##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
 For the quarterly period ended March 31, 2008
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from to
 Commission File Number 333-110680
 VIASPACE INC.
 (Exact name of small business issuer as specified in its charter)
 Nevada
    
    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
  Large accelerated filer
o
    
    Accelerated filer
o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



VIASPACE INC.
 INDEX
 PagePart I. Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations For the Three Months Ended March 31, 2008 and 2007 (Unaudited) and Consolidated Statements of Comprehensive Loss For the Three Months Ended March 31, 2008 and 2007 (Unaudited)
    
    
    4Consolidated Statements of Stockholders Equity as of March 31, 2008 (Unaudited) and December 31, 2007
    
    
    5Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2008 and 2007 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31Part II. Other InformationItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34Signatures
    
    
    35Exhibit 10.1Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 VIASPACE INC.
 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    279,000
    
    
    $
    608,000Accounts receivable, net of allowance for
doubtful accounts of zero in 2008 and 2007,
respectively
    
    
    126,000
    
    
    
    108,000Marketable securities, available for sale
    
    
    86,000
    
    
    
    78,000Inventory
    
    
    47,000
    
    
    
    43,000Prepaid expenses
    
    
    4,412,000
    
    
    
    89,000Other current assets
    
    
    46,000
    
    
    
    72,000TOTAL CURRENT ASSETS
    
    
    4,996,000
    
    
    
    998,000FIXED ASSETS:Fixed assets, net of accumulated
depreciation of $195,000 and $177,000 in
2008 and 2007, respectively
    
    
    139,000
    
    
    
    155,000OTHER ASSETS:Intellectual property, net of accumulated
amortization of $204,000 and $198,000 in
2008 and 2007, respectively
    
    
    211,000
    
    
    
    217,000Other assets
    
    
    13,000
    
    
    
    13,000TOTAL OTHER ASSETS
    
    
    224,000
    
    
    
    230,000TOTAL ASSETS
    
    $
    5,359,000
    
    
    $
    1,383,000LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    199,000
    
    
    $
    257,000Accrued expenses
    
    
    210,000
    
    
    
    313,000Current portion of long-term debt
    
    
    31,000
    
    
    
    30,000Loan
    
    
    225,000
    
    
    
    250,000Related party payable
    
    
    184,000
    
    
    
    185,000TOTAL CURRENT LIABILITIES
    
    
    849,000
    
    
    
    1,035,000LONG-TERM LIABILITIES:Deferred rent
    
    
    5,000
    
    
    
    9,000Long-term debt, net of current portion
    
    
    283,000
    
    
    
    291,000TOTAL LONG-TERM LIABILITIES
    
    
    288,000
    
    
    
    300,000TOTAL LIABILITIES
    
    
    1,137,000
    
    
    
    1,335,000COMMITMENTS AND CONTINGENCIESMINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES:Preferred Shareholder Minority Interest
    
    
    500,000
    
    
    
    500,000Common Shareholder Minority Interest
    
    
    53,000
    
    
    
    55,000553,000
    
    
    
    555,000STOCKHOLDERS EQUITY (DEFICIT):Preferred stock, $0.001 par value,
10,000,000 shares authorized, zero
shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value,
1,500,000,000 shares authorized, 451,853,705
and 316,452,598 issued and outstanding in
2008 and 2007, respectively
    
    
    452,000
    
    
    
    316,000Treasury stock (20,951,645 shares in 2008
and zero in 2007)
    
    
    (962,000
    )
    
    
    Additional paid in capital
    
    
    26,360,000
    
    
    
    19,040,000Accumulated other comprehensive income
    
    
    86,000
    
    
    
    78,000Accumulated deficit
    
    
    (22,267,000
    )
    
    
    (19,941,000
    )Total stockholders equity (deficit)
    
    
    3,669,000
    
    
    
    (507,000
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT)
    
    $
    5,359,000
    
    
    $
    1,383,000
   3




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##### Table of Contents



VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007REVENUESGovernment contracts
    
    $
    9,000
    
    
    $
    81,000Commercial contracts
    
    
    114,000
    
    
    
    158,000Total revenues
    
    
    123,000
    
    
    
