UNITED
      STATES


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
      10-Q**




**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the Quarterly Period Ended March 31, 2007****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 333-131857**




**LIGHTSPACE
      CORPORATION**


(Exact
      name of registrant as specified in its charter)




**Delaware**
            
            **04-3572975**(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer Identification No.)**529
                Main Street, Ste 330, Boston, MA**
            
            **02129**(Address
                of principal executive offices)
            
            (Zip
                Code)




Registrant’s
      telephone number, including area code: **(617)
      868-1700**




(Former
      name, former address and former fiscal year, if changed since last report):
      Not
      Applicable




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
                accelerated filer
            o
            Accelerated
                  filer
            o
            Non-accelerated
                filer
            x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.




**Class**
            
            **Outstanding
                at May 11, 2007**Common
                Stock, par value $0.0001
            
            15,282,495
                shares














**LIGHTSPACE
        CORPORATION**
 **FORM
        10 - Q**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2007**
 **INDEX**
 **PAGE****PART
                    I - FINANCIAL
                    INFORMATION**Item
                    1 - Unaudited Financial StatementsStatements
                    of Financial Position as of
                    March 31, 2007 and December 31, 2006
                3Statements
                    of Operations for the Three
                    Months Ended March 31, 2007 and 2006
                4Statement
                    of Changes in
                    Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2007and
                    2006 and the year end December
                    31, 2006
                5Statements
                    of Cash Flows for the Three Months
                    Ended March 31, 2007 and 2006
                6Notes
                    to Unaudited Financial Statements
                7Item
                    2 - Management's Discussion and Analysis of
                    Financial Condition and Results of Operations
                16Item
                    3 -Quantitative
                    and Qualitative Disclosures about Market Risk
                24Item
                    4 - Controls and Procedures
                24**PART
                    II - OTHER INFORMATION**Item
                    1 - Legal
                    Proceedings
                25Item
                    2 - Unregistered Sales of Equity
                    Securities and Use of Proceeds
                25Item
                    3 - Defaults upon Senior
                    Securities
                26Item
                    4 - Submission of Matters to a Vote
                    of Security Holders
                26Item
                    5 - Other Information
                26Item
                    6 - Exhibits
                26Signatures
                27




**PART
                  1. FINANCIAL
                  INFORMATION****Item
                  1. Unaudited Financial
                  Information**
  **LIGHTSPACE
                  CORPORATION****STATEMENTS
                  OF FINANCIAL POSITION**
  **March
                  31,**
              
              **December
                  31,****2007**
              
              **2006****ASSETS**Current
                  AssetsCash
                  and cash equivalents
              
              $
              104,532
              
              $
              879,987Accounts
                  receivable
              
              
              88,918
              
              
              52,678Inventory
              
              
              356,706
              
              
              354,234Other
                  current assets
              
              
              9,421
              
              
              4,250Total
                  current assets
              
              
              559,577
              
              
              1,291,149Property
                  and Equipment - Net
              
              
              85,036
              
              
              82,298Other
                  assets
              
              
              185,019
              
              
              196,822Total
                  Assets
              
              $
              829,632
              
              $
              1,570,269**LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)**Current
                  LiabilitiesNotes
                  payable
              
              $
              237,381
              
              $
              237,381Accounts
                  payable
              
              
              613,535
              
              
              695,852Accrued
                  interest
              
              
              17,638
              
              
              12,955Accrued
                  expenses
              
              
              238,687
              
              
              200,709Deferred
                  revenue
              
              
              117,626
              
              
              126,363Total
                  current liabilities
              
              
              1,224,867
              
              
              1,273,260Stockholders'
                  Equity (Deficit)Common
                  stock, $0.0001 par value; authorized 75,000,000 shares;10,593,111
                  shares issued and outstanding at March 31, 2007and
                  December 31, 2006, respectively
              
              
              1,059
              
              
              1,059Additional
                  paid-in capital
              
              
              10,647,831
              
              
              10,607,585Retained
                  earning (deficit)
              
              
              (11,044,125
              )
              
              (10,311,635
              )Total
                  stockholders' equity (deficit)
              
              
              (395,235
              )
              
              297,009Total
                  Liabilities and Stockholders' Equity (Deficit)
              
              $
              829,632
              
              $
              1,570,269
  See
                  notes to unaudited financial
                  statements









**LIGHTSPACE
                  CORPORATION****STATEMENTS
                  OF OPERATIONS**
  **Three
                  Months Ended March 31,****2007**
              
              **2006**RevenuesProduct
                  sales
              
              $
              316,534
              
              $
              24,905Other
              
              
              17,425
              
              
              10,659Total
                  revenues
              
              
              333,959
              
              
              35,564Product
                  Cost
              
              
              271,265
              
              
              87,221Gross
                  Margin
              
              
              62,694
              
              
              (51,657
              )Operating
                  ExpensesResearch
                  and development
              
              
              250,048
              
              
              226,340Selling
                  and marketing
              
              
              300,943
              
              
              212,633Administrative
              
              
              232,343
              
              
              272,193Total
                  operating expenses
              
              
              783,334
              
              
              711,166Operating
                  Loss
              
              
              (720,640
              )
              
              (762,823
              )Other
                  Income (Expense)Interest
                  expense - net
              
              
              (11,850
              )
              
              (150,969
              )Total
                  other income (expense)
              
              
              (11,850
              )
              
              (150,969
              )Loss
                  Before Provision For Income Taxes
              
              
              (732,490
              )
              
              (913,792
              )Provision
                  For Income Taxes
              
              
              -
              
              
              -Net
                  Loss
              
              $
              (732,490
              )
              $
              (913,792
              )Basic
                  and Diluted Net Loss Per Share
              
              $
              (0.07
              )
              $
              (0.94
              )Weighted
                  Average Common Shares Outstanding
              
              
              10,593,111
              
              
              977,182
  See
                  notes to unaudited financial
                  statements









**LIGHTSPACE
                  CORPORATION****STATEMENT
                  OF CHANGES IN STOCKHOLDERS' EQUITY
                  (DEFICIT)**
  **Series
                  A Convertible****Preferred
                  Stock**
              
              **Common
                  Stock**
              
              **Additional**
              
              **Retained**
              
              **Stockholders'****Shares**
              
              
              
              **Shares**
              
              
              
              **Paid-In**
              
              **Earnings**
              
              **Equity****Issued**
              
              **Amount**
              
              **Issued**
              
              **Amount**
              
              **Capital**
              
              **(Deficit)**
              
              **(Deficit)****Balance,
                  January 1, 2006**
              
              
              133,732
              
              $
              13
              
              
              977,182
              
              $
              98
              
              $
              2,092,612
              
              $
              (7,603,215
              )
              $
              (5,510,492
              )Net
                  loss for the three months
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (913,792
              )
              
              (913,792
              )**Balance,
                  March 31, 2006**
              
              
              133,732
              
              
              13
              
              
              977,182
              
              
              98
              
              
              2,092,612
              
              
              (8,517,007
              )
              
              (6,424,284
              )Conversion
                  of notes payable
              
              
              
              
              
              
              
              
              1,544,865
              
              
              154
              
              
              2,724,622
              
              
              
              
              
              2,724,776Conversion
                  of senior notes
              
              
              
              
              
              
              
              
              3,110,585
              
              
              311
              
              
              2,488,160
              
              
              
              
              
              2,488,471Conversion
                  of preferred stock
              
              
              (133,732
              )
              
              (13
              )
              
              160,479
              
              
              16
              
              
              85,586
              
              
              
              
              
              85,589Issuance
                  of common warrants
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              264,345
              
              
              
              
              
              264,345Expenses
                  of private placement
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (499,595
              )
              
              
              
              
              (499,595
              )Public
                  sale of equity securities
              
              
              
              
              
              
              
              
              4,800,000
              
              
              480
              
              
              3,839,520
              
              
              
              
              
              3,840,000Expenses
                  of public offering
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (468,157
              )
              
              
              
              
              (468,157
              )Stock
                  option compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              80,492
              
              
              
              
              
              80,492Net
                  loss for the nine months
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,794,628
              )
              
              (1,794,628
              )**Balance,
                  December 31, 2006**
              
              
              -
              
              
              -
              
              
              10,593,111
              
              
              1,059
              
              
              10,607,585
              
              
              (10,311,635
              )
              
              297,009Stock
                  option compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              40,246
              
              
              
              
              
              40,246Net
                  loss for the three months
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (732,490
              )
              
              (732,490
              )**Balance,
                  March 31, 2007**
              
              
              -
              
              $
              -
              
              
              10,593,111
              
              $
              1,059
              
              $
              10,647,831
              
              $
              (11,044,125
              )
              $
              (395,235
              )
  See
                  notes to unaudited financial
                  statements









**LIGHTSPACE
                  CORPORATION****STATEMENTS
                  OF CASH FLOWS**
  **Three
                  Months Ended March 31,****2007**
              
              **2006**Cash
                  Flows (Uses) from Operating Activities:Net
                  loss
              
              $
              (732,490
              )
              $
              (913,792
              )Adjustments
                  to reconcile net loss to cash usedin
                  operating activities:Depreciation
                  and amortization
              
              
              10,200
              
              
              7,500Amortization
                  of fair value of stock warrants
              
              
              11,803
              
              
              -Provision
                  for stock option compensation
              
              
              40,246
              
              
              -Other
                  changes in assets and liabilities:Accounts
                  receivable
              
              
              (36,240
              )
              
              25,800Inventory
              
              
              (2,472
              )
              
              (123,437
              )Other
                  assets
              
              
              (5,171
              )
              
              (41,934
              )Accounts
                  payable and accrued expenses
              
              
              (39,656
              )
              
              165,214Deferred
                  revenue
              
              
              (8,737
              )
              
              37,110Net
                  cash used in operating activities
              
              
              (762,517
              )
              
              (843,539
              )Cash
                  Flows (Uses) From Investing Activities:Purchases
                  of property and equipment
              
              
              (12,938
              )
              
              -Net
                  cash used in investing activities
              
              
              (12,938
              )
              
              -Cash
                  Flows (Uses) From Financing Activities:Proceeds
                  from notes payable
              
              
              -
              
              
              720,000Net
                  cash provided from financing activities
              
              
              -
              
              
              720,000Net
                  Increase (Decrease) in Cash and Cash Equivalents
              
              
              (775,455
              )
              
              (123,539
              )Cash
                  and Cash Equivalents - beginning of period
              
              
              879,987
              
              
              123,951Cash
                  and Cash Equivalents - end of period
              
              $
              104,532
              
              $
              412
  See
                  notes to unaudited financial
                  statements









**LIGHTSPACE
        CORPORATION**
 **NOTES
        TO** **UNAUDITED
        FINANCIAL STATEMENTS**
 **MARCH
        31, 2007**
  **1.
          NATURE OF THE BUSINESS AND OPERATIONS**
 
 Lightspace
          Corporation (the “Company”), incorporated in August 2001 as a Delaware
          corporation, provides interactive lighting entertainment products to numerous
          industries including retail stores, family entertainment centers, theme
          parks,
          fashion shows, nightclubs, special events, stage lighting & sound, health
          clubs and architectural lighting and design.
 
