##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission File Number 333-110680
 VIASPACE INC.
 (Exact name of small business issuer as specified in its charter)
 Nevada
    
    76-0742386(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 171 North Altadena Drive, Suite 101, Pasadena, CA 91107
 (626) 768-3360
 þ o
 o þ
 292,512,205 Shares of $0.001 par value Common Stock issued and outstanding
as of November 10, 2006.
 o þ




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##### 



VIASPACE INC.
 INDEX
 PagePart I. Financial Information:Item 1. Financial Statements:Consolidated Balance Sheets as of September 30, 2006 (Unaudited) and December 31, 2005
    
    
    3Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2006 and 2005 (Unaudited) and Consolidated Statements of Comprehensive Loss For the Three and Nine Months Ended September 30, 2006 and 2005 (Unaudited)
    
    
    4Consolidated Statements of Stockholders Equity as of September 30, 2006 (Unaudited) and December 31, 2005
    
    
    5Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2006 and 2005 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis
    
    
    22Item 3. Controls and Procedures
    
    
    31Part II. Other Information:Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 6. Exhibits
    
    
    32Signatures
    
    
    33EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 VIASPACE INC.
 
 CONSOLIDATED BALANCE SHEETS
 September 30,2006
    
    
    December 31,(Unaudited)
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    791,000
    
    
    $
    2,130,000Accounts receivable, net of allowance for doubtful accounts of zero
    
    
    244,000
    
    
    
    71,000Marketable securities
    
    
    213,000
    
    
    
    24,000Prepaid expenses and other current assets
    
    
    64,000
    
    
    
    53,000TOTAL CURRENT ASSETS
    
    
    1,312,000
    
    
    
    2,278,000FIXED ASSETS:Fixed assets, net of accumulated depreciation of $90,000 and
$67,000 in 2006 and 2005, respectively
    
    
    188,000
    
    
    
    21,000OTHER ASSETS
    
    
    70,000
    
    
    
    16,000TOTAL ASSETS
    
    $
    1,570,000
    
    
    $
    2,315,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    273,000
    
    
    $
    186,000Accrued expenses
    
    
    313,000
    
    
    
    297,000Unearned revenue
    
    
    
    
    
    
    100,000Current portion of long-term debt
    
    
    28,000
    
    
    
    27,000TOTAL CURRENT LIABILITIES
    
    
    614,000
    
    
    
    610,000LONG-TERM DEBT, net of current portion
    
    
    79,000
    
    
    
    100,000TOTAL
LIABILITIES
    
    
    693,0000
    
    
    
    710,000COMMITMENTS AND CONTINGENCIESMINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES:Preferred Shareholder Minority Interest
    
    
    500,000
    
    
    
    500,000Common Shareholder Minority Interest
    
    
    36,000
    
    
    
    51,000536,000
    
    
    
    551,000STOCKHOLDERS EQUITY:Preferred stock, $0.001 par value, 5,000,000 shares authorized,
zero shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, 400,000,000 shares authorized,
291,649,286 and 284,506,430 issued and outstanding in 2006 and
2005, respectively
    
    
    292,000
    
    
    
    285,000Additional paid in capital
    
    
    5,566,000
    
    
    
    2,200,000Accumulated other comprehensive loss
    
    
    256,000
    
    
    
    Accumulated deficit
    
    
    (5,773,000
    )
    
    
    (1,431,000
    )Total stockholders equity
    
    
    341,000
    
    
    
    1,054,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    1,570,000
    
    
    $
    2,315,000
 The accompanying notes are an integral part of the consolidated financial statements.
 3




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##### Table of Contents



VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUESGovernment contracts
    
    $
    83,000
    
    
    $
    93,000
    
    
    $
    266,000
    
    
    $
    317,000Other contracts
    
    
    300,000
    
    
    
    
    
    
    
    404,000
    
    
    
    12,000Total revenues
    
    
    383,000
    
    
    
