##### 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 June 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
 291,649,286 Shares of $0.001 par value Common Stock issued and outstanding
as of August 11, 2006.
 o þ




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##### 



VIASPACE INC.
 INDEX
 PagePart I.
    
    Financial Information:Item 1.
    
    Financial Statements:Consolidated Balance Sheets as of June 30, 2006 (Unaudited) and December 31, 2005
    
    
    3Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2006 and 2005
(Unaudited) and Consolidated Statements of Comprehensive Loss For the Three and Six Months Ended
June 30, 2006 and 2005 (Unaudited)
    
    
    4Consolidated Statements of Stockholders Equity as of June 30, 2006 (Unaudited) and December 31, 2005
    
    
    5Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2006 and 2005 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis
    
    
    19Item 3.
    
    Controls and Procedures
    
    
    28Part II.
    
    Other Information:Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29Item 6.
    
    Exhibits
    
    
    29Signatures
    
    
    30EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 VIASPACE INC.
 
 CONSOLIDATED BALANCE SHEETS
 June 30,2006
    
    
    December 31,(Unaudited)
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,941,000
    
    
    $
    2,130,000Accounts receivable, net of allowance for doubtful accounts of zero
    
    
    74,000
    
    
    
    71,000Marketable
securities
    
    
    246,000
    
    
    
    24,000Prepaid
expenses and other current assets
    
    
    37,000
    
    
    
    53,000TOTAL CURRENT ASSETS
    
    
    2,298,000
    
    
    
    2,278,000FIXED ASSETS:Fixed assets, net of accumulated depreciation of $82,000 and $67,000 in 2006 and 2005, respectively
    
    
    162,000
    
    
    
    21,000OTHER ASSETS
    
    
    77,000
    
    
    
    16,000TOTAL ASSETS
    
    $
    2,537,000
    
    
    $
    2,315,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    201,000
    
    
    $
    186,000Accrued expenses
    
    
    332,000
    
    
    
    297,000Unearned revenue
    
    
    85,000
    
    
    
    100,000Current portion of long-term debt
    
    
    28,000
    
    
    
    27,000TOTAL CURRENT LIABILITIES
    
    
    646,000
    
    
    
    610,000LONG-TERM DEBT, net of current portion
    
    
    86,000
    
    
    
    100,000COMMITMENTS AND CONTINGENCIESMINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES:Preferred Shareholder Minority Interest
    
    
    500,000
    
    
    
    500,000Common Shareholder Minority Interest
    
    
    41,000
    
    
    
    51,000541,000
    
    
    
    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
    
    
    4,917,000
    
    
    
    2,200,000Accumulated other comprehensive loss
    
    
    296,000
    
    
    
    Accumulated deficit
    
    
    (4,241,000
    )
    
    
    (1,431,000
    )Total stockholders equity
    
    
    1,264,000
    
    
    
    1,054,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,537,000
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUESGovernment contracts
    
    $
    91,000
    
    
    $
    188,000
    
    
    $
    183,000
    
    
    $
    224,000Other contracts
    
    
    83,000
    
    
    
    
    
    
    
    104,000
    
    
    
    11,000Total revenues
    
    
    174,000
    
    
    
    188,000
    
    
    
    287,000
    
    
    
    235,000COST OF REVENUES
    
    
    146,000
    
    
    
    103,000
    
    
    
    251,000
    
    
    
    148,000GROSS PROFIT
    
    
    28,000
    
    
    
    85,000
    
    
    
    36,000
    
    
    
    87,000OPERATING EXPENSESResearch and development
    
    
    271,000
    
    
    
    268,000
    
    
    
    453,000
    
    
    
    313,000Selling, general and administrative expenses
    
    
    1,211,000
    
    
    
    284,000
    
    
    
    2,452,000
    
    
    
    510,000Total operating expenses
    
    
    1,482,000
    
    
    
    552,000
    
    
    
    2,905,000
    
    
    
    823,000LOSS FROM OPERATIONS
    
    
    (1,454,000
    )
    
    
    (467,000
    )
    
    
    (2,869,000
    )
    
    
    (736,000
    )Interest income and other, net
    
    
    26,000
    
    
    
    3,000
    
    
    
    45,000
    
    
    
    20,000LOSS BEFORE MINORITY INTEREST
    
    
    (1,428,000
    )
    
    
    (464,000
    )
    
    
    (2,824,000
    )
    
    
    (716,000
    )Minority interest in consolidated subsidiaries
    
    
    5,000
    
    
    
