicitation in connection with the issuance of the shares. Further, restrictive transfer legends were placed on all certificates issued to these parties, and no underwriting or selling commissions were paid in connection with these share issuances.

Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of the majority of common security holders during the fourth quarter of 2011.

ITEM 6. SELECTED FINANCIAL DATA

None required for Company.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

VIASPACE Overview

VIASPACE has moved its headquarters to Georgia and has business activities in China.

The Company’s web site is www.VIASPACE.com. Information contained on, or accessible through, our website should not be deemed as part of this report.

Critical accounting policies and estimates

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

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America 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 discussed below require significant management judgments and estimates.

VIASPACE has generated revenues on product revenue shipments. In accordance with “Revenue Recognition”, codified in FASB ASC Topic 605, VIASPACE 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 freight on board shipping point. If the Company ships product whereby a customer has a right of return or review period, the Company does not recognize revenue until the right of return or review period has lapsed. Prior to the period lapsing, any cash received would be recorded as deferred revenue on the Company’s Balance Sheet.

Ionfinity has generated revenues on fixed-price contracts for government contracts. These contracts have clear milestones and deliverables with distinct values assigned to each milestone. The government is not obligated to pay Ionfinity the complete value of the contract and can cancel the contract if the Company fails to meet a milestone. Although the government can cancel the contract if a milestone is not met, the Company is not required to refund any payments for prior milestones that have been approved and paid by the government. The milestones do not require the delivery of multiple elements as noted in “Revenue Arrangements with Multiple Deliverables”, codified in FASB ASC Topic 605. In accordance with this topic, the Company treats each milestone as an individual revenue agreement and only recognizes revenue for each milestone when all required revenue recognition conditions are met.

In accordance with FASB ASC Topic 605, IPA BVI and IPA China recognize product revenue provided: (1) persuasive evidence of an arrangement exists, (2) delivery to the customer has occurred, (3) the selling price is fixed or determinable and (4) collection is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. The price is considered fixed or determinable when it is not subject to refund or adjustments. Our standard shipping terms are free on board shipping point. Some of the Company’s products are sold in the PRC and are subject to Chinese value-added tax. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product. Revenue is recorded net of VAT taxes.

The Company accounts for equity instruments issued to consultants and vendors in exchange for goods and services in accordance with the provisions of FASB ASC Topic 505-50, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services” and “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other than Employees”. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with FASB ASC Topic 505-50, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of the fully vested, non-forfeitable common stock issued for future consulting services as prepaid expenses in its consolidated balance sheet.

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

In accordance with FASB ASC 350-20-35, “Intangibles - Goodwill and Other”, management tests our goodwill for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. Based upon their impairment analysis performed during the fourth quarter of 2011, management of the Company has concluded there was no impairment of goodwill at December 31, 2011.

In accordance with FASB ASC 360-10-35, “Property, Plant, and Equipment”, management reviews our long-lived asset groups, including property and equipment and other intangible assets, for impairment whenever events indicate that their carrying amounts may not be recoverable. Some of the events that we consider as impairment indicators for our long-lived assets, including goodwill, are:

	●	our significant underperformance relative to expected operating results;

	●	significant adverse change in legal factors or in the business climate;

	●	an adverse action or assessment by a regulator;

	●	unanticipated competition;

	●	a loss of key personnel;

	●	significant decrease in the market value of a long-lived asset; and

	●	significant adverse change in the extent or manner in which a long-lived asset is being used or its physical condition.

When management determines that one or more impairment indicators are present for an asset group, we compare the carrying amount of the asset group to net future undiscounted cash flows that the asset group is expected to generate. If the carrying amount of the asset group is greater than the net future undiscounted cash flows, an impairment loss is recognized for the excess of the carrying amount of the asset group over its fair value. The management of the Company has concluded that there were no impairment indicators relating to long-lived assets as of the end of fiscal years 2011 and 2010.

Results of Operations

Year Ended December 31, 2011 Compared to December 31, 2010

Revenues

Revenues were $6,759,000 and $3,643,000 for the year ended December 31, 2011 and 2010, respectively, an increase of $3,116,000, or 86%. IPA BVI and IPA China recorded revenues of $6,631,000 during the year ended December 31, 2011 from the sales of framed-artwork primarily to retail U.S. customers, an increase of $3,391,000 from the comparable period in 2010 due to increased customer orders and demand for artwork. Ionfinity incurred revenues of $113,000 for the year ended December 31, 2011, a decrease of $275,000 from the comparable period in 2010. Ionfinity did not record revenues on its Phase II U.S. Army contract in 2011 as the contract was completed in 2010. Ionfinity recorded revenues in both years on a Phase II U.S. Navy contract. On September 15, 2011, Ionfinity completed its Phase II U.S. Navy contract. DMFCC recorded revenues of $8,000 for the year ended December 31, 2010 but no revenues in 2011. VGE recorded grass sales of $15,000 for the year ended December 31, 2011 and $7,000 for the year ended December 31, 2010.

Cost of Revenues

Costs of revenues were $4,688,000 and $2,634,000 for the year ended December 31, 2011 and 2010, respectively, an increase of $2,054,000. IPA BVI and IPA China recorded increased cost of revenues of $2,337,000 due to increased sales of framed-artwork during the year ended December 31, 2011 as compared with the same period in 2010. Ionfinity recorded lower cost of revenues of $274,000 during the year ended December 31, 2011 as compared with the comparable period in 2010 due to the completion of the U.S. Army contract in 2010. DMFCC recorded lower cost of revenues of $7,000 and VGE recorded decreased cost of revenues of $2,000 in 2011 as compared with the same period in 2010.

Gross Profit

The resulting effect on these changes in revenues and cost of revenues from the year ended December 31, 2010 to 2011 was an increase in gross profits from $1,009,000 for the year ended December 31, 2010 to $2,071,000 for the year ended December 31, 2011, an increase of $1,062,000, or 105%.

Operations Expenses

Operations expenses were $267,000 and $178,000 for the year ended December 31, 2011 and 2010, respectively, an increase of $89,000. The increase is primarily due to operations expenses incurred by VGE in the production of its GKG in China. This includes operating costs for salaries, equipment, maintenance, utilities and fuel costs. The Company expects operations expenses for VGE to increase in the future as more expenditure is incurred to grow, harvest and produce GKG.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3,589,000 and $3,650,000 for the year ended December 31, 2011 and 2010, respectively, a decrease of $61,000. Stock option expense decreased $106,000 for the year ended December 31, 2011 as compared with the same period in 2010 as vesting was completed related to certain previously issued stock options. Stock compensation expense increased $83,000 in 2011 as compared with 2010 as additional stock was issued to employees for services. Legal fees decreased $240,000 in 2011 due to the absence of legal fees incurred in 2010 attributable to the acquisition of IPA. Consulting decreased $310,000 due to lower business development costs in 2011 as compared with 2010. Public relations expenses increased $121,000 as the Company incurred higher investor relations expenses. Payroll and benefits increased $131,000 in the year ended December 31, 2011 due to higher compensation levels in 2011. Amortization expense on intangible assets increased $131,000 in 2011 as compared with 2010. Bad debt expense at IPA increased $62,000 in 2011 as compared with 2010. Sales costs associated with shipping of artwork increased $65,000 in 2011 as compared with 2010 due to increased customer orders. Other selling, general and administrative expenses, net, increased by $2,000 for the year ended December 31, 2011 compared with the same period in 2010.

Goodwill Impairment Expense

FFG Valuations, Inc. (“FFG”) was engaged by VGE to perform a goodwill impairment test, ASC 350, for the reporting unit IPA BVI and IPA China as of December 31, 2011. The purpose of the report was to express an opinion regarding any potential goodwill impairment pursuant to ASC 350 Intangibles-Goodwill and Other (“ASC 350”) issued by FASB. ASC 350-20-35 provides for a two-step impairment test to be used: to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). Based on results of the Step 1 test, FFG performed the Step 2 analysis on the Reporting Unit as part of the engagement. The date of appraisal (“Valuation Date”) was performed as of December 31, 2011. The term “fair value” is defined in ASC 820 as: the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The first step of the goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit is greater than its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment test is not required. However, if the fair value of the reporting unit is less than its carrying value, a company must perform a hypothetical purchase price allocation to measure the amount of the impairment loss, if any. The second step requires a company to compare the implied fair value of reporting unit goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, a company should recognize an impairment loss for that excess. Previously recognized impairment losses may not be reversed. Implied value of goodwill is calculated in the same manner as goodwill arising in a business combination. That is, a company should allocate the fair value of the reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the company acquired the reporting unit in a current business combination and the fair value of the reporting unit is the purchase price. The excess “purchase price” over the amounts assigned to assets and liabilities is the implied fair value of goodwill.

As a result of the study by FFG, the Company an impairment charge to its goodwill of $7,307,000 at December 31, 2011. Goodwill was reduced from $12,322,000 at December 31, 2010 to $5,015,000 at December 31, 2011.

Loss from Operations

The resulting effect on these changes in gross profits, operations expenses and selling, general and administrative expenses, and goodwill impairment expense was an increase in the loss from operations from $2,819,000 for the year ended December 31, 2010 to a loss from operations of $9,092,000 for the year ended December 31, 2011, an increase of $6,273,000.

Other Income (Expense), Net

Interest Expense

Interest expense increased by $5,000 the year ended December 31, 2011 as compared to the same period in 2010, due to higher interest expense recorded on the related party loan payable to Changs LLC arising from the acquisition of IPA by the Company on October 21, 2008.

Other Income and Other Expenses

Other income increased $29,000 for the year ended December 31, 2011 compared to the same period in 2010 and other expenses increased $11,000 from 2010 to 2011.

Liquidity and Capital Resources

The Company’s net loss for the year ended December 31, 2011 was $9,359,000. Non-cash expenses totaled $9,359,000 for the year ended December 31, 2011 primarily due to goodwill impairment expense of $7,307,000 and stock compensation and stock options expense of $1,677,000 issued to employees, directors and consultants. Related party receivables and payables, net, provided $488,000 of cash for the year ended December 31, 2011. Working capital provided $770,000 in 2011. Net cash provided by operating activities was $1,258,000 for the year ended December 31, 2011.

Net cash used in investing activities was $187,000 for 2011. Capital expenditures incurred by VGE totaled $251,000 in 2011 mainly due to equipment purchased for GKG business. In addition, $64,000 was received as proceeds from the disposal of assets not needed by the Company.

Net cash used in financing activities was $212,000 for the year ended December 31, 2011. On September 23, 2011, the Company made an advance payment of $200,000 on the installment payment due to Changs LLC on May 14, 2012. Principal payments on Company loans to the Community Development Commission totaled $12,000 in 2011.

The Company has incurred significant losses from operations, resulting in an accumulated deficit of $43,050,000. The Company expects such losses to continue. In addition, the Company has limited working capital and based on current cash flows does not have sufficient funds to pay the May 2012 installment due on the note to Changs LLC. The foregoing raises substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Contractual Obligations

There are no long-term contractual obligations other than employment agreements and the secured note to Changs LLC as detailed below.

Employment Agreements

On May 14, 2010, VGE entered into two-year employment agreements with each of Carl Kukkonen, Sung Hsien Chang and Stephen Muzi. Dr. Kukkonen would serve as Chief Executive Officer of VGE, Mr. Chang as President of VGE, and Mr. Muzi as Chief Financial Officer, Treasurer and Secretary of VGE. Dr. Kukkonen and Mr. Chang would receive a salary of $240,000 per annum and Mr. Muzi would receive $180,000 per annum. For the first 12 months, Messrs. Kukkonen and Muzi would be paid by VIASPACE. The remainder of the employment term they would be paid by VGE. Each of them would be entitled to a bonus as determined by the VGE BOD, customary insurance and health benefits, 20 business days paid leave per year, and reimbursement for out-of-pocket expenses in the course of his employment.

On May 16, 2011, Dr. Kukkonen and Mr. Muzi each entered into an Amendment to Senior Executive Employment Agreement (the “Amendment”) with VIASPACE and VGE. Both Amendments changed the responsibility of payment in the second year of the Employment Agreement from VGE to VIASPACE. All other terms remained the same.

