Alterrus Systems 20F 2008 Annual report

GENERAL BUSINESS RISKS - continued

We identified material weaknesses in our disclosure controls and procedures and our internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002 requires management to assess our internal control over financial reporting (“ICFR”) pursuant to a defined framework. In making that assessment, management identified a material weakness in our disclosure controls as a result of several material weaknesses identified in our ICFR as described in Item 15 below. There are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective ICFR can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect misstatements. Material weaknesses make it more likely that a material misstatement of annual or interim financial statements will not be prevented or detected. In addition, effective ICFR at any point in time may become ineffective in future periods because of changes in conditions or deterioration in the degree of compliance with our established policies and procedures.

RISKS ASSOCIATED WITH OUR BUSINESSES AND INDUSTRIES

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

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

	•	brand name recognition;

	•	availability of financial resources;

	•	the quality of products;

	•	reviews received for products from independent reviewers who publish in magazines, websites, newspapers and other industry publications;

	•	availability of access to retail shelf space;

	•	the price of each product; and

	•	the number of products then available.

We face competition from other consumer retail manufacturers and industrial manufacturers, all of whom generally sell through the same combination of channels as we intend to, including retail, wholesale, direct-response and online marketing sales.

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

RISKS ASSOCIATED WITH OUR BUSINESSES AND INDUSTRIES - continued

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

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

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

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

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

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

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

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

	•	general business conditions;

	•	interest rates;

	•	inflation;

	•	consumer debt levels;

	•	the availability of consumer credit;

RISKS ASSOCIATED WITH OUR BUSINESSES AND INDUSTRIES - continued

	•	taxation;

	•	fuel prices and electrical power rates;

	•	unemployment trends;

	•	natural disasters;

	•	terrorist attacks and acts of war; and

	•	other matters that influences consumer confidence and spending.

Consumer and end user purchases of discretionary items, including our potential products and product lines, could decline during periods in which discretionary income is lower or actual or perceived unfavorable economic conditions exist. Should this occur, and if we are unable to introduce new products and product lines that consumers find appealing, our business, financial condition and results of operations will be negatively affected.

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

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

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

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

RISKS ASSOCIATED WITH OUR BUSINESSES AND INDUSTRIES - continued

There is no certainty that our key projects will be operationally successful or profitable.

We are highly dependent upon the success of our algae to biodiesel joint venture project, our high density vertical growth system commercialization, and the risk associated with the replication of laboratory results or prototype tests in the larger scale demonstration project and commercialization project is critical to the Company. We believe that the demonstration facility relating to algae to our biodiesel joint venture project will be ready to replicate laboratory results during 2009, and expect the majority of our commercialization of our high density vertical growth system will occur during fall and winter months this year. If the expected results can not be replicated on a commercial scale, the expected revenue from these ventures will not be realized and the investment in these pilot projects is unlikely to be recovered. This would have a very material adverse effect on the Company’s financial results.

There is no certainty that our key projects will be operationally successful or profitable.

We are highly dependent upon the success of our algae biodiesel joint venture project and our high density vertical growth system. Although we are optimistic that there is a large demand for these technologies and that we are poised to capitalize on that demand, if that demand does not materialize to the extent that we project or we are not successful in promoting and distributing our technology, this will have a material adverse effect on the Company’s financial results.

RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK

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

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

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

As at March 31, 2008, we have outstanding warrants to purchase up to approximately 15,752,251 shares of our common stock, most of which are exercisable on a “net cashless” basis, which means they can be exercised, without payment of the stated exercise price, solely in exchange for cancellation of that number of common shares into which the warrants are exercisable. The number of shares for which any such warrant would be cancelled under a net cashless exercise would be the number of shares having a then current market value equal to the aggregate exercise price of the warrant, in whole or in part, based on its stated exercise price. In effect, a net cashless exercise of any such warrants would mean that, even though we would receive no cash, we would have to issue additional shares, thereby diluting, potentially significantly, our reportable earnings per share. Although the circumstances under which the net cashless exercise provision may be elected by the holders of our warrants are limited, any such exercise would have a negative affect, indirectly, on the trading market price of our common stock.

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

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

	•	the trading volume of our shares;

	•	the number of securities analysts, market-makers and brokers following our common stock;

	•	changes in, or failure to achieve, financial estimates by securities analysts;

RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK - continued

	•	new products introduced or announced by us or our competitors;

	•	announcements of technological innovations by us or our competitors;

	•	actual or anticipated variations in quarterly operating results;

	•	conditions or trends in our business industries;

	•	announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

	•	additions or departures of key personnel;

	•	sales of our common stock; and

	•	general stock market price and volume fluctuations of publicly-traded, and particularly microcap, companies.

You may have difficulty reselling shares of our common stock, either at or above the price you paid, or even at fair market value. The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our common stock is thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline regardless of how well we perform as a company. In addition, securities class action litigation has often been initiated following periods of volatility in the market price of a company’s securities. A securities class action suit against us could result in substantial legal fees, potential liabilities and the diversion of management’s attention and resources from our business. Moreover, and as noted below, our shares are currently traded on the OTC Bulletin Board and, further, are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to manipulation by market-makers, short-sellers and option traders.

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

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

	•	deliver to a prospective investor a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market;

	•	provide the prospective investor with current bid and ask quotations for the penny stock;

	•	explain to the prospective investor the compensation of the broker-dealer and its salesperson in the transaction;

	•	provide investors monthly account statements showing the market value of each penny stock held in their account; and

	•	make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.

RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK - continued

These requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that is subject to the penny stock rules. Since our common stock is subject to the penny stock rules, investors in our common stock may find it more difficult to sell their shares.

We as a Canadian Company, and must ensure compliance with Canadian as well as American securities laws. As a result, there may be securities regulations in the jurisdiction where our shareholders are resident that must be met, and such regulations may impact the ability of our shareholders to trade our securities.

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

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

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

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

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

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

Future issuances of our common stock may depress our stock price and dilute your interest. We have convertible debt instruments convertible into common shares, warrants and other financial instruments that may be convertible into common stock.

There are existing convertible notes and interest outstanding in excess of $5,202,741 as at March 31, 2008, and in excess of $7,500,000 as at September 15, 2008 that may be converted into an unknown number of shares causing shareholder dilution. At current market prices at the date of this annual report, this may result in at least 15-20 million shares to be issued if fully converted. Some of these notes have provisions that are “toxic” with reference to equity conversion privileges that allow a 30%+ conversion to the then trading market at the date of conversion allowing at any date an unknown amount of shares to be issued in exchange for the conversion of principal, accrued interest, and registration penalties. In addition, other provisions of some of these convertible securities limit or “cap” the exercise price at US$0.50 per share limiting the decrease in conversion equity to be issued in the event that our share price increases in the trading market. As a result, a significant risk relates to the shareholder dilution that may be experienced in consequence with securities issued and those that might be issued in the future.

RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK - continued

As at March 31, 2008, we have outstanding warrants to purchase up to approximately 15,752,251 shares of our common stock, and as of September 15, 2008, we had 25,785,106 warrants outstanding to purchase common shares for terms ranging from 1 to 5 years.

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

Additionally, if possible under terms that we believe to be appropriate given our financial condition and other circumstances, we will likely seek to raise additional financing during our year ending March 31, 2009. We may also issue additional shares, options, and warrants where we can to obtain necessary services.

Some of the issuances we have made in the past, and are likely to make in the future, have been issued at prices below market and at prices below our historical market prices. Consequently, our shareholders have suffered dilution in the value of their shares and can expect that we will be issuing additional securities on similar terms. Further dilution can be expected to occur when our outstanding options and warrants are exercised or debentures are converted at prices below the market.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT

By certificate of amendment dated April 15, 2005, we changed our name from Nettron.com, Inc. to Valcent Products Inc. to reflect a newly adopted business plan. On May 3, 2005 we delisted our commons stock from the TSX Venture Exchange, maintaining only its quotation on the OTC Bulletin Board and changed our common stock symbol to “VCTPF”. Effective May 3, 2005, and in order to render our capital structure more amenable to contemplated financing, we effected a consolidation of our common shares on a one-for-three-basis. Unless otherwise noted, all references to the number of common shares are stated on a post-consolidation basis.

Corporate History

We were incorporated in accordance with the provisions of the Business Corporations Act (Alberta) on January 19, 1996, as 681673 Alberta Ltd., and later changed to Ironclad Systems Inc. Beginning in 1996, following the completion of a public offering, our common shares began trading as a junior capital pool company on the Alberta Stock Exchange (later becoming part of the Canadian Venture Exchange, which was thereafter acquired and renamed the TSX Venture Exchange).

On May 8, 1999, while still operating our bicycle rental and eco-tour businesses through Bikestar Rentals Inc., we incorporated Nettron Media Group Inc., a wholly-owned subsidiary under the laws of the State of Texas, as a marketing enterprise focusing on products and services that could be effectively marketed through the internet as well as more traditional business channels. Nettron Media Group Inc.’s primary focus was Cupid’s Web, an interactive online dating and marketing service. We also changed our name from Bikestar Rentals Inc. to AdventurX.com, Inc., and later to Nettron.com, Inc.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

In 2000, and in connection with Cupid’s Web, we signed an agreement in principle to acquire all of the outstanding capital stock of a group of companies operating a worldwide dating service franchise, as well as a collection of dating magazines and websites.

On January 1, 2001, in order to fully focus on our interactive dating and marketing services, we disposed of all of the outstanding capital stock of Arizona Outback Adventures LLC and Bikestar Rentals Inc.

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

By certificate of amendment dated April 15, 2005, we changed our name from Nettron.com, Inc. to Valcent Products Inc. to reflect a newly adopted business plan. On May 3, 2005 we delisted our common stock from the TSX Venture Exchange, maintaining only its quotation on the OTC Bulletin Board and changed our symbol to “VCTPF”. Effective May 3, 2005, and in order to render our capital structure more amenable to contemplated financing, we effected a consolidation of our common shares on a one-for-three-basis. Unless otherwise noted, all references to the number of common shares are stated on a post-consolidation basis.

On August 5, 2005, we completed a licensing agreement with Pagic LP (a company affiliated with our President and director, Glen Kertz) for the exclusive worldwide marketing rights to certain potential products and a right of first offer on future potential products.

In order to facilitate the business plan, the Company formed a wholly-owned Nevada corporation, Valcent USA, Inc. to conduct operations in the United States in November 2006. In turn, Valcent USA, Inc. incorporated Valcent Management, LLC, and a wholly-owned limited liability corporation under the laws of Nevada, to serve as the general partner in Valcent Manufacturing Ltd., a limited partnership also formed by Valcent USA, Inc., under the laws of Texas, wherein Valcent USA, Inc. serves as its limited partner. Valcent Products EU Limited was incorporated by Valcent Products Inc. in the domicile of England to conduct future anticipated operations in Europe. Valcent Vertigro Algae Technologies, LLC, a Texas limited liability corporation was formed as a 50% owned subsidiary to each of Valcent, USA Inc. and Global Green to develop algae related technologies.

Fundamental Transaction

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

On October 19, 2005, we incorporated Valcent USA, Inc., as a wholly-owned subsidiary under the laws of the State of Nevada. In turn, Valcent USA, Inc. incorporated Valcent Management, LLC, a wholly-owned limited liability company under the laws of the State of Nevada, to serve as the general partner in Valcent Manufacturing Ltd., a limited partnership also formed by Valcent USA, Inc., under the laws of the State of Texas, wherein Valcent USA, Inc. serves as limited partner, in order to conduct operations in Texas.

During the year ended March 31, 2007, the Company incorporated Valcent Products EU Limited (“Valcent EU”) in England to conduct operations and development initiatives in Europe.

We are, at present, a development stage company focused primarily on:

(i)

the development of a commercial bio-diesel feed stock technology via a formalized corporate joint venture with Global Green through 50% owned Texas subsidiary, Vertigo Algae Technologies LLC. (During the year ended March 31, 2008 and through May 1, 2008, the Company operated this initiative via a non-incorporated joint venture with Global Green);

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

(ii)	the development of our High Density Vertical Growth System designed to produce vegetables and other plant crops (“HDVG System”);

(iii)

the development and marketing of the Tomorrow GardenTM consumer retail product in our UK based subsidiary;

(iv)	ongoing research and development with tissue culture technologies, plant growth technologies, and other product and technology development initiatives; and

(v)	ongoing development planning and research regarding our Nova Skin Care System product line.

From inception, we have generated minimal revenues and experienced negative cash flows from operating activities and our history of losses has resulted in our continued dependence on external financing. Any inability to achieve or sustain profitability or otherwise secure additional external financing, will negatively impact our financial condition and raises substantial doubts as to our ability to continue as a going concern.

Organizational Structure

The following organizational chart sets forth our current corporate structure and reflects subsidiary interests relating to our various entities.

Valcent Products Inc., Alberta, Canada is the direct and or indirect parent corporation to the following:

Valcent USA Inc., Nevada, USA – 100%

Valcent Management LLC, Nevada, USA – 100%

Valcent Manufacturing Ltd., Texas, USA – 100%

Valcent Products EU Limited, UK – 100%

Vertigro Algae Technologies LLC, Texas, USA – 50%

Valcent Products, Inc. formed a wholly-owned Nevada corporation, Valcent USA, Inc. to conduct operations in the United States in November 2006. In turn, Valcent USA, Inc. formed Valcent Management, LLC, as a wholly-owned limited liability corporation under the laws of Nevada, to serve as the general partner in Valcent Manufacturing Ltd., a limited partnership also formed by Valcent USA, Inc., under the laws of Texas, wherein Valcent USA, Inc. serves as its limited partner. Valcent Products EU Limited was incorporated by Valcent Products Inc. in the domicile of England to conduct future anticipated operations in Europe. Vertigro Algae Technologies, LLC, a Texas Limited Liability Corporation was formed as a 50% owned subsidiary to each of Valcent, USA Inc. and Global Green to develop algae related technologies.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

Current License Agreements

On July 29, 2005, we entered into five related definitive agreements (the “Pagic Agreements”) with Pagic LP (formerly MK Enterprises LLC), an entity controlled by M. Glen Kertz, our current Chief Executive Officer, acting President, and Chairman of the board of directors, including:

(i)

a master license agreement for a term continuing so long as royalty payments continue to be made as required for the exclusive worldwide marketing and distribution rights to three unrelated and proprietary potential consumer retail products that had previously been developed (the “Pagic Master License”), certain of which are patent pending by Pagic, including the Nova Skin Care System, the Dust Wolf TM, and the Tomorrow Garden TM Kit (collectively, and together with any improvements thereon, the “Initial Products”);

(ii)

the Pagic Master License also includes a license for a term continuing so long as royalty payments continue to be made as required for the exclusive worldwide marketing and distribution rights to any ancillary products developed and sold for use by consumers in connection with the Initial Products (the “Initial Ancillaries”);

(iii)

a product development agreement pursuant to which we were granted a right for an initial period of five years to acquire a license for a term continuing so long as royalty payments continue to be made as required for the exclusive worldwide marketing and distribution rights to any new products developed by Pagic (any such products, collectively, the “Additional Products”, and, the agreement itself, the “Pagic Product Development Agreement”);

(iv)

the Pagic Product Development Agreement also includes a license for a term continuing so long as royalty payments continue to be made as required for the exclusive worldwide marketing and distribution rights to any ancillary products developed and sold for use by consumers in connection with the Additional Products (the “Additional Ancillaries”); and

(v)	a related services agreement pursuant to which Pagic shall provide consulting support in connection with the Initial Products, the Initial Ancillaries, the Additional Products and the Additional Ancillaries (the “Pagic Consulting Agreement”), in exchange for the following:

	1)	20,000,000 shares of our common stock which have been issued to Pagic and its assigns;

	2)	a one-time US$125,000 license fee (paid);

	3)	reimbursement for US$125,000 in development costs associated with each of the Initial Products since March 17, 2005 (paid);

	4)	consulting fees of US$156,000 per year, payable monthly in advance, which the Company has paid to date; and

	5)	the greater of the following, payable annually beginning in the second license year (beginning April 1, 2007):

	(i)	US$400,000 inclusive of all consulting fees, royalty and other fees; or

	(ii)	the aggregate of the following:

		subject to a minimum amount of US$37,500 per Initial Product during the second year of the Pagic Master License, and US$50,000 each year thereafter, continuing royalties payable quarterly at a rate of:

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

	●	US$10.00 per Nova Skin Care System unit sold;

	●	US$2.00 per Dust WolfTM unit sold;

	●	4.5% of annual net sales of the Tomorrow GardenTM Kit; and

	●	3% of annual net sales of Initial Ancillaries.

a one-time US$50,000 license fee for each Additional Product licensed (except for one pre-identified product); and

subject to a minimum amount of US$50,000 per year commencing with the second year of each corresponding license, continuing royalties of 4.5% of annual net sales and 3% on annual net sales of any Additional Ancillaries.

Global Green Joint Venture and License Arrangements

Beginning on October 2, 2006, we granted certain rights of joint participation to Global Green relating to the joint venture of our high density vertical bio-reactor technology named “Vertigro”, an algae based bio-diesel feedstock initiative. Refer to “PLAN OF OPERATIONS, “High Density Vertical Bio-Reactor and Global Green Joint Venture”, and “Technology License Agreement” between Pagic LP, West Peak Ventures of Canada Ltd., and Valcent Products, Inc.

Additional License Fees Incurred in the Year ended March 31, 2008

The Company has accrued US$150,000 as at March 31, 2008 in connection with three further licensing arrangements in the year ended March 31, 2008: the Vertigro Technology License Agreement, the High Density Vertical Growth System for growing vegetables, and a plant growth technology. Formal licensing documentation is in process for the High Density Vertical Growth System.

PLAN OF OPERATIONS

From inception we have generated minimal revenues from our business operations and have traditionally met our ongoing obligations by raising capital through external sources of financing.

At present, we do not believe that our current financial resources are sufficient to meet our working capital needs over the next twelve months and, accordingly, we will need to secure additional external financing to continue our operations. We anticipate raising additional capital though further private equity or debt financings and shareholder loans. If we are unable to secure such additional external financing, we may not be able to meet our obligations as they come due or to fully implement our intended plan of operations, as set forth below, raising substantial doubts as to our ability to continue as a going concern.

Our plan of operations over the course of the next twelve months is to focus primarily on the continued development of our industrial technologies and commercialization initiatives relating to out high density vertical vegetable growing systems (“HDVG System”), the development via joint venture of our high density vertical bioreactor technology named “Vertigro”, an algae based bio-diesel feedstock initiative, and development of our lines of potential consumer retail products.

The Company’s El Paso, Texas based life sciences operations employs scientific expertise in the fields of plant propagation and cultivation, crop production, plant breeding and plant biochemistry, and plant physiology to make significant contributions to the world's economy and quality of life. Valcent’s research and development programs result in new and innovative products, processes, and technologies to be commercialized and licensed internationally. As the global population grows, so does the need for quality foods, enhanced nutrition, consistent feed ingredients for livestock, alternative fuel sources, and environmentally friendly chemical alternatives.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

PLAN OF OPERATIONS - continued

Valcent Products Inc. is Green Technologies Focused:

Valcent is in the final stages of developing a commercial scale model of its high density vertical vegetable growing systems as well as reaching advanced development phases of research and development to produce algae biomass fuels and other algae products. Both systems can be sited on non-arable land, thus not competing with conventional food production. We believe both use very little water or fertilizer. Both are intended by management to be scaled up to meet specific demand.

Based on management’s testing and performance expectations, the Company’s High Density Vegetable-growing technology produces up to 10-20 times the yield of fresh, nutritious vegetables, using only 5% of the water of conventional crop practices. Deployed within an urban environment to save on transportation costs, vegetables are delivered live to the consumer, without the application of herbicides or pesticides.