    (8,000
    )
    
    
    14,000
    
    
    
    31,000NET LOSS
    
    $
    (1,423,000
    )
    
    $
    (472,000
    )
    
    $
    (2,810,000
    )
    
    $
    (685,000
    )NET LOSS PER SHARE OF COMMON STOCKBasic and
diluted
    
    $
    *
    
    
    $
    *
    
    
    $
    (0.01
    )
    
    $
    *WEIGHTED AVERAGE SHARES OUTSTANDINGBasic and
diluted
    
    
    291,619,286
    
    
    
    212,797,422
    
    
    
    288,354,098
    
    
    
    192,546,842
 
 *
    
    Less than $0.01 per common share. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 NET LOSS
    
    $
    (1,423,000
    )
    
    $
    
    
    
    $
    (2,810,000
    )
    
    $
    Other Comprehensive Income:Conversion of securities
    
    
    292,000
    
    
    
    
    
    
    
    292,000
    
    
    
    Unrealized holding gain on securities
    
    
    9,000
    
    
    
    
    
    
    
    4,000
    
    
    
    Total Other Comprehensive Income
    
    
    301,000
    
    
    
    
    
    
    
    296,000
    
    
    
    COMPREHENSIVE LOSS
    
    $
    (1,122,000
    )
    
    $
    
    
    
    $
    (2,514,000
    )
    
    $
    
 The accompanying notes are an integral part of the consolidated financial statements.
 4




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##### Table of Contents



VIASPACE INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Common StockAccumulatedAdditional
    
    
    OtherPaid 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,810,000
    )
    
    
    (2,810,000
    )Other comprehensive income:Conversion of securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292,000
    
    
    
    
    
    
    
    292,000Unrealized holding gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,514,000
    )Exercise of options by SNK Capital
Trust
    
    
    7,143,000
    
    
    
    7,000
    
    
    
    1,993,000
    
    
    
    
    
    
    
    
    
    
    
    2,000,000Stock compensation expense related to
warrants
    
    
    
    
    
    
    
    
    
    
    327,000
    
    
    
    
    
    
    
    
    
    
    
    327,000Stock compensation expense related to
stock options
    
    
    
    
    
    
    
    
    
    
    397,000
    
    
    
    
    
    
    
    
    
    
    
    397,000BALANCE, JUNE 30, 2006
    
    
    291,649,000
    
    
    $
    292,000
    
    
    $
    4,917,000
    
    
    $
    296,000
    
    
    $
    (4,241,000
    )
    
    $
    1,264,000
 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)
 Six Months EndedJune 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (2,810,000
    )
    
    $
    (685,000
    )Depreciation and amortization
    
    
    17,000
    
    
    
    4,000Stock
compensation and warrant expense
    
    
    724,000
    
    
    
    Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Accounts receivable
    
    
    (3,000
    )
    
    
    39,000Prepaid expenses
    
    
    16,000
    
    
    
    (2,000
    )Other assets
    
    
    (13,000
    )
    
    
    (2,000
    )Accounts payable
    
    
    15,000
    
    
    
    58,000Unearned revenue
    
    
    (15,000
    )
    
    
    (12,000
    )Accrued expenses and other
    
    
    79,000
    
    
    
    (3,000
    )Related party payable
    
    
    (20,000
    )
    
    
    (12,000
    )Minority interest
    
    
    (10,000
    )
    
    
    (34,000
    )Net cash used in operating activities
    
    
    (2,020,000
    )
    
    
    (649,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Additions to fixed assets
    
    
    (156,000
    )
    
    
    (5,000
    )Purchase of Arroyo Sciences, Inc., net of cash and cash equivalents
    
    
    
    
    
    
    148,000Net cash provided by (used in) investing activities
    
    
    (156,000
    )
    
    
    143,000CASH FLOWS FROM FINANCING ACTIVITIES:Exercise of stock options by SNK Capital Trust
    
    
    2,000,000
    
    
    
    Investment by SNK Capital Trust
    
    
    
    
    
    
    1,000,000Deposit from SNK Capital Trust for exercise of stock option
    
    
    
    
    
    
    500,000Payments on long-term debt
    
    
    (13,000
    )
    
    
    (7,000
    )Reverse merger adjustment
    
    
    
    
    
    
    (21,000
    )Net cash provided by financing activities
    
    
    1,987,000
    
    
    
    1,472,000NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (189,000
    )
    