    93,000
    
    
    
    670,000
    
    
    
    329,000COST OF REVENUES
    
    
    276,000
    
    
    
    110,000
    
    
    
    527,000
    
    
    
    258,000GROSS PROFIT
    
    
    107,000
    
    
    
    (17,000
    )
    
    
    143,000
    
    
    
    71,000OPERATING EXPENSESResearch and development
    
    
    261,000
    
    
    
    133,000
    
    
    
    714,000
    
    
    
    445,000Selling, general and administrative expenses
    
    
    1,399,000
    
    
    
    516,000
    
    
    
    3,851,000
    
    
    
    1,029,000Total operating expenses
    
    
    1,660,000
    
    
    
    649,000
    
    
    
    4,565,000
    
    
    
    1,474,000LOSS FROM OPERATIONS
    
    
    (1,553,000
    )
    
    
    (666,000
    )
    
    
    (4,422,000
    )
    
    
    (1,403,000
    )Interest income and other, net
    
    
    16,000
    
    
    
    37,000
    
    
    
    61,000
    
    
    
    57,000LOSS BEFORE MINORITY INTEREST
    
    
    (1,537,000
    )
    
    
    (629,000
    )
    
    
    (4,361,000
    )
    
    
    (1,346,000
    )Minority
interest in losses of consolidated subsidiaries
    
    
    5,000
    
    
    
    52,000
    
    
    
    19,000
    
    
    
    83,000NET LOSS
    
    $
    (1,532,000
    )
    
    $
    (577,000
    )
    
    $
    (4,342,000
    )
    
    $
    (1,263,000
    )NET LOSS PER SHARE OF COMMON STOCK-Basic and
diluted
    
    $
    *
    
    
    $
    *
    
    
    $
    (0.02
    )
    
    $
    *WEIGHTED AVERAGE SHARES OUTSTANDING-Basic and
diluted
    
    
    291,619,286
    
    
    
    282,935,094
    
    
    
    289,464,564
    
    
    
    281,519,518
 
 *
    
    Less than $0.01 per common share. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 NET LOSS
    
    $
    (1,532,000
    )
    
    $
    (577,000
    )
    
    $
    (4,342,000
    )
    
    $
    (1,263,000
    )Other Comprehensive Income:Conversion of securities
    
    
    
    
    
    
    
    
    
    
    292,000
    
    
    
    Unrealized holding gain (loss) on securities
    
    
    (40,000
    )
    
    
    
    
    
    
    (36,000
    )
    
    
    Total Other Comprehensive Income
    
    
    (40,000
    )
    
    
    
    
    
    
    256,000
    
    
    
    COMPREHENSIVE LOSS
    
    $
    (1,572,000
    )
    
    $
    (577,000
    )
    
    $
    (4,086,000
    )
    
    $
    (1,263,000
    )
 The accompanying notes are an integral part of the consolidated financial statements.
 4




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VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid in
    
    
    Comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Deficit
    
    
    TotalBALANCE, DECEMBER 31, 2004
    
    
    152,953,000
    
    
    $
    153,000
    
    
    $
    116,000
    
    
    $
    
    
    
    $
    880,000
    
    
    $
    1,149,000Investment by SNK Capital Trust
    
    
    10,800,000
    
    
    
    11,000
    
    
    
    989,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Shares issued for acquisition of Arroyo Sciences, Inc.
    
    
    60,843,000
    
    
    
    61,000
    
    
    
    (61,000
    )
    
    
    
    
    
    
    
    
    
    
    Membership interest to Caltech
    
    
    2,204,000
    
    
    
    2,000
    
    
    
    (2,000
    )
    
    
    
    
    
    
    
    
    
    
    Pre-existing post-split shares of Global-Wide Publication Ltd.
    
