**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, 2008****or****o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the Transition Period From
             
to**







**Commission
      File Number 333-131857**




**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)




**617)
      868-1700**


Registrant’s
      Telephone Number, Including Area Code




Not
      Applicable


(Former
      Name, Former Address and Former Fiscal Year, if Changed Since Last
      Report)




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 o No x




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 14, 2008**Common
                Stock, par value $0.0001
            
            15,282,495
                shares










**LIGHTSPACE
      CORPORATION**


**FORM
      10 - Q**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008**


**INDEX**




**PAGE****PART
                I - FINANCIAL INFORMATION**Item
                1 - Unaudited Consolidated Financial StatementsConsolidated
                Statements of Financial Position as of March 31, 2008 and December
                31,
                2007
            
            3Consolidated
                Statements of Operations for the Three MonthsEnded
                March 31, 2008 and 2007
            
            4Consolidated
                Statement of Changes in Stockholders’ Equity for the Year EndedDecember
                31, 2007 and the for the Three Months Ended March 31, 2008
            
            5Consolidated
                Statements of Cash Flows for the Three Months Ended March 31, 2008
                and
                2007
            
            6Notes
                to Unaudited Consolidated Financial Statements
            
            7Item
                2 - Management's Discussion and Analysis of Financial Condition and
                Results of Operations
            
            14Item
                3 -Quantitative
                and Qualitative Disclosures about Market Risk
            
            20Item
                4 - Controls and Procedures
            
            20**PART
                II - OTHER INFORMATION**Item
                1 - Legal Proceedings
            
            21Item
                1A - Risk Factors
            
            21Item
                2 - Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            21Item
                3 - Defaults upon Senior Securities
            
            21Item
                4 - Submission of Matters to a Vote of Security Holders
            
            21Item
                5 - Other Information
            
            21Item
                6 - Exhibits
            
            22Signatures
            
            23





**PART
      I - FINANCIAL INFORMATION**





Item
      1 -
      Consolidated Financial Statements


**PART
                  1. FINANCIAL INFORMATION****Item
                  1. Unaudited Financial Information****LIGHTSPACE
                  CORPORATION and SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF FINANCIAL POSITION****March
                  31,**
              
              **December
                  31,****2008**
              
              **2007****(unaudited)**
              
              **(audited)****ASSETS**Current
                  AssetsCash
                  and cash equivalents
              
              $
              28,693
              
              $
              585,737Accounts
                  receivable (net of allowance for doubtful accounts of
              
              
              137,708
              
              
              144,293$59,600
                  and $50,130 at March 31, 2008 and December 31, 2007)Inventory
              
              
              208,043
              
              
              193,854Inventory
                  deposits
              
              
              172,292
              
              
              223,033Other
                  current assets
              
              
              75,600
              
              
              3,404Total
                  current assets
              
              
              622,336
              
              
              1,150,321Property
                  and Equipment - Net
              
              
              149,579
              
              
              163,209Security
                  deposits
              
              
              102,400
              
              
              102,400Intangible
                  assets
              
              
              35,408
              
              
              47,211Total
                  Assets
              
              $
              909,723
              
              $
              1,463,141**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  LiabilitiesNotes
                  payable
              
              $
              307,381
              
              $
              237,381Accounts
                  payable
              
              
              458,754
              
              
              514,380Accrued
                  interest
              
              
              80,170
              
              
              63,612Accrued
                  expenses
              
              
              367,537
              
              
              407,030Deferred
                  income
              
              
              118,863
              
              
              96,280Total
                  current liabilities
              
              
              1,332,705
              
              
              1,318,683Long-term
                  Debt
              
              
              950,000
              
              
              950,000Stockholders'
                  EquityCommon
                  stock, $0.0001 par value; authorized 75,000,000 shares;15,282,495
                  and 15,282,495 shares issued and outstandingat
                  March 31, 2008 and December 31, 2007
              
              
              1,528
              
              
              1,528Treasury
                  stock - 24,931 shares at March 31, 2008 and December 31,
                  2007
              
              
              (2
              )
              
              (2
              )Additional
                  paid-in capital
              
              
              14,397,185
              
              
              14,305,125Retained
                  earning (deficit)
              
              
              (15,771,693
              )
              
              (15,112,193
              )Total
                  stockholders' equity (deficiency)
              
              
              (1,372,982
              )
              
              (805,542
              )Total
                  Liabilities and Stockholders' Equity (Deficiency)
              
              $
              909,723
              
              $
              1,463,141
 See
          notes
          to unaudited consolidated financial statements


3


**LIGHTSPACE
                  CORPORATION and SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF OPERATIONS (unaudited)****Three
                  Months Ended March 31,****2008**
              
              **2007**RevenuesProduct
                  sales
              
              $
              868,518
              
              $
              316,534Other
              
              
              91,203
              
              
              17,425Total
                  revenues
              
              
              959,721
              
              
              333,959Product
                  Cost
              
              
              673,588
              
              
              271,265Gross
                  Margin
              
              
              286,133
              
              
              62,694Operating
                  ExpensesResearch
                  and development
              