Due to Changs LLC

VIASPACE was obligated to pay Sung Hsien Chang (“Chang”) $4,800,000 for the acquisition of IPA China and IPA BVI by VGE and the Company on October 21, 2008. Chang is a Director of VIASPACE, President of VGE, and CEO of IPA China and IPA BVI. On May 14, 2010, the Company entered into a secured Note with Chang designed to pay this amount. Under the Note, the Company must pay Chang $5,331,025 over a five-year period. Interest accrues at 6%. The principal must be repaid in five equal installments of $1,066,205 on the first through fifth anniversary of the issuance date. Chang may elect to receive payments in cash or equity securities of VIASPACE or VGE. All payments of VIASPACE or VGE common stock shall be valued at the 10-day average closing price of its respective common shares preceding the applicable payment date or by other reasonable methods determined by the board of directors of VIASPACE or VGE, as the case may be if the shares are not trading at the time of payment. The Note is secured by certain assets of the Company, including all securities of VGE held by the Company. The Note is also secured by the assets of VGE, IPA BVI and IPA China. The Note may be accelerated upon an event of default under the note which includes failure to repay any amount owed, or breach of certain representations, warranties and covenants. The Note also includes various affirmative covenants, including legal compliance and insurance maintenance; and negative covenants, including maintaining a net worth of $5 million on a consolidated basis. At December 31, 2011, the Company was in violation of the net worth covenant. The Company received a waiver on this violation from Chang.

At December 31, 2011 and December 31, 2010, there is accrued interest of $519,000 and $202,000, respectively, arising from the Note included in related party payable in the Company’s Consolidated Balance Sheet.

Inflation and Seasonality

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

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements as of December 31, 2011.

ITEM 7A. 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 US dollars as our reporting currency and our artwork revenue is denominated in US 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 US 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 US dollar. Unfavorable changes in the exchange rate between the RMB and the US dollar may result in a material effect on the income statement of IPA China since US dollars is its functional currency. 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 2011 and 2010.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Company’s audited financial statements on pages F-1 through F-30.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Effective June 20, 2011, the "Company dismissed Goldman Kurland and Mohidin, LLP (the "Former Auditor") as its independent registered public accounting firm, and has engaged Hein & Associates LLP as its new independent registered public accounting firm. The Company's Board of Directors unanimously made the decision to change independent accountants. The change in independent registered public accounting firm is not the result of any disagreement with the Former Auditor.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of December 31, 2011, the Company carried out an assessment under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(1) and I 5d-15(1)). Our CEO and CFO concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2011.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company maintains internal controls over financial reporting to include those policies and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's ("SEC's") rules and forms, and that such information is accumulated and communicated to the Company's management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the internal controls over financial reporting, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of management, including the Company's CEO and CFO, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included an assessment of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this evaluation, our CEO and CFO concluded as of December 31, 2011, our internal controls over financial reporting were not effective at the reasonable assurance level due to the material weaknesses discussed below.

In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure that our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

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

Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Material Weakness and Related Remediation Initiatives

Set forth below is a summary of the various significant deficiencies which caused management to conclude that we had the material weakness identified above. Through the efforts of management, external consultants, and our Audit Committee, we have developed a specific action plan to remediate the material weaknesses. We expect to implement these various action plans during 2012. If we are able to complete these action plans in a timely manner, we anticipate that all control deficiencies and material weaknesses will be remediated by December 31, 2012.

Our CEO and CFO concluded that as of December 31, 2011, the following material weaknesses existed:

1. Due to the Company’s budget constraints, the Company’s accounting department does not maintain the number of accounting personnel (either in-house or external) necessary to ensure more complete and effective financial reporting controls. Due to this situation, we did not perform timely and sufficient internal or external review of our current fiscal year financial reporting which resulted in several audit adjustments.

Remediation of Internal Control Deficiencies and Expenditures

It is reasonably possible that, if not remediated, one or more of the material weaknesses described above could result in a material misstatement in our reported financial statements that might result in a material misstatement in a future annual or interim period. We are developing specific action plans for each of the above material weaknesses. We are uncertain at this time of the costs to remediate all of the above listed material weaknesses.

Through these steps, we believe that we are addressing the deficiencies that affected our internal control over financial reporting as of December 31, 2011. Because the remedial actions may require hiring of additional personnel, and relying extensively on manual review and approval, the successful operation of these controls for at least several quarters may be required before management may be able to conclude that the material weaknesses have been remediated. We intend to continue to evaluate and strengthen our internal control over financial reporting systems. These efforts require significant time and resources. If we are unable to establish adequate internal control over financial reporting systems, we may encounter difficulties in the audit or review of our financial statements by our independent registered public accounting firm, which in turn may have a material adverse effect on our ability to prepare financial statements in accordance with GAAP and to comply with our Commission reporting obligations.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

(a) Executive Officers

The following table sets forth our executive officers, their ages and the positions held by them. The Company’s named executive officers as of December 31, 2011 include the Chief Executive Officer and the Chief Financial Officer. In addition, one additional officer of the Company’s subsidiary VGE is included in accordance with disclosure requirements.

Name	Age	Position Held
Dr. Carl Kukkonen	66	Chief Executive Officer and Director
Mr. Sung Hsien Chang	49	VGE President and Director
Mr. Stephen Muzi	48	Chief Financial Officer

Carl Kukkonen. Dr. Kukkonen is the Chief Executive Officer and Director of VIASPACE Inc. since 2005. He has been the Chief Executive Officer and Director of VIASPACE Green Energy Inc. since October 2008. He is also the Chief Executive Officer, President, and Director, Direct Methanol Fuel Cell Corporation, a subsidiary of VIASPACE Inc. since 2001. He was the Co-founder and Chief Executive Officer of ViaSpace Technologies LLC (predecessor of VIASPACE Inc.) 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. Mr. Chang became a Director of VIASPACE Inc. in May 2010. He is also the Chief Executive Officer and founder of Inter-Pacific Arts, Inc., a subsidiary of VIASPACE Green Energy Inc. since 2002. In 1988, Mr. Chang began operations in America by creating JJ International, Inc., an import and trading company. JJ International, Inc. has now been in operations for over 22 years selling indoor, outdoor home furnishing, and home organizer products to retailers throughout the U.S. Prior to 1988, Mr. Chang worked at Jun Jung Metal prior to 1998. Mr. Chang is a member of the World Taiwanese Chambers of Commerce, board member of the Atlanta Taiwanese Chamber of Commerce, and director of the Shi-Tai United Fund Inc. which is committed to building a better and more beautiful living environment.

Stephen Muzi. Mr. Muzi has been the Chief Financial Officer, Treasurer and Secretary of VIASPACE Inc. since June 2005. He has been the Chief Financial Officer, Treasurer and Secretary of VIASPACE Green Energy Inc. since October 2008. 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 VIASPACE Inc. from 2003 to 2005. >From 2004 to 2005, he also served as a consultant to Direct Methanol Fuel Cell Corporation and Ionfinity LLC, subsidiaries of VIASPACE Inc. from 2004 to 2005. Mr. Muzi joined ViaSpace Technologies LLC (predecessor of VIASPACE Inc.) 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.

(b) Directors

The Company’s directors are as follows:

Name	Age	Position Held
Dr. Carl Kukkonen	66	Chief Executive Officer and Director
Mr. Sung Hsien Chang	49	VGE President and Director
Ms. Angelina Galiteva	45	Director
Mr. Paul Kim	45	Director
Dr. Kevin L. Schewe	55	Director

Carl Kukkonen – See background in Item 9 (a) under Executive Officers

Sung Hsien Chang – See background in Item 9 (a) under Executive Officers

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

Paul Kim. Director Since: March 31, 2011. Mr. Kim is currently a corporate executive for Accton Technology Corporation, a large publicly traded (Taiwan) multinational company that is an original equipment designer and manufacturer of communication equipment providing communication solutions to the top communication and networking companies in the world. Mr. Kim joined Accton Technology in October 1998. He has developed extensive knowledge of small and medium sized businesses and consumer markets in North America, Europe, and Central and Latin America. Mr. Kim's background also includes relevant experience in mergers and acquisitions, investor relations, corporate strategy planning and implementation, and managing IT organizations. Prior to working in the networking and communications industry, Mr. Kim was senior manager at Andersen Consulting (Accenture). Education: University of Pennsylvania, Bachelor of Arts and Science Systems Engineering.

Kevin L. Schewe, MD. Director Since: January 19, 2012. Kevin L. Schewe, MD was appointed to the VIASPACE Board of Directors on January 19, 2012. Dr. Schewe is a Board-Certified Radiation Oncologist and a Fellow of the American College of Radiation Oncology. Dr. Schewe has devoted his 25-year medical career and practice in the fight against cancer. He currently serves as Medical Director of Radiation Oncology at the Red Rocks Medical Center in Golden, Colorado and also at the Thornton Cancer Center Department of Radiation Oncology in Thornton, Colorado. The two cancer centers are co-owned by Dr. Schewe and HealthONE, the Colorado Division of Hospital Corporation of America (HCA) which is the largest private operator of healthcare facilities in the world and listed on the New York Stock Exchange. Dr. Schewe has also developed a premium line of skin care and cosmetic products that help to naturally heal, protect, repair and subsequently maintain not only the damaged skin of cancer patients, but also individuals who have experienced skin damage resulting from aging, dryness, UV exposure, other illnesses, and environmental pollution. These products are manufactured and sold by Dr. Schewe’s company Elite Therapeutics. Education: University of Missouri, Bachelor of Arts Biology. University of Missouri School of Medicine.

Rick Calacci. Director Since: February 1, 2007; Resigned January 19, 2012. Committee Memberships of Company: None. Independent Director: Yes. Principal Occupation: President of Access Sales Group, a provider of national coverage for “Best in Class”, “Variable Cost” and “Outsourcing Solution” sales, marketing and management services to meet the dynamic ever changing needs of the retail channel for vendor partners. Other Directorships: None. Prior Business Experience: General Manager / Sr. Vice President of Sales and Market for Hannspree California, Inc., a developer, manufacturer and distributor of LCD display technologies – 2005 to 2006, President of Moxell Technology, Inc., a Motorola consumer electronics licensee for displays, recording media, connectivity, IT and related accessory products in the Americas and Europe - 2003 to 2005, Senior Executive Vice President / Group General Manager – Consumer Electronics of Sharp Electronics Corporation, a leading global consumer electronics and home appliances company - 2001 to 2003, Vice President Sales of Toshiba America Consumer Products, a leading global consumer electronics and computer company from 1995 to 2001. Served in other roles as Regional General Manager, Central Zone Vice President and Western Sales Group Vice President - 1984 to 1995, Sales Manager positions with Pioneer Video, Inc. and Sony Corporation of America - 1977 to 1983. Education: Business program, Northern Illinois University and Rock Valley Junior College.

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;

	(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).

Section 16(a) Beneficial Ownership Reporting Compliance

Not applicable.

Code of Ethics

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

Committees of the Board of Directors

Audit Committee. On October 20, 2005, our BOD established an Audit Committee. Our Audit Committee has the authority to retain and terminate the services of our independent accountants, reviews annual financial statements, considers matters relating to accounting policy and internal controls and reviews the scope of annual audits. The Company does not currently have an independent member of the BOD serving as the audit committee’s financial expert that meets the definition under Item 401(e) of Regulation S-B. The Company intends to identify and recruit a suitable candidate to serve as the audit committee financial expert during 2010.

Compensation Committee. On October 20, 2005, our BOD established a Compensation Committee. Our Compensation Committee reviews, approves and makes recommendations regarding our compensation policies, practices and procedures to ensure that legal and fiduciary responsibilities of the BOD are carried out and that such policies, practices and procedures contribute to our success. The Compensation Committee is responsible for the determination of the compensation of our chief executive officer, and shall conduct its decision making process with respect to that issue without the chief executive officer present.

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

ITEM 11. EXECUTIVE COMPENSATION

The following table shows the annual compensation paid by us to Dr. Carl Kukkonen, our principal executive officer, for the year ended December 31, 2011 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, VGE President and Chief Financial Officer.