    
    54,000,000
    
    
    
    54,000
    
    
    
    (118,000
    )
    
    
    
    
    
    
    
    
    
    
    (64,000
    )BALANCE, JUNE 22, 2005 - Reverse Merger
    
    
    280,800,000
    
    
    $
    281,000
    
    
    $
    924,000
    
    
    $
    
    
    
    $
    880,000
    
    
    $
    2,085,000Exercise of options by SNK Capital Trust
    
    
    3,571,000
    
    
    
    4,000
    
    
    
    996,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Common stock issued in exchange for common shares in
subsidiaries
    
    
    135,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock compensation expense related to warrants
    
    
    
    
    
    
    
    
    
    
    247,000
    
    
    
    
    
    
    
    
    
    
    
    247,000Stock compensation expense related to stock options
    
    
    
    
    
    
    
    
    
    
    33,000
    
    
    
    
    
    
    
    
    
    
    
    33,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,311,000
    )
    
    
    (2,311,000
    )BALANCE, DECEMBER 31, 2005
    
    
    284,506,000
    
    
    $
    285,000
    
    
    $
    2,200,000
    
    
    $
    
    
    
    $
    (1,431,000
    )
    
    $
    1,054,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,342,000
    )
    
    
    (4,342,000
    )Other comprehensive income:Conversion of securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292,000
    
    
    
    
    
    
    
    292,000Unrealized holding gain (loss) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,000
    )
    
    
    
    
    
    
    (36,000
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,086,000
    )Exercise of options by SNK Capital Trust
    
    
    7,143,000
    
    
    
    7,000
    
    
    
    1,993,000
    
    
    
    
    
    
    
    
    
    
    
    2,000,000Stock compensation expense related to warrants
    
    
    
    
    
    
    
    
    
    
    491,000
    
    
    
    
    
    
    
    
    
    
    
    491,000Stock compensation expense related to stock options
    
    
    
    
    
    
    
    
    
    
    882,000
    
    
    
    
    
    
    
    
    
    
    
    882,000BALANCE, SEPTEMBER 30, 2006 (Unaudited)
    
    
    291,649,000
    
    
    $
    292,000
    
    
    $
    5,566,000
    
    
    $
    256,000
    
    
    $
    (5,773,000
    )
    
    $
    341,000
 The accompanying notes are an integral part of the consolidated financial statements.
 5




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##### Table of Contents



VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months EndedSeptember 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (4,342,000
    )
    
    $
    (1,263,000
    )Depreciation and amortization
    
    
    26,000
    
    
    
    7,000Stock compensation and warrant expense
    
    
    1,373,000
    
    
    
    101,000Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Accounts receivable
    
    
    (173,000
    )
    
    
    157,000Prepaid expenses
    
    
    (11,000
    )
    
    
    (41,000
    )Other assets
    
    
    (13,000
    )
    
    
    3,000Accounts payable
    
    
    87,000
    
    
    
    (18,000
    )Unearned revenue
    
    
    (100,000
    )
    
    
    (12,000
    )Accrued expenses and other
    
    
    39,000
    
    
    
    16,000Minority
interest in losses of consolidated subsidiaries
    
    
    (15,000
    )
    
    
    (86,000
    )Net cash used in operating activities
    
    
    (3,129,000
    )
    
    
    (1,136,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Additions to fixed assets
    
    
    (190,000
    )
    
    
    (11,000
    )Purchase of Arroyo Sciences, Inc., net of cash and cash equivalents
    
    
    
    
    
    
    148,000Net cash provided by (used in) investing activities
    
    
    (190,000
    )
    
    
    137,000CASH FLOWS FROM FINANCING ACTIVITIES:Exercise of stock options by SNK Capital Trust
    
    
    2,000,000
    
    
    
    1,000,000Investment by SNK Capital Trust
    
    
    
    
    
    
    1,000,000Payments on long-term debt
    
    
    (20,000
    )
    
    
    (13,000
    )Reverse merger adjustment
    
    
    