    
    966,000CASH AND CASH EQUIVALENTS, Beginning of period
    
    
    2,130,000
    
    
    
    1,933,000CASH AND CASH EQUIVALENTS, End of period
    
    $
    1,941,000
    
    
    $
    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
    
    $
    6,000
    
    
    $
    5,000Income 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
 Property and Equipment 
 Marketable Securities 
 Intangible Assets 
 7




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##### Table of Contents



Income Taxes
 Revenue Recognition 
 Stock Based Compensation 
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005Net loss applicable to common shares, as reported
    
    $
    (472,000
    )
    
    $
    (685,000
    )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
    
    
    
    
    
    
    Pro forma net loss
    
    $
    (472,000
    )
    
    $
    (685,000
    )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 
 8




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##### Table of Contents



Research and Development
 NOTE 2  FIXED ASSETS
  June 30,2006
    
    
    December 31,(Unaudited)
    
    
    2005Computer equipment and software
    
    $
    158,000
    
    
    $
    66,000Lab equipment
    
    
    7,000
    
    
    
    Furniture and fixtures
    
    
    53,000
    
    
    
    19,000Leasehold improvements
    
    
    26,000
    
    
    
    3,000Total property and equipment
    
    
    244,000
    
    
    
    88,000Less: Accumulated depreciation
    
    
    82,000
    
    
    
    67,000Fixed assets, net
    
    $
    162,000
    
    
    $
    21,000
  NOTE 3  MARKETABLE SECURITIES
   NOTE 4  INTANGIBLE ASSETS
  June 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
    
    
    6,000
    
    
    
    4,000Total intangible assets, net
    
    $
    14,000
    
    
    $
    16,000
  9




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##### Table of Contents



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.
 DMFCC.
 Other Affiliated Companies.
 NOTE 6 LONG-TERM DEBT
  June 30,2006
    
    
    December 31,(Unaudited)
    
    
    2005Community Development Commission of the
County of Los Angeles, non-secured,
with interest at 5% due 7/1/2009
    
    $
    40,000
    
    
    $
    45,000Community Development Commission of the
County of Los Angeles, non-secured,
with interest at 5% due 9/1/2009
    
    
    74,000
    
    
    
    82,000Total Long-term Debt
    
    
    114,000
    
    
    
    127,000Less Current Portion
    
    
    28,000
    
    
    
    27,000Net Long-term Debt
    
    $
    86,000
    
    
    $
    100,000
  NOTE 7  RELATED PARTIES
  10




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##### Table of Contents



NOTE 8  STOCK OPTIONS AND WARRANTS
 SNK Capital Trust Option
     11




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##### Table of Contents



VIASPACE Inc. 2005 Stock Incentive Plan
     12




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##### Table of Contents



Risk free interest rate
    
    4.32% - 5.06%Dividends
    
    0%Volatility factor
    
    62.91% - 83.45%Expected life
    
    6.67 yearsAnnual forfeiture rate
    
    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
    
    
    2,654,000
    
    
    
    1.04Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (370,000
    )
    
    
    2.41Outstanding at June 30, 2006
    
    
    3,769,000
    
    
    $
    1.48
    
    
    
    9.2
    
    
    $
    Exercisable at June 30, 2006
    
    
    295,000
    
    
    $
    2.43
    
    
    
    6.8
    
    
    $
    
   Direct Methanol Fuel Cell Corporation 2002 Stock Option / Stock Issuance Plan
  13




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##### Table of Contents



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 June 30, 2006
    
    
    1,631,000
    
    
    $
    .02
    
    
    
    8.3
    
    
    $
    127,000Exercisable at June 30, 2006
    
    
    1,395,000
    
    
    $
    .02
    
    
    
    8.3
    
    
    $
    115,000
   Stock Warrants
   14




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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:
 15




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##### Table of Contents



(ii) Arroyo:
 (iii) Ionfinity:
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:DMFCC
    
    $
    22,000
    
    
    $
    
    
    
    $
    43,000
    
    
    $
    Arroyo
    
    
    61,000
    
    
    
    
    
    
    
    61,000
    
    
    
    Ionfinity
    
    
    91,000
    
    
    
    188,000
    
    
    
    183,000
    
    
    
    235,000Total Revenue
    
    $
    174,000
    
    
    $
    188,000
    
    
    $
    287,000
    
    
    $
    235,000Income (Loss) From Operations:DMFCC
    
    $
    (348,000
    )
    
    $
    (235,000
    )
    
    $
    (652,000
    )
    