The development of our Vertical Bioreactor algae production technology, at the El Paso facility, has had what management believes are encouraging early results. Management’s target is to produce vegetable oil that can receive secondary processing to biodiesel or other fuel products in line with the cost of fossil fuels or less. We own 50% of this project, however on September 26, 2008, Valcent entered into an agreement with Global Green to purchase its entire membership interest in Vertigro Algae Technologies LLC, the company responsible for developing the Company’s proprietary technologies to produce algae biomass fuels and other algae products. The price to be paid for the Membership interest is US$5 million in cash and 5 million common shares in the capital of the Company, and is subject to finance.

The Company and Global Green further agreed that Global Green, on a non-exclusive basis, may be engaged to facilitate the commercialization and development of the Company’s technologies with particular emphasis on bio mass power generation including the integration of Global Green’s “Greensteam” applications, the terms and consideration for which are to be determined on a project specific basis..

The Company’s UK subsidiary, Valcent Products EU Limited has directed efforts towards in-depth market research, developing a marketing plan, and equipping a fully functional plant tissue culture laboratory. Valcent Products EU is marketing a range of Tomorrow Garden plant products, culturing a number of more exotic plant species (such as orchids etc.), a range of culinary herbs for marketing later in the year, and is reviewing a number of options for special multi herb packaged kits. Further, Valcent Products EU is researching the development of a range of Chinese medicinal herbs, which can be sold in a “growing kit” form through “alternate medicine” outlets and to pharmaceutical companies involved in research in this field.

Key Personnel

•

Glen Kertz, our President and CEO is responsible for overseeing all Company development initiatives while heading Vertigro and HDVG System research, design, and development as well as new product research and development initiatives including tissue culture and plant growth technologies. Mr. Glen Kertz also manages intellectual property, trademarks, and patents relating to our various technologies and products;

•

Forrest Ely, the Chief Operating Officer (effective January 1, 2007) of Valcent Manufacturing Ltd., under the direction of M. Glen Kertz, is responsible for overseeing all aspects of our commercial design, product development, and fulfillment activities relating to our HDVG System and Vertigro technologies. He will also aid in the design, engineering, and build out of our Company’s research facility located in El Paso;

•	Chris Bradford, the Managing Director of Valcent Products EU Limited is responsible for UK business operations and the Company’s "Tomorrow Garden TM" retail plant sales initiative, as well as development of European based HDVG System market development and sales rollout; and

•

Jack Potts the Vice President, Sales and Marketing - Consumer Products Division of Valcent Manufacturing Ltd. is responsible for formulating, managing and overseeing all aspects of our consumer products marketing strategies, including our retail sales, infomercial, internet, and other distribution strategies. He is also be responsible for working with our advertising agency contracts in facilitating our entry and sustainability in the direct-response, online and consumer retail marketing segments.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

PLAN OF OPERATIONS - continued

El Paso Research and Development Facility

In 2007, Valcent acquired a six acre property and developed infrastructure and security; in El Paso, Texas. A laboratory facility was constructed and equipped in order to facilitate and expedite programs to effect an algae identification, characterization and cultivation technology; and to commercialize a high density vertical technology for the production of food crops. A team of senior scientists, lab technicians and project managers, directed by our President, Glen Kertz, has been assembled based on their expertise in the fields of plant propagation and cultivation, plant breeding and plant biochemistry, and plant physiology, crop production with emphasis on the study, identification and characterization of algae. Dedicated project specific teams are currently focused on the development and commercialization of two unique and productive plant growing systems which address the energy and food crises facing the world.

More specifically, our plan of operations with respect to each of our lines of potential consumer retail products and commercial bio-diesel feed stock initiative is provided as follows:

POTENTIAL COMMERCIAL PRODUCTS

High Density Vertical Bio-Reactor and Global Green Joint Venture

We are in the development stages of creating technology for a high density vertical bioreactor in conjunction with joint venture partner, Global Green, though Vertigro Algae Technologies, LLC, a company owned 50% by each of Valcent and Global Green. The objective of this technology is to produce a renewable feed stock for the further processing of biodiesel from the growth of oil bearing algae, that in the process also sequesters carbon dioxide from the atmosphere (CO2 is generally accepted as a contributor to global warming). Our high density vertical bioreactor is configured in a manner intended to promote the rapid growth of various forms of algae which is later processed to remove volatile oils suitable for the production of bio diesel or other fuels. Owing to the vertical nature of the design, our technology allows the reactors to be stacked on a smaller foot print of land than traditional growing methods require. We believe secondary potential markets for this technology include industrial, commercial, and manufacturing businesses that produce carbon dioxide emissions that wish to gain possible credits for carbon sequestration, as well as possible pharmaceutical, fertilizers, and other use. We anticipate the launch of this technology in 2009, however, this date may be delayed for several reasons, including but not limited to the availability of financing and delays in the successful or economically viable development of the technology.

It is now generally accepted that algae is potentially a viable solution for a perpetually renewable source of biofuel; some algae species are 50% oil by weight. Our El Paso science and engineering team has researched and developed a proprietary vertical bioreactor panel and process designed for the cultivation of algae. The closed loop, re-circulating system increases yield and controls the potential of contamination, dramatically reducing the area required for cultivation unlike conventional crops such as palm, soy, and corn which do not require arable land. Further, the planned Valcent bioreactor technology provides for continuous production and harvest without the requirement to shut down the system. Most conventional cultivation procedures require a protocol of shutting down, draining and then re-starting and inoculating in order to harvest algae for processing.

Of equal importance to the development of the mechanical systems and infrastructure to cultivate algae, we are focused as a primary component of the development program, the investigation of algae- the plant. The science team has developed, and is patenting, specialized analytical equipment installed in the El Paso laboratory specifically designed to identify and characterize algae species in order to maximize efficiency in commercial production. The Company is currently optimizing the system to increase yields and finalize a commercial production prototype.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

Potential Markets – High Density Vertical Bio-Reactor

Research is ongoing with respect to the algae based bioreactor technologies, however it is management’s aim to have the technology compete with fossil fuels. Valcent's High Density Vertical Bioreactors algae-to-biofuel technology mass produces algae convertible to vegetable oil which is suitable for refining into a cost-effective, non-polluting biodiesel. We believe the algae derived fuel will be an energy efficient replacement for fossil fuels and can be used in any diesel powered vehicle or machinery. In addition, 90% by weight of the algae is captured carbon dioxide, which is "sequestered" by this process and so contributes significantly to the reduction of greenhouse gases.

Current data projects high yields of algae biomass, which can be harvested and processed into algal oil for biofuel feedstock at a significantly lower cost than comparable oil-producing crops such as palm and soybean. Other potential uses of the algae include ingredients in food, pharmaceutical, and health and beauty products.

The High Density Vertical Bioreactors technology was developed in recognition and response to a huge unsatisfied demand for vegetable oil feedstock by biodiesel refiners and marketers. Biodiesel, in 2000, was the only alternative fuel in the United States to have successfully completed the Environmental Protection Agency required Tier I and Tier II health effects testing under the Clean Air Act. These tests conclusively demonstrated biodiesel's significant reduction of virtually all regulated emissions. A U.S. Department of Energy study has shown that the production and use of Biodiesel, compared to petroleum diesel, resulted in a 78.5% reduction in carbon dioxide emissions.

Algae, like all plants, requires carbon dioxide, water with nutrients and sunlight for growth. The High Density Vertical Bioreactor technology is ideal for locations adjacent to heavy producers of carbon dioxide such as coal fired power plants, refineries or manufacturing facilities, as the absorption of CO2 by the algae significantly reduces greenhouse gases. These reductions represent value in the form of Certified Emission Reduction credits, so-called carbon credits, in jurisdictions that are signatories to the Kyoto Protocol. Although the carbon credit market is still small, it is growing fast, valued in 2005 at $6.6 Billion in the European Union and projected to increase to $77 Billion if the United States accepts a similar national cap-and-trade program.

Valcent's HDVB bioreactor system can be deployed on non-arable land, requires very little water due to its closed circuit process, does not incur significant labor costs and does not employ fossil fuel burning equipment.

Competition - - High Density Vertical Bio-Reactor

The Company has many competitors attempting to create biofuels from algae utilizing a number of innovative technologies. For our algae based products, we depend on technologies being developed by Pagic LP, a company in which our President has an interest, our scientific and engineering teams, and patent protection on those technologies and processes, product development capabilities, and our management’s experience to compete within the algae biofuels market segments. We may not be able to effectively compete in these intensely competitive markets. Moreover, some of our competitors have longer operating histories, greater financial resources, greater research and development support infrastructure, and technical and other resources. Furthermore, we believe that competition from new entrants will increase as the demand for green technologies and continues to increase worldwide. A partial list of competitors in the algae biofuels space follows:

Greenfuel Technologies Corporation

Aquaflow Bionomic Corporation

LiveFuels Inc.

Green Star Products, Inc.

Solazyme, Inc.

Aurora BioFuels, Inc.

Seambiotic Ltd.

Royal Dutch Shell and HR Biopetroleum

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

High Density Vertical Growth System

PetroSun Inc.

International Energy, Inc .

AlgoDyne

Circle Biodiesel & Ethanol Corporation

We are developing a high density vertical growth system “HDVG System” that is intended to grow a wide variety of crop products. The Company is experimenting with vegetable crops utilizing the growing system within its greenhouse production plant in El Paso, Texas. We believe the HDVG System technology provides a solution to rapidly increasing food costs caused by transportation/fuel costs spiraling upwards with the cost of oil. Developed over several years by Valcent's research and development partner, Pagic LP, the system is designed to grow vegetables and other foods much more efficiently and with greater food value than in agricultural field conditions. Our research to date indicates that the HDVG System demonstrates the following characteristics:

	■	Produces approximately 10-20 times the normal production volume for field crops

	■	Requires 5% of the normal water requirements for field crops

	■	Can be built on non-arable lands and close to major city markets

	■	Can work in a variety of environments: urban, suburban, countryside, desert etc.

	■	Does not use herbicides or pesticides

	■	Expected operating and capital cost savings over field agriculture

	■	Will likely reduce, to a large extent, transportation costs to market resulting in further savings, higher quality, fresher foods on delivery, and less transportation pollution

	■	Will be easily scalable from small to very large food production situations

The HDVG System grows plants in closely spaced pockets on clear, vertical panels that are moving on an overhead conveyor system. The system is designed to provide maximum sunlight and precisely correct nutrients to each plant. Ultraviolet light and filter systems exclude the need for herbicides and pesticides. Sophisticated control systems gain optimum growth performance through the correct misting of nutrients, the accurate balancing of PH and the delivery of the correct amount of heat, light and water.

Management believes advantages of the HDVG System include:

	■	reduction in global transport and associated carbon emissions

	■	food and fuel safety, security and sovereignty

	■	local food is better for public health

	■	building of local economies

	■	control of externalities and true costs

In a rapidly urbanizing world where the majority of people now live in cities, localization requires that food and fuel be produced in an urban context. At present, we are not aware of a locally sustained urban community anywhere in the world. Urban sustainability is yet to be realized primarily because urban agriculture presents a number of technological challenges. The main challenge is a lack of growing space.

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Vertical growing is a new idea currently emerging which offers great promise for increasing urban production. Vertical growing systems have been proposed as possible solutions for increasing urban food supplies while decreasing the ecological impact of farming. The primary advantage of vertical growing is the high density production it allows using a significantly reduced physical footprint and fewer resources relative to conventional agriculture. Vertical growing systems can be applied in combination with existing hydroponics, and greenhouse technologies which already address many aspects of the sustainable urban production challenge (i.e., soil-free, organic production, closed loop systems that maximize water and nutrient efficiencies, etc.). Vertical growing, hydroponics and greenhouse production have yet to be combined into an integrated commercial production system, but, such a system would have major potential for the realization of environmentally sustainable urban food and fuel production.

The Company is currently developing an HDVG System and specification of the commercial scale plant capable of defining final operating and capital costs to maximize sales return on cost.

Reduced Global Transport and Associated Carbon Emissions: It is widely recognized that the transportation of food over long distances – compared to locally sourced foods – causes excessive energy use, air pollution and a contributor to climate change. Today, food products typically travel between great distances between source and market. The energy used for food transport often far outweighs the human energy gained by the food. The associated need for long-haul refrigeration and packaging further increases the energy costs of food transport. Long-distance and cross-continental food trade is clearly on the rise with the tonnage of food shipped between nations having grown many times over in the last fifty years. Choosing local over global products has powerful potential to reduce energy consumption.

Food and Fuel Safety, Security and Sovereignty: We believe that the further that food is shipped from its growing source, the more vulnerable our food and energy systems become. There are many factors that can interrupt global production and distribution systems including political instability, changes in government, fluctuations in international markets, oil shortages and depletion, war and conflict, acts of terrorism, and natural disasters such as floods, earthquakes, drought, or hurricanes. Localization of food and fuel production has important potential for daily security and emergency preparedness as every community should be able to supply at least a fraction of the food and fuel required by its residents.

Food that is transferred across borders does not necessarily meet the traditional safety standards of consumer countries. Since local food is produced under tractable conditions, in adherence with local food safety standards, greater levels of food safety are ensured.

About 25,000 people die every day of hunger or hunger related causes according to the United Nations. In Africa, for example, it is agriculture itself that is in crisis; caused by years of wars, coups and civil strife, increases in population, and natural problems such as drought. Sub Saharan African soil quality is classified as degraded in about 72% of arable land and 31% of pasture land.

The High Density Vertical Growing System grows leafy lettuce, micro greens (small leafed plants of a wide variety), spinach, herbs, mints, beets, strawberries, wheatgrass, alfalfa and other grains. The HDVG System has the capability of, on average, growing up to 10-20 times the amount of vegetables per acre than conventional field production while using only 5% of the water. Field lettuce loses half its nutritional value within 24 hours and delivery to distant customers can take up to a week. Innovations inherent to the HDVG System will make it possible to deliver vegetables which are still alive to the consumer.

The Company believes that one-eighth acre replicable turnkey modules can be scaled up to meet output and crop diversity requirements. The system can be sited anywhere, in urban, suburban or even desert environments, wherever vegetables are needed. A primary advantage of vertical growing is the high density production it allows using a much reduced physical footprint and fewer resources relative to conventional agriculture. Initial production performance for the HDVG System is based on growing leafy lettuce.

Potential Markets – High Density Vertical Growth System for Vegetables

Vertical growing systems have been proposed as possible solutions for increasing urban food supplies while decreasing the ecological impact of farming, and as a result, we expect the technology to compete with traditional growing techniques Vertical growing, hydroponics and greenhouse production have yet to be combined into an integrated commercial production system, but, such a system would have major potential for the realization of environmentally sustainable urban food and fuel production.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

Developments to Date: The Nova Skin Care System features a proprietary micro-vibration technology that cleanses, exfoliates and moisturizes skin. The Nova Skin Care System uses lotions and creams with anti-oxidants to make skin look healthier and more beautiful. Users see a decrease in the appearance of fine lines and wrinkles and enhanced skin tone, along with firmer skin due to increased collagen. Featured on the nationally syndicated Montel Williams show, the Nova Skin Care System is generating critical acclaim from divergent media across the country including popular lifestyle magazines including Marie Claire who said the system “saves your skin” and “helps to cleanse all those hard-to-reach areas” and Jewel which reports the system makes one’s face “silky smooth.”

Nova Skin Care System

During 2007, a 28-minute infomercial created by Hawthorne Direct, a premiere direct response television advertising agency, was developed for consumer direct retail product introduction. The informational campaign, which was awarded a Direct Marketing Association 2007 Millennium Award, was featured in heavy rotation from coast to coast on national and local networks since June 2007 and is supported by a public relations campaign that generated numerous positive reviews.

The system features the NOVAtique, a unique applicator that features a patented drive system that surrounds its motor with powerful, rare-earth magnets. Also called Neodymium magnets, they create thousands of movements per use, in all directions. These movements cannot be duplicated by the human hand. Developed by Glen Kertz, the Nova Skin Care System features a proprietary micro-vibration technology that releases impurities, delivers moisture and nutrients and decreases the appearance of fine lines and wrinkles.

The three skin care products featured with the Nova Skin Care System include Purify, a purifying cleanser specially formulated for deep cleansing without stripping essential oils; Reveal, a deep pore refining scrub with micro-beads; and Quench, a rejuvenating moisturizing cream. Each kit includes the NOVAtique unit, the three skin care products (30 day size) and 20 Sterile Micro Pads.

Our Nova Skin Care System is still in test sales phases of development. During 2007, we finalized an agreement with Solid Integrations, LLC, located in the city of Ciudad Juarez, Chihuahua, Mexico, for the manufacture and assembly of our Nova Skin Care System. All of the raw material components, tooling and fixtures, as well as the packaging and the associated creams and lotions that are included with the Nova Skin Care System were procured. We retained Arizona Natural Resources, Inc., a private label and contract cosmetic manufacturing firm, located in Phoenix, Arizona, to formulate and manufacture the creams and lotions to our specifications which are included with our Nova Skin Care System; all of the finished creams and lotions and other raw materials were shipped to Jamco, our contracted warehouse and distribution points in El Paso, Texas. Solid Integrations, contract their manufacturing to assembly agent, Mack Technologies Inc. in Chihuahua, Mexico, for final assembly and packaging. During the last quarter of the year ended March 31, 2007 and the first quarter of the year ended March 31, 2008, we exported components to Solid Integrations, LLC and subsequently assembled some 16,000+ units of the Nova Skin Care Systems packaged for resale and promotion purposes. During the year ended March 31, 2008, approximately half of this inventory of finished goods were either sold during sales testing, or utilized in product introduction promotions.

We entered into a contract with InPulse Response Group of Scottsdale, Arizona to provide telemarketing services related to the Nova infomercial. We have also engaged Wells Fargo Bank, N.A. to provide merchant processing services for credit card transactions. We have also entered into an agreement with GSI Commerce, formerly Accretive Commerce of Huntersville, North Carolina to provide order entry, data processing, customer service, and product fulfillment services.

Increasing the breadth of Nova product lines are under consideration by management and the incorporation of possible second generation design changes to the current Nova Skin Care System to re-engineer ergonomics and increase performance while decreasing product costs. In conjunction with redesign efforts and product line expansion analyses, marketing and distribution planning is under consideration and analysis by management based on test sales data derived to date to provide a comprehensive strategy for the further development of the Nova brand and product line. Internet sales initiatives are being prioritized for current finished goods inventories. Due to limited management and financial resources in combination with the Company’s focus and commitment to Vertigro and HDVG System initiatives, Nova Skin Care Systems development may decrease during the 2009 fiscal year.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

During the year ended March 31, 2008, the Company received approximately $584,144 (2007 - - $nil) in cash from $1,079,432 (2007 - $17,484) in gross test sales relating to the Nova Skin Care System, with the difference between sales and cash included in accounts receivable. As at March 31, 2008, the Company had Nova Skin Care System related accounts receivable of $374,502 (2007 - $16,412) which is net of an allowance for doubtful accounts of $93,653 (2007 - $3,798). Cash received from the sales of the Nova Skin Care System is credited to product development costs owing to the testing nature of this stage of product development.

In anticipation of Nova related redesign initiatives, during the year ended March 31, 2008, raw materials inventories for the Nova Skin Care System was written down by $413,216 (2007 - $nil). This amount has been included in product development expense for the year. As previously stated, with the Company’s focus and commitment to Vertigro and HDVG System initiatives, budget for Nova Skin Care System developments may be limited.