              
              351,119
              
              
              250,048Selling
                  and marketing
              
              
              299,022
              
              
              300,943General
                  and administrative
              
              
              267,941
              
              
              232,343Total
                  operating expenses
              
              
              918,082
              
              
              783,334Operating
                  Loss
              
              
              (631,949
              )
              
              (720,640
              )Other
                  Income (Expense)Interest
                  expense - net
              
              
              (27,551
              )
              
              (11,850
              )Total
                  other income (expense)
              
              
              (27,551
              )
              
              (11,850
              )Loss
                  Before Provision For Income Taxes
              
              
              (659,500
              )
              
              (732,490
              )Provision
                  For Income Taxes
              
              
              -
              
              
              -Net
                  Loss
              
              $
              (659,500
              )
              $
              (732,490
              )Basic
                  and Diluted Net Loss Per Share
              
              $
              (0.04
              )
              $
              (0.07
              )Weighted
                  Average Common Shares Outstanding
              
              
              15,282,495
              
              
              10,593,111
 See
          notes
          to unaudited consolidated financial statements


4


**LIGHTSPACE
                  CORPORATION and SUBSIDIARY****CONSOLIDATED
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                  (unaudited)****Common
                  Stock**
              
              **Treasury
                  Stock**
              
              
              **Additional**
              
              **Retained**
              
              
              **Stockholders'****Shares**
              
              
              
              
              
              
              
              
              
              **Paid-In**
              
              **Earnings**
              
              
              **Equity****Issued**
              
              **Amount**
              
              **Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              **(Deficit)**
              
              
              **(Deficit)****Balance
                  January 1, 2007**
              
              
              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
              )Private
                  placement
              
              
              4,689,384
              
              
              469
              
              
              
              
              
              
              
              
              
              
              3,751,038
              
              
              
              
              
              
              3,751,507of
                  equity securitiesExpenses
                  of private placement
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (311,507
              )
              
              
              
              
              
              (311,507
              )Stock
                  repurchase
              
              
              
              
              
              
              
              
              (24,931
              )
              
              
              (2
              )
              
              
              
              
              
              
              
              
              
              (2
              )Stock
                  option compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              217,763
              
              
              
              
              
              
              217,763Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,068,068
              )
              
              
              (4,068,068
              )**Balance
                  December 31, 2007**
              
              
              15,282,495
              
              $
              1,528
              
              
              (24,931
              )
              
              $
              (2
              )
              
              $
              14,305,125
              
              $
              (15,112,193
              )
              
              $
              (805,542
              )Stock
                  option compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              92,060
              
              
              
              
              
              
              92,060Net
                  loss for the three months
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (659,500
              )
              
              
              (659,500
              )**Balance
                  March 31, 2008**
              
              
              15,282,495
              
              $
              1,528
              
              
              (24,931
              )
              
              $
              (2
              )
              
              $
              14,397,185
              
              $
              (15,771,693
              )
              
              $
              (1,372,982
              )
 See
          notes
          to unaudited consolidated financial statements


5


**LIGHTSPACE
                  CORPORATION AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS (unaudited)****Three
                  Months Ended March 31,****2008**
              
              **2007**Cash
                  Flows (Uses) from Operating Activities:Net
                  loss
              
              $
              (659,500
              )
              $
              (732,490
              )Adjustments
                  to reconcile net loss to cash usedin
                  operating activities:Depreciation
                  and amortization
              
              
              13,628
              
              
              10,200Amortization
                  of fair value of stock warrants
              
              
              11,805
              
              
              11,803Provision
                  for stock option compensation
              
              
              92,060
              
              
              40,246Other
                  changes in assets and liabilities:Accounts
                  receivable
              
              
              6,585
              
              
              (36,240
              )Inventory
              
              
              (14,189
              )
              
              (2,472
              )Other
                  assets
              
              
              (21,455
              )
              
              (5,171
              )Accounts
                  payable and accrued expenses
              
              
              (78,561
              )
              
              (39,656
              )Deferred
                  income
              
              
              22,583
              
              
              (8,737
              )Net
                  cash used in operating activities
              
              
              (627,044
              )
              
              (762,517
              )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 issuance of notes payable
              
              
              70,000
              
              
              -Net
                  cash provided from financing activities
              
              
              70,000
              
              
              -Net
                  Increase (Decrease) in Cash and Cash Equivalents
              
              
              (557,044
              )
              
              (775,455
              )Cash
                  and Cash Equivalents - beginning of period
              
              
              585,737
              
              
              879,987Cash
                  and Cash Equivalents - end of period
              
              $
              28,693
              
              $
              104,532Supplemental
                  Cash Flow InformationDuring
                  the three months ended March 31, cash paid for the
                  following:Interest
              
              
              -
              
              
              -Taxes
              
              
              -
              
              
              -
 See
          notes
          to unaudited consolidated financial statements





6
 **LIGHTSPACE
            CORPORATION** **and SUBSIDIARY**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**






**1.
      NATURE OF THE BUSINESS AND OPERATIONS**





Lightspace
      Corporation (the “Company”, “Lightspace”, “we”, “our”, “us”), 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.