SUMMARY COMPENSATION TABLE

(a)	(b)	(c)		(d)		(e)		(f)		(g)		(h)
Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($) (3)		Option Awards ($)(1)		All Other Compensation ($)(2)		Total ($)

Carl Kukkonen,	2011		-		-		604,568		291,416		-		895,984
Chief Executive Officer of Company	2010		-		-		604,568		288,562		-		893,130
	2009		40,000		-		676,412		35,000		-		751,412

Stephen J. Muzi,	2011		12,060		-		360,000		168,152		11,553		551,765
Chief Financial Officer, Treasurer and	2010		25,167		-		360,000		203,786		14,703		603,656
Secretary of Company	2009		51,040		-		368,244		65,417		15,210		499,911

Sung Hsien Chang,	2011		240,000		-		-		181,416		-		421,416
President of VIASPACE Green Energy, Inc.	2010		240,000		-		-		136,062		-		376,062
	2009		240,000		-		-		-		-		240,000

(1)

Column (f) represents the dollar amount recognized as compensation expense for financial statement reporting purposes for 2010 under FASB ASC Topic 718, Share-Based Payment, and not an amount paid to or realized by the Named Executive Officer. The amount shown includes awards granted in and prior to 2007. Assumptions used in the calculation of this amount are included in the footnotes to the Company’s consolidated audited financial statements for 2011. There can be no assurance that the amounts determined by FASB ASC Topic 718 will ever be realized.

(2)	Dr. Kukkonen received $13,717 in additional stock awards in 2009, 2010 and 2011 for health insurance coverage (equivalent to the cost to the Company if he was covered under the Company’s plan). Amounts shown for Mr. Muzi represent health insurance coverage paid by the Company on his behalf.

(3)

Dr. Kukkonen deferred a portion of his 2009, 2010 and 2011 stock awards and is entitled to the following unregistered shares of Company common stock at December 31, 2011: 11,195,707 shares for deferred 2009 compensation; 8,467,939 shares for deferred 2010 compensation; and 24,730,678 shares for deferred 2011 compensation.

Narrative Disclosure to Summary Compensation Table

Employment Agreements and Arrangements

Stock Option Grants

There were no stock options granted in 2011 to any of the Company’s Named Executive Officers.

Outstanding Equity Awards at Fiscal Year End

The following table shows the number of equity awards held by the Company’s Named Executive Officers on December 31, 2011.

VIASPACE INC.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

DECEMBER 31, 2011

OPTION AWARDS									STOCK AWARDS
Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)		Number of Securities Underlying Unexercised Options (#) Unexercisable (c)		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)	Option Exercise Price ($) (e)		Option Expiration Date (f)	Number of Shares or Units of Stock That Have Not Vested (#) (g)	Market Value of Shares or Units of Stock That Have Not Vested ($) (h)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (j)
Carl Kukkonen		2,500,000		17,500,000		$	0.012	2/12/20
Stephen Muzi		1,250,000		8,750,000		$	0.012	2/12/20
Carl Kukkonen		5,000,000		-		$	0.0225	8/19/19
Stephen Muzi		5,000,000		-		$	0.0225	8/19/19
Stephen Muzi		2,875,000		125,000		$	0.039	2/14/18
Stephen Muzi		250,000		-		$	0.08	12/10/17

There were no shares of the Company’s common stock acquired during 2011 upon the exercise of the options.

VIASPACE Green Energy Inc. Stock Incentive Plan

On June 2, 2009, the BOD of VGE adopted the 2009 Stock Incentive Plan (the “VGE Plan”). The VGE Plan was also approved by the holders of a majority of VGE’s common stock. The VGE Plan provided for the reservation for issuance under the Plan of 1,400,000 shares of VGE common stock (16.28% of outstanding shares at December 31, 2011). The number of shares in the stock option plan will adjust annually and remain at 16.28% of outstanding shares.

Stock Option Grants

There were no VGE stock options granted in 2011 to any of the Company’s Named Executive Officers.

Outstanding Equity Awards at Fiscal Year End

The following table shows the number of VGE equity awards held by the Company’s Named Executive Officers on December 31, 2011.

VIASPACE GREEN ENERGY INC.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

DECEMBER 31, 2011

OPTION AWARDS									STOCK AWARDS
Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)		Number of Securities Underlying Unexercised Options (#) Unexercisable (c)		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)	Option Exercise Price ($) (e)		Option Expiration Date (f)	Number of Shares or Units of Stock That Have Not Vested (#) (g)	Market Value of Shares or Units of Stock That Have Not Vested ($) (h)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (j)
Carl Kukkonen		481,257		68,743		$	0.80	3/25/20
Sung Hsien Chang		481,257		68,743		$	0.80	3/25/20
Stephen Muzi		218,757		31,243		$	0.80	3/25/20

There were no shares of the Company’s common stock acquired during 2011 upon the exercise of the options.

Direct Methanol Fuel Cell Corporation Option Plan

As explained in the footnotes to the Company’s consolidated financial statements, the Company’s subsidiary, DMFCC also has in place an equity-based stock option plan that allows for the grant of stock options to employees, directors and consultants. There were no grants of securities underlying options granted in 2011 by DMFCC to the Company’s Named Executive Officers. There were no shares of DMFCC common stock acquired during 2011 upon the exercise of options by the Company’s Named Executive Officers.

The following table shows the number of shares covered by exercisable and unexercisable options held by the Company’s Named Executive Officers in DMFCC on December 31, 2011.

DIRECT METHANOL FUEL CELL CORPORATION

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

DECEMBER 31, 2011

(a)

(b)

(c)

(d)

(e)

Name

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

Option Exercise

Price

($)

Option

Expiration

Date

Carl Kukkonen

1,000,000

―

0.005

4/18/12

Stephen J. Muzi

30,000

―

0.05

11/22/12

Stephen J. Muzi

50,000

―

0.05

1/14/15

Director Compensation

The following chart summarizes the annual compensation for the Company’s non-employee directors during 2011.

Director Compensation

(a)

(b)

(c)

(d)

(e)

(f)

Name

Fees Earned

($)

Stock

Awards

($)

Option Awards

($) (1)

All Other

Compensation ($)

Total

($)

Angelina Galiteva

―

8,406

―

8,406

Rick Calacci

―

4,438

―

4,438

Paul Kim

―

Kevin L. Schewe

―

(1)

Column (d) represents the dollar amount recognized as compensation expense for financial statement reporting purposes for 2011 under FASB ASC Topic 718, and not an amount paid to or realized by the Director. The amount shown includes all awards granted. Assumptions used in the calculation of this amount are included in the Company’s financial statement footnotes. There can be no assurance that the amounts determined by FASB ASC Topic 718 will ever be realized.

Narrative Disclosure to Director Compensation Table

Compensation of Non-employee Directors

During 2011, no stock options were issued to non-employee directors and no cash compensation was paid to non-employee directors. Directors of the Company, who are employees of the Company or of a Company subsidiary, do not receive additional compensation for their services as Directors.

Retirement Plans

The Company does not have any retirement plans at December 31, 2011.

ITEM 12. 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 27, 2012 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. The mailing address for each person identified in this table is 131 Bells Ferry Lane, Marietta, Georgia 30066.

Name	Number of Shares Beneficially Owned		Exercisable Options Beneficially Owned (a)		Total Number of Shares and Exercisable Options Beneficially Owned		Percent of Class of Common Stock (b)

Directors:
Carl Kukkonen, CEO (c)		70,483,992		25,000,000		95,483,992		6.8%
Sung Hsien Chang (d)		353,223,960		-		353,223,960		25.0%
Angelina Galiteva		903,764		3,875,000		4,778,764		0.3%
Paul Kim		-		125,000		125,000		0.0%
Kevin L. Schewe, MD (e)		92,000,000		125,000		92,125,000		6.5%

Other Named Officers:
Stephen J. Muzi, CFO		28,520,909		18,250,000		46,770,909		6.8%

All Named Executive Officers and Directors as a group (6 persons)		545,132,625		47,375,000		592,507,625		41.9%

(a)	Includes only options that become exercisable on or before May 27, 2012 and excludes options that become exercisable after such date.

(b)

The percent of Common Stock owned is calculated using the sum of the number of shares of Common Stock owned as of March 27, 2012 and the number of options of the beneficial owner that are exercisable on or before May 27, 2012 divided by the sum of the number of shares of Common Stock outstanding as of March 27, 2012 and the number of options of the beneficial owner that are exercisable on or before May 27, 2012.

(c)	Dr. Kukkonen deferred a portion of his 2009, 2010 and 2011 salary and is entitled to 44,394,324 unregistered shares of Company common stock which is not included in the number of shares beneficially owned since they have not been issued yet.

(d)	Mr. Chang is President of VGE and CEO of IPA BVI and IPA China. Shares shown include those owned by Mr. Chang directly and shares held by Changs LLC and the Chang Family Foundation.

(e)	Dr. Schewe was appointed as a Director of the Company on January 19, 2012.

Equity Compensation Plans

The following table summarizes information about the options and warrants under the Company’s equity plans as of the close of business on December 31, 2011.

Equity Compensation Plan Information

	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted- average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders for VIASPACE		71,932,462	$	0.02		36,734,669
Equity compensation plans approved by security holders for DMFCC		1,396,000		0.02		604,000
Equity compensation plans approved by security holders for VGE		1,350,000		0.80		50,000
Equity compensation plans not approved by security holders		—		—		—
Total		74,678,462	$	0.03		37,388,669

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

Our BOD, with assistance from the executive officers of the Company, administers the Plans, selects the individuals to whom options will be granted, determines the number of options to be granted, and the term and exercise price of each option. Stock options granted pursuant to the terms of each of the Plans generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of the grant for incentive stock options (110% of the fair market value on the date of the grant for employees that own 10% or more of Company stock). In the case of non-qualified stock options, the exercise price shall not be less than 85% of fair market value on the date of the grant. The term of the options granted under the Plans cannot be greater than 10 years. Options vest at varying rates for employees, directors and consultants.

Changes in Control Arrangements

No change in control arrangements existed at December 31, 2011.

ITEM 13. 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.

Related Party Receivables

Included in the Company’s consolidated balance sheets at December 31, 2011 and December 31, 2010 are Related Party Receivables and Payables. The Related Party Receivables and Payables are detailed below. Sung Hsien Chang is a Director of VIASPACE, 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. JJ also acts as a distributor of product for VGE. IPA China recorded revenues of $63,000 from JJ for the year ended December 31, 2011. IPA BVI is charging JJ interest income on the outstanding receivable balance at an interest rate of 6%. For the year ended December 31, 2011, $42,000 was recorded as interest income to JJ and is included in Other Income in the Company’s Consolidated Statements of Operations. Included in the Due from JJ International amount shown below is $139,000 and $97,000 at December 31, 2011 and December 31, 2010, respectively, representing cumulative interest income charged to JJ.

The following table represents a summary of Related Party Receivables at December 31, 2011 and December 31, 2010:

	2011		2010
Due from JJ International	$	1,236,000	$	1,259,000
Due from employee of IPA China		9,000		21,000
Total	$	1,245,000	$	1,280,000

On April 14, 2010, Sung Hsien Chang owed IPA BVI $807,833 including interest for loans and advances. Mr. Chang repaid IPA BVI on that date by transferring 56,889,650 shares of the common stock of VIASPACE to IPA BVI. The amount was repaid at fair market value and represented a closing price of VIASPACE common stock of $0.0142 per share. This amount was determined to be impaired at December and impairment expense of $353,000 was recorded. The balance is $455,000 at December 31, 2011 and is shown as an asset on the balance sheet of IPA BVI, but eliminated as a consolidation entry between IPA BVI and VIASPACE at December 31, 2011 and December 31, 2010.

Related Party Payables

At December 31, 2011 and December 31, 2010, the Company included as a related party payable $89,000 for accrued salary and partner draw due Dr. Kukkonen, CEO of ViaSpace LLC prior to its merger with the Company on June 22, 2005. In addition, at December 31, 2011 and December 31, 2010, the Company owes $80,000 to Dr. Kukkonen for a portion of 2008 and 2009 salary that was earned but not paid. In addition, at December 31, 2011 and December 31, 2010, the Company owed Dr. Kukkonen $503,000 and $302,000, respectively, for deferred salary that will be paid in shares of VIASPACE stock in lieu of cash. Total shares of common stock obligated to be issued to Dr. Kukkonen by the Company at December 31, 2011 for this amount is 44,394,324 shares.