Potential Markets - - The Nova Skin Care System

Based on research conducted by an employee representative of our Company, the skincare market is one of the largest and fastest growing market segments in the world today. In 1998, Johnson & Johnson estimated the annual global skincare market at approximately $48 billion dollars. Between 1996 and 2001, the facial skincare market segment itself saw a 41.1% growth rate extending across all demographic boundaries. In 2002, the United States became the single largest facial skincare market in the world by surpassing Japan. The United States and Japan alone account for well over one third of global skincare sales.

Direct-Response / Online Marketing - The Nova Skin Care System

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

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

Presently, we have produced and tested a thirty minute infomercial featuring our Nova Skin Care System with Hawthorne Direct, Inc., which premiered in late December, 2006. We have been conducting infomercial testing and sales programs since the infomercial introduction. We are also in the beginning stages of developing contacts with and introducing our Nova Skin Care System to several cable television shopping networks in the United States. We have engaged Stanton Street Technology Group, a web development and design company, to launch a website dedicated exclusively to the promotion and sale our Nova Skin Care System.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

Competition - - The Nova Skin Care System

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

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

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

Neutrogena – Advanced Solutions At-Home Microdermabrasion System;

Homedics – Facial Cleansing & Microdermabrasion Set;

DermaNew – Microdermabrasion Total Body Experience;

H2O Plus – Skin Renewal Microdermabrasion Kit;

Visage Naturel – Home Microdermabrasion System;

DermaPower – Home Microdermabrasion System;

Artemis Woman – The Healing Gems Microdermabrasion System;

Sharper Image – Microdermabrasion System for Professional Skin Rejuvenations;

Yuen Mai Industrial Co., Ltd. – Ultrasonic Massager;

Ultrasonic – Ultrasonic Face & Body Massager;

Wedian Technology Co. Ltd. – Ultrasonic Beauty Stimulator; and

Oxylight – Dermawand.

Tomorrow GardenTM

Our Tomorrow GardenTM kit is an indoor herb garden kit, designed to offer, direct to the consumer, an easy to use kit featuring herbs and plants not otherwise readily available in the marketplace. Glen Kertz, our President, has conducted twelve years of research in the development, processes and techniques underlying the technology in the Tomorrow GardenTM and based on his research believes that the Tomorrow GardenTM kit offers an improved plant lifespan of three to six months, as opposed to the traditional shelf life of approximately seven to ten days for fresh herbs, and requires only ambient light, with no watering or other maintenance, to survive. We believe our Tomorrow GardenTM plant kit could be capable of supplying many of the standard herbs traditionally offered in grocery shops today, such as basil, mint, thyme, rosemary, parsley and cilantro, but may, in addition, supply more exotic herbs or pharmaceutical grade plants. Our Tomorrow GardenTM kit is currently in a development and test sales phase operating out of our offices located in England.

The Company’s UK subsidiary, Valcent Products EU Limited was established and registered as a UK company and wholly owned subsidiary of Valcent Products Inc. in 2007. During the fiscal year ended 2008, efforts were directed at in depth market research, developing the marketing plan, fitting out the new building and equipping a fully functional plant tissue culture laboratory. Further staff were recruited.

The official launch of the Tomorrow Garden was premiered at the BBC Gardeners’ World Exhibition at the NEC in Birmingham on June 11 – 14, 2008, with a follow-up at the Royal Horticultural Society’s Hampton Court Flower Show on July 8 -13, 2008.

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The launch focused on a range of ferns aimed at the Junior/Educational market sector. As ferns have been around since pre-historic times, and are known to have provided a large proportion of the diet of the herbivore dinosaurs, the emphasis will be on inviting children in the 7yrs – 14yrs age group to grow “dino food”. Growing kits have been designed in the appropriate packaging, reflecting the dinosaur theme. In conjunction with the launch, children growing these ferns will be invited to enter a competition to win a model dinosaur, the first prize being a trip for a family of four to the Natural History Science Museum in London. In addition, special school packs will be prepared in time for the autumn teacher’s conferences, so that schools can purchase the growing kits as an educational tool for culturing the ferns in the classroom.

Valcent EU is culturing a number of more exotic plant species (such as orchids) so that it can both follow-up and compliment the initial product launch. It is also developing a range of culinary herbs for marketing later in the year and are reviewing a number of options for special “Christmas” packs (e.g. the Christmas Rose). Finally, through “in house” expertise, Valcent EU is researching the development of a range of Chinese medicinal herbs, which can be sold in “growing kit” form through “alternate medicine” outlets or (ultimately) to pharmaceutical companies involved in this field of research.

Valcent EU is now fully operational with regards to the Tomorrow Garden product line and anticipates that it will commence generating test sales revenues generated from both from e-commerce through the website (www.tomorrowgarden.eu) and as a result of product launches at the BBC Gardeners’ World Exhibition and the RHS Hampton Court Flower Show.

Potential Markets - - The Tomorrow Garden™ Kit

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

Initially to be marketed to the UK Garden Products market valued in 2003 at approximately GB£5.8 billion, data shows that the market doubled in value in the period of 10 years to 2002. Forward projections made in 2003 indicated an annual increase of 5%, however these figures are notoriously difficult to predict when markets are largely controlled by the weather, other pressures on disposable income and slow downs in house sales. When this was coupled with aggressive price competition, it saw the market value drop to 5.1 Billion GB£ or US$9.4 billion in 2004-5. In the period of the last 10+ years, the overall improvement of UK summer weather, and the better than average temperatures in spring and summer, greatly helped to boost sales for outdoor living, including furniture, patio plants, and the like.

Direct-Response / Online Marketing - The Tomorrow Garden™ Kit

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

Competition - - The Tomorrow Garden™ Kit

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

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

	•	HerbKits.com – Indoor Herb Gardening Kits; and

	•	New England Herb Company.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

MARKETING AND ADVERTISING

We will endeavor to create strong brands for each of our potential product lines relating to the Nova Skin Care System and the Tomorrow GardenTM initiatives and generally market our potential products through:

	•	print advertising;

	•	infomercials and home shopping television;

	•	celebrity endorsements;

	•	internet websites;

	•	product sampling campaigns;

	•	in-store promotions, displays and retailer assisted co-operative advertising;

	•	publicity activities; and

	•	trade shows.

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

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

MANUFACTURING, FULFILLMENT AND SUPPLIERS

We are presently evaluating resources necessary to continue the development of our Nova Skin Care System and production and test marketing of initial products of our Tomorrow Garden™. Manufacture to date for Tomorrow Garden™ has been carried out in Valcent EU premises in London UK, while future support is set to come from additional facilities located in the Company’s El Paso, premises as operated by Valcent Manufacturing Ltd. Our Nova Skin Care System has been manufactured, assembled and packaged by Solid Integrations, LLC, located in the city of Ciudad Juarez, Chihuahua, Mexico, from where it will be shipped to our contract product development, warehouse and distribution center in El Paso, Texas, which, in turn, will provide product to our contract fulfillment enterprise, GSI Commerce.

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

As of the date of this annual report, we have no long-term written agreements and no intentions of entering into any such agreements with any suppliers or manufacturers, and we are not substantially dependent, nor do we anticipate becoming substantially dependent, upon any one or more suppliers, including Solid Integrations, as we believe that there are many such suppliers available with the capabilities that we will require.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

REGULATIONS

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

Food and Drug Administration

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

	•	the Food and Drug Administration, other regulatory authorities or an institutional review board placing a clinical trial on hold;

	•	insufficient patient enrollment, higher than anticipated attrition, non-compliance with trial protocols or patient follow-up not occurring at expected rates;

	•	institutional review boards and third party clinical investigators delaying or rejecting our trial protocol;

	•	third party clinical investigators declining to participate in a trial or not performing a trial on our anticipated schedule or consistent with the clinical trial protocol, good clinical practices or other Food and Drug Administration requirements;

	•	third party organizations not performing data collection and analysis in a timely or accurate manner;

	•	regulatory inspections of our clinical trials or manufacturing facilities, among other things, requiring us to undertake corrective actions or suspend, terminate or invalidate our clinical trials;

	•	changes in governmental regulations or administrative actions; and

	•	the interim or final results of our clinical trials being inconclusive or unfavorable as to safety or effectiveness.

Medical devices may be marketed only for the indications for which they are approved or cleared. The Food and Drug Administration may refuse requests for 510(k) clearance or pre-market approval or, if granted, clearances may be revoked if safety or effectiveness problems arise. As we do not believe that our Nova Skin Care System is a medical device, we are currently conducting test sales, however it may nevertheless be classified as such at a later date.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

COMPETITION

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

	•	brand name recognition;

	•	availability of financial resources;

	•	the quality of products;

	•	reviews received for products from independent reviewers who publish in magazines, websites, newspapers and other industry publications;

	•	availability of access to retail shelf space;

	•	the price of each product; and

	•	the number of products then available.

We will rely, for all of our potential product lines, on what we believe to be our superior product quality, marketing and sales abilities, proprietary technology, product development capabilities and our management’s experience to compete within each of our market segments. However, we may not be able to effectively compete in these intensely competitive markets. Moreover, some of our competitors have longer operating histories, larger customer bases and greater financial, marketing, service, support, technical and other resources, affording them the ability to undertake more extensive marketing campaigns and adopt more aggressive pricing policies, than we can. Furthermore, we believe that competition from new entrants will increase as the markets for each of our potential products expand.

INTELLECTUAL PROPERTY

Overview

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

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

Patents Pending

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

While the pending patent applications covering the technology and expertise licensed under the Company’s master license with Pagic LP, patent protection may not be granted at all, and in the event that patents are issued, the title, rights and interests associated with any such patents shall remain the exclusive property of Pagic’s consultant and our Chief Executive Officer, President, Chairman and a member of our board of directors, M. Glen Kertz.

ITEM 4. INFORMATION ON THE COMPANY: CORPORATE HISTORY AND DEVELOPMENT - continued

INTELLECTUAL PROPERTY - continued

As of the date of this annual report, we have received case and/or application numbers for each of the intellectual property assets for which we are seeking patents. Patent status for each division is provided as follows:

Division	Patents Granted	Patents Pending	Patents Published
High Density Vertical Bio-Reactor		5	4
High Density Vertical Growth System	2
Nova Skin Care System	2		4

All of our other remaining patent applications are in the preliminary stages of the application process.

Trademarks

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

Trade Secrets

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

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

SEASONALITY

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

PROPERTY, PLANT AND EQUIPMENT

Our principal executive offices are located at Suite 1010 - 789 West Pender Street, Vancouver, British Columbia V6C 1H2 (Canada). Our telephone number is (604) 606-7979.

On November 16, 2007, our wholly owned subsidiary, Valcent Products EU Limited leased office and development space in Launceston, Cornwall, UK, under a ten-year lease beginning November 15, 2007 and ending on November 15, 2017 at a quarterly cost of GB£12,550 (CDN$26,017). There were 9 years and 7.5 months remaining on the lease as at March 31, 2008. The Company has net property comprised of $340,482 comprised leasehold improvements, computer equipment, furniture and fixtures, vehicles, equipment, and other assets located at this location.

The Company acquired approximately six acres of land in El Paso, Texas for $275,240. The Company has net property comprised of $519,386 comprised leasehold improvements, computer equipment, furniture and fixtures, building, equipment, and other assets at this location.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read together with our audited financial statements for the year ended March 31, 2008 and the notes to the financial statements. Our audited financial statements have been prepared in accordance with Canadian generally accepted accounting principles which, except as noted in Notes 3 and 20 to our March 31, 2008 audited financial statements, conform in all material respects with those of United States generally accepted accounting principles and with the requirements of the U.S. Securities and Exchange Commission.

OPERATING LEGACY AND ACCUMULATED LOSSES

Valcent Products Inc. [formerly Nettron.Com, Inc.]
Selected Financial Data [Annual]
(Expressed in Canadian Dollars)
	12 months ended
	2008			2007			2006			2005
Net Operating Revenues	$	0			0			0			0
Loss from operations	$	12,028,222			8,171,090			3,466,888			45,694
Loss from prior operations	$	0			0			0			45,694
Loss from development stage	$	12,712,358			8,138,393			3,442,933			0
Net loss per Canadian GAAP	$	12,712,358			8,138,393			3,466,888			45,694
Loss per share	$	0.36			0.42			0.35			0.01

Share capital	$	16,691,282			8,196,982			4,099,870			2,999,420
Common shares issued		44,276,321			30,666,068			15,787,835			6,435,374
Weighted average shares outstanding		35,545,740			19,261,192			10,548,042			6,435,374
Total Assets	$	4,605,914			4,142,485			1,392,801			936
Total Liabilities	$	(7,674,846	)		(4,166,861	)		(1,833,900	)		(238,886	)

Cash Dividends Declared per Common Shares	$	0			0			0			0

Exchange Rates (CDN $ to US $) yearly average	$	1.03304			0.8783			0.8385			0.7842

Exchange Rates (CDN $ to British Pound £) yearly average	$	2.07314			n/a			n/a			n/a

YEAR ENDED MARCH 31, 2008 COMPARED WITH YEAR ENDED MARCH 31, 2007

Operating Results

For the year ended March 31, 2008, the Company focused on (i) the development of a commercial bio-diesel feed stock technology via a joint venture with Global Green (the “Vertigro Project”), (ii) the development of our High Density Vertical Growth System (“HDVG System”) designed to more efficiently produce vegetables and other plant crops, (iii) the development and test marketing of the Tomorrow GardenTM consumer retail product in our UK based subsidiary, (iv) the development of direct test sales initiatives and product introduction promotion relating to our Nova Skin Care System, (v) ongoing research and development with tissue culture technologies, plant growth technologies, and other product and technology development initiatives, and (vi) a series of private offering transactions with institutional and other investors, pursuant to which we raised US$5,129,636 through private placements of equity comprised of common shares and warrants, US$367,671 from warrant and share option exercises, and US$1,291,000 from convertible debentures, promissory notes, and short term advances.

For the year ended March 31, 2007, we focused (i) the development of our commercial bio-diesel feed stock technology via a joint venture with Global Green, (ii) the development of product inventories and direct sales initiatives relating to our Nova Skin Care System, and (iii) the development and anticipated marketing of the Tomorrow GardenTM consumer retail product in our UK based subsidiary and, (iv) on a series of related private offering transactions with institutional and other investors, pursuant to which we raised $4,817,114 through the issuance of convertible debentures and $1,028,266 from the issuance of common shares.

We incurred losses of $12,712,358 for the year ended March 31, 2008, as compared to $8,138,393 for the year ended March 31, 2007 after inclusion of a prior period correction in the amount of $3,068,889 pertaining primarily to accounting methods used to value and amortize convertible debenture instruments.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

YEAR ENDED MARCH 31, 2008 COMPARED WITH YEAR ENDED MARCH 31, 2007 - continued

The consolidated financial statements for the year ended March 31, 2007 have been restated to adjust prepaid expenses and insurance expense for amounts that relate to the 2008 fiscal year as well as to correct the bifurcation of convertible notes to record the values of the debt and the debt discounts, the amortization of the related debt discount using the effective interest method and the transfer of the conversion component of convertible notes to share capital upon conversion of these notes into common shares of the Company. This error was noted in the current year and resulted in a restatement to reduce net loss by $2,801,178 for the year ended March 31, 2007. The resulting restatement to amounts for the year-ended March 31, 2007 are as follows:

	As Previously Reported March 31, 2007		Adjustment			As Restated March 31, 2007
Convertible debentures	$	5,301,129	$	(2,558,667	)	$	2,742,462
Share capital	$	7,836,903	$	360,079		$	8,196,982
Contributed surplus	$	3,253,333	$	80,102		$	3,333,435
Conversion component of convertible notes	$	4,167,190	$	(879,332	)	$	3,287,858
Deficit, end of year	$	14,674,170	$	(3,068,889	)	$	11,605,281
Deficit, beginning of year	$	3,734,599	$	(267,711	)	$	3,466,888
Insurance expense	$	149,855	$	(71,071	)	$	78,784
Interest, accretion and financing on convertible notes	$	5,606,886	$	(2,880,819	)	$	2,726,067
Foreign exchange gain (loss)	$	110,006	$	(116,999	)	$	(6,993	)
Basic loss per share	$	0.57	$	(0.15	)	$	0.42

Revenues

For the years ended March 31, 2008 and March 31, 2007, we had no revenue. The Company generated approximately US$598,775 (2007 $nil) in cash related to test sales of the Nova Skin Care system which has been netted against product development costs.

Interest income for the years ended March 31, 2008 and March 31, 2007 was $10,805 and $25,704 respectively.

The foreign exchange gain for the years ended March 31, 2008 and March 31, 2007 was $611,133 and $6,993 respectively.

Operating Expenses

Product development expenses increased by $2,519,014 to $4,081,435 for the year ended March 31, 2008 as compared with the year ended March 31, 2007. The increase is due to the larger scale and scope of a) Nova Skin Care Products marketing and product testing rollout with significant infomercial media advertising costs, b) increased Vertigro research and development costs, c) new development initiatives relating to tissue culture research, plant growth technologies, and HDVG System product development, and d) the advent of Valcent EU costs relating to the Tomorrow GardenTM and UK based HDVG System development initiatives, all pursuant to license arrangements acquired in the Pagic Agreements. Product development expenses were $1,562,421 during the year ended March 2007.

In conjunction with convertible debenture financings during the year ended 2008, the Company incurred $2,804,582 in interest, accretion and financing on convertible notes in the twelve month period ended March 31, 2008. This represents a $78,515 decrease from the $2,726,067 that had been incurred during the year ended March 31, 2007 stemming primarily from amortization of convertible debenture funding activity during the 2007 and 2008 fiscal years.

Advertising and media development was $1,953,998 during the year ended March 31, 2008 (2007 $1,092,917) that reflects the more advanced stages of marketing systems development that include infomercial media purchases in connection with test sales initiatives of our Nova Skin Care System that commenced in December, 2006.

As a result of the issuance of options to directors, officers, employees and consultants the Company incurred stock option compensation expenses of $990,305 during the year ended March 31, 2008 (2007 - $1,127,141).

Professional fees decreased by $281,188 to $431,270for the year ended March 31, 2008 from $712,458 for the year ended March 31, 2007. The decrease is primarily attributable to costs associated with decreased business activity relating to intellectual property legal services, and executive search services between the respective years.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

YEAR ENDED MARCH 31, 2008 COMPARED WITH YEAR ENDED MARCH 31, 2007 - continued

Travel expenses increased by $134,967 to $291,465 (2007 - $156,498) for the year ended March 31, 2008 as a result of increased activity in all of the Company’s operations, increased number of active development projects, as well as new costs relating to an additional subsidiary interest located in the United Kingdom.

Rent expenses increased $12,225 to $77,918 for the year ended March 31, 2008 from $65,693 for the year ended March 31, 2007. The increase in rent costs incurred relates to our new offices and operations located in the United Kingdom.

Office and miscellaneous expenses decreased $46,879 to $234,817 for the year ended March 31, 2008 from $281,696 for the year ended March 31, 2007. The decrease is due to cost streamlining and organizational emphasis on project development initiatives and research facility build out at our facility in El Paso, Texas.

Filing and transfer agent expenses increased $5,617 to $44,500 for the year ended March 31, 2008, from $38,883 for the year ended March 31, 2007. The increase is primarily attributable to costs associated with the proportionate increase of financing and business activity over the 2007 fiscal year.

Investor relations fees increased $583,708 to $871,542 (2007 - $287,834) for the year ended March 31, 2008 as a result of the Company employing an increasing number of third party consultants in advisory, business consulting services, and investor relations activities with the bulk of the increase represented by non-cash stock based compensation.