We
      are
      subject to certain risks common to technology-based companies in similar stages
      of development. Principal risks include uncertainty of growth in market
      acceptance for our 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 our products for quality
      control and product availability; ability to increase production capacity to
      meet demand for the our products; concentration of our operations in a limited
      number of facilities; uncertainty of demand for our products in certain markets;
      ability to manage growth effectively; dependence on key members of our
      management; limited experience in conducting operations internationally; and
      ability to obtain adequate capital to fund future operations.




We
      have
      incurred net operating
      losses and negative operating cash flows since inception. As of March 31, 2008,
      we had an accumulated retained earnings deficit of $15,771,693. We have funded
      our operations through March 31, 2008 through the issuance of private and public
      placements of equity securities, borrowings from stockholders and others, and
      sales of Lightspace products. Our long-term success is dependent upon obtaining
      sufficient capital to fund operations and product development, bringing such
      products to the worldwide market, and obtaining sufficient sales volume to
      be
      profitable.





**2.
      BASIS OF PRESENTATION**





The
      accompanying consolidated 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. We have incurred a net loss
      from operations of $659,500 and $732,490 for the three months ended March 31,
      2008 and 2007 respectively. Further, we have accumulated net losses from
      operations of $15,771,693 as of March 31, 2008 and at
      March
      31, 2008, our cash balance was $28,693. These
      factors, among others, indicate that there is substantial uncertainty that
      we
      will continue as a going
      concern. The consolidated financial statements do not include any adjustments
      related to the recovery of assets and classification of liabilities that might
      be necessary should we be unable to continue as a going concern.





The
      consolidated financial statements at March 31, 2008 include the accounts of
      Lightspace Emagipix Corporation, a wholly-owned subsidiary, organized as of
      March 29, 2007.





The
      consolidated statements of financial position as of March 31, 2008, the
      consolidated statements of operations and cash flows for the three months ended
      March 31, 2008 and 2007, and the consolidated statement of changes in
      stockholders’ equity for the period from January 1, 2008 through March 31, 2008
      are unaudited. These unaudited interim consolidated 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 consolidated financial statements do not include all of the information
      and
      disclosures required for audited consolidated financial statements. In the
      opinion of our management, the unaudited interim consolidated financial
      statements have been prepared on the same basis as our audited consolidated
      financial statements and include all adjustments, consisting of normal recurring
      adjustments, necessary for the fair presentation of our financial position,
      results of operations, cash flows, and changes in stockholders’ equity 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.




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires the Company to make estimates and assumptions
      that affect at the date of the financial statements the reported amounts of
      assets and liabilities, disclosure of contingent assets and liabilities and
      the
      reported amounts of revenue and expenses. Actual results could differ from
      these
      estimates.


7
 **LIGHTSPACE
            CORPORATION** **and SUBSIDIARY**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**





**3.
      RECOGNITION OF SALES**





We
      recognize revenue from the sale of our 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
      possibly 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 we 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, we defer 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 will not be collected.





**4.
      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,****2008**
              
              **2007**Common
                  stock options
              
              
              2,978,452
              
              
              1,218,685Common
                  stock warrants
              
              
              23,634,205
              
              
              15,427,789Convertible
                  debt
              
              
              1,187,500
              
              
              -Total
              
              
              27,800,157
              
              
              16,646,474
 **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 we 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 us 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 our compensation costs recognized
      in operations from historical levels for all stock-based compensation awards
      and
      modifications of prior awards granted.





In the
      three
      month period ended March 31, 2008, no stock incentive options were granted.
      In
      the year ended December 31, 2007, we granted to directors, officers and key
      employees 4,075,856 options to purchase 4,075,856 shares of common stock at
      an
      exercise prices ranging from $0.80 to $1.10 per share.




8
 **LIGHTSPACE
            CORPORATION** **and SUBSIDIARY**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**





**6.
      STOCK OPTION BASED COMPENSATION (continued)**





The provision
      for stock-based compensation for common stock options granted under the 2006
      and
      2007 Stock Plans for the three month period ended March 31, 2008 was $92,060.
      We
      did not record a tax benefit related to the provision for stock-based
      compensation due to our net operating loss carryforwards; accordingly, the
      net
      loss for the three month period ended March 31, 2008 was increased by $92,060.





For
      all
      periods prior to January 1, 2006, we 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.
      We
      have historically granted stock-based compensation awards to employees and
      directors at an exercise price equal to the current market value of our 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.





**7.
      INVENTORY**




Inventory
      is stated at lower of cost or market. At March 31, 2008 and December 31, 2007,
      inventory consisted of raw materials of $67,240 and $32 ,697 ,
      and
      finished products of $140,803 and $161 ,157 ,
      respectively. Additionally, at March 31, 2008 and December 31, 2007 advance
      payments for inventory were $172,292 and $223,033, respectively.