    239,000COST OF REVENUES
    
    
    60,000
    
    
    
    203,000GROSS PROFIT
    
    
    63,000
    
    
    
    36,000OPERATING EXPENSESResearch and development
    
    
    575,000
    
    
    
    391,000Selling, general and administrative expenses
    
    
    1,828,000
    
    
    
    1,666,000Total operating expenses
    
    
    2,403,000
    
    
    
    2,057,000LOSS FROM OPERATIONS
    
    
    (2,340,000
    )
    
    
    (2,021,000
    )OTHER INCOME (EXPENSE)Interest income
    
    
    5,000
    
    
    
    19,000Interest expense
    
    
    (13,000
    )
    
    
    (3,512,000
    )Other income
    
    
    20,000
    
    
    
    Gain on sale of marketable securities
    
    
    
    
    
    
    219,000Adjustments to fair value of derivatives
    
    
    
    
    
    
    1,383,000Total other income (expense)
    
    
    12,000
    
    
    
    (1,891,000
    )LOSS BEFORE MINORITY INTEREST
    
    
    (2,328,000
    )
    
    
    (3,912,000
    )Minority interest loss (income) in consolidated subsidiaries
    
    
    2,000
    
    
    
    (7,000
    )NET LOSS
    
    $
    (2,326,000
    )
    
    $
    (3,919,000
    )LOSS PER SHARE OF COMMON STOCK BEFORE MINORITY INTERESTBasic and diluted
    
    $
    (0.01
    )
    
    $
    (0.01
    )Minority interest in consolidated subsidiaries
    
    
    *
    
    
    
    *NET LOSS PER SHARE OF COMMON STOCKBasic and diluted
    
    $
    (0.01
    )
    
    $
    (0.01
    )WEIGHTED AVERAGE SHARES UTSTANDINGBasic and diluted
    
    
    344,175,718
    
    
    
    295,438,165
 *
    
    Less than $0.01 per common share. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 NET LOSS
    
    $
    (2,326,000
    )
    
    $
    (3,919,000
    )Other Comprehensive Income:Unrealized holding gain on securities
    
    
    8,000
    
    
    
    72,000Less reclassification adjustment for realized gain on securities included in net loss
    
    
    
    
    
    
    (219,000
    )Net unrealized holding gain (loss) on securities
    
    
    8,000
    
    
    
    (147,000
    )COMPREHENSIVE LOSS
    
    $
    (2,318,000
    )
    
    $
    (4,066,000
    )
   4




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##### Table of Contents



VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 (Unaudited)
 Common Stock
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    OtherPaid in
    
    
    Treasury
    
    
    Comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Income
    
    
    Deficit
    
    
    TotalBALANCE, DECEMBER 31, 2007
    
    
    316,452,598
    
    
    $
    316,000
    
    
    $
    19,040,000
    
    
    $
    
    
    
    $
    78,000
    
    
    $
    (19,941,000
    )
    
    $
    (507,000
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,326,000
    )
    
    
    (2,326,000
    )Other comprehensive income:Unrealized holding gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    
    
    
    
    8,000Reclassification of realized gain on
securities to net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,318,000
    )Sales of common stock to investors
    
    
    4,928,750
    
    
    
    5,000
    
    
    
    220,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225,000Shares issued to be sold by Company
    
    
    21,276,595
    
    
    
    21,000
    
    
    
    957,000
    
    
    
    (962,000
    )
    
    
    
    
    
    
    
    
    
    
    16,000Exercise of warrants
    
    
    5,763,625
    
    
    
    6,000
    
    
    
    254,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,000Stock compensation expense related to
stock options
    
    
    
    
    
    
    
    
    
    
    532,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532,000Shares issued to consultants, employees
and vendors for services
    
    
    103,432,137
    
    
    
    104,000
    
    
    
    5,357,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,461,000BALANCE, MARCH 31, 2008
    
    
    451,853,705
    
    
    $
    452,000
    
    
    $
    26,360,000
    
    
    $
    (962,000
    )
    
    $
    86,000
    
    
    $
    (22,267,000
    )
    