    
    
    
    (22,000
    )Net cash provided by financing activities
    
    
    1,980,000
    
    
    
    1,965,000NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (1,339,000
    )
    
    
    966,000CASH AND CASH EQUIVALENTS, Beginning of period
    
    
    2,130,000
    
    
    
    1,933,000CASH AND CASH EQUIVALENTS, End of period
    
    $
    791,000
    
    
    $
    2,899,000Supplemental Schedule of Noncash Investing and Financing Activities:Acquisition of Arroyo Sciences, Inc.Cash purchase price
    
    
    
    
    
    $
    Working capital acquired, net of cash and cash equivalents of $118,758
    
    
    
    
    
    
    (98,000
    )Long-term loan assumed
    
    
    
    
    
    
    (50,000
    )$
    (148,000
    )Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    7,000
    
    
    $
    7,000Income taxes
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of the consolidated financial statements.
 6




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##### Table of Contents



VIASPACE INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Note 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Principles of Consolidation
 Fiscal Year End 
 Minority Interest in Subsidiaries -
 Cash and Cash Equivalents
 Use of Estimates in the Preparation of the Financial Statements
 Impairment of Long-lived Assets
 Fair Value of Financial Instruments
 7




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##### Table of Contents



Property and Equipment -
 Marketable Securities -
 Intangible Assets -
 Income Taxes
 Revenue Recognition -
 Stock Based Compensation -
 8




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005Net loss applicable to common shares, as reported
    
    $
    (577,000
    )
    
    $
    (1,263,000
    )Add: Stock-based employee compensation included in reported net loss
    
    
    
    
    
    
    Less: Total stock-based employee compensation expense determined
under Black-Scholes option pricing model, net of tax effects
    
    
    (8,000
    )
    
    
    (8,000
    )Pro forma net loss
    
    $
    (585,000
    )
    
    $
    (1,271,000
    )Net loss per share  as reported:basic and diluted
    
    $
    *
    
    
    $
    *Net loss per share  pro forma:basic and diluted
    
    $
    *
    
    
    $
    *
 
 *
    
    Less than $0.01 Net Income (Loss) Per Share -
 Concentration of Credit Risk -
 Research and Development
 NOTE 2  FIXED ASSETS
  September 30,2006
    
    
    December 31,(Unaudited)
    
    
    2005Computer equipment and software
    
    $
    184,000
    
    
    $
    66,000Lab equipment
    
    
    10,000
    
    
    
    Furniture and fixtures
    
    
    58,000
    
    
    
    19,000Leasehold improvements
    
    
    26,000
    
    
    
    3,000Total property and equipment
    
    
    278,000
    
    
    
    88,000Less: Accumulated depreciation
    
    
    90,000
    
    
    
    67,000Fixed assets, net
    
    $
    188,000
    
    
    $
    21,000
  9




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##### Table of Contents



NOTE 3  MARKETABLE SECURITIES
   NOTE 4  INTANGIBLE ASSETS
  September 30,2006
    
    
    December 31,(Unaudited)
    
    
    2005Amortized intangible assets, gross:License to patent
    
    $
    10,000
    
    
    $
    10,000Software Code
    
    
    10,000
    
    
    
    10,000Total intangible assets, gross
    
    
    20,000
    
    
    
    20,000Less: Accumulated amortization
    
    
    7,000
    
    
    
    4,000Total intangible assets, net
    
    $
    13,000
    
    
    $
    16,000
   License to
    
    
    SoftwareYear
    
    Patent
    
    
    Code
    
    
    Total2006
    
    $
    1,000
    
    
    $
    3,000
    
    
    $
    4,0002007
    
    
    1,000
    
    
    
    4,000
    
    
    
    5,0002008
    
    
    1,000
    
    
    
    
    
    
    
    1,0002009
    
    
    1,000
    
    
    
    
    
    
    
    1,0002010
    
    
    1,000
    
    
    