The following table is a summary of Related Party Payables at December 31, 2011 and December 31, 2010:

	2010		2009
Due to employee of IPA China	$	66,000	$	6,000
Due to JJ International		10,000		17,000
Due to Carl Kukkonen		672,000		471,000
Due to Nobuyuki Denda		―		11,000
Due to Changs LLC		519,000		202,000
Total	$	1,267,000	$	707,000

Amounts shown as due to Changs LLC at December 31, 2011 and December 31, 2010, represent accrued interest related to the Note owed to Changs LLC discussed in Note 10.

Due to Changs LLC

Director Independence

Our BOD has determined that it currently has three members who qualify 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. The independent directors are: Ms. Angelina Galiteva, Mr. Paul Kim and Dr. Kevin L. Schewe.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

	2011		2010
Audit Fees – Hein & Associates LLP	$	23,000	$	—
Audit Fees – Goldman Kurland and Mohidin, LLP		116,000		151,000
Audit-Related Fees		—		—
Tax Fees		9,000		7,000
	$	148,000	$	158,000

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

Consistent with SEC policies regarding auditor independence, our Audit Committee has the responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.

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

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

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.

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.

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

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

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

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit Number			Description of Exhibit
2.1			Share Purchase Agreement dated August 29, 2003 between Marco Polo World News Inc., Rino Vultaggio and Global-Wide Publication Ltd. (incorporated herein by reference to Exhibit 4.1 of the Company’s SB-2 Registration Statement filed on November 21, 2003).
2.2			Agreement and Plan of Merger Among ViaSpace Technologies LLC, Robert Hoegler and Global-Wide Publication Ltd. dated June 15, 2005 (incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K filed on June 20, 2005).
2.3			Stock Option Agreement between Global-Wide Publication Ltd., ViaSpace Technologies LLC, and SNK Capital Trust dated June 15, 2005 (incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K filed on June 20, 2005).
2.4			Acquisition Agreement between Global-Wide Publication Ltd. and Rino Vultaggio dated May 19, 2005 (incorporated by reference to Exhibit 2.2 of the Company’s Form 8-K filed on June 23, 2005).
2.5			Share Purchase Agreement between Global-Wide Publication Ltd. and Robert Hoegler dated May 19, 2005 (incorporated by reference to Exhibit 2.3 of the Company’s Form 8-K filed on June 23, 2005).
3.1 (i)			Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 1.1 of the Company’s SB-2 Registration Statement filed on November 21, 2003).
3.2 (i)			Amendment to Articles of Incorporation dated August 3, 2005 (incorporated by reference to Item 5.03 of the Company’s Form 8-K filed on August 9, 2005).
3.3 (i)			Amendment to Articles of Incorporation dated May 9, 2005 (incorporated herein by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
3.4 (i)			Amendment to Articles of Incorporation dated June 1, 2005 (incorporated herein by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
3.5 (i)			Articles of Merger between Global-Wide Publication Ltd. and ViaSpace Technologies LLC dated June 17, 2005 (incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).
3.6 (i)			Amendment to Articles of Incorporation dated October 12, 2006 (incorporated herein by reference to Item 5.03 of the Company’s Form 8-K filed October 17, 2006).
3.7 (i)			Amendment to Articles of Incorporation dated December 7, 2007 (incorporated herein by reference to Exhibit 10.3 of the Company’s Form 8-K filed December 13, 2007).
3.8 (i)			Amendment to Articles of Incorporation dated February 14, 2008 (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed February 21, 2008).
3.1 (ii)			Bylaws of the Company (incorporated herein by reference to Exhibit 2.1 of the Company’s SB-2 Registration Statement filed on November 21, 2003).
3.2 (ii)			Amendment to Bylaws of the Company December 7, 2007 (incorporated herein by reference to Exhibit 10.4 of the Company’s Form 8-K filed December 13, 2007).
3.3			Certificate of Designation dated May 14, 2010 (incorporated herein by reference to Exhibit 3.1 of the Company’s Form 8-K filed May 18, 2010).
10.1			Employment Agreement dated October 14, 2004 between Direct Methanol Fuel Cell Corporation and Dr. Carl Kukkonen (incorporated herein by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005).
10.2			Consulting Agreement between VIASPACE Inc. and Synthetic/A/(America) Ltd., dated August 16, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on August 22, 2005).
10.3			Warrant No. 1 between VIASPACE Inc. and Synthetic/A/(America) Ltd., dated August 16, 2005 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on August 22, 2005).
10.4			Warrant No. 2 between VIASPACE Inc. and Synthetic/A/(America) Ltd., dated August 16, 2005 (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on August 22, 2005).
10.5			Warrant No. 3 between VIASPACE Inc. and Synthetic/A/(America) Ltd., dated August 16, 2005 (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed on August 22, 2005)
10.6			Direct Methanol Fuel Cell Corporation 2002 Stock Option/Stock Issuance Plan (incorporated herein by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005).

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

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

10.47A			Amendment to Settlement Agreement and General Release between the Company and La Jolla Cove Investors, Inc. dated June 25, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 1, 2008).
10.47B			Continuing Personal Guaranty between La Jolla Cove Investors, Inc. and Carl Kukkonen dated June 25, 2008 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed July 1, 2008).
10.48			STTR Phase II Contract between Ionfinity and the US Army for Advanced Robotic Detection of Chemical Agents, Toxic Industrial Gases, and IEDs for Force Health Protection effective August 4, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed August 14, 2008).
10.49			Settlement Agreement between the Company and YA Global Investments, L.P. (formerly known as Cornell Capital Partners, L.P.) dated September 8, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 12, 2008).
10.50			Securities Purchase Agreement dated October 21, 2008 by and among the Registrant, VIASPACE Green Energy Inc., Sung Hsien Chang and China Gate Technology Co. Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 27, 2008).
10.51			Shareholders Agreement dated October 21, 2008 by and among the Registrant, VIASPACE Green Energy Inc., and Sung Hsien Chang (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed October 27, 2008).
10.52			Employment Agreement dated October 21, 2008 by and among VIASPACE Green Energy Inc. and Sung Hsien Chang (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed October 27, 2008).
10.53			Employment Agreement dated October 21, 2008 by and among VIASPACE Green Energy Inc. and Carl Kukkonen (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed October 27, 2008).
10.54			Employment Agreement dated October 21, 2008 by and among VIASPACE Green Energy Inc. and Stephen Muzi (incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K filed October 27, 2008).
10.55			Employment Agreement dated October 21, 2008 by and among VIASPACE Green Energy Inc. and Maclean Wang (incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K filed October 27, 2008).
10.56			Asset Purchase Agreement dated December 22, 2008 by and between the Company and Knovitech, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed December 29, 2008).
10.57			STTR Phase II Contract between Ionfinity and the US Navy for Miniature Electronic Sniffer for Navy Vertical Take off Unmanned Aerial Vehicles (VTUAVs) effective October 23, 2008. (incorporated by reference to Exhibit 10.57 of the Company’s Form 10-K filed March 31, 2009).
10.58			Asset Purchase and Support Services Agreement dated April 20, 2009 by and between the Registrant and Landtec North America (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 23, 2009).
10.59			Amendment to Securities Purchase Agreement dated June 22, 2009 by and among the Registrant, VIASPACE Green Energy Inc., Sung Hsien Chang and China Gate Technology Co., Ltd. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 26, 2009).
10.60			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. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 25, 2009).
10.61			Amendment No. 3 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. (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed November 16, 2009).
10.62			Amendment No. 4 to Securities Purchase Agreement dated November 21, 2009 by and among the Registrant, VIASPACE Green Energy Inc. and Sung Hsien Chang (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 23, 2009).
10.63			Amendment No. 5 to Securities Purchase Agreement dated November 25, 2009 by and among the Registrant, VIASPACE Green Energy Inc. and Sung Hsien Chang (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed November 30, 2009).
10.64			Amendment No. 6 to Securities Purchase Agreement dated December 18, 2009 by and among the Registrant, VIASPACE Green Energy Inc. and Sung Hsien Chang (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed December 21, 2009).
10.65			Share Purchase Agreement dated April 16, 2010 by and among the Registrant and Sung Hsien Chang (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 20, 2010).
10.66			Amendment to Share Purchase Agreement dated May 14, 2010 by and among Registrant, Sung Chang, certain other VGE shareholders and the other parties set forth therein (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 18, 2010).
10.67			Security Agreement dated May 14, 2010 by and between the Registrant and Sung Chang (incorporated herein by reference to Exhibit 10.2 of the Company’s Form 8-K filed May 18, 2010).
10.68			Stock Pledge Agreement dated May 14, 2010 by and between the Registrant and Sung Chang (incorporated herein by reference to Exhibit 10.3 of the Company’s Form 8-K filed May 18, 2010).
10.69			Employment Agreement dated May 14, 2010 by and among Registrant, VIASPACE Green Energy Inc. and Carl Kukkonen (incorporated herein by reference to Exhibit 10.4 of the Company’s Form 8-K filed May 18, 2010).
10.69A			Amendment to Employment Agreement dated May 16, 2011 by and among Registrant, VIASPACE Green Energy Inc. and Carl Kukkonen (incorporated herein by reference to Exhibit 10.2 of the Company’s Form 10-Q filed May 16, 2011).

10.70			Employment Agreement dated May 14, 2010 by and among Registrant, VIASPACE Green Energy Inc. and Stephen Muzi (incorporated herein by reference to Exhibit 10.5 of the Company’s Form 8-K filed May 18, 2010).
10.70A			Amendment to Employment Agreement dated May 16, 2011 by and among Registrant, VIASPACE Green Energy Inc. and Stephen Muzi (incorporated herein by reference to Exhibit 10.3 of the Company’s Form 10-Q filed May 16, 2011).
10.71			Registration Rights Agreement dated May 14, 2010 by and between the Registrant and Chang (incorporated herein by reference to Exhibit 10.6 of the Company’s Form 8-K filed May 18, 2010).
10.72			Secured Promissory Note dated May 14, 2010 by and between Registrant and Chang (incorporated herein by reference to Exhibit 10.7 of the Company’s Form 8-K filed May 18, 2010).
10.72A			Amendment to Secured Promissory Note dated May 16, 2011 by and between Registrant and Chang (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 10-Q filed May 16, 2011).
14.1			VIASPACE Inc. Code of Ethics for Senior Executive Officers and Senior Financial Officers dated October 20, 2005 (incorporated by reference to Exhibit 14.1 of the Company’s Form 8-K filed on October 26, 2005).
21			* List of subsidiaries of Company.
23.1			* Consent of Goldman Kurland Mohidin LLP dated March 30, 2012.
23.2			* Consent of Hein & Associates LLP dated March 30, 2012.
31.1			* Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2			* Certification of President and Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32			* Certification of the Company’s Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			* XBRL Instance Document
101.SCH			* XBRL Schema Document
101.CAL			* XBRL Calculation Linkbase Document
101.DEF			* XBRL Definition Linkbase Document
101.LAB			* XBRL Label Linkbase Document
101.PRE			* XBRL Presentation Linkbase Document

*	Filed herewith

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

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, 2012.

	VIASPACE INC.
	(Registrant)

By:	/s/ CARL KUKKONEN
	Name: Carl Kukkonen
	Title: Chief Executive Officer
	(Principal Executive Officer and Director)

By:	/s/ STEPHEN J. MUZI
	Name: Stephen J. Muzi
	Title: Chief Financial Officer
	(Principal Financial and Accounting Officer)

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

SIGNATURE	TITLE	DATE

/s/ CARL KUKKONEN	Chief Executive Officer	March 30, 2012
Carl Kukkonen	(Principal Executive Officer and Director)

/s/ STEPHEN J. MUZI	Chief Financial Officer	March 30, 2012
Stephen J. Muzi	(Principal Financial and Accounting Officer)

/s/ SUNG HSIEN CHANG	Director	March 30, 2012
Sung Hsien Chang

/s/ ANGELINA GALITEVA	Director	March 30, 2012
Angelina Galiteva

/s/ PAUL KIM	Director	March 30, 2012
Paul Kim

	Director
Kevin L. Schewe

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

VIASPACE INC.