Interest and penalties inclusive of interest on long term debt expenses increased $112,446 to $127,856 (2007 - $15,410) for the year ended March 31, 2008 as a result of an increasing number of interest bearing debt instruments and minimal repayment of outstanding debt issues. The interest component included in the preceding figures relating to Long term debt increased to $15,480 (2007 - $8,500) due to a complete year of debt repayments during fiscal 2008 as compared with a partial year of debt repayments during fiscal 2007 in connection with lands acquired for research relating to the Company’s development of its algae based bio-diesel feedstock initiative.

Insurance expense decreased to $71,071 for the year ended March 31, 2008, from $78,784 for the year ended March 31, 2007. The decrease is primarily attributable to the rebate of 2007 insurance costs received in the year ended March 31, 2008 and associated decreased insurance coverage required which was prorated over both 2007 and 2008 fiscal years as adjusted by a prior period adjustment.

As a result of increasing operating capacity and existing and as new project build out at our El Paso, Texas operation, as well as the development of our new Cornwall, UK offices, the Company’s property and equipment and land were valued at a net book value of $1,135,108 (2007 - $348,487) during the year ended March 31, 2008, and incurred a depreciation and amortization charge of $47,463 (2007 - $25,288).

Due to fluctuations in the United States dollar in relation to the Canadian dollar, the Company incurred a foreign exchange gain of $611,133 (2007 - $6,993) during the year ended March 31, 2008.

Net Loss

Our reported loss increased by $4,573,965 to $12,712,358 ($0.36 basic loss per share) for the year ended March 31, 2008 as compared to $8,138,393 ($0.42 basic loss per share) for the same period ending March 31, 2007 after considering a prior period correction of $3,068,889 applied to the 2007 fiscal year. The increase during the 2008 fiscal year is largely a result of a) the prior period correction in the amount of $3,068,889 pertaining primarily to accounting methods used to value and amortize convertible debenture instruments, and to a lesser degree an adjustment to prepaid expenses and insurance expense for amounts that relate to the 2008 fiscal year-end, b) $365,021 in aggregate expenses associated with increasing scale and scope of product development and marketing initiatives relating to all our projects under development, increasing Company consulting arrangements relating to increasing scale and scope of business operations, as well as expenses our new UK operating offices, and c) the write down of our product license by $1,306,074, all of which was offset by $611,133 of gain relating to foreign exchange accounts and $10,805 of interest income. Due to uncertainty in determining future cash flows related to products under license, the Company, during the year ended March 31, 2008, wrote-down the value of the product license by $1,306,074 to $1.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

YEAR ENDED MARCH 31, 2008 COMPARED WITH YEAR ENDED MARCH 31, 2007 - continued

Liquidity and Capital Resources

Because we are organized in Canada, our March 31, 2008 financial statements have been prepared by our management in accordance with Canadian GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

Our accumulated losses during the development stage increased by $12,712,358 to $24,317,639 for the year ended March 31, 2008 from approximately $11,605,281 for the year ended March 31, 2007.

Our working capital deficit increased to $4,153,903 from $1,600,602 for the year ended March 31, 2008 representing a $2,553,301 increase over the year ended March 31, 2007. As described in Note 1 to our March 31, 2008 financial statements, these conditions raise substantial doubt as to our ability to continue as a going concern. We do not believe our working capital is sufficient for our present requirements, and anticipate that we will need to secure additional capital to fund our operations.

We raised US$1,041,000 in net cash proceeds from the issuance of convertible debentures during the year ended March 31, 2008, as compared to US$4,133,866 for the year ended March 31, 2007.

	US $														CDN $
	Balance		2008		2008			2008		2008			Balance		Balance
	March 31,		Issued		Equity			Interest /					March 31,		March 31,
Date of Issue	2007		Principal		Portion			Penalty		Conversions			2008		2008

July/August 2005 (Note 10(a))	$	316,957	$	0	$	0		$	22,389	$	(79,521	)	$	259,825	$	265,583
April 2006 (Note 10(b))		495,607		0		0			38,835		0			534,442		546,841
April 2006 (Note 10(c))		79,115		0		0			6,427		0			85,542		87,527
December 2006 (Note 10(e))		670,486		0		0			989,296		0			1,659,782		1,698,289
January 2007 (Note 10(f))		813,084		0		0			967,767		(211,668	)		1,569,183		1,605,558
August 2007 (Note 10(g))		0		650,000		(230,007	)		258,574		0			678,567		694,310
September 2007 (Note 10(h))		0		391,000		(213,249	)		119,682		0			297,433		304,633
	$	2,375,249	$	1,041,000	$	(443,256	)	$	2,402,970	$	(291,189	)	$	5,084,774	$	5,202,741

	US $														CDN $
	Balance		2007		2007			2007		2007			Balance		Balance
	March 31,		Issued		Equity			Interest /					March 31,		March 31,
Date of Issue	2006		Principal		Portion			Penalty		Conversions			2007		2007

July/August 2005 (Note 10(a))	$	1,429,104	$	0	$	0		$	119,875	$	(1,232,022	)	$	316,957	$	365,959
April 2006 (Note 10(b))		0		551,666		(388,313	)		567,366		(235,112	)		495,607		572,228
April 2006 (Note 10(c))		0		82,200		(48,776	)		70,054		(24,363	)		79,115		91,346
December 2006 (Note 10(e))		0		1,500,000		(1,067,962	)		238,448		0			670,486		774,143
January 2007 (Note 10(f))		0		2,000,000		(1,331,232	)		144,316		0			813,084		938,786
	$	1,429,104	$	4,133,866	$	(2,836,283	)	$	1,140,059	$	(1,491,497	)	$	2,375,249	$	2,742,462

To provide working capital for product development, during July and August 2005, the Company issued one-year, unsecured US$1,277,200 8% per annum convertible notes and three-year Class A and B warrants to acquire: (i) up to 1,702,933 common shares of the Company at a price per share of US$0.50; and (ii) up to an additional 1,702,933 common shares of the Company at a price per share of US$1.00. The holders of the convertible notes may elect to convert the notes into common shares of the Company at the lesser of: (i) 70% of the average of the five lowest closing bid prices for the common stock for the ten trading days prior to conversion; and (ii) US$0.55. Accrued and unpaid interest may be converted into common shares of the Company at US$0.50 per share. The Company may, subject to notice provisions and the common shares trading above US$1.50 per share for more than twenty consecutive trading days, elect to payout the notes and interest due by paying 130% of the amount due under the notes plus interest. The common stock purchase warrants carry a “net cashless” exercise feature (“Cashless Conversion Feature”) allowing the holder thereof, under certain limited circumstances, to exercise the warrants without payment of the stated exercise price, but rather solely in exchange for the cancellation of that number of common shares into which such warrants are exercisable. As a result of the issuance of the warrants in conjunction with the convertible notes, the Company recorded a non-cash financing expense of $1,328,337. These convertible notes are unsecured, and due on demand.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

YEAR ENDED MARCH 31, 2008 COMPARED WITH YEAR ENDED MARCH 31, 2007 - continued

In conjunction with this financing, the Company paid consultants an amount equal to 10% of the gross proceeds, which was included in investor relations during the year ended March 31, 2006 and issued 425,735 common shares at a deemed value of $285,242. There are 255,440 finders’ A warrants outstanding whereby the holders have the right to purchase 255,440 common shares at US$0.50 per share until August 5, 2008 and 425,733 finders’ B warrants whereby the holders shall have the right to purchase 425,733 common shares at US$0.75 per share until August 5, 2008. A total of US$82,200 in registration penalties incurred in the year ended March 31, 2007 were converted to a new convertible debenture in the same amount on April 6, 2007.

On April 6, 2006, the Company consummated a private offering transaction with and among a syndicated group of investors, pursuant to which the Company issued, in the aggregate, US$551,666 in 8% per annum convertible notes and three-year Class A and B warrants to acquire: (i) up to 735,544 shares of the Company’s common stock at a price per share of US$0.50; and (ii) up to an additional 735,544 shares of the Company’s common stock at a price per share of US$1.00. Subject to certain limitations, the principal amount of the notes, together with any accrued interest may be converted into shares of the Company’s common stock at the lesser of: (i) 70% of the average of the five lowest closing bid prices for the common stock for the ten trading days prior to conversion; or (ii) US$0.55. The convertible notes carry a redemption feature, which allows the Company to retire them, in whole or in part, for an amount equal to 130% of that portion of the face amount being redeemed, but only in the event that the common shares have a closing price of US$1.50 per share for at least twenty consecutive trading days and there has otherwise been no default. The common stock purchase warrants carry a Cashless Conversion Feature. These convertible notes are unsecured, and due on demand.

In conjunction with these private offering transactions, the Company paid consultants: (i) US$55,166 cash, representing 10% of the gross proceeds realized; (ii) 183,886 shares of common stock; (iii) three-year warrants to purchase up to 110,320 shares of common stock at a price per share of US$0.50; and (iv) three-year warrants to purchase up to 183,867 shares of common stock at a price per share of US$0.75.

During the year ended March 31, 2008, the Company accrued US$38,835 (2007 – US$567,366) in interest on the principal balance of these convertible notes.

On April 6, 2006, and in conjunction with certain private placements, the Company reached a verbal agreement with the group of institutional and other investors, wherein the Company agreed to convert US$82,200 in accrued penalties associated with the July 25, 2005 through August 5, 2005 convertible notes into US$82,200 convertible penalty notes (note 10(a)) carrying terms similar to the July 25, 2005 through August 5, 2005 convertible notes and an aggregate of 109,600 warrants. These warrants carry a cashless conversion feature and each of these warrants entitles the holder to purchase additional common shares for three years at a price of US$0.75 per share. These convertible notes are unsecured, and due on demand.

During the year ended March 31, 2008, the Company accrued US$6,427 (2007 – US$70,054) in interest on the principal balance of these convertible notes.

Certain of the July and August 2005 and the April 6, 2006 convertible notes contained registration rights whereby the Company agreed to pay a penalty of 2% for every thirty days after a required filing and registration effective date plus a reduction in the warrant price of certain of the warrants issued of US$0.10. As a result of the Company not filing its registration statement until April 27, 2006, the Company incurred penalties, which have been included in interest expense. An aggregate of 3,407,372 previously issued share purchase warrants relating to certain of the July and August 2005 and the April 6, 2006 convertible notes have reduced exercise prices from US$0.50, US$0.75, and US$1.00 to US$0.40, US$0.65, and US$0.90, respectively. In 2007, the Company recognized $80,102 in interest expense with the corresponding amount to contributed surplus as a result of re-valuation of the warrants upon the change in the pricing. The registration statement has subsequently been declared effective.

On December 1, 2006, the Company accepted subscriptions of US$1,500,000 towards a private placement of 8% per annum, unsecured, convertible notes and three-year warrants to acquire: (i) up to an aggregate of 2,000,000 shares of the Company’s common stock at a price per share of US$0.50; and (ii) up to an additional 2,000,000 shares of the Company’s common stock at a price per share of US$1.00. Subject to certain limitations, the principal amount of the notes, together with any accrued interest may be converted into shares of the Company’s common stock at the lesser of: (i) 70% of the average of the five lowest closing bid prices for the Company’s common stock for the ten trading days prior to conversion; or (ii) US$0.55. The convertible notes carry a redemption feature, which allows the Company to retire them, in whole or in part, for an amount equal to 130% of that portion of the face amount being redeemed, but only in the event that the common shares have a closing price of US$1.50 per share for at least twenty consecutive trading days and there has otherwise been no default.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

YEAR ENDED MARCH 31, 2008 COMPARED WITH YEAR ENDED MARCH 31, 2007 - continued

These convertible notes are unsecured and due on demand. The common stock purchase warrants may be exercised on a cashless basis.

During the year ended March 31, 2008, the Company accrued US$989,296 (2007 - US$238,448) in interest on the principal balance of these convertible notes.

The right of the note holders to convert into the Company’s common stock is subject to the contractual agreement between the parties that any conversion by the note holders may not lead at the date of such conversion to an aggregate equity interest in the common stock of the Company greater than 9.99% inclusive of any derivative securities including options, warrants, convertible debt, any other convertible debt securities, or any other financial instruments convertible into common equity.

On January 29, 2007, the Company completed a private placement comprised of $2,000,000 convertible notes. The convertible notes will mature on December 11, 2008, carry interest at 6% per annum and are unsecured. The notes are convertible into “Units” at the note holders’ discretion at a conversion price of US$0.50 per Unit. Each “Unit” consists of one common share and one purchase warrant to purchase an additional common share at US$0.70 per share until December 11, 2008. The notes and any accrued interest are callable by the Company at any time after December 11, 2007 by providing thirty days’ written notice to the note holders. Interest on the notes will be compounded annually and be cumulative until the earlier of either the date the Company achieves pre-tax earnings or the end of the term. At the discretion of the note holders, interest on the notes is payable in either cash or units at US$0.50 per unit. In connection with this financing, the Company has paid consultants US$108,000 in cash and issued 135,000 warrants exercisable at US$0.50 per unit, with each unit consisting of one common share and one share purchase warrant to purchase a further common share at US$0.70 per share until December 11, 2008. The Company is obligated to file a resale registration statement on the underlying securities within four months of closing, which it has failed to do.

As a result of the failure to file the registration statement, the Company recorded penalties of US$120,000 as of March 31, 2007 and a further US$289,973 during the year ended March 31, 2008. In addition, during the year ended March 31, 2008, convertible notes of US$200,000 and interest and registration penalty totaling US$11,668 were converted to 485,707 common shares, and the Company accrued US$677,794 in interest on the principal balance of these convertible notes (2007 - US$24,316).

On August 10, 2007, the Company issued an unsecured convertible term promissory note in the amount of US$650,000 to a third party. The convertible note is due on demand and bears interest at 6% with both interest and principal convertible at the option of the lender into units at US$0.60 per unit, with each unit consisting of one common share and one-half share purchase warrant with each whole share purchase warrant exercisable at US$0.75 to purchase an additional common share. After November 25, 2008, this convertible note accrues interest at the rate of 15% per annum. During the year ended March 31, 2008, the Company accrued US$230,007 (2007 – US$0) in interest on the principal balance of these convertible notes.

The Company is required to register for trading the securities underlying the conversion features of this convertible note on a best efforts basis, but has failed to do so within terms agreed. A one-time financial penalty of US$28,567 for failure to register the securities underlying this convertible note within 180 days from the date of issuance has been incurred in the year ended March 31, 2008.

The right of the note holder to convert into the Company’s common stock is subject to the contractual agreement between parties that any conversion by the note holder may not lead, at the date of such conversion, to an aggregate equity interest in the common stock of the Company greater than 9.99% inclusive of any derivative securities including options, warrants, convertible debt, any other convertible debt securities, or any other financial instruments convertible into common equity.

On September 27, 2007, the Company issued unsecured one-year term convertible notes bearing interest at 6% per annum in the amount of US$391,000 to third parties. Both interest and principal may be converted at the option of the lender at any time at US$0.60 per unit, with each unit consisting of one common share and one-half share purchase warrant, with each whole share purchase warrant exercisable at US$0.75 to purchase an additional common share for a two-year term from the date of conversion. During the year ended March 31, 2008, the Company accrued US$96,222 (2007 - US$0) in interest on the principal balance of these convertible notes.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

YEAR ENDED MARCH 31, 2008 COMPARED WITH YEAR ENDED MARCH 31, 2007 - continued

The Company is required to register for trading the securities underlying the conversion features of this convertible note on a best efforts basis, but has failed to do so within terms agreed. A one-time financial penalty of US$23,460 for failure to register the securities underlying this convertible note within 90 days from the date of issuance has been incurred during the year ended March 31, 2008.

For the year ended March 31, 2008, the Company received $5,081,103 from the issuance of common shares relating to private offering transactions with institutional and other investors. We raised a further $367,671 from the exercise of outstanding warrants and options.

We further raised $154,196 from interest bearing promissory notes during the year ended March 31, 2008 for an aggregate outstanding of $270,167 as at March 31, 2008 (2007 - $115,460). Our advances and amounts due from related parties increased by $560,341 to $1,490,516 as at March 31, 2008 (2007 - $930,175).

As a result of the Nova Skin Care System our inventories were $617,195 as at March 31, 2008 (2007 - $1,236,808).

As at March 31, 2008, accounts receivable of $462,156 consists of $374,502 (2007 $30,282) net of allowance for doubtful accounts of $90,263 (2007 $3,798) due from the Company’s product fulfillment agent, GSI Commerce, Inc. (formerly Accretive Commerce Inc.) from test sales relating to the Company’s Nova Skin Care System, ($7,806) (2007 $426,987) due from the Company to Global Green, the Company’s joint venture partner in the development of the Company’s High Density Vertical Bio-Reactor technology, $51,472 in value added tax owed to the Company’s subsidiary, Valcent EU, and goods and services tax receivable by the Company of $43,988.

Prepaid expenses as at March 31, 2008 consists of $2,015,837 (2007 - $285,690), which is the deferred portion of these agreements with the balance consisting of $103,709 (2007 - $71,071) in prepaid insurance and rental deposits.

Restricted cash as at March 31, 2008 consists of certificates of deposit and interest earned of $108,471 (2007 - $117,327) that are pledged to secure long term debt relating to our purchased lands in El Paso.

We purchased $834,084 (2007 - $310,448) in property and equipment during the year ended March 31, 2008. During the year ended March 31, 2007, we incurred long term debt in connection with a land purchase. As at March 31, 2008, we owed an aggregate of $174,862 relating to this debt (2007 - $209,114).

As at March 31, 2008, we had $163,437 in cash (2007 - $314,972) and we currently have approximately $265,000 in cash as at September 15, 2008.

Due to uncertainty in determining future cash flows related to products under license, the Company, during the year ended March 31, 2008, wrote down the value of the product license by $1,306,074 to $1.

SUBSEQUENT EVENTS TO MARCH 31, 2008

Unless otherwise noted in Management’s Discussion and Analysis, the following events occurred after March 31, 2008:

Subsequent events not disclosed elsewhere in these financial statements are as follows:

The Company entered into the following agreements on April 1, 2008 and May 1, 2008 respectively:

(i)	A financial services agreement with an arm’s length private company for a term of seven months. Pursuant to the agreement, the Company issued 120,000 common shares valued at US$84,000; and

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

SUBSEQUENT EVENTS TO MARCH 31, 2008 - continued

(ii)	A financial and business consulting agreement with an individual consultant for a term of twelve months. Pursuant to the agreement, the Company issued 300,000 common shares valued at US$201,000.

The Company completed a series of US$0.60 per unit private placements. Each unit consisted of one common share and one-half common share purchase warrant with each whole warrant exercisable at US$0.75 per share for two years. The private placements took place on May 7, June 6, and July 23, 2008, respectively, with details as follows:

(i)	issued 2,996,666 units for gross proceeds of US$1,798,000. The Company paid US$122,577 in cash consultant’s fees with respect to this issuance;

(ii)	issued 195,000 units for gross proceeds of US$117,000. The Company paid no consultant’s fees respecting the issuance; and

(iii)

issued 61,000 units for gross proceeds of US$36,600. The Company paid US$2,562 in cash consultant’s fees with respect to this issuance.

The Company issued the following common shares in relation to the conversion of certain notes:

(i)	On June 2, 2008, the Company issued 245,049 common shares relating to the conversion of US$100,000 in convertible debt and US$9,403 in accumulated interest; and

(ii)	On July 3, 2008, the Company issued 267,221 common shares relating to the conversion of US$92,281 in convertible debt and US$9,243 in accumulated interest.