    $
    3,669,000
   5




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##### Table of Contents



VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (2,326,000
    )
    
    $
    (3,919,000
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    18,000
    
    
    
    17,000Amortization of intangible assets
    
    
    6,000
    
    
    
    8,000Amortization of discount related to conversion feature of debentures
    
    
    
    
    
    
    354,000Stock option and warrant compensation expense
    
    
    532,000
    
    
    
    673,000Stock compensation expense related to restricted stock issued
    
    
    261,000
    
    
    
    Operating expenses paid in stock
    
    
    881,000
    
    
    
    Change in fair value of derivatives
    
    
    
    
    
    
    (1,383,000
    )Non-cash interest expense related to convertible debentures debt discount write off
    
    
    
    
    
    
    2,096,000Non-cash interest expense related to loss on conversion of debentures
    
    
    
    
    
    
    953,000Non-cash interest expense related to convertible debentures that was forgiven
    
    
    
    
    
    
    50,000Non-cash interest expense related to deferred financing costs
    
    
    
    
    
    
    58,000Gain on sale of marketable securities
    
    
    
    
    
    
    (219,000
    )(Increase) decrease in:Accounts receivable
    
    
    (18,000
    )
    
    
    107,000Inventory
    
    
    (4,000
    )
    
    
    Prepaid expenses
    
    
    (3,000
    )
    
    
    17,000Other current assets
    
    
    26,000
    
    
    
    Increase (decrease) in:Accounts payable
    
    
    (58,000
    )
    
    
    28,000Accrued expenses and other
    
    
    (107,000
    )
    
    
    22,000Related party payable
    
    
    (1,000
    )
    
    
    26,000Minority interest
    
    
    (2,000
    )
    
    
    7,000Net cash used in operating activities
    
    
    (795,000
    )
    
    
    (1,105,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Additions to fixed assets
    
    
    (2,000
    )
    
    
    (15,000
    )Net cash used in investing activities
    
    
    (2,000
    )
    
    
    (15,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from restructuring of convertible debentures and issuance of common
stock, net of offering costs paid
    
    
    
    
    
    
    911,000Proceeds from loan
    
    
    300,000
    
    
    
    Proceeds from exercise of warrants
    
    
    259,000
    
    
    
    Payments on loans
    
    
    (150,000
    )
    
    
    Payments on long-term debt
    
    
    (7,000
    )
    
    
    (7,000
    )Proceeds from sale of common stock
    
    
    66,000
    
    
    
    Net cash provided by financing activities
    
    
    468,000
    
    
    
    904,000NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (329,000
    )
    
    
    (216,000
    )CASH AND CASH EQUIVALENTS, Beginning of period
    
    
    608,000
    
    
    
    1,861,000CASH AND CASH EQUIVALENTS, End of period
    
    $
    279,000
    
    
    $
    1,645,000Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    13,000
    
    
    $
    2,000Income taxes
    
    $
    
    
    
    $
    
  6




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##### Table of Contents




    
    The following transactions were a result of the restructuring of the convertible
debentures on March 8, 2007:
 
    
    $85,000 of accrued interest expense was waived by Cornell Capital
Partners, LP as part of the conversion of convertible debentures into common stock
equity.
    
    Embedded derivative liabilities of $1,651,000 were converted to equity.
    
    Warrant derivative liabilities of $2,442,000 were reclassified to equity.
    
    Stock option and Synthetica warrant derivative liabilities of $56,000
were reclassified to equity.
    
    Deferred offering costs of $719,000 were charged to paid in capital
and recorded against the proceeds from the issuance of equity.
    
    Convertible debentures with a face value of $2,700,000 were converted
to equity.
  
    
    During the three months ended March 31, 2008, the Company issued
93,794,766 shares of the Companys common stock for services valued on the date of
issuance at $4,954,000. This amount was recorded as prepaid expenses.
   7




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VIASPACE INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Note 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of Business
 Company Background and Merger
   
    
    GW effected a 5 for 1 forward stock split (a 6 for 1 forward stock split was
previously effected May 23, 2005);
    
    The members of ViaSpace LLC were issued an aggregate of 226,800,000 post-split
 shares of GW common stock in exchange for their membership interests in ViaSpace LLC at
a rate of 5.4 common shares of GW in exchange for each membership unit. All pre-merger
activity has been retroactively adjusted and presented to account for this exchange;
    
    A total of 54,000,000 post-split shares (1,800,000 shares on a pre-split basis)
of the Companys common stock were held by the pre-existing GW shareholders as of the
date of the Merger.
  