 The
          Company is subject to certain risks common to technology-based companies
          in
          similar stages of development. Principal risks to the Company include
          uncertainty of growth in market acceptance for the Company’s products;
          dependence on advances in interactive digital environments; history of
          losses
          since inception; ability to remain competitive in response to new technologies;
          costs to defend, as well as risks of losing, patent and intellectual property
          rights; reliance on limited number of suppliers; reliance on outsourced
          manufacture of the Company’s products for quality control and product
          availability; ability to increase production capacity to meet demand for
          the
          Company’s products; concentration of the Company’s operations in a limited
          number of facilities; uncertainty of demand for the Company’s products in
          certain markets; ability to manage growth effectively; dependence on key
          members
          of the Company’s management; limited experience in conducting operations
          internationally; and ability to obtain adequate capital to fund future
          operations.
  The
          Company has incurred net operating losses and negative operating cash flows
          since inception. As of March 31, 2007, the Company had an accumulated retained
          earnings deficit of $11,044,125 and an accumulated stockholders’ deficit of
          $395,235. The Company has funded its operations through March 31, 2007
          through
          the issuance of private and public placements of equity securities, borrowings
          from stockholders and others, and sales of Lightspace products. The Company’s
          long-term success is dependent on obtaining sufficient capital to fund
          its
          operations and development of its products, bringing such products to the
          worldwide market, and obtaining sufficient sales volume to be profitable.
 
 **2.
          BASIS OF PRESENTATION**
 
 The
          accompanying financial statements have been prepared on a going concern
          basis,
          which contemplates the realization of assets and the satisfaction of liabilities
          in the ordinary course of business. The Company has incurred a net loss
          from
          operations of $732,490 for the three month period ended March 31, 2007.
          Further,
          the Company has accumulated net losses from operations of $11,044,125 at
          that
          date. These factors, amongst others, indicate that there is substantial
          uncertainty that the Company will continue as a going concern. The financial
          statements do not include any adjustments related to the recovery of assets
          and
          classification of liabilities that might be necessary should the Company
          be
          unable to continue as a going concern. The financial statements at March
          31,
          2007 include the accounts of Lightspace Emagipix Corporation, a wholly-owned
          subsidiary, organized as of March 29, 2007.
  The
          statement of financial position as of March 31, 2007, the statements of
          operations and cash flows for the three month period ended March 31, 2007
          and
          2006, and the statement of changes in stockholders’ equity (deficit) for the
          period from January 1, 2006 through March 31, 2007 are unaudited. These
          unaudited interim financial statements have been prepared in accordance
          with
          accounting principles generally accepted in the United States of America
          and in
          accordance with the instructions for Form 10-Q. Such financial statements
          do not
          include all of the information and disclosures required for audited financial
          statements. In the opinion of the Company’s management, the unaudited interim
          financial statements have been prepared on the same basis as the Company’s
          audited financial statements and include all adjustments, consisting of
          normal
          recurring adjustments, necessary for the fair presentation of the Company’s
          financial position, results of its operations, cash flows, and changes
          in
          stockholders’ equity (deficit) for the periods presented. The results of
          operations for the interim periods are not necessarily indicative of the
          results
          that can be expected for any other interim period or any fiscal
          year.




**LIGHTSPACE
        CORPORATION**
 **NOTES
        TO** **UNAUDITED
        FINANCIAL STATEMENTS**
 **MARCH
        31, 2007**
  **3** **.
          RECOGNITION OF SALES**
 
 The
          Company recognizes revenue from the sale of its entertainment systems when
          all
          of the following conditions have been met: (1) evidence exists of an
          arrangement with the customer, typically consisting of a purchase order
          or
          contract; (2) the Company’s products have been delivered and risk of loss
          has passed to the customer; (3) the Company has completed all of the necessary
          terms of the contract including but not limited to, installation of the
          product
          and training; (4) the amount of revenue to which the Company is entitled is
          fixed or determinable; and (5) the Company believes it is probable that it
          will be able to collect the amount due from the customer. To the extent
          that one
          or more of these conditions has not been satisfied, the Company defers
          recognition of revenue. Revenue from maintenance contracts is recorded
          on a
          straight-line basis over the term of the contract. An allowance for
          uncollectible receivables is established by a charge to operations, when
          in the
          opinion of the Company, it is probable that the amount due to the Company
          will
          not be collected.
 
 **4.
          TECHNOLOGY ACQUISITION AND PRIVATE PLACEMENT OF SECURITIES**
 
 On
          March
          29, 2007, Lightspace Emagipix Corporation (“LEC”), a newly formed wholly-owned
          subsidiary of Lightspace Corporation, entered into an agreement with
          Illumination Design Works, Inc. to acquire the assets related to the in
          process
          development of its emagipix technology, an interactive lighting technology
          that
          utilizes electroluminescent sheets. The purchase price for the emagipix
          technology consisted of an initial cash payment of $45,000 upon signing
          the
          agreement and a cash payment of $255,000 and the issuance of a $950,000
          convertible term secured non-recourse note to Illumination Design Works,
          Inc.
          upon the closing of the technology purchase.
 
 On
          April
          30, 2007, LEC completed the acquisition of the emagipix technology. In
          connection with the acquisition, the developer of the emagipix technology
          (a
          former officer and co-founder of Lightspace Corporation and the principal
          owner
          of Illumination Design Works, Inc.), re-commenced employment with
          Lightspace.
 
 The
          $950,000 convertible term secured non-recourse note bears interest a 5%
          per
          annum, payable yearly, and is due and payable on April 30, 2011. The note
          is
          secured by a pledge of 67% the stock of LEC. The principal of the note
          is
          convertible at any time up and until April 30, 2011, at the option of the
          holder, into the common stock of Lightspace Corporation at a conversion
          price of
          $0.80 per share. Upon the occurrence of certain defined events of default
          by the
          noteholder, Lightspace has the right to convert the note to common stock
          at the
          lower of the conversion price of $0.80 or current market price of the common
          stock.
 
 Lightspace
          will account for the acquisition of the emagipix technology as the acquisition
          of in process research and development and record a charge to operations
          in the
          June 30, 2007 quarter approximating $1,250,000.
 
 On
          April
          30, 2007 the Company closed a private placement of its equity units. The
          Company
          sold 586,173 units at the offering price of $6.40 per unit, resulting in
          aggregate proceeds to the Company of $3,751,507. After estimated expenses
          of the
          offering of $267,575, the net proceeds to the Company were approximately
          $3,484,000. Each equity unit consists of: (1) eight shares of common stock;
          (2) eight warrants to purchase a total of eight shares of common stock at
          an exercise price of $1.00 per warrant; (3) two warrants to purchase a
          total of two shares of common stock at an exercise price of $1.25 per warrant;
          and (4) two warrants to purchase a total of two shares of common stock at
          an exercise price of $1.63 per warrant. The sale of 586,173 units resulted
          in
          the issuance of: (1) 4,689,384 shares of common stock; (2) 4,689,384 warrants
          to
          purchase a total of 4,689,384 shares of common stock at an exercise price
          of
          $1.00 per warrant; (3) 1,172,346 warrants to purchase a total of 1,172,346
          shares of common stock at an exercise price of $1.25 per warrant; and (4)
          1,172,346 warrants to purchase a total of 1,172,346 shares of common stock
          at an
          exercise price of $1.63 per warrant. The warrants are exercisable at the
          option
          of the holder at any time up until April 30, 2012, at which date the warrants
          expire. In the event of a division of the Company’s common stock, the warrants
          will be adjusted proportionately. The warrants have been classified permanently
          within stockholders’ equity, as upon exercise, the warrant holder can only
          receive the specified
          number of common shares. The Company has entered into a Registration Rights
          Agreement with the purchasers of the units, whereby Lightspace has agreed
          to
          file a registration statement, within 45 days of the closing, to register
          for
          resale the shares of common stock, warrants and shares of common stock
          issuable
          upon exercise of the warrants, included in the units issued in the private
          placement to investors and the financial advisor.




**LIGHTSPACE
        CORPORATION**
 **NOTES
        TO** **UNAUDITED
        FINANCIAL STATEMENTS**
 **MARCH
        31, 2007**
  In
          connection with the sale of the equity
          units, Lightspace paid Griffin Securities, Inc., the financial advisor
          for the
          private placement, a fee in the amount of $187,575 and issued to Griffin
          Securities a purchase warrant exercisable for 58,617 units, in the same
          form
          sold in the private placement, at an exercise price of $6.40 per unit.
 
 The
          Company used a portion of the net proceeds from the private placement to
          complete the acquisition of the emagipix technology by the payment of the
          balance of the cash purchase price of $255,000. The balance of the net
          proceeds
          will be used for general working capital purposes, including payment of
          the
          expenses of registering the private placement units for resale.
 
 As
          a
          result of the private placement, issued and outstanding shares of the Company’s
          common stock at April 30, 2007 increased to 15,282,495 from 10,593,111
          at March
          31, 2007. Additionally, issued and outstanding common stock warrants at
          April
          30, 2007 were 23,634,209, exercisable at prices that range from $0.80 to
          $7.50.
          At March 31, 2007, the Company had issued and outstanding common stock
          warrants
          in the aggregate amount of 15,427,789, exercisable at prices that range
          from
          $0.80 to $7.50.
 