TABLE OF CONTENTS

	PAGE

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRMS	F-2

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

Consolidated Balance Sheets	F-4
Consolidated Statements of Operations	F-5
Consolidated Statements of Other Comprehensive Loss	F-6
Consolidated Statements of Stockholders’ Equity (Deficit)	F-7
Consolidated Statements of Cash Flows	F-8
Notes to Consolidated Financial Statements	F-9

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

VIASPACE Inc.

We have audited the accompanying consolidated balance sheet of VIASPACE Inc. as of December 31, 2011, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the year then ended. 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 audit.

We conducted our audit 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 financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of VIASPACE Inc. as of December 31, 2011, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements were prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, The Company has incurred significant losses from operations, resulting in an accumulated deficit of $43,050,000. The Company expects such losses to continue. In addition, the Company has limited working capital and based on current cash flows does not have sufficient funds to pay the May 2012 installment due on the note to Changs LLC. These facts raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/S/ HEIN & ASSOCIATES LLP

HEIN & ASSOCIATES LLP

Irvine, California

March 30, 2012

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

VIASPACE Inc.

We have audited the accompanying consolidated balance sheet of VIASPACE Inc. and subsidiaries as of December 31, 2010, and the related consolidated statements of operations and other comprehensive loss, stockholders' equity (deficit), and cash flows for the year ended December 31, 2010. 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 audit.

We conducted our audit 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 audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of VIASPACE Inc. and Subsidiaries as of December 31, 2010 and the consolidated results of their operations and their consolidated cash flows for the year ended December 31, 2010, in conformity with US generally accepted accounting principles.

The accompanying financial statements were prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations. In addition, at December 31, 2010, the Company has working capital of $235,000 and an accumulated deficit of $35,568,000. These facts raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Goldman Kurland and Mohidin LLP

Goldman Kurland and Mohidin LLP

Encino, California

March 30, 2011

F-3

VIASPACE INC.

CONSOLIDATED BALANCE SHEETS

	December 31, 2011			December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	1,141,000		$	307,000
Accounts receivable		178,000			309,000
Inventory		268,000			551,000
Prepaid expenses		292,000			300,000
Related party receivables		1,245,000			1,280,000
Other current assets		25,000			163,000
TOTAL CURRENT ASSETS		3,149,000			2,910,000

FIXED ASSETS:
Fixed assets, net		1,097,000			999,000

OTHER ASSETS:
Land use right, net		517,000			558,000
Intellectual property, net		—			146,000
Grass license, net		427,000			453,000
Goodwill		5,015,000			12,322,000
Other assets		6,000			7,000
TOTAL OTHER ASSETS		5,965,000			13,486,000

TOTAL ASSETS	$	10,211,000		$	17,395,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	741,000		$	621,000
Accrued expenses		218,000			269,000
Current portion of long-term debt		—			12,000
Due to Changs LLC		866,000			1,066,000
Related party payables		1,267,000			707,000
TOTAL CURRENT LIABILITIES		3,092,000			2,675,000

LONG-TERM LIABILITIES:
Due to Changs LLC		4,265,000			4,265,000

COMMITMENTS AND CONTINGENCIES (Note 17)

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, one share of Series A preferred stock issued and outstanding in 2011 and 2010		—			—
Common stock, $0.001 par value, 1,500,000,000 shares authorized, 1,333,796,601 and 1,228,651,926 shares issued and outstanding in 2011 and 2010, respectively		1,334,000			1,229,000
Additional paid in capital		43,653,000			42,165,000
Accumulated comprehensive income		—			25,000
Accumulated deficit		(43,050,000	)		(35,568,000	)
Total stockholders’ equity		1,937,000			7,851,000
Noncontrolling interest		917,000			2,604,000
Total equity		2,854,000			10,455,000

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,211,000		$	17,395,000

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

F-4

VIASPACE INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2011			2010
REVENUES
Security	$	113,000		$	388,000
Energy		—			8,000
Framed-artwork		6,631,000			3,240,000
Grass		15,000			7,000
Total revenues		6,759,000			3,643,000

COST OF REVENUES		4,688,000			2,634,000
GROSS PROFIT		2,071,000			1,009,000

OPERATING EXPENSES
Operations		267,000			178,000
Selling, general and administrative		3,589,000			3,650,000
Goodwill impairment		7,307,000			―
Total operating expenses		11,163,000			3,828,000
LOSS FROM OPERATIONS		(9,092,000	)		(2,819,000	)

OTHER INCOME (EXPENSE)
Interest expense		(317,000	)		(312,000	)
Other income		202,000			173,000
Other expenses		(14,000	)		(3,000	)
Total other income (expense)		(129,000	)		(142,000	)

LOSS BEFORE INCOME TAXES		(9,221,000	)		(2,961,000	)
Income taxes		138,000			―
NET LOSS		(9,359,000	)		(2,961,000	)
Net loss attributed to noncontrolling interests		1,877,000			128,000
NET LOSS ATTRIBUTED TO VIASPACE	$	(7,482,000	)	$	(2,833,000	)

NET LOSS PER SHARE OF COMMON STOCK ATTRIBUTED TO VIASPACE SHAREHOLDERS — Basic and diluted	$	*		$	*

WEIGHTED AVERAGE SHARES OUTSTANDING—Basic and diluted		1,297,678,969			1,110,584,827

* Less than $0.01 per common share.

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

F-5

VIASPACE INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	Years Ended December 31,
	2011			2010
NET LOSS ATTRIBUTED TO VIASPACE	$	(7,482,000	)	$	(2,833,000	)

Other Comprehensive Income:
Foreign currency translation		25,000			(25,000	)
Subtotal		25,000			(25,000	)
COMPREHENSIVE LOSS	$	(7,457,000	)	$	(2,858,000	)

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

F-6

VIASPACE INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2011 AND 2010

	Common Stock
	Shares		Amount		Additional Paid in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholder’s Equity			Noncontrolling Interest			Total

BALANCE, DECEMBER 31, 2009		903,505,407	$	904,000	$	37,071,000		$	―		$	(32,730,000	)	$	5,245,000		$	6,967,000		$	12,212,000

Net loss												(2,833,000	)		(2,833,000	)					(2,833,000	)
Noncontrolling share																		(134,000	)		(134,000	)
Share exchange between VIASPACE and VGE shareholders																		(4,229,000	)		(4,229,000	)
Cash distribution from Ionfinity, LLC						5,000						(5,000	)		―						―
Foreign currency translation									25,000						25,000						25,000
Shares issued to Sung Hsien Chang and related parties related to Share Purchase Agreement		241,667,000		242,000		3,987,000									4,229,000						4,229,000
Stock compensation expense related to stock options						779,000									779,000						779,000
Shares issued for services		83,479,519		83,000		1,131,000									1,214,000						1,214,000
Repayment of Sung Hsien Chang receivable with shares of stock issued to IPA BVI						(808,000	)								(808,000	)					(808,000	)

BALANCE, DECEMBER 31, 2010		1,228,651,926	$	1,229,000	$	42,165,000		$	25,000		$	(35,568,000	)	$	7,851,000		$	2,604,000		$	10,455,000

Net loss												(7,482,000	)		(7,482,000	)					(7,482,000	)
Noncontrolling share																		(1,876,000	)		(1,876,000	)
Foreign currency translation									(25,000	)					(25,000	)					(25,000	)
Stock compensation expense related to stock options						673,000									673,000						673,000
Shares issued for services		105,144,675		105,000		1,004,000									1,109,000						1,109,000
Noncontrolling interest in VGE stock option compensation expense						(189,000	)								(189,000	)		189,000			―

BALANCE, DECEMBER 31, 2011		1,333,796,601	$	1,334,000	$	43,653,000		$	―		$	(43,050,000	)	$	1,937,000		$	917,000		$	2,854,000

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

F-7

VIASPACE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributed to VIASPACE	$	(7,482,000	)	$	(2,833,000	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		98,000			82,000
Amortization of intangible assets		83,000			83,000
Goodwill impairment		7,307,000			―
License to patents impairment		130,000			―
Stock option compensation		673,000			779,000
Stock compensation related to stock issued		790,000			911,000
Operating expenses paid in stock		214,000			645,000
Bad debt expense		64,000			―
Gain (loss) on disposal of assets		6,000			(15,000	)
Noncontrolling interests		(1,877,000	)		(134,000	)
(Increase) decrease in:
Accounts receivable		67,000			(47,000	)
Inventory		283,000			(96,000	)
Prepaid expenses and other current assets		33,000			(87,000	)
Increase (decrease) in:
Accounts payable		120,000			(120,000	)
Accrued expenses and other		(147,000	)		377,000
Related party payable		896,000			(155,000	)
Net cash provided by (used in) operating activities		1,258,000			(610,000	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets		(251,000	)		(157,000	)
Investment in land lease		―			(13,000	)
Proceeds from disposal of assets		64,000			17,000
Net cash used in investing activities		(187,000	)		(153,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term debt		(12,000	)		(32,000	)
Payments to Changs LLC		(200,000	)		―
Net cash used in financing activities		(212,000	)		(32,000	)

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS		(25,000	)		―

NET DECREASE IN CASH AND EQUIVALENTS		834,000			(795,000	)
CASH AND EQUIVALENTS, Beginning of year		307,000			1,102,000
CASH AND EQUIVALENTS, End of year	$	1,141,000		$	307,000

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	―		$	1,000
Income taxes	$	―		$	―

Supplemental Disclosure of Non-Cash Financing for 2011:

·	The Company issued 23,680,672 shares of common stock for future services valued at $234,000. This amount was recorded at issuance as prepaid expenses.

Supplemental Disclosure of Non-Cash Financing for 2010:

·	The Company issued 18,000,000 shares of common stock for future services valued at $257,000. This amount was recorded at issuance as prepaid expenses.

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

F-8

VIASPACE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business - VIASPACE Inc. (“we”, “us”, “VIASPACE”, or the “Company”) is a renewable energy company with a global reach. Our renewable energy is based on biomass-- in particular our dedicated energy crop with the trademarked name “Giant KingTM Grass”. VIASPACE has a majority ownership in VIASPACE Green Energy Inc., a British Virgin Islands (“BVI”) international business company (“VGE”) who is the parent company of Inter Pacific Arts Corporation, a BVI international business company (“IPA BVI”) and Guangzhou Inter Pacific Arts, a Peoples Republic of China (“PRC” or “China”) 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 US retail chain stores. IPA China also has Giant KingTM Grass (“GKG”), a proprietary dedicated energy crop, 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, biochemicals and bio plastics. Cellulosic ethanol, bio butanol and other liquid cellulosic biofuels, 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 this 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 of growing and burning GKG probably has some net carbon dioxide emissions, but much lower emissions than burning coal or other fossil fuels directly to create the same amount of energy. GKG has been independently tested by customers and been shown to have excellent energy content, high bio methane production, and the cellulosic sugar content needed for biofuels and biochemicals.

The Company maintained a corporate office in Irvine, California through March 31, 2012. Effective April 1, 2012, our corporate office is being relocated to Marietta, Georgia. The Company also has business activities in China.

Company Background - ViaSpace Technologies LLC (“ViaSpace LLC”) was founded in July 1998 as a private company to commercialize proven space and defense technologies from NASA and the Department of Defense. ViaSpace LLC had licensed patents, and software technology from California Institute of Technology (“Caltech”), which manages the Jet Propulsion Laboratory (“JPL”) for NASA. On June 22, 2005, ViaSpace LLC acquired the non-operating shell company Global-Wide Publication Ltd. (“GW”). GW was incorporated in the State of Nevada on July 14, 2003. At merger, GW was renamed VIASPACE Inc. The transaction was accounted for as a reverse merger and a recapitalization of the Company. VIASPACE became a public company on June 22, 2005.