    
    On September 30, 2003, GW acquired all of the issued and outstanding shares of Marco
Polo World News Inc. (MPW), a British Columbia, Canada corporation that was engaged in
the production and distribution of an ethnic bilingual (English/Italian) weekly newspaper
called Marco Polo, in consideration of 63,000,000 restricted shares on a post-split
basis (2,100,000 shares on a pre-split basis) of GWs common stock issued to MPWs sole
shareholder, Mr. Rino Vultaggio, who became a director and officer of GW. As a result of
the transaction, MPW became a wholly owned subsidiary of GW.
    
    On May 19, 2005, GW entered into a Share Purchase Agreement with Mr. Robert Hoegler, a
former director and officer of GW, pursuant to which, upon the closing of the Merger, GW
purchased 72,000,000 shares on a post-split basis (2,400,000 shares on a pre-split basis)
of the Companys common stock for $24,000.
    
    In addition, on May 19, 2005, GW entered into an Acquisition Agreement with Mr. Rino
Vultaggio, pursuant to which, upon the closing of the Merger, GW sold 100% of its interest
in MPW to Mr. Vultaggio in exchange for 63,000,000 shares on a post-split basis (2,100,000
shares on a pre-split basis) of Company Common Stock. Thus, as of June 22, 2005, GW no
longer had any ongoing operations related to MPW, or any newspaper publication business.
  8




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##### Table of Contents



Basis of Presentation
 Principles of Consolidation
 Fiscal Year End
 Use of Estimates in the Preparation of the Financial Statements
 Cash and Cash Equivalents
 Concentration
of Credit Risk 
 Accounts Receivable Allowance for Doubtful Accounts
 Marketable Securities
 Inventory
  9




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##### Table of Contents



Property and Equipment
 Intangible Assets
 Impairment of Long-lived Assets
 Minority Interest in Subsidiaries
 Fair Value of Financial Instruments
 Income Taxes
  10




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Revenue Recognition Product Revenue
 Product Development Revenue on Fixed-Price Contracts With Milestone Values Defined
 Product Development Revenue on Fixed-Price Contracts
 Stock Based Compensation 
 Net Income (Loss) Per Share
 Research and Development
 NOTE 2  ACCOUNTS RECEIVABLE
  March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)U.S. Government customers
    
    $
    9,000
    
    
    $
    21,000Commercial customers
    
    
    117,000
    
    
    
    87,000Total accounts receivable
    
    
    126,000
    
    
    
    108,000Less: Allowance for doubtful accounts
    
    
    
    
    
    
    Accounts receivable, net
    
    $
    126,000
    
    
    $
    108,000
  11




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##### Table of Contents



NOTE 3  PREPAID EXPENSES
    NOTE 4  FIXED ASSETS
  March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)Computer equipment and software
    
    $
    225,000
    
    
    $
    223,000Lab equipment
    
    
    15,000
    
    
    
    15,000Furniture and fixtures
    
    
    68,000
    
    
    
    68,000Leasehold improvements
    
    
    26,000
    
    
    
    26,000Total property and equipment
    
    
    334,000
    
    
    
    332,000Less: Accumulated depreciation
    
    
    195,000
    
    
    
    177,000Fixed assets, net
    
    $
    139,000
    
    
    $
    155,000
  NOTE 5  MARKETABLE SECURITIES
 Cantronic Systems Inc.
   12




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##### Table of Contents



NOTE 6  INTANGIBLE ASSETS
  March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)Amortized intangible assets, gross:License to patent
    
    $
    380,000
    
    
    $
    380,000Software code and licenses to software
    
    
    35,000
    
    
    
    35,000Total intangible assets, gross
    
    
    415,000
    
    
    
    415,000Less: Accumulated amortization
    
    
    204,000
    
    
    