On July 21, 2008, the Company closed a financing of zero coupon, 12% interest, senior secured convertible promissory notes in the amount of US$2,428,160 with an aggregate purchase price of US$2,168,000 with four investors, one of which was the Company’s Chief Financial Officer as to US$168,000. The debt is convertible into shares of common stock at the lesser of US$0.51 per share (unless the conversion price has been adjusted pursuant to further contract covenants) and 70% of the average of the five lowest closing bid prices for the ten preceding trading days. The Company issued each purchaser in the private placement two warrants, one warrant being redeemable by the Company and the other being non-redeemable. The non-redeemable warrants are exercisable at US$0.55 and permit the holder to purchase shares of common stock equal to 100% of the number of shares issuable upon the conversion of the notes calculated on July 21, 2008. The redeemable warrants are exercisable at US$0.75 and permit the holder to purchase common stock equal to 50% of the number of shares issuable upon the conversion of the notes issued calculated on the closing date. The Company issued a total of redeemable warrants to purchase an aggregate of 4,761,098 shares of common stock and a total of redeemable warrants to purchase an aggregate of 2,380,550 shares of common stock. Further, the Company issued 439,216 non-redeemable warrants and 219,608 redeemable warrants and $160,000 in cash fees to close the transaction. Each non-redeemable warrant is exercisable at US$0.55, and each redeemable warrant is exercisable at US$0.75; warrants carry a term of five years from the date of closing of the financing. The redeemable warrant may be redeemed by the Company only if certain conditions have been satisfied including the Company’s common stock having closed at $1.50 per share for a period of 20 consecutive trading days and the warrant holder being able to resell the shares acquired upon exercise through a resale registration statement or under Rule 144 of the Securities Act.

On July 7, 2008, the Company extended to December 31, 2008, the expiry dates of 2,872,224 warrants exercisable between US$0.75 and US$1.00 expiring May 15, 2008 through August 18, 2008.

On August 18, 2008, the Company issued 300,000 common shares to Pagic LP in relation to the Technology License agreed to by the Company, Pagic LP, and West Peak Ventures of Canada Ltd. on May 5, 2008.

On August 18, 2008, the Company issued 383,331 common shares pursuant to the exercise of 383,331 warrants for gross proceeds of US$191,666.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

SUBSEQUENT EVENTS TO MARCH 31, 2008 - continued

The Company issued the following common shares in relation to the conversion of certain notes:

On August 18, 2008, the Company issued 62,703 common shares relating to the conversion of US$25,000 in convertible debt and US$6,352 in accumulated interest and registration penalty. The Company also issued as part of converted amounts, 54,550 warrants exercisable at US$0.70 per share until December 11, 2008;

On September 10, 2008, the Company issued 549,690 common shares relating to the conversion of US$250,000 in convertible debt and US$24,845 in accumulated interest. The Company also issued as part of converted amounts, 549,690 warrants exercisable at US$0.70 per share until December 11, 2008; and

On September 19, the Company issued 417,322 common shares relating to the conversion of US$175,000 in convertible debt and US$33,662 in accumulated interest and registration penalty. The Company also issued as part of converted amounts, 385,104 warrants exercisable at US$0.70 per share until December 11, 2008.

On September 3, 2008, the Company signed a Letter of Agreement with the Hydroganics Joint Venture, an Australian Group, (“Hydroganics”) for the exclusive use of the Company’s HDVG System for growing vegetables excluding grains in Australia. Under the terms of the agreement, Hydroganics will invest US$2,500,000 by purchasing Valcent equity, Valcent will have a carried 30% equity interest in Hydroganics until Hydroganics has raised US$10,000,000 in equity for the development and commercialization of HVGS System in Australia. Thereafter, Valcent shall have anti dilution rights to purchase 30% of any further equity issued.

On September 16, 2008, the Company signed a License Agreement with a private Alberta Corporation based in Fort McMurray, Alberta, Canada (“Albertaco”) for the exclusive use of Company’s HDVG System for growing vegetables in the Province of Alberta. Under the terms of the agreement, the purchaser will invest US$1,500,000 by purchasing Valcent equity, Valcent will have a carried 30% equity interest in Albertaco until Albertaco has raised US$10,000,000 in equity for the development and commercialization of the HDVG System in Alberta. Thereafter, Valcent shall have anti dilution rights to purchase 30% of any further equity issued.

On September 26, 2008, the Company entered into an agreement with Global Green to purchase its entire membership interest in Vertigro Algae Technologies LLC, the company responsible for developing the Company’s proprietary technologies to produce algae biomass fuels and other algae products. The price to be paid for the Membership interest is US$5 million in cash and 5 million common shares in the capital of the Company. The transaction is subject to finance. The Company and Global Green further agreed that Global Green, on a non-exclusive basis, may be engaged to facilitate the commercialization and development of the Company’s technologies with particular emphasis on bio mass power generation including the integration of Global Green’s “ Greensteam” applications, the terms and consideration for which are to be determined on a project specific basis.

CAPITAL COMMITMENTS

Commitments not disclosed elsewhere in this annual report are as follows:

On November 16, 2007, Valcent EU leased office and development space in Launceston, Cornwall, UK, under a ten-year lease beginning November 15, 2007 and ending on November 15, 2017 at a quarterly cost of $26,017 (GB£12,550). There were 9 years and 7.5 months remaining on the lease as at March 31, 2008. Fiscal yearly commitments are as follows:

2009	$	104,068
2010		104,068
2011		104,068
2012		104,068
2013		104,068
Thereafter		305,037
	$	825,377

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

CAPITAL COMMITMENTS - continued

The Company believes that debt and equity sources of capital from investors will provide the capital necessary for it to meet its current capital commitments.

Fluctuations in Operating Results

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

	•	The availability of adequate financing;

	•	Our ability to develop an organizational infrastructure and effective management systems;

	•	The success of our advertising and marketing plans;

	•	Market acceptance and general consumer demand for our products;

	•	The performance of our products;

	•	Our ability to effectively distribute our products;

	•	The introduction of products that compete with our own;

	•	The adoption of new disclosure and/or corporate governance requirements associated with the maintenance of our status as a publicly reporting issuer;

	•	Potential lawsuits involving our products or other matters; and

	•	General business and economic conditions;

	•	Currency valuation fluctuations

Impact of Inflation

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

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material adverse affect on our financial condition or results of operations.

CONTRACTUAL OBLIGATIONS

As of March 31, 2008, we had the following known contractual obligations noted in this report or financial statements dated March 31, 2008:

On June 28, 2005, Valcent Manufacturing, Ltd. leased office and development space in El Paso, Texas, under a three-year lease at a cost of US$3,170 per month. There were 5 months remaining on the lease as at March 31, 2008 (2007 – 14 months).

On November 16, 2007, our wholly owned subsidiary, Valcent EU Limited leased office and development space in Launceston, Cornwall, UK, under a ten-year lease beginning November 15, 2007 and ending on November 15, 2017 at a quarterly cost of GB£12,550 (CDN$26,017). There were 9 years and 7.5 months remaining on the lease as at March 31, 2008.

On December 12, 2006, the Company entered into a Public Relations Agreement with a third party to provide public relations services to the Company. The agreement required the Company to issue 25,000 restricted common shares in advance of each quarter during the course of the agreement’s one year term for a total of 100,000 restricted common shares at a price of US$0.45 per common share, the payment of approved expenses, and monthly fees ranging from US$4,250 to US$5,250 per month. During the year ended March 31, 2007, 25,000 shares were issued pursuant to this agreement and an additional 75,000 were issued subsequently during the year ended March 31, 2008. The contract has been extended after its expiry on a month to month basis and a further 25,000 shares were issued at a value of US$0.45 per common share.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS - continued

CONTRACTUAL OBLIGATIONS - continued

On April 1, 2007, the Company entered into an agreement with a third party to provide investor relations and financial services for an eight month term from April 1, 2007 through December 31, 2007. The agreement provides for the following:

a)	payment of US$15,000;

b)	US$3,000 in compensation per month payable quarterly during the effective term;

c)	a further US$2,000 payable monthly in common shares (27,508 common shares were issued in the year ended March 31, 2008 for aggregate value of US$18,000);

d)	share options to purchase 500,000 shares were issued at US$0.60 exercise price that vest quarterly over a two year period; and

e)	the issuance of 12,500 common shares at a price of US$0.80 per share which were issued on April 24, 2008.

At March 31, 2008, the Company’s long-term debt outstanding was as follows:

	2008		2007

Prime plus 0.25% (2008 – 8.00%) bank loan repayable in monthly instalments of US$2,336 including interest, due September 28, 2011, secured by a first charge on land and
$108,471 of cash		174,862		209,114

Less: Current portion		16,250		13,451

	$	158,612	$	195,663

The portion of long-term debt repayable in each of the next four years is approximately as follows:

To March 31,

2009			16,250
2010			17,258
2011			18,806
2012			106,298

A summary of the Company’s convertible notes are as follows:

Convertible Note Continuity:
	US $														CDN $
	Balance		2008		2008			2008		2008			Balance		Balance
	March 31,		Issued		Equity			Interest /					March 31,		March 31,
Date of Issue	2007		Principal		Portion			Penalty		Conversions			2008		2008

July/August 2005 (Note 10(a))	$	316,957	$	0	$	0		$	22,389	$	(79,521	)	$	259,825	$	265,583
April 2006 (Note 10(b))		495,607		0		0			38,835		0			534,442		546,841
April 2006 (Note 10(c))		79,115		0		0			6,427		0			85,542		87,527
December 2006 (Note 10(e))		670,486		0		0			989,296		0			1,659,782		1,698,289
January 2007 (Note 10(f))		813,084		0		0			967,767		(211,668	)		1,569,183		1,605,558
August 2007 (Note 10(g))		0		650,000		(230,007	)		258,574		0			678,567		694,310
September 2007 (Note 10(h))		0		391,000		(213,249	)		119,682		0			297,433		304,633
	$	2,375,249	$	1,041,000	$	(443,256	)	$	2,402,970	$	(291,189	)	$	5,084,774	$	5,202,741

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth our directors and executive officers and their ages as of the date of March 31, 2008. Unless otherwise stated, the address for each of our directors and executive officers is c/o Valcent Products Inc., Suite 1010 - - 789 West Pender Street, Vancouver, British Columbia V6C 1H2 (Canada).

Name	Age	Position

M. Glen Kertz (1)	55	Chief Executive Officer, acting President, Chairman of the Board and Director

F. George Orr (2)(3)	47	Chief Financial Officer, Secretary and Director

Robert Wingo	62	Director (resigned July 29, 2008)

Gerry Jardine	57	Director

Naveen Aggarwal	50	Director

George Stapleton

Director

(1)	Appointed acting President, Chairman of the Board and a director by resolution of the board of directors, in accordance with Section 111 of the Business Corporations Act (Alberta), following the resignation of Douglas E. Ford as acting President and Secretary, on July 31, 2005. Appointed Chief Executive Officer by resolution of the board of directors in accordance with Section 121 of the Business Corporations Act (Alberta), and Section 6 of our bylaws on November 30, 2005.

(2)	Appointed director by resolution of the board of directors, in accordance with Section 111 of the Business Corporations Act (Alberta), following the resignation of Larry F. Robb and Malcolm E. Rogers Jr., on July 23, 2005.

(3)	Appointed Secretary by resolution of the board of directors, in accordance with Section 111 of the Business Corporations Act (Alberta), following the resignation of Douglas E. Ford as acting President and Secretary, on July 31, 2005. Appointed Chief Financial Officer by resolution of the board of directors in accordance with Section 121 of the Business Corporations Act (Alberta), and Section 6 of our bylaws on November 30, 2005.

M. Glen Kertz — Chief Executive Officer, acting President, Chairman of the Board and Director

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

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

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

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES - continued

DIRECTORS AND SENIOR MANAGEMENT - continued

Robert V. Wingo - Director (resigned July 29, 2008)

Mr. Wingo joined Sanders\Wingo in 1983. Mr. Wingo’s leadership has been instrumental for clients like Farah USA, Fuddruckers, Dr. Scholl’s, AT&T, United States Postal Service, Shell Oil and the Greater El Paso Chamber of Commerce. Mr. Wingo has received countless honors, including UTEP’s 2002 Gold Nugget award and the Silver Medal award from the American Advertising Federation. Wingo was appointed by Governor Rick Perry to the Texas Economic Development Corporation. He also sits on the Holocaust Museum Board of El Paso and has been recognized by Black Enterprise in its annual B.E. 100’s list for the past three years.

Gerry Jardine — Director

Gerry Jardine is the President/Chief Executive Officer and a director of Silica Resources Corp. since January 31, 2008, a company involved in molybdenum exploration in the United States. Mr. Jardine also is a member of the Investor Relations team at Sweetwater Capital. Mr. Jardine was president and chief executive officer and a director of New Pacific Ventures from 2001 to 2006. From 1999 to 2004, he was the secretary/treasurer and a director of Prefco Enterprises Inc., a public Canadian construction/development company. From 1989 to 2003, Mr. Jardine was the president and chief executive officer and a director of Truax Venture Corporation, a Canadian public exploration company. Additionally, from 1996 to 2003, Mr. Jardine was the president of Amcan Fiscal Consultants Inc., a private consulting company. From 1986 to 1997, Mr. Jardine was the president and chief executive officer and a director of PowerTech Industries Inc., a Canadian public company involved in the manufacture and sales of HVAC equipment. Over the past twenty-three years, Mr. Jardine has also served as a director to more than half a dozen other companies, mainly operating in resource industries.

Naveen Aggarwal - Director

Naveen Aggarwal is the Senior Vice President of Sales and Marketing at Active Intelligence Corp., a company which specializes in the systems integration of Oracle Retail’s (Retek) retail solutions portfolio. As Senior Vice President of Sales & Marketing for Active Intelligence, Mr. Aggarwal established the company as the sole delivery partner for Oracle Retail (Retek) training for North America. Mr. Aggarwal has held senior level positions at many leading international companies including Sun Microsystems, Quest Software, Netscape Communications and Northern Telecom. Mr. Aggarwal received degrees in Neurophysiology and Mathematics/Computer Science at the University of Toronto.

George Stapleton - Director

Mr. Stapleton received his civil engineering degree from Georgia Institute of Technology in 1975 and has 33 years of international experience in the offshore oil construction and service industry, project development, oil and gas exploration and production and energy infrastructure related projects. Mr. Stapleton is currently the Chief Executive Officer of Megawest Energy Corp and a director of PetroBeam, Inc. He was the Chief Operating Officer and a Director of Deerfield Energy LLC from 2005 and the President and a director of Trinity Sands Energy LLC. He was formerly the President and remains a director since 2004 of E-T Energy Ltd., a private Canadian company testing an electro-thermal approach to the production of bitumen from the Athabasca tar sands. From 2000 to 2002 he was responsible for the development of simulation based training packages for the energy and industrial sectors for Simulis, LLC. He was President - Products & Services for NEOppg Ltd. from 1998 to 2000 focusing on a proprietary multilateral system, heavy oil production systems and artificial lift products. Prior to that he was Vice-President, Operations for Asian Tiger Energy Company, an independent oil company developing oil and gas projects, operating primarily in Southeast Asia. Before Asian Tiger, Mr. Stapleton spent 19 years overseas with J. Ray McDermott in the Arabian Gulf, North Sea and Asia as Field Engineer, Operations Engineer, Project Manager, Fabrication Division Manager at Batam Island, Indonesia and finally as Division Manager – Business Development and Project Management where he oversaw project management of all turnkey projects for Southeast Asia and was responsible for business development activities throughout the region.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES - continued

COMPENSATION

The following table sets forth the total compensation paid to each of our directors and executive officers serving during the fiscal year ended March 31, 2008.


		Annual Compensation				Long Term Compensation

Name and Principal Position	Year Ended March 31, 2008	Salary		Bonus/Fees		Awards Restricted Stock Awards		Securities Underlying Options/SARs (#)


M. Glen Kertz (1) President and Director			—	$	565,135		300,000		—

F. George Orr (2) CFO and Director			—		35,370		—		—

Robert Wingo (3) Director			—		244,861		—		—

Gerry Jardine (4) Director			—		75,085		—		300,000

Naveen Aggarwal (5) Director			—		76,740		—		—

George Stapleton Director			—		—		—		300,000

(1)	During the year ended March 31, 2008, Pagic LP, a company affiliated with Glen Kertz, was paid or accrued amounts as shown for product development, expenditures inclusive of service related fees and royalties under various license agreements between the Company and Pagic LP. In addition, a further 300,000 common shares were agreed to be issued under the Technology License Agreement dated May 5, 2008 between Pagic LP, West Peak Ventures of Canada Ltd., and the Company. These shares were issued subsequent to the year ended March 31, 2008.

(2)	Mr. F. George Orr was appointed Secretary and a director of the Board, and, in November of 2005, he was appointed Chief Financial Officer of Valcent Products Inc. He performs these duties as an independent consultant.

(3)	Resigned, effective July 29, 2008. Amounts were paid for advertising services performed to Sanders Wingo, a company with a common director.

(4)	Mr. Gerry Jardine, a director of the Company received amounts owing to consulting services and investor relations services to a related company. During the year, he also received 300,000 share options exercisable at US$0.70 per share until October 10, 2011 that were fully vested in the period ended March 31, 2008.

(5)	Mr. Naveen Aggarwal received amounts for consulting services performed.

(6)	During the year, Mr. Stapleton received 300,000 share options exercisable at US$0.70 per share until October 10, 2011 that were fully vested in the period ended March 31, 2008.

BOARD PRACTICES

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

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

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES - continued

BOARD PRACTICES - continued

Board of Director Committees

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

We have no formal compensation committee.

EMPLOYEES

Valcent Manufacturing Ltd., El Paso. TX. As at September 15, 2008, we had 30 full time employees, and also retained 4 consultants.

Valcent Products EU Limited, Cornwall, England - As at September 15, 2008, we had 9 full time employees/consultants.

Valcent Products Inc., Vancouver, B.C. As at September 15, 2008, we had 11 employees/consultants, all of which provided services on a part time basis.

Our key consultants and primary responsibilities are as follows:

Consultants

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

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

Tim Brock – Mr. Brock holds a B.A. in Economics from the University of British Columbia and has in-depth experience in seed capital funding, initial public offerings and sponsorship on Canadian and American venture stock exchanges.

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

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

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

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES - continued

SHARE OWNERSHIP

The following table sets forth, as of September 15, 2008, information regarding the share ownership of our common stock for each of our directors and executive officers serving during the fiscal year ended March 31, 2008. The number of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities and Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the shareholder has sole or shared voting power or investment power and also any shares which the shareholder has the right to acquire within 60 days.

Name	Amount and Nature of Ownership		Percent of Class*

M. Glen Kertz (1)		4,247,000		8.52	%

F. George Orr (2)		3,239,914		6.32	%

Robert Wingo (3) (resigned July 29, 2008)		375,000		**	%

Gerry Jardine (4)		302,450		**	%

Naveen Aggarwal (5)		1,000,000		1.99	%

George Stapleton (6)		1,132,924		2.24	%

All officers and directors as a group (6 persons)		10,297,288		19.44	%

*	No director or executive officer has different voting rights from any other holder of our common stock. Based on 49,856,981 shares issued and outstanding at September 15, 2008.

**	Beneficially owns less than one percent.

(1)	Consists of 4,247,000 shares of common stock beneficially owned through Pagic LP, previously MK Enterprises LLC. Voting and/or investment power over all of these securities is held by M. Glen Kertz.