Going Concern - The Company has incurred significant losses from operations, resulting in an accumulated deficit of $43,050,000. The Company expects such losses to continue. In addition, the Company has limited working capital and based on current cash flows does not have sufficient funds to pay the May 2012 installment due on the note to Changs LLC. The foregoing raises substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Basis of Presentation - The accompanying audited 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 considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated on consolidation. Certain reclassifications were made to the December 31, 2010 consolidated financial statements to conform to the December 31, 2011 consolidated financial statement presentation.

F-9

Noncontrolling Interest - Certain amounts presented for prior periods previously designated minority interest were reclassified to conform to the current year presentation. The Company follows “Noncontrolling Interests in Consolidated Financial Statements, codified in FASB Accounting Standards Codification (“ASC”) Topic 810 which established new standards governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability (as was previously the case); that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements. The provisions of the standard were applied to all NCIs prospectively, except for the presentation and disclosure requirements, which were applied retrospectively to all periods presented. As a result, upon adoption, the Company retroactively reclassified the “Minority interest” previously included in the “Other liabilities” section of the consolidated balance sheet to a new component of equity with respect to NCIs in consolidated subsidiaries. The adoption also impacted certain captions previously used on the consolidated statement of income and other comprehensive income, largely identifying net income including NCI and net income attributable to the Company.

Noncontrolling interest in consolidated subsidiaries is the minority stockholders’ proportionate share of equity of DMFCC, Ionfinity and VGE. The Company’s controlling interest requires the results of these companies’ operations be included in the consolidated financial statements. The percentage of DMFCC, Ionfinity and VGE not owned by the Company is shown as NCI in the Consolidated Statement of Operations and Consolidated Balance Sheet. At December 31, 2011 and 2010, the Company recorded $500,000 as NCI for an investment in DMFCC by a minority shareholder. At December 31, 2011 and 2010, the Company recorded $417,000 and $2,185,000, respectively, representing Common Shareholder NCIs in Ionfinity and VGE.

Principles of Consolidation - The Company is generally a founding shareholder of its affiliated companies which are consolidated. Affiliated companies include VGE, DMFCC and Ionfinity in which the Company owns, directly or indirectly, a controlling voting interest, are consolidated. Under this method, an affiliated company’s results of operations are reflected within the Company’s consolidated statement of operations. Transactions between the Company and its consolidated affiliated companies are eliminated in consolidation. The Company adopted “Business Combinations”, codified in FASB ASC Topic 805, which requires use of the purchase method for all business combinations.

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 Equivalents - The Company considers all highly liquid debt instruments, purchased with an original maturity of three months or less, to be cash equivalents.

F-10

Concentration of Credit Risk - The Company’s financial instruments that are exposed to credit risk consist primarily of cash equivalents. 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.

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.

The following is a summary of inventory at December 31, 2011:

	Raw Materials		Finished Goods		Total
Framed-Artwork	$	268,000	$	―	$	268,000
Total	$	268,000	$	―	$	268,000

The following is a summary of inventory at December 31, 2010:

	Raw Materials		Finished Goods		Total
Framed-Artwork	$	460,000	$	―	$	460,000
Grass		78,000		13,000		91,000
Total	$	538,000	$	13,000	$	551,000

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 years
Machinery and equipment	10 years
Office equipment	5 years
Vehicles	5 years
Computers	3 years

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 in 2005. During the third quarter of 2011, VGE subleased 22 hectares (54 acres) of its land under lease to another party. As of December 31, 2011, VGE has land use rights of approximately 91 hectares, or 226 acres in Guangdong province of the PRC.

License – IPA China has a worldwide license for 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. IPA China sublicensed this right from China Gate Technology Co., Ltd. which 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 VGE on October 21, 2008 to pay for the license.

Intangible Assets - The Company amortizes intangible assets with definite lives using the straight-line method over their established lives, generally 1-30 years. Additionally, the Company tests these assets with established lives for impairment if conditions exist that indicate that carrying values may not be recoverable. Possible conditions leading to the unrecoverability of these assets include changes in market conditions, changes in future economic conditions or changes in technological feasibility that impact the Company’s assessments of future operations. If the Company determines that an impairment charge is needed, the charge will be recorded in selling, general and administrative expenses in the consolidated statements of operations.

F-11

Goodwill - Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identiﬁable assets of the acquired subsidiary at the date of acquisition. Goodwill is measured at cost less accumulated impairment losses. Goodwill is not amortized but tested for impairment annually and whenever impairment indicators require. Goodwill is tested for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. Application of the goodwill impairment test requires judgment by management using a discounted cash flow methodology. This requires us to use significant judgment including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, the useful life over which cash flows will occur, determination of our weighted average cost of capital and relevant market data. VIASPACE and VGE acquired IPA China and IPA BVI on October 21, 2008 and recorded goodwill of $12,322,000 related to the acquisition. As part of the Company’s annual impairment review as of December 31, 2011, a $7,307,000 goodwill impairment charge was recorded within the Company’s framed-artwork reportable segment due to lower than expected revenue and operating income growth. Goodwill was $5,015,000 and $12,322,000 at December 31, 2011 and December 31, 2010, respectively.

Impairment of Long-lived Assets - The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may no longer be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. For purposes of estimating future cash flows from impaired assets, the Company groups assets at the lowest level from which there is identifiable cash flows that are largely independent of the cash flow of other groups of assets.

Fair Value of Financial Instruments - “Disclosures about Fair Value of Financial Instruments,” codified in FASB ASC Topic 850, requires the Company disclose estimated fair values of financial instruments at least annually. 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 “Accounting for Income Taxes,” codified in FASB ASC Topic 740, which requires recognition of deferred tax assets and liabilities for expected future tax consequences of events 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. For IPA China, the statutory corporate income tax rate for foreign enterprises in the PRC is 25% for 2011. IPA BVI and VGE are British Virgin Islands international companies and not subject to any 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.

Revenue Recognition – Product Revenue. VIASPACE has generated revenues on product revenue shipments. In accordance with “Revenue Recognition”, codified in FASB ASC Topic 605, VIASPACE 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 freight on board shipping point. If the Company ships product whereby a customer has a right of return or review period, the Company does not recognize revenue until the right of return or review period has lapsed. Prior to the period lapsing, any cash received would be recorded as deferred revenue on the Company’s Balance Sheet.

F-12

Product Development Revenue on Fixed-Price Contracts With Milestone Values Defined. Ionfinity has generated revenues on fixed-price contracts for government contracts. These contracts have clear milestones and deliverables with distinct values assigned to each milestone. The government is not obligated to pay Ionfinity the complete value of the contract and can cancel the contract if the Company fails to meet a milestone. Although the government can cancel the contract if a milestone is not met, the Company is not required to refund any payments for prior milestones that have been approved and paid by the government. The milestones do not require the delivery of multiple elements as noted in “Revenue Arrangements with Multiple Deliverables”, codified in FASB ASC Topic 605. In accordance with this topic, the Company treats each milestone as an individual revenue agreement and only recognizes revenue for each milestone when all required revenue recognition conditions are met.

Framed art sales. In accordance with FASB ASC Topic 605, 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.

Cost of Revenues – Cost of revenues 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.

Foreign Currency Translation and Comprehensive Income (Loss) – IPA China’s local currency is the Renminbi (“RMB”) and its functional currency is US dollars (“USD”). For financial reporting purposes, RMB has been translated into United States dollars ("USD") as the functional 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 recorded in the Company’s statements of operations. 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 – "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.

Stock Based Compensation – VIASPACE, DMFCC and VGE have stock-based compensation plans. The Company has adopted the accounting and disclosure provisions of “Share-Based Payments”, codified in FASB ASC Topic 718, using the modified prospective application transition method. The Company accounts for equity instruments issued to consultants and vendors in exchange for goods and services in accordance with the provisions of FASB ASC Topic 505-50, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services” and “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other than Employees”. The measurement date for the fair value of the equity instruments issued is determined at the earlier of: (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with FASB ASC Topic 505-50, an asset acquired for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of the fully vested, non-forfeitable common stock issued for future consulting services as prepaid expenses in its consolidated balance sheet.

Net Income (Loss) Per Share - The Company computes net loss per share in accordance with “Earnings per Share”, codified in FASB ASC Topic 260. Under the provisions of this topic, basic and diluted net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period.

F-13

Research and Development - The Company charges research and development expenses to operations as incurred.

NOTE 2 — ACCOUNTS RECEIVABLE

Accounts receivable are comprised of the following at December 31, 2011 and December 31, 2010:

	2011		2010
US Government customers	$	―	$	6,000
Framed artwork customers		178,000		303,000
Total accounts receivable	$	178,000	$	309,000

NOTE 3 — PREPAID EXPENSES

During 2010 and 2011, the Company entered into agreements with certain of its consultants and vendors whereby the Company issued registered shares of its common stock under an existing registration statement on Form S-8 as well as unregistered shares of common stock in exchange for future services to be provided to the Company. As of December 31, 2011 and 2010, the remaining value of these agreements was $246,000 and $264,000, respectively, which is included in prepaid expenses in the accompanying consolidated balance sheets.

Other prepaid expenses were $46,000 and $36,000 at December 31, 2011 and 2010, respectively.

NOTE 4 — FIXED ASSETS

Fixed assets are comprised of the following at December 31, 2011 and December 31, 2010:

	2011		2010
Building	$	795,000	$	772,000
Machinery and equipment		466,000		417,000
Office equipment		82,000		127,000
Vehicles		225,000		170,000
Leasehold improvements		―		1,000
Total property and equipment		1,568,000		1,487,000
Less: Accumulated depreciation		471,000		488,000
Fixed assets, net	$	1,097,000	$	999,000

Depreciation was $98,000 for 2011 and $82,000 for 2010.

NOTE 5 — LAND USE RIGHT

Land use right is composed of the following at December 31, 2011 and December 31, 2010:

	2011		2010
Land use right	$	720,000	$	720,000
Less: Accumulated amortization		203,000		162,000
Land use right, net	$	517,000	$	558,000

Amortization was $41,000 for 2011 and 2010. The amortization for the next five years from December 31, 2011 will be: 2012 - $34,000; 2013 - $30,000; 2014 - $30,000; 2015 - $30,000; and 2016 - $30,000.

F-14

NOTE 6 — INTANGIBLE ASSETS

Intellectual Property

Intangible asset balances for intellectual property for DMFCC are comprised of the following at December 31, 2011 and December 31, 2010, respectively:

	2011		2010
License to patent	$	―	$	226,000
Less: Accumulated amortization		―		80,000
Intellectual property, net	$	―	$	146,000

The Company performed an impairment analysis at December 31, 2011 and wrote-off $130,000 of additional amortization expense related to the license to patents for DMFCC. Regular amortization was $16,000 for 2011 and $16,000 for 2010. During the fourth quarter of 2011, the Company recorded impairment expense related to the license to patents on the books of DMFCC.

License to Grass

VGE 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. VIASPACE issued 30,576,007 shares to the Licensor of the GKG valued at $507,000 on the date of acquisition. The grass license is amortized over an estimated useful life of 20 years.

Amortization was $26,000 in 2011 and $25,000 in 2010. The amortization expense for the next five years from December 31, 2011 will be $25,000 in each year.

License to Grass is composed of the following at December 31, 2011 and December 31, 2010:

	2011		2010
License to Grass	$	507,000	$	507,000
Less: Accumulated amortization		80,000		54,000
License to Grass, net	$	427,000	$	453,000

Goodwill

As explained in Note 8, VIASPACE and VGE acquired IPA China and IPA BVI on October 21, 2008 and recorded goodwill of $12,322,000 related to the acquisition. As part of the Company’s annual impairment review as of December 31, 2011, a $7,307,000 goodwill impairment charge was recorded within the Company’s framed-artwork reportable segment due to lower than expected revenue and operating income growth. Goodwill was $5,015,000 and $12,322,000 at December 31, 2011 and December 31, 2010, respectively.

NOTE 7 — OWNERSHIP INTEREST IN AFFILIATED COMPANIES

DMFCC. As of December 31, 2011 and December 31, 2010, the Company owned 71.4% of the outstanding shares of DMFCC.