    198,000Total intangible assets, net
    
    $
    211,000
    
    
    $
    217,000
  SoftwareCode andLicense to
    
    
    Licenses toYear
    
    Patent
    
    
    Software
    
    
    Total2008
    
    $
    17,000
    
    
    $
    5,000
    
    
    $
    22,0002009
    
    
    17,000
    
    
    
    5,000
    
    
    
    22,0002010
    
    
    17,000
    
    
    
    4,000
    
    
    
    21,0002011
    
    
    17,000
    
    
    
    
    
    
    
    17,0002012
    
    
    17,000
    
    
    
    
    
    
    
    17,000Thereafter
    
    
    118,000
    
    
    
    
    
    
    
    118,000Total
    
    $
    203,000
    
    
    $
    14,000
    
    
    $
    217,000
 NOTE 7  OWNERSHIP INTEREST IN AFFILIATED COMPANIES
 DMFCC.
 VIASPACE Security
 Ionfinity.
 eCARmerce.
 Concentric Water.
  13




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##### Table of Contents



NOTE 8  STOCK OPTIONS AND WARRANTS
 VIASPACE Inc. 2005 Stock Incentive Plan
        14




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##### Table of Contents



March 31,
    
    March 31,2008
    
    2007(Unaudited)
    
    (Unaudited)Risk free interest rate
    
    3.28%
    
    4.58%  4.84%Dividends
    
    0%
    
    0%Volatility factor
    
    118.81%
    
    121.45%  125.13%Expected life
    
    6.67 years
    
    6.67 yearsAnnual forfeiture rate
    
    0%  4%
    
    0%  6%
 Employee and Director Option Grants
  Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term In Years
    
    
    ValueOutstanding at December 31, 2007
    
    
    10,407,000
    
    
    $
    0.08Granted
    
    
    5,050,000
    
    
    
    0.039Exercised
    
    
    
    
    
    
    Reclassified to consultant options
    
    
    (1,457,000
    )
    
    
    0.07Forfeited
    
    
    (130,000
    )
    
    
    0.08Outstanding at March 31, 2008
    
    
    13,870,000
    
    
    $
    0.06
    
    
    
    8.9
    
    
    $
    52,500Exercisable at March 31, 2008
    
    
    3,162,708
    
    
    $
    0.08
    
    
    
    8.3
    
    
    $
    
    15




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##### Table of Contents



Consultant Option Grants
  Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term In Years
    
    
    ValueOutstanding at December 31, 2007
    
    
    1,109,000
    
    
    $
    0.28Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Reclassified from employee options
    
    
    1,457,000
    
    
    
    0.07Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2008
    
    
    2,566,000
    
    
    $
    0.16
    
    
    
    8.8
    
    
    $
    Exercisable at March 31, 2008
    
    
    809,802
    
    
    $
    0.16
    
    
    
    8.8
    
    
    $
    
   Direct Methanol Fuel Cell Corporation 2002 Stock Option / Stock Issuance Plan
    Weighted-
    
    
    Weighted-Average
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price Per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term In Years
    
    
    ValueOutstanding at December 31, 2006
    
    
    1,396,000
    
    
    $
    .02Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2008
    
    
    1,396,000
    
    
    $
    .02
    
    
    
    6.4
    
    
    $
    185,000Exercisable at March 31, 2008
    
    
    1,354,604
    
    
    $
    .02
    
    
    
    6.4
    
    
    $
    180,000
   16




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##### Table of Contents



Warrants to Cornell and Gilford
       March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)Cornell No. 1
    
    
    
    
    
    
    1,488,625Cornell No. 2
    
    
    
    
    
    
    2,000,000Cornell No. 3
    
    
    
    
    
    
    885,000Cornell No. 4
    
    
    
    
    
    
    790,000Cornell No. 5
    
    
    
    
    
    
    600,000Gilford No. 1
    
    
    200,000
    
    
    
    200,000Gilford No. 2
    
    
    160,000
    
    
    
    160,000Gilford No. 3
    
    
    264,000
    
    
    
    264,000624,000
    
    
    