(2)	Consists of (i) 950,000 shares of common stock directly owned, (ii) 778,205 unregistered shares of common stock beneficially owned through this director’s spouse, (iii) 120,401 shares of common stock and 60,200 warrants exercisable at US$0.75 per share until December 18, 2009 issued pursuant to private placement of units at US$0.60 per share all directly owned, (iv) 777,696 shares issuable on conversion of US$168,000 in convertible notes and interest accrued to September 15, 2008 of US$2,619 with interest and principal assumed converted according to the terms of the convertible note at a 30% discount to the 4 lowest volume weighted average bid prices of the stock preceding the election to convert with a share price market value assumption of US$0.55 per share, 368,941 warrants exercisable at US$0.55 until July 21, 2013, and 184,471 warrants exercisable at US$0.75 until July 21, 2013.

(3)	Consists of 300,000 fully vested stock options with exercise price of US$0.55 until December 13, 2011 issued under our 2006 Stock Option Plan directly owned, and (ii) 75,000 fully vested stock options with exercise price of US$1.00 until March 1, 2010 issued under our 2006 Stock Option Plan directly owned by Sanders Wingo, a company with this director in common.

(4)	Consists of (i) 300,000 fully vested stock options with exercise price of US$0.70 until October 10, 2011 under our 2006 Stock Option Plan directly owned, and (ii) 2,450 trading shares purchased in market transactions.

(5)	Consists of (i) 300,000 fully vested stock options with exercise price of US$0.55 until December 13, 2011 issued under our 2006 Stock Option Plan directly owned, and (ii) 700,000 common shares of common stock beneficially owned through a spouse.

(6)	Consists of (i) 300,000 fully vested stock options with exercise price of US$0.70 and an expiration date of October 11, 2011 issued under our 2006 Stock Option Plan directly owned, and (ii) 300,000 shares of common stock and 150,000 warrants exercisable at US$0.75 per share issued pursuant to private placement of units at US$0.60 per share in a private company affiliated with this director, (iii) 89,447 trading shares purchased in market transactions, (iv) 214,967 shares issuable on conversion of US$46,141 in convertible notes and interest accrued to September 15, 2008 of US$2,619 with interest converted at US$0.50 per share, and principal assumed converted according to the terms of the convertible note at a 30% discount to the 4 lowest volume weighted average bid prices of the stock preceding the election to convert with a share price market value assumption of US$0.55 per share, 36,713 warrants exercisable at US$0.40 until April 6, 2009, 36,713 warrants exercisable at US$0.90 until April 6, 2009, and 5,084 warrants exercisable at US$0.65 until April 6, 2009.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES - continued

SHARE OWNERSHIP - continued

On December 14, 2006, the Company replaced its existing Canadian and US stock option plans with a new single stock option plan (the “2006 Stock Option Plan”). The 2006 Stock Option Plan was adopted by the Board of Directors on December 16, 2006 and adopted as amended by the Shareholders of the Company on February 15, 2008. The 2006 Stock Option Plan allows for share options to be issued to Company employees, directors, officers, and consultants on both a qualified and non-qualified basis. The aggregate number of shares of Common Stock as to which options and bonuses may be granted from time to time under the Plan shall not exceed 20% (the “Plan Maximum”) of the Company’s issued and outstanding shares of Common Stock. In addition, the aggregate number of shares of Common Stock to which Incentive Stock Options may be granted shall not exceed 17% of the Company’s issued and outstanding shares of Common Stock . The plan is designed to encourage our directors, executive officers, consultants and other key employees to acquire a proprietary interest in the Company. Our Stock Option is Plan is administered by the Board of Directors, or a committee designated thereby, and reserve for issuance thereunder, in the aggregate, a total of 20% of our issued and outstanding common shares, on a non-diluted basis, to be increased or decreased as the number of our issued and outstanding shares change. Our Stock Option Plans provide that the terms of the options and the option prices shall be fixed by the Board or committee and subject to the requirements of the exchange on which our common shares are traded, or any other governing regulatory body, at the time of exercise. Options granted shall expire after a period of five years or terminate three months after the recipient ceases to be our employee.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

As of March 31, 2007, there were 44,276,321 common shares issued and outstanding. The table below sets forth certain information, to the extent known or reasonably ascertainable, regarding our major shareholders, including beneficial owners of more than 5% of our common stock, as of September 15, 2008. The number of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities and Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the shareholder has sole or shared voting power or investment power and also any shares which the shareholder has the right to acquire within 60 days.

	Shares Beneficially Owned

Major Shareholders	Number		Percent

Pagic LP (1)		4,247,000		8.52	%

Larry Thompson (2)		5,500,000		10.71	%

F. George Orr (3)		3,239,914		6.32	%

Agosto Corporation Limited (4) (6)		7,949,020		13.63	%

Woodburn Holdings Ltd. (5) (6)		4,756,833		8.84	%

Platinum Long Term Growth VI, LLC (7) (6)		9,058,823		15.38	%

Total		34,751,590		47.14	%

Total Shares outstanding at September 15, 2008		49,856,981

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS - continued

MAJOR SHAREHOLDERS - continued

(4)

Consists of convertible debentures for stated values as follows with conversion figures (if applicable) based on a weighted average price of US$0.55 per share: (i) US$235,000 6% convertible note with accrued interest of US$22,599 at $US0.50 per unit convertible into 515,197 common shares and 515,197 warrants to purchase common shares at US$0.70 per share until December 11, 2008; (ii) US$850,000 8% (15% after December 1, 2007) convertible note with interest accrued to September 15, 2008 of US$165,459 convertible at the lesser of US$0.55 per share and 70% of the average five lowest closing bid prices for the ten trading days preceding conversion (market value of shares assumed US$0.55 for purposes herein) resulting in 2,603,645 potential common shares on conversion, and includes 1,333,333 Class A warrants convertible into common shares at US$0.50 per share until December 1, 2009 and 1,333,333 Class B warrants convertible into common shares at US$1.00 per share until December 1, 2009; (iii) $650,000 6% (15% after November 14, 2007) convertible term note with accrued interest to September 15, 2008 of US$89,326 convertible into units at the US$0.60 per unit, resulting in 1,232,210 common shares and 616,105 share purchase warrants exercisable at US$0.75 for a 3 year term from the date of conversion, and (iv) 100,000 common shares issued in connection with a debt agreement pertaining to bonus interest. Voting and/or investment power over these common shares is held by Dr. J. Gordon Murphy, a resident of Barbados. Dr. Murphy beneficially owns 2,000,000 shares in the capital of the Company but such shares are not included in the shares reported for Agosto Corporation Limited in the above table.

At of September 9, 2008, we had one hundred seventy seven registered (177) shareholders of record holding 49,307,291 shares of common stock. United States shareholders held 22,571,703 shares of our common stock, representing approximately 45.8% of the issued and outstanding shares of our common stock. On September 15, 2008, pursuant to a convertible debenture conversion, 549,690 total shares were issued in exchange for principal and interest to a Canadian investor bringing total issued and outstanding shares to 49,856,981.

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

RELATED PARTY TRANSACTIONS

The following information is provided in connection with all transactions or loans dating back to April 1, 2007 between us and (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, us, (b) associates, (c) individuals owning, directly or indirectly, securities representing an interest in our voting power that gives them significant influence over us, and close members of any such individuals’ families, (d) key management personnel including those persons having authority and responsibility for planning, directing, and controlling our activities, such as directors and senior management and close members of any such individuals’ families, and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence:

		2008		2007
(a)	Pagic royalties, etc. Pagic is a company related by a common director, M. Glen Kertz, our President and director	$	189,156	$	0
(b)	CFO charges and advances. George Orr is our CFO and director.		158,370		43,500
(b)	Consulting services and unsecured loan advances		73,896		57,364
(c)	Consulting services and unsecured loan advances due to West Peak and its principal shareholder, Tim Brock, a beneficial owner of more that 5% of the Company’s common shares		1,000,165		784,362
(d)	Advertising due to Sanders Wingo, with our ex-director, Robert Wingo in common		52,145		17,319
(e) and (f)	Operational management consulting due to our directors, Naveen Aggarwal and Gerry Jardine		16,784		27,630
		$	1,490,516	$	930,175

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS - continued

RELATED PARTY TRANSACTIONS - continued

			2008		2007
(a)	Charges from Pagic, a company related by a common director, Glen Kertz, our President and director, for product development expenses including royalties		$	565,135	$	269,455
(b)	Charges from our CFO and director, George Orr for professional fees		$	35,370	$	33,000
	Short-term advance from CFO and director, George Orr, at 10% interest per annum		$	150,000	$	0
	Charges from private companies with this director (George Orr) in common for:
	(i)	Office rent paid to Sweetwater Capital Corp.	$	30,000	$	7,500
	(ii)	Consulting fee paid to Sweetwater Capital Corp.	$	150,000	$	46,745
	(iii)	Unsecured loan advances from Savi Product Marketing Group Inc.	$	57,364	$	57,364
(c)	West Peak and its principal shareholder, Tim Brock, a beneficial owner of more that 5% of the Company’s shares:
	(i)	The Company received unsecured loan advances, at 8% interest per annum	$	977,665	$	784,837
	(ii)	Consulting services paid to West Peak	$	52,500	$	0
(d)	Advertising services of a private company, Sanders Wingo, with our ex-director, Robert Wingo in common		$	244,861	$	337,749
(e)	Operational management consulting services of our director, Naveen Aggawal		$	76,740	$	0
(f)	Operational management consulting and investor relations services of our director, Gerry Jardine and a related company providing investor relations services		$	75,085	$	0
(g)	Bonus of 100,000 restricted common shares to a retiring director, Carlton Parfitt		$	0	$	52,889

Pagic LP License and Related Transactions

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

(i)

a master license agreement for a term continuing so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to three unrelated and proprietary potential consumer retail products that had previously been developed (the “Pagic Master License”), certain of which are patent pending, including the Nova Skin Care System, the Dust Wolf™, and the Tomorrow Garden™ Kit (collectively, and together with any improvements thereon, the “Initial Products”) each of which are described in fuller detail elsewhere in this annual report. See “Business—Potential Products” and “Business—Intellectual Property”;

(vi)

the Pagic Master License also includes a license for a term continuing so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to any ancillary products developed and sold for use by consumers in connection with the Initial Products (the “Initial Ancillaries”);

(vii)

a product development agreement pursuant to which we were granted a right for an initial period of five years to acquire a license for a term continuing so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to any new products developed by Pagic (any such products, collectively, the “Additional Products”, and, the agreement itself, the “Pagic Product Development Agreement”);

(viii)

the Pagic Product Development Agreement also includes a license for a term continuing so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to any ancillary products developed and sold for use by consumers in connection with the Additional Products (the “Additional Ancillaries”); and

(ix)

a related services agreement pursuant to which Pagic shall provide consulting support in connection with the Initial Products, the Initial Ancillaries, the Additional Products and the Additional Ancillaries (the “Pagic Consulting Agreement”), in exchange for the following:

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS - continued

RELATED PARTY TRANSACTIONS - continued

	•	20,000,000 shares of our common stock;

	•	a one-time US$125,000 license fee;

	•	reimbursement for US$125,000 in development costs associated with each of the Initial Products since March 17, 2005;

	•	consulting fees of US$156,000 per year, payable monthly in advance; and

	•	the greater of the following, payable annually beginning in the second license year:

	(i)	US$400,000; or

	(ii)	the aggregate of the following:

•

subject to a minimum amount of US$37,500 per Initial Product during the second year of the Pagic Master License, and US$50,000 each year thereafter, continuing royalties payable quarterly at a rate of:

					US$10.00 per Nova Skin Care System unit sold;

					US$2.00 per Dust Wolf™ unit sold;

					4.5% of annual net sales of the Tomorrow Garden™ Kit;

	and

					3% of annual net sales of Initial Ancillaries.

	•	a one-time US$50,000 license fee for each Additional Product licensed (except for one pre-identified product); and

	•	subject to a minimum amount of US$50,000 per year commencing with the second year of each corresponding license, continuing royalties of 4.5% of annual net sales and 3% on annual net sales of any Additional Ancillaries.

Although Mr. Kertz was neither an officer nor a director at the time we entered into the Pagic Agreements, he was both an officer and a director prior to July 2004 and assumed his current positions immediately following our entering into these agreements. During the year ended March 31, 2006, we paid approximately $121,447 in product development fees to Pagic respectfully. Although we believe that the terms of the Pagic Agreements, and the fees paid to Pagic thereunder, are as fair as that which could have been obtained in an arms length transaction with unaffiliated third parties, the conflict of interest which existed as a result of Mr. Kertz’s prior involvement with us gives rise to the potential that the contractual terms may be less favorable to us than would otherwise have been the case.

Global Green Joint Venture

On October 2, 2006, the Company entered into a letter agreement replaced on July 9, 2007 by the Vertigro Algae Stakeholders Letter of Agreement, (together “LOA”) with Pagic, West Peak Ventures of Canada Limited (“West Peak”) and Global Green, whereby Global Green agreed to fund the next phase of the development of a high density vertical bio-reactor technology. Pursuant to the LOA, the Company and Global Green established a commercial joint venture named “Vertigro” in which Global Green agreed to provide up to US$3,000,000 in initial funding to continue the research and development of the bio-reactor technology, construct a working prototype of the bio-reactor and develop the technology for commercial uses. The Company is obligated to provide product support, research and development, and the non-exclusive use of the Company’s properties and lands for which Global Green has agreed to reimburse the Company as part of its US$3,000,000 initial funding commitment. Until such time as the joint venture has fully repaid to Global Green the US$3,000,000, Global Green shall receive 70% of the net cash flow generated by anticipated future operations after which each of Global Green and the Company will hold a 50% interest in the Vertigro, subject to an aggregate 4.5% royalty to Pagic and West Peak. Vertigro covers the bio-reactor technology and any subsequent related technologies for the commercial scale products of algae based biomass for all industrial commercial and retail applications including, but not limited to bio-fuel, food, health, pharmaceutical, and animal and agricultural feeds.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS - continued

RELATED PARTY TRANSACTIONS - continued

Global Green and the Company have completed negotiations and documentation of a formal business arrangements to streamline and enhance Vertigro operating and commercial development systems via a Limited Liability Company Operating Agreement discussed more fully below, and has incorporated a business entity to advance further project development. As a result, the Company formed Vertigro Algae Technologies, LLC under the Texas Business Organizations with Global Green, and other related parties to the Vertigro joint venture. The members of the new Texas LLC are Global Green and the Company, each holding 3 million units. It is anticipated that the Vertigro Algae Technologies, LLC will continue to conduct research and development of the Vertigro growing systems, the development of a commercial scale build out of an operating unit in conjunction with increasing the yield per acre of the algae oil produced by the system.

In addition, the Company is developing extraction technologies from research and development being conducted in conjunction with certain US based university interests specializing in process extraction.

Limited Liability Company Operating Agreement for Vertigro Algae Technologies, LLC

On May 5, 2008, Valcent USA and Global Green signed a Limited Liability Company Operating Agreement (“New Operating Agreement”) replacing the LOA to form Vertigro Algae Technologies, LLC (“Vertigro Algae”), a Texas LLC, which is the formalized operating entity for the previous unincorporated operations of Vertigro. The business activities of Vertigro Algae will be the same as when the operations were under Vertigro. Under the New Operating Agreement, Global Green and Valcent will each hold a 50% stake in Vertigro Algae, and have committed to fund project development according to ownership allocation. Further, Valcent will acquire assets of Vertigro, including buildings, laboratory, and equipment. To allow for prior capital contributions, Global Green has incurred in excess of the Company’s prior aggregate capital contribution, Global Green will receive 70% of the net cash flow generated by Vertigro Algae until it has received US$3,000,000 in excess of its 50% interest in such cash flow.

Technology License Agreement

On May 7, 2008, effective May 5, 2008, Vertigo Algae executed a Technology License Agreement together with Pagic LP, West Peak Ventures of Canada Ltd., and Valcent Products, Inc. The Technology License Agreement licenses certain Algae Biomass Technology and Intellectual Property to Vertigo Algae for purposes of commercialization and exploitation for all industrial, commercial, and retail applications world-wide (“Algae Biomass Technology”). In return for the Algae Biomass Technology, both Valcent Products, Inc. and Global Green will each provide 300,000 restricted common shares to Pagic LP., and also pay a one time commercialization fee of US$50,000 upon the Algae Biomass Technology achieving commercial viability. The Technology License Agreement is subject to royalty of 4.5% of gross customer sales receipts for use of the Algae Biomass Technology; aggregate annual royalty minimum amounts are US$50,000 in 2009, US$100,000 in 2010, and US$250,000 in 2011 and each year thereafter in which the Technology License Agreement is in place.

All prior agreements between the Company and Pagic that relate to the Algae Biomass Technology will be replaced by the new Operating Agreement and the Technology License.

INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See Item 17 and our financial statements and accompanying notes beginning on page F-1 of this Form 20-F.

Legal proceedings

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

ITEM 8. FINANCIAL INFORMATION - continued

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION - continued

Dividend Policy

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

SIGNIFICANT CHANGES

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

	•	Also in connection with the follow-on private offering transaction, we issued 183,886 shares of our common stock and three-year warrants to purchase up to an additional 110,320 shares of our common stock at a price per share of US$0.50 and up to an additional 183,867 shares of our common stock at a price of US$0.75 as partial compensation in the form of a finder’s fee.

	•	Our registration statement on Form F-1 was originally filed with the SEC on April 27, 2006, which delay resulted in a reduction in the exercise price of the Class A and Class B warrants issued as part of the July 25, 2005 through August 5, 2005 and April 6, 2006 transactions from US$0.50 and US$1.00 to US$0.40 and US$0.90, respectively. Moreover, as of the date of this annual report we are accruing penalties at a rate of 2% per thirty day period for having failed to have our registration statement declared effective by June 5, 2006. As of September 13, 2006, we have accrued up to approximately US$123,094 in penalties under the terms of the registration provisions of each of the July 25, 2005 through August 5, 2005 and April 6, 2006 transactions, exclusive of those penalties previously converted into convertible penalty notes and warrants. The penalties which we have accumulated to date, and any penalties which we may accumulate for future delays, will negatively affect our business, our financial condition and our results of operations, leading to a corresponding reduction in our net income and the likelihood of a net loss for the year in which they are incurred. The delays in meeting our registration obligations are a consequence, among other reasons, of ongoing delays resulting from our having recently undergone a significant restructuring and change in business direction, and the unavailability of certain information necessary for preparing the filing. Our management is hopeful that we will cause our registration statement to be declared effective in the near future.

	•	In connection with the July 25, 2005 through August 5, 2005 transactions, on April 6, 2006 we reached a verbal agreement with the syndicated group of institutional and other investors, to convert accruing penalties associated with delays in our filing of a registration statement under the terms of the transactions, an aggregate of US$82,200, into convertible penalty notes carrying terms similar to those notes issued in the original series of private offering transactions, and in addition to issue each investor one three-year penalty warrant for each US$0.75 of penalties owed to purchase, in the aggregate, up to an additional 109,600 shares of common stock at a price per share of US$0.75.

	•	Pursuant to an Investor Relations Consulting Agreement with a third party for services provided to Valcent, SmallCap Partners Ltd. received 120,000 shares of common stock at US$0.41 per share.

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

	•	On May 15, 2006, the Company completed a private placement of units whereby it issued a total of 1,104,165 units at US$0.60 per unit whereby each unit consisted of one common share and one share purchase warrant to purchase an additional common share at US$0.80. Of the warrants issued, 833,332 expire on May 15, 2008 and 270,833 on June 7, 2008. The Company also paid consultants fees consisting of $58,860 plus 66,666 warrants to purchase that number of common shares at US$0.80 until May 15, 2008 and 21,666 warrants to purchase that number of common shares at US$0.80 until June 7, 2008.·

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

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

	•	During the year ended March 31, 2007, $1,491,497 of the convertible note principal and interest were converted into 3,967,157 common shares.