 **5.
          LOSS PER SHARE**
 
 Basic
          and
          diluted net loss per common share are calculated by dividing the net loss
          by the
          weighted average number of common shares outstanding during the period.
          Diluted
          net loss per share is the same as basic net loss per share, since the effects
          of
          potentially dilutive securities are excluded from the calculation for all
          periods presented as their inclusion would be anti-dilutive. Dilutive securities
          consist of common stock options, common stock warrants, preferred stock
          warrants, convertible preferred stock and convertible debt.
 
 The
          following potentially dilutive securities were excluded from the calculation
          of
          diluted loss per share because their inclusion would be
          anti-dilutive:
 **Three
                      Months Ended March 31,****2007**
                  
                  **2006**Common
                      stock options
                  
                  
                  1,218,685
                  
                  
                  72,080Common
                      stock warrants
                  
                  
                  15,427,789
                  
                  
                  99,938Preferred
                      stock warrants
                  
                  
                  -
                  
                  
                  16,390Convertible
                      preferred stock
                  
                  
                  -
                  
                  
                  53,492Convertible
                      debt
                  
                  
                  -
                  
                  
                  341,200Total
                  
                  
                  16,646,474
                  
                  
                  583,100




**LIGHTSPACE
        CORPORATION**
 **NOTES
        TO** **UNAUDITED
        FINANCIAL STATEMENTS**
 **MARCH
        31, 2007**
  **6.
          STOCK OPTION BASED COMPENSATION**
 
 Statement
          of Financial Accounting Standards No. 123(R), *Share-Based
          Payment,* addresses
          accounting for stock-based compensation arrangements, including stock options
          and shares issued to employees and directors under various stock-based
          compensation arrangements. This statement requires that the Company use
          the fair
          value method, rather than the intrinsic-value method, to determine compensation
          expense for all stock-based arrangements. Under the fair value method,
          stock-based compensation expense is determined at the measurement date,
          which is
          generally the date of grant, as the aggregate amount by which the expected
          fair
          value of the equity security at the date of acquisition exceeds the exercise
          price to be paid. The resulting compensation expense, if any, is recognized
          for
          financial reporting over the term of vesting or performance. This statement
          was
          first effective for the Company on January 1, 2006 for all prospective
          stock
          option and share grants of stock-based compensation awards and modifications
          to
          all prior grants, and will have the effect of increasing the Company’s
          compensation costs recognized in operations from historical levels for
          all
          stock-based compensation awards and modifications of prior awards
          granted.
 
 In
          June 2006, the Company’s stockholders and Board of Directors approved
          adoption of the 2006 Stock Incentive Plan (the “2006 Stock Plan”), pursuant to
          which up to 2,118,622 incentive stock options and/or nonqualified stock
          options
          may be granted to directors, officers, key employees and consultants. In
          2006,
          under the 2006 Stock Plan, the Company granted to officers and key employees
          1,836,810 options to purchase 1,836,810 shares of common stock at an exercise
          price of $0.80 per option. The options vest ratably over a three year period
          and
          expire in ten years. Under the provisions of Statement of Financial Accounting
          Standards No. 123(R), Share-Based Payment, the Company determined the total
          stock-based compensation expense for these option grants was $483,000,
          utilizing
          the following assumptions: volatility - 57%; estimated option exercise
          period -
          2 to 3 years; risk free interest rate - 5.14% to 5.17%; and expected total
          forfeitures related these option grant of 6.9%.
  The
          provision for stock-based compensation for common stock options granted
          under
          the 2006 Stock Plan for the three month period ended March 31, 2007 was
          $40,246.
          The Company did not record a tax benefit related to the provision for
          stock-based compensation due to the Company’s net operating loss carryforwards;
          accordingly, the net loss for the three month period ended March 31, 2007
          was
          increased by $40,246. As of March 31, 2007, total unrecognized stock-based
          compensation expense related to the common stock option grants under the
          2006
          Stock Plan expected to be charged to operations over the next two and
          one-quarter years is estimated to approximate $350,000.
 
 For
          all
          periods prior to January 1, 2006, the Company accounted for stock-based
          compensation arrangements with employees and directors utilizing the
          intrinsic-value method. Under this method, stock-based compensation expense
          was
          determined at the measurement date, which again is generally the date of
          grant,
          as the aggregate amount by which the current market value of the equity
          security
          exceeds the exercise price to be paid. The resulting compensation expense,
          if
          any, was recognized for financial reporting over the term of vesting or
          performance. The Company has historically granted stock-based compensation
          awards to employees and directors at an exercise price equal to the current
          market value of the Company’s equity security at the date of grant. Accordingly,
          no compensation expense has been recognized or will be recognized in the
          financial statements for stock-based compensation arrangements with employees
          and directors for grants prior to January 1, 2006.




**LIGHTSPACE
      CORPORATION**


**NOTES
      TO** **UNAUDITED
      FINANCIAL STATEMENTS**


**MARCH
      31, 2007**




**6** **.
        STOCK OPTION BASED COMPENSATION - Continued**
 
 The
        following table summarizes the pro forma stock-based compensation expense
        and
        the related effect on reported results of operations for stock option grants
        to
        employees and directors for periods prior to January 1, 2006 that would have
        been recorded by the Company for the three months ended March 31, 2007 and
        2006
        under the provisions of Statement of Financial Accounting Standards No. 123(R),
        Share-Based Payment, if the Company had adopted early application
        thereof.


**Three
                  Months Ended March 31,****2007**
              
              **2006**Net
                  loss as reported
              
              $
              (732,490
              )
              $
              (913,792
              )Pro
                  forma stock option compensation
              
              
              (704
              )
              
              (1,881
              )Pro
                  forma net loss
              
              $
              (733,194
              )
              $
              (915,673
              )Basic
                  and diluted net loss per share:As
                  reported
              
              $
              (0.07
              )
              $
              (0.94
              )Pro
                  forma
              
              $
              (0.07
              )
              $
              (0.94
              )
  The
          fair
          value of stock options at the date of grant was determined under the
          Black-Scholes option pricing model. The assumptions utilized for the stock
          options granted prior to January 1, 2006 are as follows: volatility - 59%;
          estimated option exercise period - 2 to 3 years; risk free interest rate
          -
          3.96%; and expected total forfeitures of 13.2%.
 
 **7** **.
          INVENTORY**
  At
          March
          31, 2007 and December 31, 2006, inventory consisted of raw materials of
          $266,706
          and $274,570, and finished products of $90,000 and $79,664, respectively.
          Included in raw materials at March 31, 2007 and December 31, 2006 are $223,654
          and $202,810 of advance payments to supplies for the purchase of component
          parts, respectively.
 
 **8.
          COMMON STOCK**
 
 On
          April 30, 2007 the stockholders' of the Company approved resolutions to
          increase the authorized shares of the Company's $0.0001 par value common
          stock
          to 75,000,000 authorized shares from 30,000,000 authorized shares to provide
          for
          the issuance of the equity units in the private placement that closed as
          of
          April 30, 2007 and for other corporate purposes. The accompanying financial
          statements have been updated to reflect this increase in authorized
          shares.
  As
          a
          result of the private placement, issued and outstanding shares of the Company’s
          common stock at April 30, 2007 increased to 15,282,495 from 10,593,111
          at March
          31, 2007. Additionally, issued and outstanding common stock warrants at
          April
          30, 2007 were 23,634,209, exercisable at prices that range from $0.80 to
          $7.50.
          At March 31, 2007, the Company had issued and outstanding common stock
          warrants
          in the aggregate amount of 15,427,789, exercisable at prices that range
          from
          $0.80 to $7.50.
 
 **9.
          STOCK INCENTIVE PLANS**
 
 In
          September 2005, the Company’s stockholders and Board of Directors approved the
          2005 Stock Incentive Plan (the “2005 Stock Plan”). The 2005 Plan provides that
          the Board of Directors may grant up to 72,080 incentive stock options and/or
          nonqualified stock options to directors, officers, key employees and to
          consultants. The 2005 Stock Plan provides that the exercise price of each
          option
          must be at least equal to the fair market value of the common stock at
          the date
          such option is granted. Options expire in ten years or less from the date
          of
          grant and vest over a period not to exceed four years. At March 31, 2007,
          the
          Company has reserved 51,530 shares of common stock for issuance under the
          2005
          Stock Plan. Concurrent with the approval and adoption of the 2006 Stock
          Incentive Plan in June of 2006, no additional options can be granted under
          the
          2005 Stock Plan.




**LIGHTSPACE
      CORPORATION**


**NOTES
      TO** **UNAUDITED
      FINANCIAL STATEMENTS**


**MARCH
      31, 2007**




**9.
        STOCK INCENTIVE PLANS - Continued**
 
 In
        June 2006, the Company’s stockholders and Board of Directors approved
        adoption of the 2006 Stock Incentive Plan (the “2006 Stock Plan”), pursuant to
        which up to 2,118,622 incentive stock options and/or nonqualified stock options
        may be granted to directors, officers, key employees and consultants. The
        2006
        Stock Plan provides that the exercise price of each option must be at least
        equal to the fair market value of the common stock at the date such option
        is
        granted. Options expire in ten years or less from the date of grant and vest
        over a period not to exceed four years. As of March 31, 2007 the Company
        has
        reserved 2,118,622 shares of common stock for issuance under the 2006 Stock
        Plan.
  Combined
        information with respect to stock options issued under the 2005 and 2006
        Stock
        Plans for the three month period ended March 31, 2007 is summarized as
        follows:
 **March
                    31, 2007****Weighted****Number
                    of**
                
                **Average****Shares**
                
                **Exercise
                    Price**Options
                    outstanding January 1, 2007
                
                
                1,820,490
                
                $
                0.80Options
                    granted
                
                
                25,000
                
                
                0.80Options
                    exercised
                
                
                -
                
                
                -Options
                    cancelled
                
                
                (626,805
                )
                
                (0.80
                )Options
                    outstanding March 31, 2007
                
                
                1,218,685
                
                $
                0.80Options
                    exercisable at March 31, 2007
                
                
                32,015
                
                $
                0.83Weighted
                    average fair value of 2007 options granted
                