    
    
    
    
    1,000Thereafter
    
    
    4,000
    
    
    
    
    
    
    
    4,000Total
    
    $
    9,000
    
    
    $
    7,000
    
    
    $
    16,000
 NOTE 5  OWNERSHIP INTEREST IN AFFILIATED COMPANIES
 Ionfinity.
 10




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##### Table of Contents



DMFCC.
 Other Affiliated Companies.
 NOTE 6  LONG-TERM DEBT
  September 30,2006
    
    
    December 31,(Unaudited)
    
    
    2005Community Development Commission of
the County of Los Angeles, non-secured,
with interest at 5% due 7/1/2009
    
    $
    37,000
    
    
    $
    45,000Community Development Commission of the
County of Los Angeles, non-secured, with
interest at 5% due 9/1/2009
    
    
    70,000
    
    
    
    82,000Total Long-term Debt
    
    
    107,000
    
    
    
    127,000Less Current Portion
    
    
    28,000
    
    
    
    27,000Net Long-term Debt
    
    $
    79,000
    
    
    $
    100,000
  NOTE 7  RELATED PARTIES
     11




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NOTE 8  STOCK OPTIONS AND WARRANTS
 SNK Capital Trust Option
     12




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##### Table of Contents



VIASPACE Inc. 2005 Stock Incentive Plan
      13




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##### Table of Contents



Risk free interest rate
    
    4.32% - 5.06%Dividends
    
    0%Volatility factor
    
    116.47% - 136.3%Expected life
    
    6.67 yearsAnnual forfeiture rate
    
    7% - 9%
  Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term In Years
    
    
    ValueOutstanding at December 31, 2005
    
    
    1,485,000
    
    
    $
    2.50Granted
    
    
    3,754,000
    
    
    
    1.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (388,000
    )
    
    
    2.34Outstanding at September 30, 2006
    
    
    4,851,000
    
    
    $
    1.35
    
    
    
    9.1
    
    
    $
    Exercisable at September 30, 2006
    
    
    375,000
    
    
    $
    2.44
    
    
    
    7.6
    
    
    $
    
   Direct Methanol Fuel Cell Corporation 2002 Stock Option / Stock Issuance Plan
  14




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Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term In Years
    
    
    ValueOutstanding at December 31, 2005
    
    
    1,631,000
    
    
    $
    .02Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2006
    
    
    1,631,000
    
    
    $
    .02
    
    
    
    8.0
    
    
    $
    127,000Exercisable at September 30, 2006
    
    
    1,421,000
    
    
    $
    .02
    
    
    
    8.0
    
    
    $
    116,000
   Stock Warrants
      15




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##### Table of Contents



DMFCC Shares Issued in Connection with License Agreements
  Note 9  RETIREMENT PLAN
  Note 10  OPERATING SEGMENTS
   (i) DMFCC:
 (ii) Arroyo:
 (iii) Ionfinity:
   16




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:DMFCC
    
    $
    21,000
    
    
    $
    
    
    
    $
    64,000
    
    
    $
    Arroyo
    
    
    279,000
    
    
    
    
    
    
    
    340,000
    
    
    
    Ionfinity
    
    
    83,000
    
    
    
    93,000
    
    
    
    266,000
    
    
    
    329,000Total Revenue
    
    $
    383,000
    
    
    $
    93,000
    
    
    $
    670,000
    
    
    $
    329,000Income (Loss) From Operations:DMFCC
    
    $
    (428,000
    )
    
    $
    (266,000
    )
    
    $
    (1,080,000
    )
    
    $
    (634,000
    )Arroyo
    
    
    (54,000
    )
    
    
    (141,000
    )
    
    
    (480,000
    )
    
    
    (463,000
    )Ionfinity
    
    
    (10,000
    )
    
    
    (19,000
    )
    
    
    (31,000
    )
    