    6,387,625
   17




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##### Table of Contents



NOTE 9  OTHER LONG-TERM DEBT
 Loans
 Rhino Steel Manufacturing Ltd.
   La Jolla Cove Investors, Inc.
    18




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##### Table of Contents



Other Long-Term Debt
   Summary of Long-Term Debt
  March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)Community Development Commission of the County of Los
Angeles, secured, with interest at 5% due July 1, 2009
    
    $
    18,000
    
    
    $
    21,000Community Development Commission of the County of Los
Angeles, secured, with interest at 5% due September 1,
2009
    
    
    46,000
    
    
    
    50,000Rhino Steel Note, with interest at 10% due July 10, 2009
    
    
    250,000
    
    
    
    250,000Total Long-term Debt
    
    
    314,000
    
    
    
    321,000Less Current Portion
    
    
    31,000
    
    
    
    30,000Net Long-term Debt
    
    $
    283,000
    
    
    $
    291,000
 NOTE
10  STOCKHOLDERS EQUITY
 Preferred Stock
  Common Stock
   19




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##### Table of Contents



NOTE 11  INCOME TAX
    Note 12  RETIREMENT PLAN
  Note 13  OPERATING SEGMENTS
   (i) DMFCC:
  20




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##### Table of Contents



(ii) VIASPACE Security:
 (iii) Ionfinity:
 (iv) VIASPACE:
    March 31,
    
    
    March 31,2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Revenues:DMFCC
    
    $
    
    
    
    $
    VIASPACE Security
    
    
    
    
    
    
    81,000Ionfinity
    
    
    9,000
    
    
    
    135,000VIASPACE
    
    
    114,000
    
    
    
    23,000Total Revenue
    
    $
    123,000
    
    
    $
    239,000Income (Loss) From Operations:DMFCC
    
    $
    (313,000
    )
    
    $
    (474,000
    )VIASPACE Security
    
    
    (357,000
    )
    
    
    (268,000
    )Ionfinity
    
    
    (4,000
    )
    
    
    11,000VIASPACE
    
    
    (259,000
    )
    
    
    (77,000
    )Loss From Operations by Reportable Segments
    
    
    (933,000
    )
    
    
    (808,000
    )Corporate Administrative Costs
    
    
    (782,000
    )
    
    
    (588,000
    )Corporate Stock Compensation and Warrant Expense
    
    
    (625,000
    )
    
    
    (625,000
    )Loss From Operations
    
    $
    (2,340,000
    )
    
    $
    (2,021,000
    )
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)Assets:DMFCC
    
    $
    239,000
    
    
    $
    316,000VIASPACE Security
    
    
    48,000
    
    
    
    120,000Ionfinity
    
    
    134,000
    
    
    
    146,000VIASPACE / Corporate
    
    
    4,938,000
    
    
    
    801,000Total Assets
    
    $
    5,359,000
    
    
    $
    1,383,000
   21




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##### Table of Contents



NOTE 14  NET LOSS PER SHARE
   March 31,
    
    
    March 31,2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Stock Options
    
    
    16,436,000
    
    
    
    9,005,500Warrants
    
    
    624,000
    
    
    
    7,399,000
  March 31,
    
    
    March 31,2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Basic and diluted net loss per share:Numerator:Net loss attributable to common stock
    
    $
    (2,326,000
    )
    
    $
    (3,919,000
    )Denominator:Weighted average shares of common stock outstanding
    
    
    344,175,178
    
    
    
    295,438,165Net loss per share of common stock, basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.01
    )
 NOTE 15  RELATED PARTIES
     22




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##### Table of Contents



Note 16  COMMITMENTS AND CONTINGENCIES
 Employment Agreements
  Royalty Commitments
     23




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##### Table of Contents



Leases
  Years EndedFiscal Year
    
    December 31,2008
    
    $
    134,0002009
    
    
    138,0002010
    
    
    142,0002011
    
    
    73,000Total minimum lease payments
    
    $
    487,000
   Fiscal Year
    
    Principal
    
    
    Interest
    
    
    Total2008
    
    $
    30,000
    
    
    $
    3,000
    
    
    $
    33,0002009
    
    
    41,000
    
    
    