                
                
                
                $
                0.32Weighted
                    average contractual life (years) options outstanding
                
                
                9
                    1/4Options
                    available for grant at March 31, 2007
                
                
                951,467




**10.
        STOCK WARRANTS**
 
 Issued
        and
        outstanding warrants to purchase common stock of the Company are as
        follows:
 **Exercise**
                
                **April
                    30,**
                
                **March
                    31,**
                
                **December
                    31,****Type
                    of Warrant**
                
                **Date
                    Issued**
                
                **Price**
                
                **2007**
                
                **2007**
                
                **2006**$.80
                    Exchange warrant
                
                
                April
                    27, 2006
                
                $
                0.80
                
                
                361,252
                
                
                361,252
                
                
                361,252$1.00
                    Exchange warrant
                
                
                April
                    27, 2006
                
                $
                1.00
                
                
                276,370
                
                
                276,370
                
                
                276,370$3.00
                    Exchange warrant
                
                
                April
                    27, 2006
                
                $
                3.00
                
                
                649,892
                
                
                649,892
                
                
                649,892$7.50
                    Exchange warrant
                
                
                April
                    27, 2006
                
                $
                7.50
                
                
                234,398
                
                
                234,398
                
                
                234,398$0.80
                    Unit warrant
                
                
                April
                    30, 2007
                
                $
                0.80
                
                
                468,938
                
                
                -
                
                
                -$0.96
                    Unit warrant
                
                
                November
                    2, 2006
                
                $
                0.96
                
                
                816,000
                
                
                816,000
                
                
                816,000$1.00
                    Unit warrant
                
                
                2006
                    and April 30, 2007
                
                $
                1.00
                
                
                13,884,907
                
                
                8,726,585
                
                
                8,726,585$1.25
                    Unit warrant
                
                
                2006
                    and April 30, 2007
                
                $
                1.25
                
                
                3,471,226
                
                
                2,181,646
                
                
                2,181,646$1.63
                    Unit warrant
                
                
                2006
                    and April 30, 2007
                
                $
                1.63
                
                
                3,471,226
                
                
                2,181,646
                
                
                2,181,646Total
                    common stock warrants outstanding
                
                
                
                
                
                
                
                
                23,634,209
                
                
                15,427,789
                
                
                15,427,789




On
        April
        27, 2006 in connection with the conversion and exchange under the Securityholder
        Debt and Equity Conversion and Exchange Agreement, the Company issued 1,160,660
        exchange warrants to purchase a total of 1,160,660 shares of common stock
        at
        exercise prices ranging from $1.00 to $7.50 per warrant. The exchange warrants
        are exercisable at the option of the holder at any time up until April 30,
        2011,
        at which date the warrants expire. In the event of a division of the Company’s
        common stock, the warrants will be adjusted proportionately. The value of
        the
        warrants at April 27, 2006 was determined to be $138,449 under the fair value
        computation method utilizing a 4.89% risk free interest rate assumption,
        59%
        volatility factor and an expected life of three years. The $138,449 has been
        charged to operations as debt conversion expense and as an increase to
        additional paid-in-capital.







**LIGHTSPACE
        CORPORATION**
 **NOTES
        TO** **UNAUDITED
        FINANCIAL STATEMENTS**
 **MARCH
        31, 2007**
  **10.
          STOCK WARRANTS - Continued**
 
 Additionally,
          in connection with the securityholder conversion and exchange, $237,381
          in
          principal amount of existing notes held by the former CEO were converted
          into a
          $237,381 contingent promissory note. The Company issued to the former CEO
          361,252 exchange warrants to purchase a total of 361,252 shares of common
          stock
          at an exercise price of $0.80 per warrant. The warrants expire on April
          30,
          2011, unless the terms for payment of the contingent promissory note are
          not
          met, in which case the warrants will expire on March 31, 2009. The value of
          the warrants at April 27, 2006 was determined to be $125,896 under the
          fair
          value computation method utilizing a 4.89% risk free interest rate assumption,
          59% volatility factor and an expected life of three years. The $125,896
          has been
          classified as deferred financing costs, chargeable to operations as additional
          interest expense over three years, and as an increase to additional
          paid-in-capital. The exchange warrants have been classified permanently
          within
          stockholders’ equity, as upon exercise, the warrant holder can only receive the
          specified number of shares of common stock.
 
 On
          May 3,
          2006, the Company and noteholders holding $2,400,000 in principal amount
          of
          senior secured notes agreed to convert $2,488,471 of senior secured note
          principal and accrued interest, at a conversion price of $6.40 per unit,
          into
          388,821 units plus fractional shares and warrants. The units that the Company
          issued to the senior secured note holders are comprised of: (1) 3,110,585
          shares
          of common stock; (2) 3,110,585 unit warrants to purchase a total of 3,110,585
          shares of common stock at an exercise price of $1.00 per warrant; (3) 777,646
          unit warrants to purchase a total of 777,646 shares of common stock at
          an
          exercise price of $1.25 per warrant; and (4) 777,646 unit warrants to purchase
          a
          total of 777,646 shares of common stock at an exercise price of $1.63 per
          warrant. The unit warrants are exercisable at the option of the holder
          at any
          time up until April 30, 2011, at which date the warrants expire. In the
          event of
          a division of the Company’s common stock, the warrants will be adjusted
          proportionately. No value has been assigned to the unit warrants issued
          in
          connection with the conversion. The unit warrants have been classified
          permanently within stockholders’ equity, as upon exercise, the warrant holder
          can only receive the specified number of shares of common stock.
 
 On
          November 2, 2006 the Company closed the initial public offering period
          for the
          sale of its securities. The Company sold 600,000 units, the maximum allowed,
          at
          an offering price of $6.40 per unit, resulting in aggregate proceeds to
          the
          Company of $3,840,000. The sale of 600,000 units, including warrants issued
          to
          the underwriter as compensation, resulted in the issuance of: (1) 4,800,000
          shares of common stock; (2) 816,000 unit warrants to purchase a total of
          816,000
          shares of common stock at an exercise price of $0.96 per warrant (pursuant
          to
          the unit warrants issued to the underwriter); (3) 5,616,000 unit warrants
          to
          purchase a total of 5,616,000 shares of common stock at an exercise price
          of
          $1.00 per warrant; (4) 1,404,000 unit warrants to purchase a total of 1,404,000
          shares of common stock at an exercise price of $1.25 per warrant; and (5)
          1,404,000 unit warrants to purchase a total of 1,404,000 shares of common
          stock
          at an exercise price of $1.63 per warrant. The
          unit
          warrants are exercisable at the option of the holder at any time up until
          April
          30, 2011, at which date the warrants expire. In the event of a division
          of the
          Company’s common stock, the warrants will be adjusted proportionately. No value
          has been assigned to the unit warrants issued in connection with the sale
          of
          units. The unit warrants have been classified permanently within stockholders’
equity, as upon exercise, the warrant holder can only receive the specified
          number of shares of common stock.


**LIGHTSPACE
      CORPORATION**


**NOTES
      TO** **UNAUDITED
      FINANCIAL STATEMENTS**


**MARCH
      31, 2007**




**10.
        STOCK WARRANTS - Continued**
 
 On
        April
        30, 2007 the Company closed the offering period for the private sale of equity
        units. The Company sold 586,173 units at the offering price of $6.40 per
        unit,
        resulting in aggregate proceeds to the Company of $3,751,507. The sale of
        586,173 units and the issuance to the financial advisor of a unit purchase
        warrant exercisable for 58,617 units identical to the units sold in the private
        placement resulted in the issuance of: (1) 4,689,384 shares of common stock;
        (2)
        468,938 unit warrants to purchase a total of 468,938 shares of common stock
        at
        an exercise price of $0.80 per warrant (3) 5,158,322 unit warrants to purchase
        a
        total of 5,158,322 shares of common stock at an exercise price of $1.00 per
        warrant; (4) 1,289,580 unit warrants to purchase a total of 1,289,580 shares
        of
        common stock at an exercise price of $1.25 per warrant; and (5) 1,289,580
        unit
        warrants to purchase a total of 1,289,580 shares of common stock at an exercise
        price of $1.63 per warrant. The unit warrants are exercisable at the option
        of
        the holder at any time up until April 30, 2012, at which date the warrants
        expire. In the event of a division of the Company’s common stock, the warrants
        will be adjusted proportionately. The warrants have been classified permanently
        within stockholders’ equity, as upon exercise, the warrant holder can only
        receive the specified number of common shares. The Company has entered into
        a
        Registration Rights Agreement with the purchasers of the units, whereby the
        Company has agreed to file a registration statement, within 45 days of the
        closing, to register for resale the shares of common stock, warrants and
        shares
        of common stock issuable upon exercise of the unit warrants, included in
        the
        units issued in the private placement to investors and the financial advisor.
 
 At
        April
        30, 2007, March 31, 2007 and December 31, 2006, the weighted average exercise
        price of the common stock warrants outstanding was $1.24, $1.30 and $1.30,
        respectively. At April 30, 2007, the common stock warrants have an average
        remaining life of approximately four and one-half years.
 
 **11.
        INCOME TAXES**
 
 The
        Company has recorded no provisions or benefits for income taxes for any period
        presented due to the net operating losses incurred and the uncertainty as
        to the
        recovery of such net operating losses and other deferred tax assets as a
        reduction of possible future taxable income, if any.
 
 At
        March
        31, 2007 and December 31, 2006, the Company had operating loss carryforwards
        of
        approximately $4,071,000 and $3,384,000, respectively, available to offset
        future taxable income for United States federal and state income tax purposes.
        At March 31, 2007 and December 31, 2006, approximately $1,846,000 of the
        operating loss carryforwards were restricted as to yearly usage, as discussed
        hereafter. The United States federal tax operating loss carryforwards expire
        commencing in 2021 through 2027. The state tax operating loss carryforwards
        expire commencing in 2007 through 2011. Additionally the Company had research
        and development credit carryforwards of approximately $69,000 available to
        be
        used as a reduction of federal income taxes.
 