VGE. As of December 31, 2011 and December 31, 2010, the Company owned 75.6% and 75.7%, respectively, of the outstanding shares of VGE. VGE owns 100% of the outstanding shares of IPA BVI. IPA BVI owns 100% of the outstanding shares of IPA China. During 2010, VGE established VIASPACE Green Energy Pte. Ltd. (“VIASPACE Pte.”), a company incorporated in the Republic of Singapore. At December 31, 2011, VIASPACE Pte. has no active operations or assets.

F-15

Ionfinity. As of December 31, 2011 and December 31, 2010, the Company owned 46.3% of the outstanding membership interests of Ionfinity. The Company has two seats on Ionfinity’s board of managers out of four seats. The Company provides management and accounting services for Ionfinity. The Company also acts as tax partner for Ionfinity for income tax purposes. Due to these factors, Ionfinity is considered economically and organizationally dependent on the Company and as such is included in the Consolidated Financial Statements of the Company. The noncontrolling interest held by other members is disclosed separately in the Company’s Consolidated Financial Statements.

NOTE 8 — ACQUISITION OF IPA

F-16

As required by the Purchase Agreement, VGE filed a Registration Statement on Form S-1 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 Registration Statement on Form S-1 effective December 31, 2009. On January 14, 2010, VGE received approval from the Financial Industry Regulatory Authority (“FINRA”) that its shares of common stock were 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-17

NOTE 9 — STOCK OPTIONS AND WARRANTS

VIASPACE Inc. 2005 Stock Incentive Plan

On October 20, 2005, the BOD of the Company adopted the 2005 Stock Incentive Plan (the “Plan”) including the 2005 Non-Employee Director Option Program (the “2005 Director Plan”). The Plan was also approved by the holders of a majority of the Company’s common stock. The Plan originally provided for issuance of up to 28,000,000 shares of the Company’s common stock. On July 12, 2006, the Company filed a Form S-8 Registration Statement with the SEC registering 28,000,000 shares of the Company’s common stock. On February 14, 2008, the BOD and the holders of a majority of the Company’s common stock approved an amendment to the Plan which increased the maximum aggregate number of shares which may be issued in the Plan to 99,000,000 shares. On April 30, 2008, the Company filed a Registration Statement on Form S-8 registering 71,000,000 shares of the Company’s common stock. In addition, effective January 1, 2009 and each January 1 thereafter during the term of the Plan, the maximum number of shares under the Plan are to be increased so that the maximum number of shares is equivalent to 30% of the total number of shares of common stock issued and outstanding as of the close of business on the immediately preceding December 31. On February 4, 2009, the Company filed a Registration Statement on Form S-8 registering 146,500,000 shares of the Company’s common stock based on the number of shares of common stock outstanding on December 31, 2008.

The Plan is designed to provide additional incentive to employees, directors and consultants of the Company through awarding incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and other awards. On February 13, 2006, the BOD approved the 2006 Non-Employee Director Option Program (the “2006 Director Plan”) replacing the 2005 Director Plan and the 2006 Director Plan was approved by the holders of a majority of the Company’s common stock. The 2006 Director Plan awards a one-time grant of 125,000 options, or such other number of options as determined by the BOD as plan administrator of the 2006 Director Plan, to newly appointed outside members of the Company’s BOD and annual grants of 50,000 options, or such other number of options as determined by the BOD, to outside members of the BOD that have served at least six months.

The Company’s BOD administers the Plan, selects the individuals to whom options will be granted, determines the number of options to be granted, and the term and exercise price of each option. Stock options granted pursuant to the terms of the Plans generally cannot be granted with an exercise price of less than 100% of the fair market value on the grant date. The term of the options granted under the Plan cannot be greater than 10 years. Options to employees and directors generally vest over four years but the actual length of the vesting term is determined by the BOD. 36,734,669 shares were available for future grant at December 31, 2011.

During 2011, the Company granted 14,000,000 stock options to employees to purchase common shares. During this same period, no stock options were cancelled due to employees, directors or consultants terminating employment or service with the Company. During 2011, the Company issued 17,565,472 shares of common stock under the Plan to employees and consultants for services provided to the Company. The stock compensation expense recorded relating to these share issuances was based on fair market value on the date of grant.

FASB ASC Topic 718 requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values using the modified prospective transition method. FASB ASC Topic requires companies to estimate the fair value of share-based payment awards to employees and directors on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite services periods on a straight-line basis in the Company’s Consolidated Statements of Operations.

The Company adopted the detailed method provided in FASB ASC Topic for calculating the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the income tax effects of employee stock-based compensation awards that are outstanding upon the adoption of FASB ASC Topic.

The fair value of each stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for United States Treasury debt securities at a maturity near the term remaining on the option. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the historical volatility of the Company’s stock price. The expected life of an option grant is based on management’s estimate as no options have been exercised in the Plan to date. The Company calculated a forfeiture rate for employees and directors based on historical information. A forfeiture rate of 0% is used for options granted to consultants. The fair value of each option grant to employees, directors and consultants is calculated by the Black-Scholes method and is recognized as compensation expense on a straight-line basis over the vesting period of each stock option award. For stock options issued to employees, directors, consultants and advisory board members for 2011 and 2010, the fair value was estimated at the date of grant using the following range of assumptions:

F-18

	2011	2010
Risk free interest rate	1.60%	3.11%
Dividends	0%	0%
Volatility factor	124.49%	130.43%
Expected life	6.67 years	6.67 years
Annual forfeiture rate	13.4%	16.1%

Employee and Director Option Grants

The following table summarizes activity for employees and directors in the Company’s Plan at December 31, 2011:

	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term In Years		Aggregate Intrinsic Value
Outstanding at December 31, 2010		56,130,000	$	0.019
Granted		14,000,000		0.008
Exercised		—		—
Forfeited		—		—
Outstanding at December 31, 2011		70,130,000	$	0.017		6.8	$	—
Exercisable at December 31, 2011		52,255,000	$	0.019		6.8	$	—

The weighted-average grant date fair value of stock options granted to employees during 2011 was $0.008 per share. The Plan recorded $228,000 of compensation expense for employee and director stock options for 2011. At December 31, 2011, there was $68,000 of unrecognized compensation costs related to non-vested share-based compensation arrangements under the Plan that is expected to be recognized over a weighted average period of approximately three years. At December 31, 2011, the fair value of options vested for employees and directors was $418,000. There were no options exercised during 2011.

Consultant Option Grants

The following table summarizes activity for consultants in the Company’s Plan for 2011:

	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term In Years		Aggregate Intrinsic Value
Outstanding at December 31, 2010		1,538,462	$	0.02
Granted		—		—
Exercised		—		—
Forfeited		—		—
Outstanding at December 31, 2011		1,538,462	$	0.02		0.6	$	—
Exercisable at December 31, 2011		1,538,462	$	0.02		0.6	$	—

F-19

There were no stock options granted to consultants during 2011. The Company recorded no compensation expense for consultant stock options during 2011. At December 31, 2011, there was no unrecognized compensation costs related to non-vested share-based compensation arrangements. At December 31, 2011, the fair value of options vested for consultants was $12,000. There were no options exercised during 2011.

Direct Methanol Fuel Cell Corporation 2002 Stock Option / Stock Issuance Plan

DMFCC formed a stock-based compensation plan in 2002 entitled the 2002 Stock Option / Stock Issuance Plan (the “DMFCC Option Plan”) that reserved 2,000,000 shares of DMFCC common stock for issuance to employees, non-employee members of the BOD of DMFCC, BOD members of its parent company, consultants, and other independent advisors. As of December 31, 2011, options to purchase 1,396,000 shares of DMFCC common stock were outstanding and 604,000 shares remained available for grant under the DMFCC Option Plan. Of these outstanding options, 1,030,000 are incentive stock options issued to employees and 366,000 are non-statutory stock options issued to consultants. During the year ended December 31, 2011, DMFCC issued no stock options.

DMFCC uses the Black-Scholes option pricing model to calculate the fair market value of each option granted. The Black-Scholes option pricing model includes assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. For stock options that are issued, the fair value of each option grant is recognized as compensation expense on a straight-line basis over the vesting period of each stock option award.

The following table summarizes activity in the DMFCC Option Plan for 2011:

	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term In Years		Aggregate Intrinsic Value
Outstanding at December 31, 2010		1,396,000	$	.02
Granted		—		—
Exercised		—		—
Forfeited		—		―
Outstanding at December 31, 2011		1,396,000	$	.02		2.6	$	―
Exercisable at December 31, 2011		1,396,000	$	.02		2.6	$	―

DMFCC recorded zero stock option compensation expense during 2011. There were no options exercised during 2011.

VIASPACE Green Energy Inc. 2009 Stock Incentive Plan

On June 2, 2009, the Board of VGE adopted the 2009 Stock Incentive Plan (the “VGE Plan”). The VGE Plan was also approved by the holders of a majority of the Company’s common stock. The VGE Plan provided for the reservation for issuance under the Plan of 1,400,000 shares of VGE common stock.

The VGE Plan is designed to provide additional incentive to employees, directors and consultants of the Company through the awarding of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and other awards. The VGE Board administers the VGE Plan, selects the individuals to whom options will be granted, determines the number of options to be granted, and the term and exercise price of each option. Stock options granted pursuant to the terms of the VGE Plan generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of the grant. The term of the options granted under the Plan cannot be greater than 10 years. Options to employees and directors generally vest over a period determined by the VGE Board of Directors. 50,000 shares were available for future grant at December 31, 2011. There were no stock options issued during the year ended December 31, 2011. There were no stock options cancelled during 2011.

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The fair value of each stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for United States Treasury debt securities at a maturity near the term remaining on the option. Dividend rates are based on dividend history. The stock volatility factor is based on the historical volatility of VGE’s stock price. The expected life of an option grant is based on management’s estimate as no options have been exercised in the Plan to date. The fair value of each option grant to employees, directors and consultants is calculated by the Black-Scholes method and is recognized as compensation expense on a straight-line basis over the vesting period of each stock option award.

For stock options issued in 2010, the fair value was estimated at the date of grant using the following range of assumptions:

	2010
Risk free interest rate	3.37%
Dividends	0%
Volatility factor (estimated)	100.00%
Expected life	6.67 years
Annual forfeiture rate (estimated)	0%

The following table summarizes activity for employees and directors in VGE’s Plan at December 31, 2011:

	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term In Years		Aggregate Intrinsic Value
Outstanding at December 31, 2010		1,350,000	$	0.80
Granted		—		—
Exercised		—		—
Forfeited		—		—
Outstanding at December 31, 2011		1,350,000	$	0.80		8.2	$	1,958,000
Exercisable at December 31, 2011		1,181,250	$	0.80		8.2	$	1,713,000

There were no stock options issued in the VGE Plan in 2011. The Company recorded $445,000 of compensation expense under the VGE Plan for employee and director stock options for the year ended December 31, 2011. At December 31, 2011, there was $111,000 of unrecognized compensation costs related to non-vested share-based compensation arrangements under the VGE Plan that is expected to be recognized over a weighted average period of approximately three months. At December 31, 2011, the fair value of options vested for employees and directors was $945,000. There were no options exercised during 2011.

Warrants

At December 31, 2011, the Company has issued warrants to purchase 264,000 common shares of the Company to non-affiliate parties at an exercise price of $0.30 per share. These warrants expire March 8, 2012. During 2011, warrants to purchase 360,000 common shares expired.

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NOTE 10 — LONG-TERM DEBT

Loan with Community Development Commission

Concentric Water LLC (“Concentric”), a wholly owned subsidiary of the Company that was closed in 2009, entered into a long-term debt agreement with the Community Development Commission (“CDC”) in 2004 for $100,000, with interest of 5%, and monthly payments of $1,610. The loan was guaranteed by the Company and the Company is making the payments. On January 27, 2010, the Company and the CDC restructured the agreement whereby Concentric agreed to pay $1,986 in monthly principal payments beginning February 1, 2010 for 18 months. The interest rate on the loan remained at 5%. The loan was paid off in the third quarter of 2011.