**8.
      NOTES PAYABLE AND LONG TERM DEBT**





Notes
      payable and long term debt consists of the following:


**March
                  31,**
              
              **December
                  31,****2008**
              
              **2007**Interest
                  bearing short term notes
              
              
              9.0%
              
              
              55,000
              
              
              -Non-interest
                  bearing short term notes
              
              
              0.0%
              
              
              15,000
              
              
              -Contingent
                  promissory note
              
              
              8.0%
              
              
              237,381
              
              
              237,381Long
                  term debt
              
              
              5.0%
              
              
              950,000
              
              
              950,000Total
              
              
              
              
              
              1,257,381
              
              
              1,187,381




*Short
      term promissory note*


On
      March
      27, 2008 we received a $70,000 loan from two ex-directors and a shareholder.
      Two
      of the notes bear a 9% annual interest rate and the third note was non-interest
      bearing. All three notes are due and payable on April 28, 2008. The loans were
      made in connection with a vendor lawsuit which was settled in March 2008. These
      notes have been paid in full.





*Contingent
      promissory note*


In
      connection with the securityholder debt and equity conversion on April 27,
      2006,
      $237,381 in principal amount of existing notes held by the former CEO were
      converted into a $237,381 contingent promissory note. This note bears interest
      at an annual rate of 8% and is payable only if the Company achieves two
      consecutive quarters of positive EBITDA (i.e., earnings before interest, taxes,
      depreciation and amortization), aggregating at least $1,000,000, or the Company
      raises in a registered public offering of equity cash proceeds of at least
      $10 million prior to December 31, 2008. If those conditions are not
      met by December 31, 2008, or the former CEO is found to be in breach of the
      terms of the severance agreement prior to such date, the note will not be
      payable. In addition, Lightspace issued to the former CEO warrants to purchase
      361,252 shares of common stock at an exercise price of $0.80 per share. The
      warrants expire in five years, unless the terms for the payment of the
      contingent promissory note are not met, in such case, the warrants expire on
      March 31, 2009.


9
 **LIGHTSPACE
            CORPORATION** **and SUBSIDIARY**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**





**8.
      NOTES PAYABLE AND LONG TERM DEBT (continued)**





*Long
      term debt*


As
      part
      of the acquisition of the emagipix in-process research and development, we
      issued a $950,000 convertible term secured non-recourse note to Illumination
      Design Works, Inc. upon the closing of the purchase on April 30, 2007. 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 76% of 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.





**9.
      COMMON STOCK**





On
      April 30, 2007 the our stockholders approved resolutions to increase the
      authorized shares of our $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 consolidated financial statements
      have been updated to reflect this increase in authorized shares.





**10.
      STOCK INCENTIVE PLANS**





In
      September 2005, our
      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 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. 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.




In
      June 2006, our 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, 2008 we had reserved 2,118,622
      shares of common stock for issuance under the 2006 Stock Plan.





On
      December 10, 2007, our stockholders approved adoption of the 2007 Stock
      Incentive Plan (the “2007 Stock Plan”), which had been approved by our Board of
      Directors in August, 2007, pursuant to which up to 4,000,000 incentive stock
      options and/or nonqualified stock options may be granted to directors, officers,
      key employees and consultants. In 2007, under the 2007 Stock Plan, we granted
      to
      directors, officers and key employees 3,245,856 options to purchase 3,245,856
      shares of common stock at an exercise price of $1.10 per option. The options
      vest ratably over a three year period and expire in ten years. We have reserved
      4,000,000 shares of common stock for issuance under the 2007 Stock Plan upon
      exercise of outstanding options.


10
 **LIGHTSPACE
            CORPORATION** **and SUBSIDIARY**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**





**10.
      STOCK INCENTIVE PLANS (continued)**





Combined
      i nformation
      with respect to stock options issued under the 2005, 2006 and 2007 Stock Plans
      for the three month period ended March 31, 2008 is summarized as
      follows:




**March
                  31, 2008****Weighted****Number
                  of**
              
              **Average****Shares**
              
              **Exercise
                  Price**Options
                  outstanding January 1, 2008
              
              
              5,143,610
              
              $
              1.01Options
                  granted
              
              
              -
              
              
              -Options
                  exercised
              
              
              -
              
              
              -Options
                  cancelled
              
              
              (2,165,158
              )
              
              (1.06
              )Options
                  outstanding March 31, 2008
              
              
              2,978,452
              
              $
              0.96Options
                  exercisable at March 31, 2008
              
              
              447,786
              
              $
              0.96Weighted
                  average fair value of 2008 options granted
              
              
              
              
              
              -Weighted
                  average contractual life (years) options outstanding
              
              
              9Options
                  available for grant at March 31, 2008
              
              
              3,191,700




**11.
      STOCK WARRANTS**





Issued
      and outstanding warrants to purchase Lightspace
      common stock are as follows:


**Exercise**
              
              **March
                  31,**
              
              **December
                  31,****Type
                  of Warrant**
              
              **Date
                  Issued**
              
              **Price**
              
              **2008**
              
              **2007**$.80
                  Exchange warrant
              
              April
                  27, 2006
              
              $0.80
              
              361,252
              
              361,252$1.00
                  Exchange warrant
              
              April
                  27, 2006
              
              $1.00
              
              276,370
              
              276,370$3.00
                  Exchange warrant
              
              April
                  27, 2006
              
              $3.00
              
              649,892
              
              649,892$7.50
                  Exchange warrant
              
              April
                  27, 2006
              
              $7.50
              
              234,398
              
              234,398$0.80
                  Unit warrant
              
              April
                  30, 2007
              
              $0.80
              
              468,936
              
              468,936$0.96
                  Unit warrant
              
              November
                  2, 2006
              
              $0.96
              
              816,000
              
              816,000$1.00
                  Unit warrant
              
              2006
                  and April 30, 2007
              
              $1.00
              
              13,884,905
              
              13,884,905$1.25
                  Unit warrant
              
              2006
                  and April 30, 2007
              
              $1.25
              
              3,471,226
              
              3,471,226$1.63
                  Unit warrant
              
              2006
                  and April 30, 2007
              
              $1.63
              
              3,471,226
              
              3,471,226Total
                  common stock warrants outstanding
              
              
              
              23,634,205
              
              23,634,205





On
      April
      30, 2007 we closed the offering period for the private sale of equity units.
      We
      sold 586,173 units at the offering price of $6.40 per unit, resulting in gross
      proceeds 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) 468,936 unit warrants to purchase
      a total of 468,936 shares of common stock at an exercise price of $0.80 per
      warrant (3) 5,158,320 unit warrants to purchase a total of 5,158,320 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 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. We had entered into a Registration Rights


11
 **LIGHTSPACE
            CORPORATION** **and SUBSIDIARY**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**








**11.
      STOCK WARRANTS (continued)**





Agreement
      with the purchasers of the units, whereby we had 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
      March
      31, 2008 and December 31, 2007, the weighted average exercise price of the
      common stock warrants outstanding was $1.24 and $1.24, respectively. At March
      31, 2008, the common stock warrants had an average remaining life of
      approximately four years.




**12.
      INCOME TAXES**





We
      have
      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
      December 31, 2007, we had operating loss carryforwards of approximately
      $7,299,000 available to offset future taxable income for United States federal
      and state income tax purposes. At December 31, 2007, approximately $4,231,000
      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.





The
      deferred tax asset related to the operating loss carryforwards, tax credits
      and
      other items deductible against future taxable income was $3,314,458 at December
      31, 2007. The Company has provided a valuation allowance at those dates equal
      to
      the full amount of the deferred tax asset, and will continue to fully reserve
      the deferred tax asset until it can be ascertained that all or a portion of
      the
      asset will be realized.





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, the conversion
      of
      senior secured notes on May 3, 2006, and the private placement on April 30,
      2007
      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
      on
      April 30, 2007, $8,699,000, was reduced to $4,231,000. In future years, such
      reduced operating loss carryforwards of $4,231,000 can be used only to offset
      approximately $441,000 of taxable income per year, if any. We may use operating
      losses and tax credits generated subsequent to the date of the ownership change
      without limitation. Unrestricted carryforwards generated in the period
      subsequent to the April 30 th ownership change to March 31, 2008 are approximately $2,196,000. Therefore,
      in
      future years, we may be required to pay income taxes even though significant
      operating loss and tax credit carryforwards exist.





**13.
      COMMITMENTS AND CONTINGENCIES**




Effective
      May 1, 2006, the Company 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 a defined base year operating costs.





The
      Company leases its facilities and certain equipment under non-cancelable
      operating leases expiring through May 2011. Rent expense was $316,424, $364,875,
      and $329,754 for the years ended December 31, 2007, 2006 and 2005, respectively.


12
 **LIGHTSPACE
            CORPORATION** **and SUBSIDIARY**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**








**13.
      COMMITMENTS AND CONTINGENCIES (continued)**





On
      March
      31, 2008, we have approximately $1,073,000 in purchase order commitments to
      our
      vendors. The majority of this is to our tile supplier for the purchase of our
      interactive tiles.





The
      table
      below sets forth our known contractual obligations as of March 31,
      2008


**Contractual
                  Obligation**
              
              **Payments
                  Due by Period****Total**
              
              **1
                  Year**
              
              **2-3
                  Years**
              
              **4-5
                  Years**
              
              **Thereafter**Facility
                  lease
              
              $
              1,055,770
              
              $
              319,458
              
              $
              679,433
              
              $
              56,879
              
              
              -Purchase
                  orders
              
              $
              1,073,038
              
              $
              1,073,038Other
                  leases
              
              
              7,862
              
              
              3,931
              
              
              3,931
              
              
              -
              
              
              -Total
              
              $
              2,136,670
              
              $
              1,396,427
              
              $
              683,364
              
              $
              56,879
              
              
              -




**14.
      SEGMENT INFORMATION**





We
      conduct our operations and manage our 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,****2008**
              
              **2007**United
                  States
              
              $
              242,813
              
              $
              220,959Europe
              
              
              467,054
              
              
              26,000Asia/Africa/Australia
              
              
              -
              
              
              24,500South
                  America
              
              
              175,619
              
              
              42,000Canada
              
              
              74,235
              
              
              20,500Total
              
              $
              959,721
              
              $
              333,959


13


**Item 2.
      Management’s Discussion of Financial Condition and Results of Operations**





The
      following discussion of the financial condition and results of operations should
      be read in conjunction with the unaudited consolidated
      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 our Annual Report on Form 10-K for the year ended December 31,
      2007. 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.