 The
        Company’s ability to use the operating loss carryforwards and tax credit
        carryforwards to offset future taxable income is subject to restrictions
        enacted
        in the United States Internal Revenue Code of 1986. These restrictions severely
        limit the future use of the loss carryforwards if certain ownership changes
        described in the code occur. The common stock ownership changes occurring
        as a
        result of the securityholder debt and equity conversion on April 27, 2006
        and
        the conversion of senior secured notes on May 3, 2006 have resulted in
        reductions and in limitations in the use of the operating loss and tax credit
        carryforwards. The value of the operating loss carryforwards at the date
        of the
        ownership change, $6,313,000, was reduced to $1,846,000. Additionally, in
        future
        years, such reduced operating loss carryforwards of $1,846,000 can be used
        only
        to offset approximately $90,000 of taxable income per year, if any. The tax
        credit carryforwards at the date of the ownership change were similarly reduced
        and restricted. The Company may use operating losses and tax credits generated
        subsequent to the date of the ownership change without limitation. Therefore,
        in
        future years, the Company may be required to pay income taxes even though
        significant operating loss and tax credit carryforwards
        exist.









**LIGHTSPACE
        CORPORATION**
 **NOTES
        TO** **UNAUDITED
        FINANCIAL STATEMENTS**
 **MARCH
        31, 2007**
  **12.
          SEGMENT INFORMATION**
 
 The
          Company conducts its operations and manages its business in one segment,
          the
          manufacture of hardware and development of software for interactive lighting
          entertainment. Revenues, denominated in U.S. dollars, by geographical region
          are
          as follows:
 **Three
                    Months Ended March 31,****Revenues
                    by Geographical Region**
                
                **2007**
                
                **2006**United
                    States
                
                $
                220,959
                
                $
                35,564South
                    America
                
                
                42,000
                
                
                -Europe
                
                
                26,000
                
                
                -Asia
                
                
                24,500
                
                
                -Canada
                
                
                20,500
                
                
                -Total
                
                $
                333,959
                
                $
                35,564









**Item 2.
        Management’s Discussion of Financial Condition
        and Results of Operations**
 
 The
        following discussion of the financial condition and results of operations
        of the
        Company should be read in conjunction with the unaudited financial statements
        and the related notes thereto included elsewhere in this Form 10-Q. Except
        for
        the historical information contained herein, the following discussion, as
        well
        as other information in this report, contains forward-looking statements
        within
        the meaning of Section 27A of the Securities Act of 1933, as amended, and
        Section 21E of the Securities Exchange Act of 1934, as amended, and is
        subject to the “safe harbor” created by those sections. Some of the
        forward-looking statements can be identified by the use of forward-looking
        terms
        such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seek,”
“intends,” “plans,” “estimates,” “anticipates” or other comparable terms.
        Forward-looking statements involve inherent risks and uncertainties. A number
        of
        important factors could cause actual results to differ materially from those
        in
        the forward-looking statements. Management urges you to consider the risks
        and
        uncertainties described in “Risk Factors” in this report and in the Company’s Annual
        Report on Form 10K for the year ended December 31, 2006. Management undertakes
        no obligation to update forward-looking statements to reflect events or
        circumstances after the date of this report. Management cautions readers
        not to
        place undue reliance upon any such forward-looking statements, which speak
        only
        as of the date made.
  **Overview**
 
 Lightspace
        provides interactive lighting entertainment products to family entertainment
        centers, retail
        stores, theme parks, fashion shows, nightclubs, special events, stage lighting
        and sound providers, health clubs and architectural lighting and design.
        Our
        current product lines include: (a) Lightspace Play, an interactive 36 tile
        gaming platform for children and adult recreation; (b) Lightspace Dance,
        an
        interactive floor, generally in sizes of 86 tiles and larger, that displays
        customizable lights and effects; and (c) Lightspace Design, an interactive
        tile
        system that displays customizable lights and video effects that can be mounted
        on any flat surface.
 
 Lightspace
        received the first significant investor equity funding, $1,386,000, in July
        and
        December of 2003 and commenced operations. With this funding, and an additional
        funding of $600,000 through the issuance of convertible notes in April 2004,
        we
        were able to engage contract manufacturers for the initial production run
        of 100
        interactive tiles and subsequent production of interactive tiles, hire sales
        and
        marketing staff, introduce the Lightspace products at trade shows, expand
        the
        research and development department personnel and budget, and lease facilities
        for operations. From December 2003 to June 2004, Lightspace increased employment
        levels from five employees to 27 employees to pursue sales leads, to support
        the
        installation and maintenance of our products, and to design improvements
        to the
        current product and to develop new product offerings. Lightspace’s initial
        product offering, Lightspace Dance, was complemented with the introduction
        of
        Lightspace Play during this period.
 
 In
        March
        of 2004, we began to experience significant manufacturing problems at the
        contract manufacturer. The manufacturing problems encompassed design errors,
        faulty parts and improper assembly. These problems increased the production
        cost
        and significantly reduced the yield of finished interactive tiles. The reduction
        in available finished product restricted the company from selling products
        to
        customers and pursuing sales leads. These manufacturing problems continued
        until
        product design changes and quality control procedures were fully implemented
        in
        early 2005. The effect of the manufacturing problems and consequent lost
        sales
        resulted in Lightspace using more cash resources than planned for a longer
        period of time to fund operations and product improvements. Our cash situation
        had become critical, and by September of 2005, employment levels had decreased
        to 11 employees. More significantly, without the required funding, Lightspace
        was unable from March 2005 to September 2005 to engage a contract manufacturer
        for the production of interactive tiles.
 
 With
        the
        proceeds of private financings from September 2005 to March 2006, Lightspace
        obtained sufficient capital to restart the production of interactive tiles.
        1,350 interactive tiles were manufactured in the 2006 year.









During
        the
        year ended December 31, 2006, as more fully described in the section, Liquidity,
        Capital Resources and Cash Flow, we completed a restructuring of our debt
        and
        preferred stock and two equity financings, the second financing being our
        initial public offering.
 
 During
        the
        first quarter of 2007, we completed and introduced a new generation of our
        interactive tile with added software enhancements. The new interactive tile
        and
        enhanced software, in addition to increased product reliability and reduced
        manufacturing cost, is significantly more illuminative and is now available
        in
        clear plastic in addition to the traditional off white.
 
 On
        April
        30, 2007, we completed the acquisition of the in process development emagipix
        technology from Illumination Design Works, Inc. Emagipix technology is an
        interactive lighting technology that utilizes electroluminescent sheets.
        The
        purchase price for the emagipix technology consisted of a cash payment of
        $300,000 and the issuance of a $950,000 convertible term secured non-recourse
        note. In connection with the acquisition, the developer of the emagipix
        technology (a former officer and co-founder of Lightspace Corporation and
        the
        principal owner of Illumination Design Works, Inc.), re-commenced employment
        with Lightspace. Lightspace will account for the acquisition of the emagipix
        technology as the acquisition of in process research and development and
        record
        a charge to operations in the June 30, 2007 quarter approximating
        $1,250,000.
 
 On
        April
        11, 2007, Lightspace commenced the private placement of up to 600,000 equity
        units at an offering price of $6.40 per unit. Each equity unit consists of:
        (1) eight shares of common stock; (2) eight warrants to purchase a
        total of eight shares of common stock at an exercise price of $1.00 per warrant;
        (3) two warrants to purchase a total of two shares of common stock at an
        exercise price of $1.25 per warrant; and (4) two warrants to purchase a
        total of two shares of common stock at an exercise price of $1.63 per warrant.
        On April 30, 2007 we closed the offering period for our equity units. Lightspace
        sold 586,173 units at the offering price of $6.40 per unit, resulting in
        aggregate proceeds of $3,751,507. After estimated expenses of the offering
        of
        $267,575, the net proceeds to Lightspace were approximately
        $3,484,000.
  **Results
        of Operations for the Three Months Ended March 31, 2007 and
        200** **6**
 
 **Revenue
        and Operating Results**
  For
        the
        quarter ended March 31, 2007, revenue was $333,959, an increase of $298,395
        from
        revenue of $35,564 recorded in the quarter ended March 31, 2006. The net
        loss
        for the quarter ended March 31, 2007 was $732,490, as compared to a net loss
        for
        the quarter ended March 31, 2006 of $913,792. Due to the significantly larger
        number of weighted average common shares outstanding in the quarter ended
        March
        31, 2007, 10,593,111, as compared to 977,182 in the quarter ended March 31,
        2006, the net loss per share for the quarter ended March 31, 2007 was $0.07
        as
        compared to a per share loss of $0.94 in the quarter ended March 31,
        2006.
 
 The
        revenue for the quarter ended March 31, 2007 was comprised of revenue from
        the
        sale of products, $316,534, and other revenue of $17,425, as represented
        by
        deferred maintenance revenue, sales of miscellaneous parts and other services.
        In the quarter ended March 31, 2007, there were 12 Lightspace Play or Lightspace
        Design new installation sites and one Lightspace Dance new installation site,
        representing 509 interactive tiles. The revenue for the quarter ended March
        31,
        2006 was comprised of revenue from the sale of products, $24,905, and other
        revenue of $10,659, as represented by deferred maintenance revenue, sales
        of
        miscellaneous parts and other services. In the quarter ended March 31, 2006,
        there was one Lightspace Play new installation site, representing 36 interactive
        tiles. The quarter ended March 31, 2006 was impacted by: (1) the lack of
        interactive tiles available for sale (By the end of October of 2005 we had
        sold
        all available inventory of interactive tiles and did not receive the first
        production run of 500 interactive tiles from our contract manufacturer until
        the
        first quarter of 2006.); and (2) the normal sales process wherein leads are
        pursued, demonstrations made, and terms and dates of installation are agreed
        upon (The sales staff at Lightspace had been reduced to two employees during
        2005 due to the critical cash situation. It was until late in the March quarter
        of 2006 and in the second quarter that three additional sales staff were
        hired.).