    
    46,000Loss From Operations by Reportable Segments
    
    
    (492,000
    )
    
    
    (426,000
    )
    
    
    (1,591,000
    )
    
    
    (1,051,000
    )Corporate Administrative Costs (including
Stock Compensation and Warrant Expense of
$1,373,000 and $101,000 in 2006 and 2005,
respectively
    
    
    (1,061,000
    )
    
    
    (240,000
    )
    
    
    (2,831,000
    )
    
    
    (352,000
    )Loss From Operations
    
    $
    (1,553,000
    )
    
    $
    (666,000
    )
    
    $
    (4,422,000
    )
    
    $
    (1,403,000
    )
 September 30,2006
    
    
    December 31,(Unaudited)
    
    
    2005Assets:DMFCC
    
    $
    128,000
    
    
    $
    1,096,000Arroyo
    
    
    274,000
    
    
    
    132,000Ionfinity
    
    
    133,000
    
    
    
    153,000Corporate
    
    
    1,035,000
    
    
    
    934,000Total Assets
    
    $
    1,570,000
    
    
    $
    2,315,000
 Note 11  COMMITMENTS AND CONTINGENCIES
 Employment Agreements
  Royalty Commitments
    17




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Leases
  Years EndedFiscal Year
    
    December 31,2006
    
    $
    64,0002007
    
    
    130,0002008
    
    
    134,0002009
    
    
    138,0002010
    
    
    142,000Thereafter
    
    
    73,000Total minimum lease payments
    
    $
    681,000
  Notes Payable
  Fiscal Year
    
    Principal
    
    
    Interest
    
    
    Total2006
    
    $
    27,000
    
    
    $
    6,000
    
    
    $
    33,0002007
    
    
    29,000
    
    
    
    4,000
    
    
    
    33,0002008
    
    
    30,000
    
    
    
    3,000
    
    
    
    33,0002009
    
    
    41,000
    
    
    
    1,000
    
    
    
    42,0002010
    
    
    
    
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    127,000
    
    
    $
    14,000
    
    
    $
    141,000
 Litigation
  NOTE 12  NET LOSS PER SHARE
  18




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As of September 30,2006
    
    2005Stock Options
    
    
    4,851,000
    
    
    
    Warrants
    
    
    1,000,000
    
    
    
    
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic and diluted net loss per share:Numerator:Net loss attributable to common stock
    
    $
    (1,532,000
    )
    
    $
    (577,000
    )
    
    $
    (4,342,000
    )
    
    $
    (1,263,000
    )Denominator:Weighted average shares of common stock outstanding
    
    
    291,619,286
    
    
    
    282,935,094
    
    
    
    289,464,564
    
    
    
    223,402,955Net loss per share of common stock, basic and diluted
    
    $
    *
    
    
    $
    *
    
    
    $
    (0.02
    )
    
    $
    *
 
 *
    
    Less than $0.01 per common share. Note 13  FINANCIAL ACCOUNTING DEVELOPMENTS
      19




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Note 14  SUBSEQUENT EVENTS
 Amendment to Articles of Incorporation
 Securities Purchase Agreement (the Debenture Offering)
   20




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Standby Equity Distribution Agreement (the Equity Offering, and together with the Debenture
Offering, the Offerings)
       21




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 The following discussion contains certain statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements appear in a number of places in this Report, including, without limitation,
Managements Discussion and Analysis of Financial Condition or Plan of Operation. These
statements are not guarantees of future performance and involve risks, uncertainties and
requirements that are difficult to predict or are beyond our control. Our future results may differ
materially from those currently anticipated depending on a variety of factors, including those
described below under Risks Related to Our Future Operations and our filings with the Securities
and Exchange Commission. The following should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto that appear elsewhere in this report.
 VIASPACE Overview
   Critical accounting policies and estimates
 Financial Statements
   22