Loans with the CDC are comprised of the following at December 31, 2011 and December 31, 2010, respectively:

	2011		2010
CDC of the County of Los Angeles, secured, with interest at 5% due July 1, 2011	$	―	$	12,000
Less Current Portion of Long-term Debt		―		12,000
Net Long-term Debt	$	―	$	―

Due to Changs LLC

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NOTE 11 — STOCKHOLDERS’ EQUITY

Preferred Stock

At December 31, 2011 and December 31, 2010, the number of authorized shares of the Company’s preferred stock was 10,000,000. The par value of the preferred stock is $0.001. On May 14, 2010, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation of Series A Preferred Stock. The Certificate was approved by the Board and did not require shareholder vote. The Certificate created a new class of preferred stock known as Series A Preferred Stock. There is one share designated as Series A Preferred Stock. One share of Series A Preferred Stock is entitled to 50.1% of the outstanding votes on all shareholder voting matters. Series A Preferred Stock has no dividend rights and no rights upon a liquidation event and is subject to cancellation when certain conditions are met. On May 14, 2010, the Company issued one share of Series A Preferred Stock to Mr. Chang related to the acquisition of IPA by VIASPACE and VGE, effectively giving him a controlling interest in VIASPACE.

Common Stock

As of December 31, 2011 and December 31, 2010, the number of authorized shares of the Company’s common stock was 1,500,000,000. The par value of the common stock is $0.001. Common stockholders are entitled to one vote for each share held on all matters voted on by stockholders.

As of December 31, 2010, there were 1,228,651,926 shares of common stock outstanding. During 2011, the Company issued 17,565,472 shares of common stock under an existing Registration Statement on Form S-8 to employees and consultants for services provided or to be provided to the Company. In addition, the Company issued 87,579,203 unregistered shares of common stock to employees, consultants and vendors for services provided or to be provided to the Company. All of the share issuances in 2011 were recorded at fair market value determined by the price of the Company’s common stock trading on the OTC Bulletin Board on the date of grant. Stock compensation of $1,108,000 was recorded relating to these share issuances. As of December 31, 2011, there were 1,333,796,601 shares of common stock outstanding.

NOTE 12 — INCOME TAX

The Company (excluding IPA China) did not record a provision for income taxes for 2011 or 2010 as a result of operating losses. The Company recorded valuation allowances to fully reserve its deferred tax assets, as management believes it is more likely than not that these assets will not be realized. It is possible that management’s estimates as to the likelihood of realization of its deferred tax assets could change as a result of changes in estimated operating results. Should management conclude that it is more likely than not that these deferred tax assets are, at least in part, realizable, the valuation allowance will be reduced and recognized as a deferred income tax benefit in the statement of operations in the period of change. The Company has Federal net operating loss carryovers of approximately $24,481,000 available at December 31, 2011 and State net operating loss carryovers of approximately $24,248,000 available at December 31, 2011, which expire through 2031.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company has accrued no interest or penalties at December 31, 2011. As of the date of these financial statements, the 2010, 2009, and 2008 income tax years are open to examination by federal and state taxing authorities.

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FASB ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. During the years ended December 31, 2011 and 2010, the Company did not recognize any tax liabilities related to uncertain tax positions and does not have a balance for such liabilities as of December 31, 2011.

The Company recognizes accrued interest and penalties, if any, associated with uncertain tax positions as part of the income tax provision. There was no accrued interest or penalties associated with uncertain tax positions recognized in the Company’s balance sheets as of December 31, 2011 and 2010.

The following table reconciles the US statutory rates to the Company’s effective tax rate for 2011 and 2010.

	2011			2010
U.S Statutory rates		34.0%			34.0%
State taxes, net of Federal benefit		5.7%			5.0%
Permanent differences		(0.8%	)		(4.8%	)
Change in Valuation allowance		(37.00%	)		(34.2.0%	)
Other		(1.9%	)		0
Effective income tax rate		0.0%			0.0%

The following are the components of the Company’s deferred tax assets and liabilities at December 31, 2010 and 2010:

	2011		2010
Deferred Tax Assets:
Net operating loss carryforwards	$	$9,738,000	$	$9,218,000
Stock compensation expense		3,828,000		3,424,000
Intangibles		2,555,000		16,000
Related party interest	$	126,000		123,000	)
Total Deferred Tax Assets		16,247,000		12,781,000
Less: Valuation allowance		(16,247,000)		(12,781,000)

Net Deferred Tax Assets	$	―	$	―

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IPA China 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% on income reported in the statutory financial statements after appropriated tax adjustments.

The components of the Company’s income tax expense from operations for the year ended December 31, 2011 and December 31, 2010 for consisted of:

	2011		2010
Current:
PRC	$	138,000	$	―

Income tax expense	$	138,000	$	―

The following table reconciles the US statutory rates to IPA China’s effective tax rate for 2011 and 2010:

	2011			2010
U.S Statutory rates		34.0%			34.0%
Tax rate difference between the US and PRC		(9.0%	)		(9.0%	)
Change in Valuation allowance		―			(25.0%	)

Effective income tax rate		25.0%			0.0%

IPA BVI and VGE Income Taxes

IPA BVI and VGE are British Virgin Islands international company and not subject to any United States income taxes. Companies in the United States that receive money from IPA BVI and VGE are responsible for paying United States income taxes on the money received. IPA BVI and VGE do not have any deferred tax assets or liabilities recorded for the periods covered by the accompanying financial statements.

Ionfinity Income Taxes

Ionfinity is a partnership where VIASPACE is a partner and receives an Internal Revenue Service Form K-1 annually which includes VIASPACE’s share of any income or loss of VIASPACE. This amount is included on the VIASPACE Federal and state tax returns.

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NOTE 13 — OPERATING SEGMENTS

The Company evaluates its reportable segments in accordance with FASB ASC Topic 280 “Disclosures about Segments of an Enterprise and Related Information”. As of December 31, 2011, the Company’s Chief Executive Officer, Dr. Carl Kukkonen, was the Company’s Chief Operating Decision Maker (“CODM”) pursuant to FASB ASC Topic 280. The CODM allocates resources to the segments based on their business prospects, product development and engineering, and marketing and strategy.

The Company operates in four reportable segments. The operations of DMFCC and VIASPACE Corporate’s energy related business are included in the Energy segment which is currently inactive. The operations of Ionfinity are included in the Security segment. The operations of IPA China and IPA BVI are included in the Framed Artwork segment. The operations of VGE (but not including operations of its subsidiaries, IPA China and IPA BVI) are included in the Grass segment.

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. DMFCC is currently inactive.

(ii)

VIASPACE Corporate: VIASPACE Corporate is identifying and pursuing additional business opportunities in areas including batteries, alternative fuels, and new products to conserve energy and reduce emissions. The segment is currently inactive.

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 US.

Grass Segment:

(i)

VGE (but operations of its subsidiaries, IPA China and IPA BVI): VGE grows a fast-growing, high yield, low carbon, nonfood energy crop called GKG in the PRC. GKG 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. GKG can also be used as animal feed.

The accounting policies of the reportable segments are described in the summary of significant accounting policies (see Note 1 to these financial statements). The Company evaluates segment performance based on income (loss) from operations excluding infrequent and unusual items.

The amounts shown as “Corporate Administrative Costs” consist of unallocated corporate-level operating expenses. In addition, the Company does not allocate other income/expense, net to reportable segments.

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Information on reportable segments for the years ended December 31, 2011 and 2010 is shown below:


	2011			2010
Income (Loss) From Operations:
Energy	$	(166,000	)	$	(44,000	)
Security		28,000			―
Framed-Artwork		(5,906,000	)		408,000
Grass		(1,542,000	)		(1,106,000	)
Loss From Operations by Reportable Segments		(7,568,000	)		(742,000	)
Corporate Administrative Costs		(284,000	)		(721,000	)
Corporate Stock Compensation and Warrant Expense		(1,222,000	)		(1,356,000	)
Loss From Operations	$	(9,092,000	)	$	(2,819,000	)

	2011		2010
Assets:
Energy	$	―	$	148,000
Security		145,000		132,000
Framed-Artwork		9,242,000		16,362,000
Grass		824,000		753,000
Total Assets	$	10,211,000	$	17,395,000

For 2011 and 2010, the Company had one customer which made up 97% and 74%, respectively, of our total consolidated revenues.

NOTE 14 — NET LOSS PER SHARE

The Company computes net loss per share in accordance with FASB ASC Topic 260. Under its provisions, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings would customarily include, if dilutive, potential shares of common stock issuable upon the exercise of stock options and warrants. The dilutive effect of outstanding stock options and warrants is reflected in earnings per share in accordance with FASB ASC Topic 260 by application of the treasury stock method. For the periods presented, the computation of diluted loss per share equaled basic loss per share as the inclusion of any dilutive instruments would have had an antidilutive effect on the earnings per share calculation in the periods presented.

The following table sets forth common stock equivalents (potential common stock) at December 31, 2011 and 2010 that are not included in the loss per share calculation since their effect would be anti-dilutive for the periods indicated:

	2011		2010
Stock Options		71,668,000		57,668,000
Warrants		264,000		624,000

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The following table sets forth the computation of basic and diluted net loss per share for 2011 and 2010, respectively:

	2011			2010
Basic and diluted net loss per share:
Numerator:
Net loss attributable to common stock	$	(7,482,000	)	$	(2,833,000	)
Denominator:
Weighted average shares of common stock outstanding		1,297,678,969			1,110,584,827

Net loss per share of common stock, basic and diluted	$	*		$	*

* Less than $0.01

NOTE 15 — RELATED PARTY TRANSACTIONS

Related Party Receivables

The following table represents a summary of Related Party Receivables at December 31, 2011 and December 31, 2010:

	2011		2010
Due from JJ International	$	1,236,000	$	1,259,000
Due from employee of IPA China		9,000		21,000
Total	$	1,245,000	$	1,280,000

Related Party Payables

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The following table is a summary of Related Party Payables at December 31, 2011 and December 31, 2010:

	2010		2009
Due to employee of IPA China	$	66,000	$	6,000
Due to JJ International		10,000		17,000
Due to Carl Kukkonen		672,000		471,000
Due to Nobuyuki Denda		―		11,000
Due to Changs LLC		519,000		202,000
Total	$	1,267,000	$	707,000

Amounts shown as due to Changs LLC at December 31, 2011 and December 31, 2010, represent accrued interest related to the Note owed to Changs LLC discussed in Note 10.

NOTE 16 — OTHER COMMITMENTS AND CONTINGENCIES

Leases

The Company currently has no long term office lease. Lease on land in the PRC is discussed in Note 1 and Note 5. Rent expense charged to operations for 2011 and 2010 was $36,000 and $44,000, respectively.

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.

Employment Agreements

On May 14, 2010, VGE entered into two-year employment agreements with each of Carl Kukkonen, Sung Hsien Chang and Stephen Muzi. Dr. Kukkonen would serve as Chief Executive Officer of VGE, Mr. Chang as President of VGE, and Mr. Muzi as Chief Financial Officer, Treasurer and Secretary of VGE. Dr. Kukkonen and Mr. Chang would receive a salary of $240,000 per annum and Mr. Muzi would receive $180,000 per annum. For the first 12 months, Messrs. Kukkonen and Muzi would be paid by VIASPACE. The remainder of the employment term they would be paid in cash. Each of them would be entitled to a bonus as determined by the VGE Board of Directors, customary insurance and health benefits, 20 business days paid leave per year, and reimbursement for out-of-pocket expenses in the course of his employment.

Litigation

The Company is not party to any material legal proceedings at the present time.

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NOTE 17 — FINANCIAL ACCOUNTING DEVELOPMENTS

In June 2011, the FASB issued guidance on the presentation of comprehensive income. This guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance allows two presentation alternatives: (1) present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income; or (2) in two separate, but consecutive, statements of net income and other comprehensive income. This guidance is effective as of the beginning of a fiscal year that begins after December 15, 2011. Early adoption is permitted, but full retrospective application is required under both sets of accounting standards. The Company is currently evaluating which presentation alternative it will utilize.

In September 2011, the FASB issued ASU No. 2011-08, which amends current guidance by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment in order to determine whether it should perform the two-step goodwill impairment test to calculate the fair value of a reporting unit. The update also provides additional examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This guidance is effective as of the beginning of a fiscal year that begins after December 15, 2011. Then Company adopted the new guidance effective with its December 31, 2011 financial statements.

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