Our
        product backlog at March
        31,
        2007 was $163,200, representing 261 interactive tiles. We expect that this
        backlog will be shipped and installed prior to June 30, 2007. Product backlog
        at
        December 31, 2006 was $208,134, representing 343 interactive tiles.
        Cancellation of a signed contract or order included in product backlog requires
        the consent of Lightspace.
  For
        the
        quarter ended March 31, 2007, sales of Lightspace products were made to
        customers in the United States - $220,959; South America - $42,000; Europe
        -
        $26,000; Asia - $24,500; and Canada - $20,500. During this period, three
        Lightspace customers comprised more than 10% of revenues. Sales to these
        customers aggregated $126,334 in the 2007 three-month period. For the quarter
        ended March 31, 2006, a single product sale was made to a customer in the
        United
        States.
 
 **Product
        Cost and Gross Margin**
 
 For
        the
        quarters ended March 31, 2007 and 2006, Lightspace recorded gross margins
        of
        $62,694, or 19%, and a negative $51,657, or 145%, respectively. Due to the
        low
        dollar volume of sales in each quarter, particularly the quarter ended March
        2006, these margin rates are not representative of margin rates that may
        be
        achieved if we achieve higher volume levels.
 
 Product
        cost includes the direct cost of materials, associated freight charges, and
        the
        allocated per unit cost of the contractor's manufacturing labor, overhead
        and
        profit associated with products sold. For the most part, these costs are
        variable and increase or decrease with volume. Product cost also includes
        our
        personnel and related expenses assigned to manufacturing and customer service.
        These latter costs tend to be a fixed cost that decreases on a per unit basis
        as
        volume increases.
  **Operating
        Expenses**
  Research
        and development spending was $250,048 for the quarter ended March 31, 2007
        as
        compared to $226,340 for the quarter ended March 31, 2006. The increased
        research and development spending when comparing the quarter ended March
        31,
        2007 to the quarter ended March 31, 2006 of approximately $24,000, or 11%,
        is
        principally related to expenditures for final prototypes and external
        certifications related to the March 2007 product launch of a new generation
        of
        our interactive tile with software enhancements. Research and development
        spending for the 2007 year is forecasted to exceed the amount spent for our
        2006
        research and development efforts.
  Selling
        and marketing expenditures were $300,943 for the quarter ended March 31,
        2007 as
        compared to $212,633 for the quarter ended March 31, 2006, an increase of
        $88,310, or 42%. During the 2005 year selling and marketing expenditures
        were
        significantly reduced to conserve cash. It was not until the first and second
        quarters of 2006 that sufficient cash was available to allocate more resources
        to our selling and marketing efforts. During the six months ended June 30,
        2006,
        we added three sales/customer service employees and increased spending for
        trade
        shows, advertising, print publications, and employee travel expenses. We
        anticipate that additional sales staff will be added in 2007.
 
 Administrative
        expenses were $232,343 for the quarter ended March 31, 2007 as compared to
        $272,193 for the quarter ended March 31, 2006, a decrease of $39,850, or
        15%.
        The quarter ended March 31, 2006 include a $30,000 payment under a severance
        agreement to our former Chief Executive Officer and additional internal
        financial and accounting expenses incurred in connection with our private
        and
        public sales of equity securities in 2006. No such similar expenses were
        incurred in the March 2007 quarter; however, partially offsetting the lack
        of
        such expenses in 2007 is a charge of to administration of approximately $17,500
        for stock option compensation.




**Interest
        Expense**
  Interest
        expense was $11,850 for the quarter ended March 31, 2007 as compared to $150,969
        for the quarter ended March 31, 2006, a decrease of $139,119, or 92%. The
        decrease in the quarter ended March 31, 2007 interest expense is due to the
        conversion to common stock on April 27, 2006 of $2,701,853 in principal amount
        of convertible and demand notes, and the conversion to common stock on May
        3,
        2006 of $2,488,471 in principal amount and accrued interest of bridge notes,
        as
        discussed previously in the Overview above.
 
 **Income
        Taxes**
 
 At
        March
        31, 2007 and December 31, 2006, Lightspace had operating loss carryforwards
        of
        approximately $4,071,000 and $3,384,000, respectively, available to offset
        future taxable income for United States federal and state income tax purposes.
        At March 31, 2007 and December 31, 2006, approximately $1,846,000 of the
        operating loss carryforwards were restricted as to yearly usage, as discussed
        hereafter. The United States federal tax operating loss carryforwards expire
        commencing in 2021 through 2027. The state tax operating loss carryforwards
        expire commencing in 2007 through 2011. Additionally Lightspace had research
        and
        development credit carryforwards of approximately $69,000 available to be
        used
        as a reduction of federal income taxes.
 
 Our
        ability to use the operating loss carryforwards and tax credit carryforwards
        to
        offset future taxable income is subject to restrictions enacted in the United
        States Internal Revenue Code of 1986. These restrictions severely limit the
        future use of the loss carryforwards if certain ownership changes described
        in
        the code occur. The common stock ownership changes occurring as a result
        of the
        securityholder debt and equity conversion on April 27, 2006 and the conversion
        of senior secured notes on May 3, 2006 have resulted in reductions and in
        limitations in the use of the operating loss and tax credit carryforwards.
        The
        value of the operating loss carryforwards at the date of the ownership change,
        $6,313,000, was reduced to $1,846,000. Additionally, in future years, such
        reduced operating loss carryforwards of $1,846,000 can be used only to offset
        approximately $90,000 of taxable income per year, if any. The tax credit
        carryforwards at the date of the ownership change were similarly reduced
        and
        restricted. Lightspace may use operating losses and tax credits generated
        subsequent to the date of the ownership change without limitation. Therefore,
        in
        future years, we may be required to pay income taxes even though significant
        operating loss and tax credit carryforwards exist.
 
 **Net
        Loss**
 
 The
        net
        loss for the quarter ended March 31, 2007 was $732,490 as compared to a net
        loss
        of $913,792 in the quarter ended March 31, 2006. Impacting the quarter ended
        March 31, 2007, in addition to the preceding discussion, was a charge in
        the
        amount of 40,246 related to stock option based compensation. The provisions
        of
        Statement of Financial Accounting Standards No. 123(R), Share-Based Payment,
        were first effective for us in the September 2006 quarter, and accordingly
        no
        prior financials periods were affected by this pronouncement. At March 31,
        2007,
        total unrecognized stock based compensation expense related to unvested common
        stock option grants expected to be charged to operations over the next two
        and
        one-quarter years is estimated to be approximately $350,000.
 
 **Liquidity,
        Capital Resources and Cash Flow**
 
 Lightspace
        has incurred net operating losses and negative operating cash flows since
        inception. At December 31, 2006 and March 31, 2007, we had an accumulated
        retained deficit of $10,311,635 and $11,044,125. At March 31, 2007 we had
        a
        stockholders’ deficit of $395,235 and a negative current working capital
        position of $665,290. As discussed hereafter, on April 30, 2007 we completed
        the
        private placement of equity securities, resulting in net proceeds to Lightspace,
        after expenses of the offering, of approximately $3,484,000. We expect to
        incur
        additional losses and negative operating cash flows through at least the
        September quarter of 2007. We will continue thereafter to incur losses and
        negative operating cash flows until our revenue growth reaches that level
        that
        is able to support our operating expenses.




Lightspace
      has funded its operations through March
      31,
      2007 through the private and public issuances of common stock and warrants,
      Series A Preferred Stock, borrowings from stockholders and others pursuant
      to
      convertible and demand notes, bridge notes and senior notes, and sales of
      Lightspace products.


On
        February 9, 2006, we entered into the Securityholder Debt and Equity
        Conversion and Exchange Agreement (Agreement”) with holders of
        (1) $1,401,000 in principal amount of convertible notes and $1,538,234 in
        principal amount of demand notes, (2) holders of 133,732 shares of
        Series A preferred stock and (3) existing warrantholders to provide
        for the terms of the debt conversion, preferred conversion and warrant exchange.
        On April 27, 2006, the conditions for the closing of the Agreement having
        been met, Lightspace effected the conversion and exchange. Under the terms
        of
        the Agreement, (1) the holders of convertible and demand notes received
        1,544,865 shares of common stock and exchange warrants to purchase 1,480,849
        shares of common stock at exercise prices ranging from $0.80 to $7.50 per
        share
        upon conversion of their existing notes and any warrants issued in conjunction
        therewith, and our former CEO received a contingent promissory note in the
        principal amount of $237,381; (2) the holders of Series A preferred
        stock received 160,479 shares of common stock upon conversion of their
        Series A Preferred Stock; and (3) the holders of other existing
        warrants received exchange warrants to purchase 41,063 shares of common stock
        at
        an exercise price of $7.50 per share. As a result of the closing of the
        Agreement, we recorded a one-time non cash net gain of $402,298.
 
 On
        April
        27, 2006, Lightspace and the holders of the bridge notes agreed to convert
        the
        outstanding principal and accrued interest under the bridge notes, $2,488,471,
        into units at a conversion price of $6.40 per unit. On May 3, 2006, we issued
        388,821 units, and a small number of shares of common stock and unit warrants
        representing fractional units, in exchange for the surrender of all of the
        bridge notes. Each equity unit consists of: (1) eight shares of common
        stock; (2) eight warrants to purchase a total of eight shares of common
        stock at an exercise price of $1.00 per warrant; (3) two warrants to
        purchase a total of two shares of common stock at an exercise price of $1.25
        per
        warrant; and (4) two warrants to purchase a total of two shares of common
        stock at an exercise price of $1.63 per warrant. In aggregate we issued
        to the bridge note holders in this transaction: (1) 3,110,585 shares of common
        stock; (2) 3,110,585 warrants to purchase a total of 3,110,585 shares of
        common
        stock at an exercise price of $1.00 per warrant; (3) 777,646 warrants to
        purchase a total of 777,646 shares of common stock at an exercise price of
        $1.25
        per warrant; and (4) 777,646 warrants to purchase a total of 777,646 shares
        of
        common stock at an exercise price of $1.63 per warrant.
 