    $
    (368,000
    )Arroyo
    
    
    (217,000
    )
    
    
    (213,000
    )
    
    
    (426,000
    )
    
    
    (321,000
    )Ionfinity
    
    
    (2,000
    )
    
    
    75,000
    
    
    
    (21,000
    )
    
    
    65,000Loss From Operations by Reportable Segments
    
    
    (567,000
    )
    
    
    (373,000
    )
    
    
    (1,099,000
    )
    
    
    (624,000
    )Corporate Administrative Costs (including
Stock Compensation and Warrant Expense of $724,000 and
zero in 2006 and 2005, respectively
    
    
    (887,000
    )
    
    
    (94,000
    )
    
    
    (1,770,000
    )
    
    
    (112,000
    )Loss From Operations
    
    $
    (1,454,000
    )
    
    $
    (467,000
    )
    
    $
    (2,869,000
    )
    
    $
    (736,000
    )
 June 30, 2006
    
    
    December 31,(Unaudited)
    
    
    2005Assets:DMFCC
    
    $
    428,000
    
    
    $
    1,096,000Arroyo
    
    
    177,000
    
    
    
    132,000Ionfinity
    
    
    123,000
    
    
    
    153,000Corporate
    
    
    1,810,000
    
    
    
    934,000Total Assets
    
    $
    2,538,000
    
    
    $
    2,315,000
 Note 11  COMMITMENTS AND CONTINGENCIES
 Employment Agreements
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Royalty Commitments
    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
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NOTE 12  NET LOSS PER SHARE
   As of June 30,2006
    
    2005Stock Options
    
    
    3,769,000
    
    
    
    Warrants
    
    
    1,000,000
    
    
    
    
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic and diluted net loss per share:Numerator:Net loss attributable to common stock
    
    $
    (1,423,000
    )
    
    $
    (472,000
    )
    
    $
    (2,810,000
    )
    
    $
    (685,000
    )Denominator:Weighted average shares of common stock outstanding
    
    
    291,619,286
    
    
    
    212,797,422
    
    
    
    288,354,098
    
    
    
    192,546,842Net loss per share of common stock, basic and diluted
    
    $
    *
    
    
    $
    *
    
    
    $
    (0.01
    )
    
    $
    *
 
 *
    
    Less than $0.01 per common share. Note 13  FINANCIAL ACCOUNTING DEVELOPMENTS
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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
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Critical accounting policies and estimates
 Financial Statements
    Three Months Ended June 30, 2006 Compared to June 30, 2005
 Results From Operations
 Revenues
  Cost of Revenues
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Research and Development
  Selling, General and Administrative Expenses
 .
 Other Income (Expense), Net
  Six Months Ended June 30, 2006 Compared to June 30, 2005
 Results From Operations
 Revenues
  Cost of Revenues
  Research and Development
  Selling, General and Administrative Expenses
 .
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Other Income (Expense), Net
  Liquidity and Capital Resources
    Inflation and Seasonality
  Off-Balance Sheet Arrangements
  Other Matters
  Risk Factors Which May Affect Future Results
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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.
  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.
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Due to uncertainties in our business, our capital on hand may not be sufficient to fund our
operations until we achieve positive cash flow.
   
    
    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.
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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.
   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.
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Our success depends, in part, on our ability to protect our intellectual property rights.
    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.
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
    
    actual or anticipated fluctuations in our operating results;
    
    announcements concerning our business or those of our competitors or customers;
    
    changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;
    
    announcements of technological innovations;
    
    conditions or trends in the industry;
    
    introduction or withdrawal of products and services;
    
    variation in quarterly results due to the fact our revenues are generated by sales to a limited number of customers which
may vary from period to period;
    
    litigation;
    
    patents or proprietary rights;
    
    departure of key personnel;
    
    failure to hire key personnel; and
    
    general market conditions.
 Our executive officers, directors and principal shareholders own 70.7% 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.
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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.
  
 ITEM 3  CONTROLS AND PROCEDURES
 Disclosure controls and procedures.
  Changes in internal controls over financial reporting.
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PART II  OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 6. EXHIBITS
 (a) Exhibits
 10.1
    
    Lease with Pasadena Business Park, LLC dated January 10, 2006, effective beginning May 1, 200631.1
    
    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: August 11, 2006
    
    /s/ CARL KUKKONENCarl KukkonenChief Executive OfficerDate: August 11, 2006
    
    /s/ STEPHEN J. MUZIStephen J. MuziChief Financial Officer
 30