Our
      Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
      Reports on Form 8-K and amendments to reports filed or furnished pursuant
      to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”), are available free of charge at an Internet
      website maintained by the Securities and Exchange Commission (the “SEC”) that
      contains reports, proxy and information statements, and other information
      regarding issuers that file electronically with the SEC at http://www.sec.gov ;
      and on
      our website at http://www.Lightspacecorp.com as soon as reasonably practicable
      after such reports are filed with the Securities and Exchange Commission. The
      information posted on our web site is not incorporated into this Quarterly
      Report.





You
      may
      read and copy any materials that we file with the SEC at the SEC’s Public
      Reference Room at 100 F Street, NE, Washington, DC 20549, on official business
      days during the hours of 10:00 a.m. to 3:00 p.m. You may obtain information
      on
      the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
      The Annual Report and our other public reports may also be obtained without
      charge upon written request to Lightspace Corporation, 529 Main Street, Suite
      330, Boston, Massachusetts 02129, Attention, Investor Relations.





**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.





**Results
      of Operations for the Three and Nine Months Ended March 31, 2008 and
      200** **6**





**Revenue
      and Operating Results**




For
      the
      three months ended March 31, 2008, revenue was $959,721, an increase of $625,762
      or approximately 187% from revenue of $333,959 recorded in the three months
      ended March 31, 2007. The net loss for the three months ended March 31, 2008
      was
      $659,500, as compared to a net loss for the three months ended March 31, 2007
      of
      $732,490.





The
      revenue for the three months ended March 31, 2008 was comprised of revenue
      from
      the sale of products, $868,518, and other revenue of $91,203, as represented
      by
      deferred maintenance revenue, sales of miscellaneous parts and other services.
      In the three months ended March 31, 2008, there were six Lightspace Dance/Design
      new installation sites and eight Lightspace Play new installation sites,
      representing 1,856 interactive tiles. For the three months ended March 31,
      2008,
      sales of Lightspace products were made to customers in the United States -
      $242,813; South America - $175,619; Europe - $467,054 and Canada - $74,235.
      During this period,
      two Lightspace customers comprised more than
      10%
      of revenues
      individually with the top customer accounting for approximately 49% or $451,059.
      Sales to these two customers aggregated $550,502 or approximately 60% of total
      revenue.




14


The
      revenue for the three months 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 three months ended March 31, 2007, there was one Lightspace Dance/Design
      new installation sites and 12 Lightspace Play new installation sites,
      representing 509 interactive tiles. For the three months ended March 31, 2007,
      sales of Lightspace products were made to customers in United States - $220,959;
      South America - $42,000; Canada - $20,500; Asia/Africa - $24,500 and Europe
      -
      $26,000. 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.





Our
      product backlog at March 31, 2008 was $56,485, representing 111 interactive
      tiles. We expect that this backlog will be shipped and installed in the June
      2008 quarter. Product backlog at March 31, 2007 was $163,200, representing
      261 interactive tiles. Cancellation of a signed contract or order included
      in
      product backlog requires the consent of Lightspace.





**Product
      Cost and Gross Margin**





For
      the
      quarters ended March 31, 2008 and 2007, we recorded gross margins of $286,133,
      or approximately 30%, and $62,694 or approximately 19%, respectively. 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.





**Inflation**





In
      the
      opinion of management, inflation has not had a material impact on our
      operations.




**Operating
      Expenses**




Research
      and development spending for the three months ended March 31, 2008 and March
      31,
      2007 respectively were $351,119 and $250,048, an increase of $101,071 or
      approximately 40%. Research and development spending for 2008 will focus
      primarily on hardware and software enhancements for our current generation
      of
      tile as well as expenditures on the development of the next generation of our
      interactive tile.




Selling
      and marketing expenditures were $299,022 for the three months ended March 31,
      2008 as compared to $300,943 for the three months ended March 31, 2007, a
      decrease of $1,921, or approximately 1%.





General
      and administrative expenses were $267,941 for the three months ended March
      31,
      2008 as compared to $232,343 for the three months ended March 31, 2007, an
      increase of $35,598, or 15%. This is primarily due to an increase of $60,309
      in
      stock option compensation expense offset by reductions in other administrative
      expenses.