 On
        November 2, 2006 we closed the public offering period for the sale of our
        equity
        units. We sold 600,000 units at an offering price of $6.40 per unit, resulting
        in aggregate proceeds to Lightspace of $3,840,000. After repayment of principal
        and interest due on senior notes in the aggregate amount of $1,409,000 and
        expenses of the offering of $468,000, the net proceeds to Lightspace were
        approximately $1,963,000. Each equity unit consists of: (1) eight shares of
        common stock; (2) eight warrants to purchase a total of eight shares of
        common stock at an exercise price of $1.00 per warrant; (3) two warrants to
        purchase a total of two shares of common stock at an exercise price of $1.25
        per
        warrant; and (4) two warrants to purchase a total of two shares of common
        stock at an exercise price of $1.63 per warrant. The sale of 600,000 units
        sold
        include an aggregate of: (1) 4,800,000 shares of common stock; (2) 4,800,000
        warrants to purchase a total of 4,800,000 shares of common stock at an exercise
        price of $1.00 per warrant; (3) 1,200,000 warrants to purchase a total of
        1,200,000 shares of common stock at an exercise price of $1.25 per warrant;
        and
        (4) 1,200,000 warrants to purchase a total of 1,200,000 shares of common
        stock
        at an exercise price of $1.63 per warrant. The
        warrants are exercisable at the option of the holder at any time up until
        April
        30, 2011, at which date the warrants expire.
  In
        connection with the sale of the equity units, Lightspace issued to Griffin
        Securities, Inc., the underwriter, a unit purchase warrant exercisable for
        102,000 units at an exercise price of $7.68 per unit. Each underwriter unit
        consists of: (1) eight shares of common stock; (2) eight warrants to
        purchase a total of eight shares of common stock at an exercise price of
        $1.00
        per warrant; (3) two warrants to purchase a total of two shares of common
        stock at an exercise price of $1.25 per warrant; and (4) two warrants to
        purchase a total of two shares of common stock at an exercise price of $1.63
        per
        warrant. The units to be issued to Griffin Securities upon exercise of the
        unit
        purchase warrant are the same in all respects as the units sold in the public
        placement.




On April
        30,
        2007 we sold in a private placement 586,173 units, in the same form sold
        in our
        public offering, at the offering price of $6.40 per unit, resulting in aggregate
        proceeds to Lightspace of $3,751,507. After estimated expenses of the offering
        of $267,575, the net proceeds to Lightspace were approximately $3,484,000.
        The
        sale of 586,173 units resulted in the issuance of: (1) 4,689,384 shares of
        common stock; (2) 4,689,384 warrants to purchase a total of 4,689,384 shares
        of
        common stock at an exercise price of $1.00 per warrant; (3) 1,172,346 warrants
        to purchase a total of 1,172,346 shares of common stock at an exercise price
        of
        $1.25 per warrant; and (4) 1,172,346 warrants to purchase a total of 1,172,346
        shares of common stock at an exercise price of $1.63 per warrant. The warrants
        are exercisable at the option of the holder at any time up until April 30,
        2012,
        at which date the warrants expire. In the event of a division of our common
        stock, the warrants will be adjusted proportionately. The warrants have been
        classified permanently within stockholders’ equity, as upon exercise, the
        warrant holder can only receive the specified number of common shares.
        Lightspace has entered into a Registration Rights Agreement with the purchasers
        of the units, whereby we have agreed to file a registration statement, within
        45
        days of the closing, to register for resale the shares of common stock, warrants
        and shares of common stock issuable upon exercise of the warrants, included
        in
        the units issued in the private placement to investors and the financial
        advisor.
 
 In
        connection with the sale of the equity units, Lightspace paid Griffin
        Securities, Inc., the financial advisor for the private placement, a fee
        in the
        amount of $187,575 and issued to Griffin Securities a purchase warrant
        exercisable for 58,617 units, in the same form sold in the private placement,
        at
        an exercise price of $6.40 per unit.
 
 We
        used a
        portion of the net proceeds from the private placement to complete the
        acquisition of the emagipix technology by the payment of the balance of the
        cash
        purchase price of $255,000. The balance of the net proceeds will be used
        for
        general working capital purposes, including payment of the expenses of
        registering the private placement units for resale.
 
 We
        believe
        that the proceeds from the April 30, 2007 private placement, together with
        anticipated revenues from sales of our products, will be sufficient to meet
        our
        liquidity requirements for the next 12 months. Our long-term success is
        dependent bringing our products to the worldwide market and obtaining sufficient
        sales volume to be profitable. To achieve these objectives, we may be required
        to raise additional capital through public or private financings or other
        arrangements. It can not be assured that such financings will be available
        on
        terms attractive to us, if at all. Such financings may be dilutive to
        stockholders and may contain restrictive covenants.
 
 **Technology
        Acquisition**
  On
        March
        29, 2007, Lightspace Emagipix Corporation (“LEC”), a newly formed wholly-owned
        subsidiary of Lightspace Corporation, entered into an agreement with
        Illumination Design Works, Inc. to acquire the assets related to the in process
        development of its emagipix technology, an interactive lighting technology
        that
        utilizes electroluminescent sheets. The purchase price for the emagipix
        technology consisted of an initial cash payment of $45,000 upon signing the
        agreement and a cash payment of $255,000 and the issuance of a $950,000
        convertible term secured non-recourse note to Illumination Design Works,
        Inc.
        upon the closing of the technology purchase.
 
 On
        April
        30, 2007, LEC completed the acquisition of the emagipix technology. In
        connection with the acquisition, the developer of the emagipix technology
        (a
        former officer and co-founder of Lightspace Corporation and the principal
        owner
        of Illumination Design Works, Inc.), re-commenced employment with
        Lightspace.
 
 The
        $950,000 convertible term secured non-recourse note bears interest a 5% per
        annum, payable yearly, and is due and payable on April 30, 2011. The note
        is
        secured by a pledge of 67% the stock of LEC. The principal of the note is
        convertible at any time up and until April 30, 2011, at the option of the
        holder, into the common stock of Lightspace Corporation at a conversion price
        of
        $0.80 per share. Upon the occurrence of certain defined events of default
        by the
        noteholder, Lightspace has the right to convert the note to common stock
        at the
        lower of the conversion price of $0.80 or current market price of the common
        stock. Lightspace
        will account for the acquisition of the emagipix technology as the acquisition
        of in process research and development and record a charge to operations
        in the
        June 30, 2007 quarter approximating $1,250,000.




**Manufacturing
        Operations**
 
 We
        currently contract for the production and assembly of interactive tiles from
        an
        independent manufacturing company and have had discussions with other contract
        manufacturers as secondary sources for the production and assembly of our
        interactive tiles. The current contract manufacturer is ISO certified and,
        to
        date, we have not experienced either quality or production difficulties.
        The
        production run is scheduled for a minimum of 200 interactive tiles per week,
        with the ability to increase the weekly production to 400 to 500 interactive
        tiles, if required.
 
 **Deferred
        Revenue and Backlog**
 
 Deferred
        revenue is represented by: (1) advance deposits received from customers for
        the
        future purchase and installation of a Lightspace system and (2) the balance
        of
        deferred maintenance revenue to be recognized as income over the remaining
        term
        of the maintenance contract. Customer deposits are the segment of backlog
        that,
        in addition to being supported by a signed contract, is also supported by
        a
        customer advance payment. Our product backlog at March 31, 2007 and December
        31,
        2006 was $163,200 (261 interactive tiles) and $208,134 (343 interactive tiles),
        respectively, and was comprised substantially of customer advance payments.
 
 **Off-Balance
        Sheet Arrangements**
 
 Lightspace
        has no off-balance sheet arrangements other than normal lease
        arrangements.
 
 At
        December 31, 2006, we leased our office and manufacturing space and certain
        office equipment. Total rent expense for the years ended December 31, 2006
        and
        2005 and for the three months ended March 31, 2007 and 2006 was $364,875,
        $329,754, $81,946 and 95,122, respectively.
  Effective
        May 1, 2006, the Lightspace entered into a five-year lease for approximately
        16,000 square feet to be used for office and manufacturing operations. The
        terms
        of this new lease provide for average annual base rental payments of
        approximately $293,500 per year, plus an allocated percentage of the increase
        in
        the building operating costs over defined base year operating costs.
 
 The
        table
        below sets forth our known contractual obligations as of December 31,
        2006
 **Contractual
                    Obligation**
                
                **Payments
                    Due by Period****Total**
                
                **1
                    Year**
                
                **2-3
                    Years**
                
                **4-5
                    Years**
                
                **Thereafter**Facility
                    lease
                
                $
                1,408,123
                
                $
                259,976
                
                $
                657,867
                
                $
                490,280
                
                
                -Other
                    leases
                
                
                15,008
                
                
                15,008
                
                
                -
                
                
                -
                
                
                -Total
                
                $
                1,423,131
                
                $
                274,984
                
                $
                657,867
                
                $
                490,280
                
                
                -




**Recent
        Accounting Pronouncements**
 
 In
        December 2004, the Financial Accounting Standards Board issued Statement
        of
        Financial Accounting Standards No. 123(R), Share-Based Payment. This statement
        addresses accounting for stock-based compensation arrangements, including
        shares
        issued to employees and directors under various stock-based compensation
        arrangements. This statement will require us to use the fair value method,
        rather than the intrinsic-value method, to determine compensation expense
        for
        all stock-based arrangements. Additionally, Lightspace will no longer be
        permitted to calculate stock-based compensation utilizing the minimum value
        method. This statement was effective for Lightspace in 2006 for all prospective
        grants of stock-based compensation awards and modification of prior stock
        awards. Adoption of this statement will increase compensation costs recognized
        in our statement of operations from historical levels for all prospective
        awards
        granted and modification of prior stock awards.




**Critical
        Accounting Policies and Estimates**
 
 The
        financial statements of Lightspace are prepared in conformity with accounting
        principles generally accepted in the United States of America. These accounting
        principles require us to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and the disclosure of contingent assets
        and
        liabilities at the date of the financial statements. Lightspace is also required
        to make certain judgments that affect the reported amounts of revenues and
        expenses during the reporting period. On an on-going basis, we evaluate our
        estimates and the process under which those estimates are formulated. Lightspace
        develops its estimates based upon historical experience as well as assumptions
        that are considered to be reasonable under the circumstances. Actual results
        may
        differ from these estimates.
 