    1,000
    
    
    
    42,000Thereafter
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    71,000
    
    
    $
    4,000
    
    
    $
    75,000
 Litigation
   24




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##### Table of Contents



Note 17  FINANCIAL ACCOUNTING DEVELOPMENTS
   Note 18  GOING CONCERN
   25




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##### Table of Contents



ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 The following discussion contains certain statements that constitute forward-looking
statements. Such statements appear in a number of places in this Report, including, without
limitation, Managements Discussion and Analysis of Financial Condition or Plan of Operation.
These statements are not guarantees of future performance and involve risks, uncertainties and
requirements that are difficult to predict or are beyond our control. Our future results may
differ materially from those currently anticipated depending on a variety of factors, including
those described below under Risks Related to Our Future Operations and our filings with the
Securities and Exchange Commission. The following should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto that appear elsewhere in this report and in
conjunction with our 2007 annual report onForm 10-KSB.
 VIASPACE Overview
   Critical accounting policies and estimates
    26




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##### Table of Contents



Three Months Ended March 31, 2008 Compared to March 31, 2007
 Results of Operations
 Revenues
  Cost of Revenues
   27




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##### Table of Contents



Research and Development
   Selling, General and Administrative Expenses
 .
 Other Income (Expense), Net
 Interest Expense
  Adjustment to the Fair Value of Derivatives
   28




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##### Table of Contents



Interest Income
  Gain on Sale of Marketable Securities
  Liquidity and Capital Resources
    Contractual Obligations
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    YearsLong-term debt obligations (a)
    
    $
    64,000
    
    
    $
    31,000
    
    
    $
    33,000
    
    
    $
    
    
    
    $
    Operating lease obligations (b)
    
    $
    453,000
    
    
    $
    134,000
    
    
    $
    319,000
    
    
    $
    
    
    
    $
    
 (a)
    
    The annual installment of principal and interest on the notes payable owed to the
Community Development Commission as discussed in the accompanying footnotes to the
consolidated financial statements are noted.(b)
    
    On May 1, 2006, the Company relocated its office and laboratory space to a new
location in Pasadena, California and entered into a five-year lease. Future minimum lease
payments are noted.  29




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##### Table of Contents



Employment Agreements
  Royalty Commitments
     Inflation and Seasonality
  Off-Balance Sheet Arrangements
   30




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure controls and procedures.
  Changes in internal controls over financial reporting.
  31




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 YA Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.) v. VIASPACE Inc., et al.
 
 ITEM 1A. RISK FACTORS
 Risk Factors Which May Affect Future Results
   Risks Related To Our Business
 We have incurred losses and anticipate continued losses for the foreseeable future.
  Our ability to continue as a going concern is dependent on future financing.
     32




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Our revenues to date have been to a few customers, the loss of which could result in a severe
decline in revenues.
  Risks Related To An Investment In Our Stock
 Any future sale of a substantial number of shares of our common stock could depress the trading
price of our common stock, lower our value and make it more difficult for us to raise capital.
    
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
   33




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 (a) Exhibits
 10.1
    
    
    Addendum to Promissory Note between the Company and Rhino Steel
Manufacturing, Ltd. dated February 11, 2008. *10.2
    
    
    Settlement Agreement and General Release between the Company and La
Jolla Cove Investors, Inc. dated March 25, 2008. *31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. *31.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. *32
    
    
    Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350. *
 *
    
    Filed herewith.   34




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##### Table of Contents



SIGNATURES
  VIASPACE Inc.
(Registrant)Date: May 15, 2008
    
    /s/ CARL KUKKONEN

Carl KukkonenChief Executive OfficerDate: May 15, 2008
    
    /s/ STEPHEN J. MUZI

Stephen J. MuziChief Financial Officer
  35




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    
    Addendum to Promissory Note between the Company and Rhino
Steel Manufacturing, Ltd. dated February 11, 2008. *10.2
    
    
    Settlement Agreement and General Release between the Company
and La Jolla Cove Investors, Inc. dated March 25, 2008. *31.1
    
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. *31.2
    
    
    Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. *32
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350. *
 *
    
    Filed herewith.  36