ITEM 8. FINANCIAL INFORMATION - continued

SIGNIFICANT CHANGES - continued

	•	During the quarter ended December 31, 2006, pursuant to Regulation S of the Securities Act, the Company received subscriptions of US$1,500,000 from a group of non-US accredited investors towards a private placement of 8% per annum convertible notes and three year warrants to acquire (i) up to 2,000,000 shares of our common stock at a price per share of US$0.50, and (ii) up to an additional 2,000,000 shares of our common stock at a price per share of US$1.00. Subject to certain limitations, the principal amount of the notes, together with any accrued interest may be converted into shares of our common stock at the lesser of (i) seventy percent (70%) of the average of the five lowest closing bid prices for our common stock for the ten trading days prior to conversion, or (ii) US$0.55. The convertible notes carry a redemption feature which allows us to retire them, in whole or in part, for an amount equal to 130% of that portion of the face amount being redeemed, but only in the event that our common shares have a closing price of US$1.50 per share for at least twenty consecutive trading days and there has otherwise been no default. The common stock purchase warrants carry a “net cashless” exercise feature allowing the holder thereof, under certain limited circumstances, to exercise the warrants without payment of the stated exercise price, but rather solely in exchange for the cancellation of that number of common shares into which such warrants are exercisable.

	•	On January 12, 2007, pursuant to an Investor Relations Consulting Agreement with a third party for services provided to the Company, SmallCap Corporate Partners Inc. received a total of 160,000 shares of common stock at US$0.45 per share.

	•	On January 12, 2007, pursuant to a Public Relations Agreement with a third party for services provided to Valcent, Vorticom Inc. received a total of 25,000 shares of restricted common stock and will receive 25,000 shares of stock quarterly for the twelve month term following the date of the agreement.

	•	On January 12, 2007, the Board of Directors authorized a bonus of 100,000 restricted common shares to a retiring director of the Company.

	•	On January 19, 2007, pursuant to a Consulting Services Agreement with a third party for services provided to the Company, PowerOne Capital Markets Limited received a total of 400,000 shares of common stock.

	•	On January 29, 2007, the Company completed a private placement comprised of $2,000,000 convertible promissory notes with a group of non-US accredited investors, pursuant to Regulation S of the Securities Act. The convertible notes will mature on December 11, 2008 and carry interest at six percent (6%) per annum. The Notes are convertible into “Units” at the Note Holder’s discretion at a conversion price of US$0.50 per Unit. Each “Unit” consists of one Valcent common share and one purchase warrant to purchase an additional common share at US$0.70 per share until December 11, 2008. The Notes and any accrued interest are callable by the Company at any time after December 11, 2007 by providing thirty days written notice to the Note Holders. Interest on the Notes will be compounded annually and be cumulative until the earlier of either the date that the Company’s achieves pre-tax earnings or the end of the term. Pre-tax earnings are to be determined in accordance with Valcent’s quarterly and annual financial statements as filed with regulatory agencies and will be payable thirty days after filing with such regulatory agencies. At the discretion of the Note Holder, interest on the Notes is payable in either cash or Units at US$0.50 per Unit. The Company is obligated to file a resale registration statement on the underlying securities within four months of closing.

	•	In connection with finders fees payable under our January 2007 $2,000,000 private placement financing of convertible promissory notes, US$108,000 in cash was paid to PowerOne Capital Markets Limited along with 135,000 warrants issued exercisable at US$0.50 per unit, with each unit consisting of one common share and one share purchase warrant to purchase a further common share at US$0.70 per share until December 11, 2008.

	•	Global Green Joint Venture On October 2, 2006, the Company entered into a letter agreement with Pagic, West Peak Ventures of Canada Limited (“West Peak”) and Global Green whereby Global Green agreed to fund the next phase of the development of our High Density Vertical Bio-Reactor technology (the “GGS Agreement”). Pursuant to the GGS Agreement, the Company and Global Green established a commercial joint venture named “Vertigro”, in which Global Green has agreed to provide up to US$3,000,000 in funding to continue the research and development of the Bio-Reactor technology, construct a working prototype of the Bio-Reactor and develop the technology for commercial uses. The Company is obligated to provide product support, research and development, and the non-exclusive use of the Company’s warehouse and land near El Paso, Texas, as necessary for which Global Green has agreed to reimburse the Company as part of its US$3,000,000 commitment. Until such time as the joint venture has fully repaid the US$3,000,000, Global Green will have an 80% joint venture interest, leaving the Company with a 20% carried joint venture interest, both subject to an aggregate product license royalty of 0.9% to Pagic and West Peak. Once the joint venture has repaid Global Green the US$3,000,000, Global Green’s interest will be reduced to 70% and the Company will retain a 30% non-carried interest, both subject to an aggregate product license royalty of 4.5% to Pagic and West Peak. As at March 31, 2007, Global Green had incurred a total of US$2,023,379 in costs related to the GGS Agreement. Of the costs incurred to March 31, 2007, Global Green had paid US$1,653,981 and owed the Company $426,507 (US$369,398), which is included in accounts receivable and has been subsequently collected. On July 9, 2007, the parties to the GGS Agreement entered into the Vertigro Algae Stakeholders Letter of Agreement (the “Global Green Joint Venture”), which replaced the GGS Agreement. Pursuant to the new agreement, each of Global Green and the Company will hold a 50% interest in the Global Green Joint Venture, subject to an aggregate 4.5% royalty to Pagic and West Peak. The Global Green Joint Venture covers the Bio-Reactor and any subsequent related technologies for the commercial scale products of algae based biomass for all industrial commercial and retail applications including but not limited to bio-fuel, food, health, pharmaceutical, animal and agricultural feeds.

ITEM 8. FINANCIAL INFORMATION - continued

SIGNIFICANT CHANGES - continued

	•	During the year ended March 31, 2007, the Company entered into a ten year commercial real estate note totaling US$190,000 to fund the acquisition of land. The loan is secured by the land and a US$50,000 term deposit which is included in the prepaid expenses. Borrowings under the Agreement accrue interest equal to the Wall Street Journal prime rate plus 0.25 percent adjusted annually. The current interest rate is 8% per annum and the current portion of the loan is $14,041.

	•	During the year ended March 31, 2007, the Company issued 8,388,025 restricted common shares as the remaining shares owed in conjunction with the Licensing Agreement with Pagic LP (formerly MK Enterprises LLC). The Company on July 29, 2005, agreed to issue Pagic and its assigns 20 million common shares at a deemed cost of $1,306,075, based on the historical cost of the license, of which 11,611,975 shares were issued during the year ended March 31, 2006 and the balance during the year ended March 31, 2007. Included in the 20 million shares issued for the license were 9,428,205 shares that were issued to parties that became related parties to the Company.

	•	On April 1, 2007, the Company entered into an agreement with a third party to provide investor relations and financial services for an eight month term from April 1, 2007 through December 31, 2007. The agreement provides for the following:

payment of US$15,000;

US$3,000 in compensation per month payable quarterly;

a further US$2,000 payable monthly in common shares;

share options to purchase 500,000 shares at US$0.60 exercise price that vest quarterly over a two year period; and

the issuance of 12,500 common shares at a deemed price of US$0.80 per share.


	•	On August 10, 2007, the Company issued a convertible term promissory note in the amount of $650,000 to a third party. The convertible note is due November 15, 2007 with interest at the rate of 6% with both interest and principal convertible at the option of the lender at the end of term into units at the US$0.60 per unit, with each unit convertible into one common share and one half share purchase warrant with each whole share purchase warrant exercisable at US$0.75 to purchase an additional common shares. The Company is required to register for trading the securities underlying the conversion features of this convertible note by February 10, 2008 on a best efforts basis without penalty.

	•	During the year ended March 31, 2008, the Company completed a private placement of units whereby a total of 8,382,721 units were issued at US$0.60 per unit for gross proceeds of US$5,029,636. Each unit consists of one common share and one-half common share purchase warrant with each whole warrant exercisable at US$0.75 to purchase an additional common share of the Company. The Company paid US$88,438 cash to consultants in connection with this private placement.

	•	During the year ended March 31, 2008, the Company completed a private placement of units whereby a total of 142,857 units were issued at US$0.70 per unit for gross proceeds of US$100,000. Each unit consists of one common share and one-half common share purchase warrant with each whole warrant exercisable at US$0.85 to purchase an additional common share of the Company.

	•	During the year ended March 31, 2008, the Company issued 3,462,008 shares in connection with seven financial consulting services agreements for administrative, investor relations, business and financial consulting services at an average value of US$0.68 per share.

	•	During the year ended March 31, 2008, the Company issued the following common shares pursuant to the exercise of warrants, options, and the conversion of convertible debt:

Issued 699,903 common shares on exercise of 699,903 share purchase warrants at an average exercise price of US$0.40 per warrant;

Issued 175,000 common shares on exercise of 175,000 stock options at an exercise price of US$0.50 per option by a past director of the Company; and

Issued 747,764 common shares upon receiving conversion notices to convert US$275,000 of convertible notes, interest of US$4,521 and a registration penalty of US$11,668 from holders.


	•	On May 5, 2008, Valcent USA and Global Green signed a Limited Liability Company Operating Agreement (“New Operating Agreement”) replacing the LOA to form Vertigro Algae Technologies, LLC (“Vertigro Algae”), a Texas LLC, which is the formalized operating entity for the previous unincorporated operations of Vertigro. The business activities of Vertigro Algae will be the same as when the operations were under Vertigro. Under the New Operating Agreement, Global Green and the Company will each hold a 50% stake in Vertigro Algae, and have committed to fund project development according to ownership allocation. Further, the Company will acquire assets of Vertigro, including buildings, laboratory, and equipment. To allow for prior capital contributions, Global Green has incurred in excess of the Company’s prior aggregate capital contribution, Global Green will receive 70% of the net cash flow generated by Vertigro Algae until it has received $3,000,000 in excess of its 50% interest in such cash flow.


	•	On May 5, 2008, Vertigro Algae executed a Technology License Agreement (“Technology License”) together with Pagic, West Peak and the Company. The Technology License licenses certain algae biomass technology and intellectual property to Vertigro Algae for purposes of commercialization and exploitation for all industrial, commercial, and retail applications worldwide (“Algae Biomass Technology”). In return for the Algae Biomass Technology, both the Company and Global Green will each issue 300,000 common shares to Pagic (unissued), and also pay a one-time commercialization fee of US$50,000 upon the Algae Biomass Technology achieving commercial viability. The Technology License is subject to royalty of 4.5% of gross customer sales receipts for use of the Algae Biomass Technology; and aggregate annual royalty minimum amounts of US$50,000 in 2009, US$100,000 in 2010, and US$250,000 in 2011 and each year thereafter in which the Technology License is in place.

ITEM 8. FINANCIAL INFORMATION - continued

SIGNIFICANT CHANGES - continued

	•	All prior agreements between the Company and Pagic that relate to the Algae Biomass Technology will be replaced by the new Operating Agreement and the Technology License.

	•	On August 10, 2007, the Company issued an unsecured convertible term promissory note in the amount of US$650,000 to a third party. The convertible note is due on demand and bears interest at 6% with both interest and principal convertible at the option of the lender into units at US$0.60 per unit, with each unit consisting of one common share and one-half share purchase warrant with each whole share purchase warrant exercisable at US$0.75 to purchase an additional common share. After November 25, 2008, this convertible note accrues interest at the rate of 15% per annum. A one-time financial penalty of US$28,567 for failure to register the securities underlying this convertible note within 180 days from the date of issuance has been incurred in the year ended March 31, 2008.

	•	On September 27, 2007, the Company issued unsecured one-year term convertible notes bearing interest at 6% per annum in the amount of US$391,000 to third parties. Both interest and principal may be converted at the option of the lender at any time at US$0.60 per unit, with each unit consisting of one common share and one-half share purchase warrant, with each whole share purchase warrant exercisable at US$0.75 to purchase an additional common share for a two-year term from the date of conversion. A one-time financial penalty of US$23,460 for failure to register the securities underlying this convertible note within 90 days from the date of issuance has been incurred during the year ended March 31, 2008.

	•	During the year ended March 31, 2008, the Company raised $154,196 from interest bearing promissory notes during the year ended March 31, 2008 for an aggregate outstanding of $270,167 as at March 31, 2008 (2007 - $115,460).

	•	As a result of the Nova Skin Care System our inventories were $617,195 as at March 31, 2008 (2007 - $1,236,808). The company wrote down raw materials inventories during the year ended March 31, 2008 due to obsolescence.

	•	We purchased $834,084 (2007 - $310,448) in fixed assets during the year ended March 31, 2008 relating to the development of our various operational divisions located in El Paso, Texas and Cornwall, UK.

	•	The Company entered into the following agreements on April 1, 2008 and May 1, 2008 respectively:

(i)

A financial services agreement with an arm’s length private company for a term of seven months. Pursuant to the agreement, the Company issued 120,000 common shares valued at US$84,000; and

(ii)

A financial and business consulting agreement with an individual consultant for a term of twelve months. Pursuant to the agreement, the Company issued 300,000 common shares valued at US$201,000.


	•	The Company completed a series of US$0.60 per unit private placements. Each unit consisted of one common share and one-half common share purchase warrant with each whole warrant exercisable at US$0.75 per share for two years. The private placements took place on May 7, June 6, and July 23, 2008, respectively, with details as follows:

(i)

issued 2,996,666 units for gross proceeds of US$1,798,000. The Company paid US$122,577 in cash consultant’s fees with respect to this issuance;

(ii)

issued 195,000 units for gross proceeds of US$117,000. The Company paid no consultant’s fees respecting the issuance; and

(iii)

issued 61,000 units for gross proceeds of US$36,600. The Company paid US$2,562 cash in consultant’s fees with respect to this issuance.


	•	On May 28, 2008, the Company issued 100,000 common shares in relation to a promissory note as part of the note’s interest provisions.

	•	The Company issued the following common shares in relation to the conversion of certain notes:

(i)

On June 2, 2008, the Company issued 245,049 common shares relating to the conversion of US$100,000 in convertible debt and US$9,403 in accumulated interest; and

(ii)

On July 3, 2008, the Company issued 267,221 common shares relating to the conversion of US$92,281 in convertible debt and US$9,243 in accumulated interest.

ITEM 8. FINANCIAL INFORMATION - continued

SIGNIFICANT CHANGES - continued

	•	On July 21, 2008, the Company closed a financing of zero coupon, 12% interest, senior secured convertible promissory notes in the amount of US$2,428,160 with an aggregate purchase price of US$2,168,000 with four investors, one of which was the Company’s Chief Financial Officer as to US$168,000. The debt is convertible into shares of common stock at the lesser of US$0.51 per share (unless the conversion price has been adjusted pursuant to further contract covenants) and 70% of the average of the five lowest closing bid prices for the ten preceding trading days. The Company issued each purchaser in the private placement two warrants, one warrant being redeemable by the Company and the other being non-redeemable. The non-redeemable warrants are exercisable at US$0.55 and permit the holder to purchase shares of common stock equal to 100% of the number of shares issuable upon the conversion of the notes calculated on July 21, 2008. The redeemable warrants are exercisable at US$0.75 and permit the holder to purchase common stock equal to 50% of the number of shares issuable upon the conversion of the notes issued calculated on the closing date. The Company issued a total of redeemable warrants to purchase an aggregate of 4,761,098 shares of common stock and a total of redeemable warrants to purchase an aggregate of 2,380,550 shares of common stock. Further, the Company issued 439,216 non-redeemable warrants and 219,608 redeemable warrants and $160,000 in cash fees to close the transaction. Each non-redeemable warrant is exercisable at US$0.55, and each redeemable warrant is exercisable at US$0.75; warrants carry a term of five years from the date of closing of the financing. The redeemable warrants may be redeemed by the Company only if certain conditions have been satisfied including the Company’s common stock having closed at $1.50 per share for a period of 20 consecutive trading days and the warrant holder being able to resell the shares acquired upon exercise through a resale registration statement or under Rule 144 of the Securities Act.

	•	On August 18, 2008, the Company issued 300,000 common shares to Pagic LP in relation to the Technology License agreed to by the Company, Pagic LP, and West Peak Ventures of Canada Ltd. on May 5, 2008.

	•	On August 18, 2008, the Company issued 383,331 common shares pursuant to the exercise of 383,331 warrants for gross proceeds of US$191,666.

	•	The Company issued the following common shares in relation to the conversion of certain notes:

(i)

On August 18, 2008, the Company issued 62,703 common shares relating to the conversion of US$25,000 in convertible debt and US$6,352 in accumulated interest and registration penalties. The Company also issued as part of converted amounts, 54,550 warrants exercisable at US$0.70 per share until December 11, 2008;

(ii)

(iii)

On September 19, the Company issued 417,322 common shares relating to the conversion of US$175,000 in convertible debt and US$33,662 in accumulated interest and registration penalties. The Company also issued as part of converted amounts, 385,104 warrants exercisable at US$0.70 per share until December 11, 2008.

ITEM 9. THE OFFER AND LISTING

OFFERING AND LISTING DETAILS

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

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

ITEM 9. THE OFFER AND LISTING - continued

OFFERING AND LISTING DETAILS - continued

Period	OTC Bulletin Board (USD)				TSX Venture Exchange (CND)
	High		Low		High		Low

Fiscal year ended March 31,
2004	$	0.075	$	0.0144	$	0.090	$	0.030
2005*	$	0.600	$	0.030	$	0.555	$	—
2006	$	0.950	$	0.250	$	—	$	—
2007	$	0.840	$	0.400	$	—	$	—
2008	$	0.930	$	0.450	$	—	$	—

Quarter ended
September 30, 2006	$	0.750	$	0.500	$	—	$	—
December 31, 2006	$	0.700	$	0.400	$	—	$	—
March 31, 2007	$	0.740	$	0.450	$	—	$	—
June 30, 2007	$	0.670	$	0.510	$	—	$	—
September 30, 2007	$	0.770	$	0.500	$	—	$	—
December 31, 2007	$	0.930	$	0.550	$	—	$	—
March 31, 2008	$	0.900	$	0.450	$	—	$	—
June 30, 2008	$	0.740	$	0.500	$	—	$	—

Month ended
March 31, 2008	$	0.730	$	0.450	$	—	$	—
April 30, 2008	$	0.740	$	0.670	$	—	$	—
May 31, 2008	$	0.700	$	0.550	$	—	$	—
June 30, 2008	$	0.700	$	0.500	$	—	$	—
July 31, 2008	$	0.670	$	0.480	$	—	$	—
August 31, 2008	$	0.620	$	0.480	$	—	$	—

We voluntarily delisted from the TSX Venture Exchange on May 3, 2005.

MARKETS

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

ITEM 10. ADDITIONAL INFORMATION

SHARE CAPITAL

Not applicable.

MEMORANDUM AND ARTICLES OF ASSOCIATION

Organization, Object and Purpose

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

MEMORANDUM AND ARTICLES OF ASSOCIATION - continued

Directors

Voting Powers

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

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

Borrowing Powers

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

Indemnification of Directors and Officers and Limitation of Liability

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

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

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

Qualifications

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

MEMORANDUM AND ARTICLES OF ASSOCIATION - continued

Common Shares

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

Dividends

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

Voting Rights

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

Liquidation Rights

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

Preferred Shares

In accordance with Article 2 and Schedule B of our articles of incorporation filed January 19, 1996, and as amended, there are authorized an unlimited number of preferred shares, which our directors may, from time to time, issue without nominal or par value in one or more series consisting of such number of shares as our directors may determine. Currently there are no preferred shares outstanding. Our directors, by resolution, may fix the designation, rights, privileges, restrictions and conditions attached to the preferred shares of each series, including without limiting the generality of the foregoing, the rate, form, entitlement and payment of preferential dividends, the redemption price, terms, procedure and conditions for redemption, if any, voting rights and conversion rights, and sinking fund, purchase fund or other provisions attaching to the preferred shares of such series.