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Three Months Ended September 30, 2006 Compared to September 30, 2005
 Results From Operations
 Revenues
  Cost of Revenues
  Research and Development
  Selling, General and Administrative Expenses
 .
 Other Income (Expense), Net
  Nine Months Ended September 30, 2006 Compared to September 30, 2005
 Results From Operations
 Revenues
  23




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Cost of Revenues
  Research and Development
  Selling, General and Administrative Expenses
 .
 Other Income (Expense), Net
  Liquidity and Capital Resources
    24




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Inflation and Seasonality
  Off-Balance Sheet Arrangements
  Other Matters
  Risk Factors Which May Affect Future Results
  Risks Related To Our Business
 We have incurred losses and anticipate continued losses.
  We operate in a changing and unpredictable regulatory environment, which is uncertain.
  25




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Our success depends upon market acceptance of our technologies and product development, which is
uncertain.
   We operate in a competitive market, against companies with substantially greater resources than we
have.
     Due to uncertainties in our business, our capital on hand may not be sufficient to fund our
operations until we achieve positive cash flow.
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
    
    progress of our research and development efforts;
    
    competing technological and market developments;
    
    commercialization of products currently under development by us and our competitors; and
    
    market acceptance and demand for our products and services.
  If we lose key personnel or are unable to hire additional qualified personnel, it could impact our
ability to grow our business.
   Our products and services could infringe on the intellectual property rights of others, which may
lead to costly litigation, lead to payment of substantial damages or royalties and/or prevent us
from manufacturing and selling our current and future products and services.
   Our assets are subject to a security agreement related to Company financing.
  27




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Risks Related To the Industry
 If we fail to successfully introduce new products and services, our future growth may suffer. We
expect our areas of future growth to include products and services at an early stage of
development.
  If we do not update and enhance our technologies, they will become obsolete or noncompetitive. Our
competitors may succeed in developing products and services faster than us.
   Our success depends, in part, on attracting customers who will embrace the new technologies offered
by our products and services.
  If we fail to comply with our obligations in our intellectual property licenses with Caltech and
USC, we could lose license rights that are important to our business.
  Our success depends, in part, on our ability to protect our intellectual property rights.
  28




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Risks Related To An Investment In Our Stock
 Any future sale of a substantial number of shares of our common stock could depress the trading
price of our common stock, lower our value and make it more difficult for us to raise capital.
    Our stock price is likely to be highly volatile because of several factors, including a limited
public float.
   
    
    actual or anticipated fluctuations in our operating results;
    
    announcements concerning our business or those of our competitors or customers;
    
    changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;
    
    announcements of technological innovations;
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
    
    conditions or trends in the industry;
    
    introduction or withdrawal of products and services;
    
    variation in quarterly results due to the fact our revenues are generated by sales to a
limited number of customers which may vary from period to period;
    
    litigation;
    
    patents or proprietary rights;
    
    departure of key personnel;
    
    failure to hire key personnel; and
    
    general market conditions.
 Our executive officers, directors and principal shareholders own 70.5% of our voting stock, which
may allow them to control substantially all matters requiring shareholder approval, and their
interests may not align with the interests of our other stockholders.
  Because our common stock is considered a penny stock, any investment in our common stock is
considered to be a high-risk investment and is subject to restrictions on marketability.
    We have additional securities available for issuance, including preferred stock, which if issued
could adversely affect the rights of the holders of our common stock.
  30




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ITEM 3  CONTROLS AND PROCEDURES
 Disclosure controls and procedures.
  Changes in internal controls over financial reporting.
 31




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PART II  OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   
 ITEM 6. EXHIBITS
 (a) Exhibits
 31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
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SIGNATURES
  VIASPACE Inc.
(Registrant)Date: November 10, 2006
    /s/ CARL KUKKONENCarl KukkonenChief Executive Officer Date: November 10, 2006
    /s/ STEPHEN J. MUZIStephen J. MuziChief Financial Officer 33