 We
        believe
        that the following critical accounting policies impact the more significant
        judgments and estimates used in the preparation of the financial
        statements:
 
 *Revenue
        Recognition* .
        Lightspace recognizes revenue from the sale of its entertainment systems
        when
        all of the following conditions have been met: (1) evidence exists of an
        arrangement with the customer, typically consisting of a purchase order or
        contract; (2) our products have been delivered and risk of loss has passed
        to
        the customer; (3) we have completed all of the necessary terms of the contract
        including but not limited to, installation of the product and training; (4)
        the
        amount of revenue to which we are entitled is fixed or determinable; and
        (5) we
        believe it is probable that it will be able to collect the amount due from
        the
        customer. To the extent that one or more of these conditions has not been
        satisfied, Lightspace defers recognition of revenue. Revenue from maintenance
        contracts is recorded on a straight-line basis over the term of the contract.
        An
        allowance for uncollectible receivables is established by a charge to
        operations, when in our opinion it is probable that the amount due to Lightspace
        will not be collected.
 
 *Warranty
        Reserve* .
        Our
        products are warranted against defects for twelve months following the sale.
        Reserves for potential warranty claims are provided at the time of revenue
        recognition and are based on several factors including historical claims
        experience, current sales levels and Lightspace’s estimate of repair
        costs.
 
 *Stock-Based
        Compensation* .
        Effective January 1, 2006, we adopted the provisions of Financial
        Accounting Standards No. 123(R), Share-Based Payment. This statement requires
        that the fair value of stock-based awards be measured at the grant date,
        recognized as compensation expense over the defined service period, and be
        adjusted for anticipated forfeitures. We estimate the fair value of each
        stock-based award on the date of grant using a stock option valuation model.
        The
        valuation model incorporates assumptions for stock price volatility, the
        expected exercise period, risk-free interest rate and dividend yield. Some
        of
        these assumptions are subjective and require the exercise of judgment.
        Additionally we must estimate the number of grants that may be forfeited.
        If
        actual experience differs significantly from our estimates, compensation
        expense
        that we record in future periods may differ materially from that recorded
        in the
        current period and that amount projected for future periods.
 
 **Item 3.
        Quantitative and Qualitative Disclosures about
        Market Risk**
 
 Market
        risk represents the risk of loss arising from adverse changes in interest
        rates and foreign exchange rates. We do not have any material exposure to
        interest rate risk. All of our products and services are denominated in U.S.
        dollars, as a result of which we are not exposed to foreign currency risk
        with
        respect to our accounts receivable. All materials and components that we
        buy for
        the manufacturing of our products are also priced in U.S. dollars. We also
        did
        not have any operations outside the United States. Accordingly, we do not
        have
        any material foreign currency risk at this time.




**Item 4.
        Controls and Procedures**
  (a)
        Evaluation of disclosure controls and procedures.
  We
        conducted an evaluation, under the supervision and with the participation
        of our
        Chief Executive Officer, of the effectiveness of the design and operation
        of our
        disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
        under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as
        of the end of the period covered by this report. Based on this evaluation,
        our
        Chief Executive Officer concluded that our disclosure controls and procedures
        are effective, as of the end of the period covered by this report, to ensure
        that information required to be disclosed in our Exchange Act reports is
        recorded, processed, summarized and reported within the time periods specified
        in the Securities and Exchange Commission rules and forms, and that the
        information is accumulated and communicated to our management, including
        our
        Chief Executive Officer, as appropriate to allow timely decisions regarding
        required disclosure.
 
 (b)
        Changes in internal control over financial reporting
 
 No
        changes
        in our internal control over financial reporting occurred during the quarter
        ended March 31, 2007 that have materially affected, or are reasonably likely
        to
        materially affect, our internal control over financial reporting.




**PART
        II - OTHER INFORMATION**
 **Item
        1. Legal Proceedings**
 
 None
 
 **Item
        1A. Risk Factors**
 
 There
        have
        been no material changes from the risk factors set forth on the Company’s Annual
        Report on Form 10K for the year ended December 31, 2006 filed with the
        Securities and Exchange Commission on March 26, 2007. Lightspace’s management
        urges you to consider the risks and uncertainties described in “Risk Factors” in
        this Annual Report on Form 10-K for the year ended December 31,
        2006.
 
 **Item
        2. Unregistered Sales of Equity Securities and
        Use of Proceeds**
 **Unregistered
        Sales of Equity Securities**
 
 On April
        30,
        2007 we sold in a private placement 586,173 units, in the same form sold
        in our
        public offering, at the offering price of $6.40 per unit, resulting in aggregate
        proceeds to Lightspace of $3,751,507. After estimated expenses of the offering
        of $267,575, the net proceeds to Lightspace were approximately $3,484,000.
        The
        sale of 586,173 units resulted in the issuance of: (1) 4,689,384 shares of
        common stock; (2) 4,689,384 warrants to purchase a total of 4,689,384 shares
        of
        common stock at an exercise price of $1.00 per warrant; (3) 1,172,346 warrants
        to purchase a total of 1,172,346 shares of common stock at an exercise price
        of
        $1.25 per warrant; and (4) 1,172,346 warrants to purchase a total of 1,172,346
        shares of common stock at an exercise price of $1.63 per warrant. The warrants
        are exercisable at the option of the holder at any time up until April 30,
        2012,
        at which date the warrants expire. In the event of a division of our common
        stock, the warrants will be adjusted proportionately. The warrants have been
        classified permanently within stockholders’ equity, as upon exercise, the
        warrant holder can only receive the specified number of common shares.
        Lightspace has entered into a Registration Rights Agreement with the purchasers
        of the units, whereby we have agreed to file a registration statement, within
        45
        days of the closing, to register for resale the shares of common stock, warrants
        and shares of common stock issuable upon exercise of the warrants, included
        in
        the units issued in the private placement to investors and the financial
        advisor.
 
 In
        connection with the sale of the equity units, Lightspace paid Griffin
        Securities, Inc., the financial advisor for the private placement, a fee
        in the
        amount of $187,575 and issued to Griffin Securities a purchase warrant
        exercisable for 58,617 units, in the same form sold in the private placement,
        at
        an exercise price of $6.40 per unit.
 
 We
        used a
        portion of the net proceeds from the private placement to complete the
        acquisition of the emagipix technology by the payment of the balance of the
        cash
        purchase price of $255,000. The balance of the net proceeds will be used
        for
        general working capital purposes, including payment of the expenses of
        registering the private placement units for resale.
 
 In
        the
        above transaction, Lightspace relied on Regulation D of the Securities and
        Exchange Commission for exemption from the registration requirements of the
        Securities Act.
 
 **Use
        of Proceeds from Registered Securities**
 
 On
        November 2, 2006 Lightspace closed the public sale of 600,000 units at an
        offering price of $6.40 per unit, resulting in aggregate proceeds to us of
        $3,840,000. After repayment of principal and interest due on senior notes
        in the
        aggregate amount of $1,409,000 and expenses of the offering of $468,000,
        the net
        proceeds to us were $1,963,000.
 
 We
        have
        invested the net proceeds of the public offering in short-term interest bearing
        securities pending the use thereof to fund our development efforts, sales
        growth
        and operating losses. None of the public offering expenses were incurred
        or
        paid, directly or indirectly, to our director or officers or their associates
        or
        to persons owning ten percent or more of our common stock or to any affiliates
        of ours.




Through
        March 31, 2007, we used approximately $261,300, $210,500, and
        $280,000 of the
        net proceeds of the public offering for sales and marketing, inventory purchases
        and research and development, respectively. The amount allocated to working
        capital, $1,263,000, has been use to make payments to trade creditors in
        the
        normal course of business and to fund the normal recurring expenses in our
        operations and administrative departments. As of March 31, 2007, we have
        fully
        expended the net proceeds from the sale of units.
 
 **Item
        3. Defaults upon Senior
        Securities**
 
 None
 
 **Item
        4. Submission of Matters to a Vote of
        Security Holders**
 
 On
        April 30, 2007 the stockholders of the Lightspace, acting by written
        consent by holders of 5,585,856 shares of voting common stock, constituting
        52.7% of the issued and outstanding shares of voting common stock at that
        date,
        approved an amendment to the Certificate of Incorporation to increase the
        authorized shares of the Company's $0.0001 par value common stock to 75,000,000
        authorized shares from 30,000,000 authorized shares.
 
 **Item
        5. Other Information**
 
 None
 
 **Item
        6. Exhibits**
 
 The
        following is a complete list of exhibits filed with the Form 10-Q.
  **Exhibit
                    No.**
                
                **Description**1.3a
                (1)
                Amendment
                    1, dated April 30, 2007, to Warrant Agreement, dated May 1, 2007,
                    withContinental
                    Stock Transfer & Trust Company3.1
                (1)
                Amendment
                    to Certificate of Incorporation of Lightspace
                    Corporation10.13
                (1)
                Form
                    of Unit Subscription Agreement, dated April 11, 200710.13a
                (1)
                Form
                    of Amendment No.1, dated April 30, 2007, to Unit Subscription
                    Agreement10.13b
                (1)
                Form
                    of Amendment No.2, dated April 30, 2007, to Unit Subscription
                    Agreement10.14
                (1)
                Form
                    of Registration Rights Agreement, dated April 30, 200731.1
                (3)
                Certification
                    Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 - Gary
                    Florindo32.1
                (3)
                Certification
                    Pursuant to Section 906 of Sarbanes-Oxley Act of 200299.1
                (2)
                Agreement
                    for the Purchase and Sale of Assets, dated March 29,
                    200799.2
                (2)
                Form
                    of 5% Senior Secured Convertible Note, due April 16,
                    200799.3
                (2)
                Form
                    of Registration Rights
                    Agreement




(1)
              Incorporated
                  by reference to a similarly numbered exhibit to our Form 8K filed
                  on May
                  4, 2007Commission
                  File No. 333-131857(2)
              Incorporated
                  by reference to a similarly numbered exhibit to our Form 8K filed
                  on April
                  2, 2007Commission
                  File No. 333-131857(3)
              Filed
                  herewith









**SIGNATURES**
 In
        accordance with the requirements of the Securities Exchange Act of 1934,
        the
        Registrant caused this report to be signed on its behalf by the undersigned
        thereunto duly authorized.
  LIGHTSPACE
                  CORPORATIONDate:
                  May 14, 2007
              
              By:
              
              /s/
                  GARY FLORINDOGary
                  Florindo
                President,
                  CEO, CFO and
                Sole
                  Director