15





**Interest
      Expense**




Net
      interest expense was $27,551 for the three months ended March 31, 2008 as
      compared to $11,850 for the three months ended March 31, 2007, an increase
      of
      $15,701, or 133%. This can be primarily attributed the three month interest
      of
      $11,875 on the $950,000 loan resulting from the April 2007 purchase of the
      emagipix technology, an interactive lighting technology that uses
      electroluminescent sheets, from Illumination Design Works, Inc.





**Income
      Taxes**





We
      have
      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
      December 31, 2007, we had operating loss carryforwards of approximately
      $7,299,000 available to offset future taxable income for United States federal
      and state income tax purposes. At December 31, 2007, approximately $4,231,000
      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.





The
      deferred tax asset related to the operating loss carryforwards, tax credits
      and
      other items deductible against future taxable income was $3,314,458 at December
      31, 2007. The Company has provided a valuation allowance at those dates equal
      to
      the full amount of the deferred tax asset, and will continue to fully reserve
      the deferred tax asset until it can be ascertained that all or a portion of
      the
      asset will be realized.





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, the conversion
      of
      senior secured notes on May 3, 2006, and the private placement on April 30,
      2007
      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
      on
      April 30, 2007, $8,699,000, was reduced to $4,231,000. In future years, such
      reduced operating loss carryforwards of $4,231,000 can be used only to offset
      approximately $441,000 of taxable income per year, if any. We may use operating
      losses and tax credits generated subsequent to the date of the ownership change
      without limitation. Unrestricted carryforwards generated in the period
      subsequent to the April 30 th ownership change to March 31, 2008 are approximately $2,196,000. 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 three months ended March 31, 2008 was $659,500 as compared to
      a net
      loss of $732,490 in the three months ended March 31, 2007. Impacting the three
      months ended March 31, 2008 was an increased focus on cost reduction and
      rationalization of our existing resources.





**Liquidity,
      Capital Resources and Cash Flow**





We
      have
      incurred net operating
      losses and negative operating cash flows since inception. As of March 31, 2008,
      we had an accumulated retained earnings deficit of $15,771,693. We have funded
      our operations through March 31, 2008 through the issuance of private and public
      placements of equity securities, borrowings from stockholders and others, and
      sales of Lightspace products. Our long-term success is dependent upon obtaining
      sufficient capital to fund operations and product development, bringing such
      products to the worldwide market, and obtaining sufficient sales volume to
      be
      profitable. Additionally, a t
      March
      31, 2008, the company’s cash balance was $28,693. These
      factors, among others, indicate that there is substantial uncertainty that
      we
      will continue as a going
      concern.





16


**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..





**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. Our product backlog at March 31, 2008 and December
      31, 2007 was $56,485 and $96,280, respectively.





**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements other than normal lease
      arrangements.





At
      March
      31, 2008, we leased our office and manufacturing space and certain office
      equipment. Total rent expense for the three months ended March 31, 2008 and
      2007
      was $78,247 and $80,360 respectively.


Effective
      May 1, 2006, we 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 March 31,
      2008


**Contractual
                  Obligation**
              
              **Payments
                  Due by Period****Total**
              
              **1
                  Year**
              
              **2-3
                  Years**
              
              **4-5
                  Years**
              
              **Thereafter**Facility
                  lease
              
              $
              1,055,770
              
              $
              319,458
              
              $
              679,433
              
              $
              56,879
              
              
              -Purchase
                  orders
              
              $
              1,073,038
              
              $
              1,073,038Other
                  leases
              
              
              7,862
              
              
              3,931
              
              
              3,931
              
              
              -
              
              
              -Total
              
              $
              2,136,670
              
              $
              1,396,427
              
              $
              683,364
              
              $
              56,879
              
              
              -


**Critical
      Accounting Policies and Estimates**





The
      consolidated 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. We are 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. We develop
      our 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*


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 generally 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.  17





*Inventory*


Inventories
      are stated at the lower of cost or market value.





*Estimates*


The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires the Company to make estimates and assumptions
      that affect at the date of the financial statements the reported amounts of
      assets and liabilities, disclosure of contingent assets and liabilities and
      the
      reported amounts of revenue and expenses. Actual results could differ from
      these
      estimates.





*Property
      and Equipment*


Property
      and equipment are recorded at cost. For financial reporting, depreciation is
      provided utilizing the straight-line method over the estimated three-year life
      for equipment and furniture and fixtures. Leasehold improvements are depreciated
      over the term of the lease. The Company utilizes accelerated methods of
      depreciation for tax reporting.





*Freight
      Costs*


Incoming
      freight costs are capitalized with inventory cost. Outgoing freight is primarily
      billed back to customers and included in revenue and the corresponding costs
      in
      cost of sales.





*Warranty
      Reserve*


The
      Company’s products are warranted against manufacturing 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 the Company’s
      estimate of repair costs.





*Advertising
      Expenditures*


Advertising
      costs are expensed as incurred and are included in sales and marketing operating
      expenses.





*Research
      and Development*


Research
      and development costs are expensed as incurred.





*Patent
      Expenditures*


The
      legal
      expenses and filing fees associated with the prosecution of patent applications
      are expensed as incurred.