Dividends

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

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

Voting Rights

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

MEMORANDUM AND ARTICLES OF ASSOCIATION - continued

Liquidation Rights

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

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

Shareholder Action

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

Shareholders Meetings

Annual Meetings

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

Special Meetings

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

Share Ownership

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

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

MEMORANDUM AND ARTICLES OF ASSOCIATION - continued

Investment Canada Act

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

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

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

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

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

The notification procedure involves filing a brief statement of information at any time up to thirty days following implementation of the investment, in response to which the non-Canadian investor will receive a receipt bearing a certified date and advising the non-Canadian investor that the proposal is either unconditionally non-reviewable or that it will not be reviewed provided there is no additional notice of review issued within twenty-one days following the certified date.

Exempt from the notice and review provisions of the Investment Canada Act are, among other transactions, those acquisitions carried out (i) in the ordinary course of one’s business, (ii) in connection with the realization of security granted for a loan, (iii) for the purpose of facilitating financing, provided the acquirer divest himself of control within two years, and (iv) by reason of an amalgamation, merger, consolidation, or corporate reorganization, following which the ultimate control remains unchanged.

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

MEMORANDUM AND ARTICLES OF ASSOCIATION - continued

Competition Act

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

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

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

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

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

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

Change in Control

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

MATERIAL CONTRACTS

The following is a summary of certain key economic and related provisions of all material contracts that we have entered into since March, 2006.

Pagic License and Related Transactions

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

	(i)	A license for a period lasting so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to three unrelated and proprietary consumer retail products that had previously been developed by Pagic, including the Ultrasonic Skincare System, the Dust Wolf TM, and the Tomorrow Garden TM, (collectively, and together with any improvements thereon, the “Initial Products”);

	(ii)	A license for a period lasting so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to any ancillary products developed and sold for use by consumers in connection with the Initial Products (“Initial Ancillaries”);

MATERIAL CONTRACTS - continued

	(iii)	A right for an initial period of five years to acquire a license for a period lasting so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to any new products developed by Pagic (collectively, “Additional Products”);

	(iv)	A license for a period lasting so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to any ancillary products developed and sold for use by consumers in connection with the Additional Products (“Additional Ancillaries”); and

	(v)	A related services agreement pursuant to which Pagic would provide consulting support in connection with the Initial Products, the Initial Ancillaries, the Additional Products and the Additional Ancillaries.

On July 29, 2005, we entered into a series of related definitive agreements with Pagic (collectively, the “Pagic Agreements”), including (i) a master license agreement for a period lasting so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to the Initial Products and the Initial Ancillaries (the “Pagic Master License”), (ii) a product development agreement pursuant to which we were granted a right for an initial period of five years to acquire a license, for a period lasting so long as royalty payments continue to be made as required, for the exclusive worldwide marketing and distribution rights to any Additional Products and any Additional Ancillaries (the “Pagic Product Development Agreement”), and (iii) a consulting agreement pursuant to which we will receive consulting support from Pagic in connection with each of the Initial Products, the Initial Ancillaries, the Additional Products and the Additional Ancillaries (the “Pagic Consulting Agreement”), in exchange for the following:

	•	20,000,000 shares of our common stock;

	•	A one-time US$125,000 license fee;

	•	Reimbursement for US$125,000 in development costs associated with each of the Initial Products since March 17, 2005;

	•	The greater of the following, payable annually:

	(i)	US$400,000; or

	(ii)	The aggregate of the following:

•

Subject to a minimum amount of US$37,500 per Initial Product during the second year of the Pagic Master License, and US$50,000 each year thereafter, continuing royalties payable quarterly at a rate of:

	:	US$10.00 per Ultrasonic Skincare System unit sold;

	:	US$2.00 per Dust Wolf TM, unit sold;

	:	4.5% of annual net sales of the Tomorrow Garden Kit; and

	:	3% of annual net sales of Initial Ancillaries.

	•	A one-time US$50,000 license fee for each Additional Product licensed (except for a one pre-identified product);

	•	Subject to a minimum amount of US$50,000 per year commencing with the second year of each corresponding license, continuing royalties of 4.5% of annual net sales and 3% on annual net sales of any Additional Ancillaries; and

	•	Consulting fees of US$156,000 per year, payable monthly in advance.

MATERIAL CONTRACTS - continued

The Pagic Agreements contain considerably more detail than the summary of key economic and related provisions set forth above. This summary does not purport to be a complete description of these agreements, and is qualified in is entirety by reference to the Pagic Master License, the Pagic Product Development Agreement, and the Pagic Consulting Agreement respectively, copies of which are included as Exhibits to this filing. Prospective investors in our common stock are strongly encouraged to read these agreements in their entirety.

During the year ended March 31, 2007, the Company issued 8,388,025 restricted common shares as the remaining shares owed in conjunction with the Licensing Agreement with Pagic LP (formerly MK Enterprises LLC). The Company on July 29, 2005, agreed to issue Pagic and its assigns 20 million common shares at a deemed cost of $1,306,075, based on the historical cost of the license, of which 11,611,975 shares were issued during the year ended March 31, 2006 and the balance during the year ended March 31, 2007. Included in the 20 million shares issued for the license were 9,428,205 shares that were issued to parties that became related parties to the Company.

July/August 2005 Private Offering Transaction

During the year ended March 31, 2008, convertible notes of US$75,000 and interest totaling US$4,521 were converted to 262,057 common shares, and interest of US$22,389 (2007 – US$119,875) was accrued on the principal balance of these convertible notes. As part of the subscription agreement that was part of the July/August 2005 Subscription Agreements, we agreed to grant certain registration rights to each of the investors and the finders, pursuant to which we became obligated to registering all of the shares issuable upon conversion of the promissory notes and under the warrants. Under the terms of the subscription agreement, a registration statement must have been filed on Form F-1 no later than sixty days following the close of the transaction and must be declared effective not later than one hundred fifty days following the close of the transaction. Thereafter, on one occasion, for a period commencing one hundred fifty-one days following the close of the transaction and not later than two years following the close of the transaction, any record holder or holders of more than fifty percent (50%) of the shares of our common stock issued or issuable upon conversion of the promissory notes or exercise of the warrants may, upon written request, demand that we prepare and file a registration statement registering shares issuable upon conversion of all sums due under the convertible promissory notes and exercisable under the warrants.

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

APRIL 2006 FOLLOW-ON PRIVATE OFFERING TRANSACTION

MATERIAL CONTRACTS - continued

The convertible notes carry a redemption feature, which allows the Company to retire them, in whole or in part, for an amount equal to 130% of that portion of the face amount being redeemed, but only in the event that the common shares have a closing price of US$1.50 per share for at least twenty consecutive trading days and there has otherwise been no default. The common stock purchase warrants carry a Cashless Conversion Feature. These convertible notes are unsecured, and due on demand.

During the year ended March 31, 2008, the Company accrued US$38,835 (2007 – US$567,366) in interest on the principal balance of these convertible notes. As part of the financing transaction, we also granted certain registration rights to each of the investors and finders pursuant to which we became committed to registering all of the shares issued as part of such transaction, including those issuable upon conversion of the notes and exercise of the warrants, by filing a registration statement on Form F-1 covering such shares within fourteen days of the closing date, or by April 20, 2006, and causing such registration statement to be declared effective by the SEC by June 5, 2006. In accordance with the terms of the registration provisions any delays in meeting our obligations subject us to liability in an amount, payable in cash, at a rate of 2% of the outstanding amount on the convertible notes per thirty day period for the duration of any such delay, and, furthermore, any delays in our filing of a registration statement by April 20, 2006 subject us to liability in the form of a reduction in the exercise price of the Class A and Class B warrants issued as part of such transaction in an amount of US$0.10 per week for the duration of any such delay.

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

US$82,200 April 2006 penalty Convertible Note

On April 6, 2006, and in conjunction with certain private placements, the Company reached a verbal agreement with investors wherein the Company agreed to convert US$82,200 in accrued penalties associated with the July 25, 2005 through August 5, 2005 convertible notes into US$82,200 convertible penalty notes (Note 10(a)) carrying terms similar to the July 25, 2005 through August 5, 2005 convertible notes and an aggregate of 109,600 warrants. These warrants carry a Cashless Conversion Feature and each warrant entitles the holder to purchase additional common shares for three years at a price of US$0.75 per share. These convertible notes are unsecured and due on demand.

MAY/AUGUST 2006

On May 15, 2006, the Company completed a private placement of units whereby it issued a total of 1,104,165 units at US$0.60 per unit whereby each unit consisted of one common share and one share purchase warrant to purchase an additional common share at US$0.80. Of the warrants issued, 833,332 expire on May 15, 2008 and 270,833 on June 7, 2008. The Company also paid consultants fees consisting of $58,860 plus 66,666 warrants to purchase that number of common shares at US$0.80 until May 15, 2008 and 21,666 warrants to purchase that number of common shares at US$0.80 until June 7, 2008.

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

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

MATERIAL CONTRACTS - continued

Nova Skin Care System – Solid Integrations, LLC Manufacturing Agreement

Global Green Joint Venture

As at March 31, 2008, Global Green and the Company incurred a total of US$5,735,893 (2007 - US$2,023,379) in costs related to Vertigro. Of the costs incurred to March 31, 2008, Global Green paid US$4,338,204 (2007 - US$1,653,981) of which US$7,806 is included in accounts payable. During the year ended March 31, 2007, accounts receivable included US$369,398 due from Global Green. On July 9, 2007, the parties to the GGS Agreement entered into the Vertigro Algae Stakeholders Letter of Agreement (the “Global Green Joint Venture”), which replaced the GGS Agreement. Pursuant to the new agreement, each of Global Green and the Company will hold a 50% interest in the Global Green Joint Venture, subject to an aggregate 4.5% royalty to Pagic and West Peak. The Global Green Joint Venture covers the Bio-Reactor and any subsequent related technologies for the commercial scale products of algae based biomass for all industrial commercial and retail applications including but not limited to bio-fuel, food, health, pharmaceutical, animal and agricultural feeds.

Limited Liability Company Operating Agreement for Vertigro Algae Technologies, LLC

On May 5, 2008, Valcent USA and Global Green signed a Limited Liability Company Operating Agreement (“New Operating Agreement”) replacing the LOA to form Vertigro Algae Technologies, LLC (“Vertigro Algae”), a Texas LLC, which is the formalized operating entity for the previous unincorporated operations of Vertigro. The business activities of Vertigro Algae will be the same as when the operations were under Vertigro. Under the New Operating Agreement, Global Green and the Company will each hold a 50% stake in Vertigro Algae, and have committed to fund project development according to ownership allocation. Further, the Company will acquire assets of Vertigro, including buildings, laboratory, and equipment. To allow for prior capital contributions, Global Green has incurred in excess of the Company’s prior aggregate capital contribution, Global Green will receive 70% of the net cash flow generated by Vertigro Algae until it has received US$3,000,000 in excess of its 50% interest in such cash flow.

Technology License Agreement

On May 5, 2008, Vertigro Algae executed a Technology License Agreement (“Technology License”) together with Pagic, West Peak and the Company. The Technology License licenses certain algae biomass technology and intellectual property to Vertigro Algae for purposes of commercialization and exploitation for all industrial, commercial, and retail applications worldwide (“Algae Biomass Technology”). In return for the Algae Biomass Technology, both the Company and Global Green will each issue 300,000 common shares to Pagic LP, and also pay a one-time commercialization fee of US$50,000 upon the Algae Biomass Technology achieving commercial viability. The Technology License is subject to royalty of 4.5% of gross customer sales receipts for use of the Algae Biomass Technology; and aggregate annual royalty minimum amounts of US$50,000 in 2009, US$100,000 in 2010, and US$250,000 in 2011 and each year thereafter in which the Technology License is in place.

All prior agreements between the Company and Pagic that relate to the Algae Biomass Technology will be replaced by the new Operating Agreement and the Technology License.

MATERIAL CONTRACTS - continued

Purchase Agreement

US$1,500,000 DECEMBER 2006 CONVERTIBLE NOTE

During the year ended March 31, 2008, the Company accrued US$989,296 (2007 - US$238,448) in interest on the principal balance of these convertible notes.

US$2,000,000 JANUARY 2007 CONVERTIBLE NOTE

On January 29, 2007, the Company completed a private placement comprised of US$2,000,000 convertible notes. The convertible notes will mature on December 11, 2008, carry interest at 6% per annum and are unsecured. The notes are convertible into “Units” at the note holders’ discretion at a conversion price of US$0.50 per Unit. Each “Unit” consists of one common share and one purchase warrant to purchase an additional common share at US$0.70 per share until December 11, 2008. The notes and any accrued interest are callable by the Company at any time after December 11, 2007 by providing thirty days’ written notice to the note holders. Interest on the notes will be compounded annually and be cumulative until the earlier of either the date the Company achieves pre-tax earnings or the end of the term. At the discretion of the note holders, interest on the notes is payable in either cash or units at US$0.50 per unit. In connection with this financing, the Company has paid consultants US$108,000 in cash and issued 135,000 warrants exercisable at US$0.50 per unit, with each unit consisting of one common share and one share purchase warrant to purchase a further common share at US$0.70 per share until December 11, 2008. The Company is obligated to file a resale registration statement on the underlying securities within four months of closing, which it has failed to do.

MATERIAL CONTRACTS - continued

US$391,000 SEPTEMBER 2007 CONVERTIBLE NOTE

The Company is required to register for trading the securities underlying the conversion features of this convertible note on a best efforts basis, but has failed to do so within terms agreed. A one-time financial penalty of US$23,460 for failure to register the securities underlying this convertible note within 90 days from the date of issuance has been incurred during the year ended March 31, 2008.

Long Term Debt

During the year ended March 31, 2007, the Company entered into a ten year commercial real estate note totaling US$190,000 to fund the acquisition of land. The loan is secured by the land and an aggregate US$100,000 in term deposits which is included in the prepaid expenses. Borrowings under the Agreement accrue interest equal to the Wall Street Journal prime rate plus 0.25 percent adjusted annually. The current interest rate is 8.50% per annum. At March 31, 2008, remaining long term debt was $174,862 (2007 - - $209,114) of which $16,250 (2007 - $13,451) represented the current portion of aggregate long term debt.

TERM LOAN

2008 CONVERTIBLE NOTE

On July 21, 2008, the Company closed a financing of zero coupon, 12% interest, senior secured convertible promissory notes in the amount of US$2,428,160 with an aggregate purchase price of US$2,168,000 with four investors, one of which was the Company’s Chief Financial Officer as to US$168,000. The debt is convertible into shares of common stock at the lesser of US$0.51 per share (unless the conversion price has been adjusted pursuant to further contract covenants) and 70% of the average of the five lowest closing bid prices for the ten preceding trading days. The Company issued each purchaser in the private placement two warrants, one warrant being redeemable by the Company and the other being non-redeemable. The non-redeemable warrants are exercisable at US$0.55 and permit the holder to purchase shares of common stock equal to 100% of the number of shares issuable upon the conversion of the notes calculated on July 21, 2008. The redeemable warrants are exercisable at US$0.75 and permit the holder to purchase common stock equal to 50% of the number of shares issuable upon the conversion of the notes issued calculated on the closing date. The Company issued a total of redeemable warrants to purchase an aggregate of 4,761,098 shares of common stock and a total of redeemable warrants to purchase an aggregate of 2,380,550 shares of common stock. Further, the Company issued 439,216 nonredeemable warrants and 219,608 redeemable warrants and $160,000 in cash fees to close the transaction. Each non-redeemable warrant is exercisable at US$0.55, and each redeemable warrant is exercisable at US$0.75; warrants carry a term of five years from the date of closing of the financing. The redeemable warrant may be redeemed by the Company only if certain conditions have been satisfied including the Company’s common stock having closed at $1.50 per share for a period of 20 consecutive trading days and the warrant holder being able to resell the shares acquired upon exercise through a resale registration statement or under Rule 144 of the Securities Act.

MATERIAL CONTRACTS - continued

LICENSE AGREEMENTS

Vertigro Algae Technologies, LLC Purchase Agreement

EXCHANGE CONTROLS

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

TAXATION

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

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

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

	•	an individual citizen or resident of the United States;

	•	a corporation, or entity taxable as a corporation, that is created or organized under the laws of the United States or of any political subdivision thereof or the District of Columbia;

	•	an estate whose income is taxable in the United States irrespective of source; or

	•	a trust if, (i) a court within the United States is able to exercise primary supervision over the administration of the trust, and (ii) one or more United States persons have the authority to control all substantial decisions of the trust.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES - continued

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

Dividends

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

	•	to the extent such distributions are paid out of our current or accumulated earnings and profits, as determined for United States federal income tax purposes, subject to any applicable foreign tax credit, and without a reduction for any Canadian income tax withheld from such distributions, such holders would generally be required to include, in their gross income for United States federal income tax purposes, an amount equal to the United States Dollar value of such distributions on the date of receipt (based on the exchange rate on such date).

	•	to the extent such dividend distributions exceed our current or accumulated earnings and profits, as determined for United States federal income tax purposes, the amount of any distribution so received will (i) first be applied to reduce a U.S. Holder’s adjusted basis in our common shares, and, as a return of basis, will not be subject to United States federal income tax, and (ii) thereafter, any residual amount of such distribution will be treated as a gain from the sale or exchange of our common shares, which amount is taxable as a capital gain.

Any taxable dividends received on shares of our common stock by a U.S. Holder who is an individual, a trust or an estate (an “Individual Holder”) will be treated as qualified dividend income, which is subject to tax at preferential rates through December 31, 2008, provided that:

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

	•	we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been or anticipate that we will be);

	•	the Individual Holder has held the common shares for more than 60 days during the 121-day period beginning 60 days prior to the date on which the common shares become ex-dividend; and

	•	the Individual Holder is not obligated to make related payments with respect to positions in substantially similar or related property.

Special rules may apply to any extraordinary dividend—a dividend equal to or in excess of 10% of a shareholder’s adjusted basis, or, under certain circumstances, the fair market value, of a share of common stock—requiring that such a distribution be treated as qualified dividend income. Any loss from the sale or exchange of shares of our common stock with respect to which an Individual Holder has received an extraordinary dividend treated as qualified dividend income will be deemed a long-term capital loss to the extent of such dividend. Taxable extraordinary dividends not treated as qualified dividend income will be taxed as ordinary income, rather than as capital gains.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES - continued

Foreign Tax Credit

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

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

Sale, Exchange or other Disposition of Common Shares

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

Special Rules

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

Passive Foreign Investment Company

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

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

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES - continued

Controlled Foreign Corporation

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

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

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

Distributions on our Common Shares

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

Sale, Exchange or other Disposition of Common Shares

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

Information Reporting and Backup Withholding Tax

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

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

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES - continued

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

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

MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES

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

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

	•	a non-resident of Canada;

	•	holds our common shares as capital property;

	•	deals with us at arm’s length; and

	•	does not use or hold our common shares in or in the course of carrying on business in Canada.

Dividends

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

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

	•	to the extent such holder beneficially owns at least 10% of our voting stock, 5% of the gross amount of such distribution paid; or

	•	to the extent such holder beneficially owns less than 10% of our voting stock, 15% of the gross amount of such distribution paid.