*Income
      Taxes*


Deferred
      tax assets and liabilities relate to temporary differences between the financial
      reporting bases and the tax bases of assets and liabilities, the carryforward
      tax losses and available tax credits. Such assets and liabilities are measured
      using enacted tax rates and laws expected to be in effect at the time of their
      reversal or utilization. Valuation allowances are established, when necessary,
      to reduce the net deferred tax asset to an amount more likely than not to be
      realized. For interim reporting periods, the Company uses the estimated annual
      effective tax rate.





*Loss
      per Share*


Basic
      and
      diluted net losses 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 convertible debt, convertible preferred stock, stock
      options, and stock warrants.





18


*Stock-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
      future 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.





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, is 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 directors,
      officers and employees for grants prior to January 1, 2006.





Stock-based
      compensation arrangements with nonemployees or associated with borrowing
      arrangements are accounted for utilizing the fair value method or, if a more
      reliable measurement, the value of the services or consideration received.
      The
      resulting compensation expense, if any, is recognized for financial reporting
      over the term of performance or borrowing arrangement.





*Consolidation*


The
      Company’s 2007 consolidated financial statements include the accounts of
      Lightspace Corporation and its subsidiary, Lightspace Emagipix Corporation
      (LEC), which was established in April 2007. All significant inter-company
      accounts and transactions have been eliminated in consolidation.





*Fair
      Value of Financial Instruments*


The
      carrying amounts of the Company’s financial instruments, which include cash
      equivalents, accounts receivable, accounts payable, accrued expenses and notes
      payable approximate their fair values due to the short term nature of the
      instruments.





*Concentration
      of Credit Risk*


Financial
      instruments that potentially subject the Company to significant concentration
      of
      credit risk consist primarily of cash and cash equivalents. The Company’s cash
      and cash equivalents are generally on deposit at one financial institution
      and,
      at times, exceed the federal insured limits. The Company believes that the
      financial institution is of high credit quality and that the Company is not
      subject to unusual credit risk beyond the normal credit risk associated with
      commercial banking relationships.





*Comprehensive
      Loss*


Comprehensive
      loss is the same as net loss for all periods presented.


19


**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 and Chief Financial 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, we 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.





On
      April
      16, 2008, Louis Nunes, our Chief Financial Officer was released as a Lightspace
      employee. Accordingly, our Chief Executive Officer is serving as both the
      Company’s principal executive officer and principal financial
      officer.




(b)
      Changes in internal control over financial reporting.





There
      have been no changes in our internal control over financial reporting in
      connection with the evaluation required under paragraph (d) of Rule 13a-15
      of
      the Exchange Act that occurred during the quarter ended March 31, 2008 that
      have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting, other than the departure of Louis Nunes as
      our
      Chief Financial Officer and the assumption of the duties of Chief
      Financial Officer by Gary Florindo, our Chief Executive Officer. As a
      result of Mr. Florindo assuming such duties while also serving as our Chief
      Executive Officer and our lack of financial and accounting resources,
      the Company's internal control over financial reporting may be reasonably
      likely materially affected.  20




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





In
      October 2007, we
      were
      served notice of a wrongful termination claim against us by a former employee.
      The former employee is seeking damages in the amount of lost compensation.
      We
      believe there is no merit to the lawsuit and intend to defend against it. A
      contingency accrual for the potential litigation was established in the June
      2007 quarter. Given
      our
      current cash balance, any significant judgment against us could have severe
      financial implications.





In
      March
      2008, we received a letter from a vendor claiming breach of contract and
      non-payment of bills due. As of March 28, 2008 approximately $76,000 was owed
      to
      this vendor, and this amount was not in dispute. Additionally, the vendor
      claimed to have purchased approximately $36,000 in materials on our behalf
      which
      as of March 28, 2007, had not been invoiced to the Company. On March 28, 2007,
      the case was settled and we agreed to the payment of the $76,000 to be made
      by
      March 31, 2008. The additional $36,000 allegedly owed was settled for
      approximately $28,000 to be paid within 90 days. On March 28, 2007, the Company
      obtained short term loans due April 28, 2008 for $70,000 from a shareholder
      and
      ex-directors, the proceeds of which are to be used in payment of the
      $76,000.





During
      the normal course of business, we may at times be involved in disputes and/or
      litigation with respect to our products, operations or employees. We are not
      currently involved in any other significant litigation.





**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, 2007 filed with the
      Securities and Exchange Commission on March 26, 2007. 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, 2007.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





None





**Item
      3. Defaults upon Senior Securities**





None





**Item
      4. Submission of Matters to a Vote of Security Holders**





None




**Item
      5. Other Information**





On
      April
      16, 2008, Louis Nunes, our Chief Financial Officer was released as a Lightspace
      employee. There were no disagreements between Mr. Nunes and the Company and
      his
      release was not based on his performance. Mr. Nunes has agreed to provide
      financial and accounting services to the Company on an outsourced
      basis.


21





**Item
      6. Exhibits**





The
      following is a complete list of exhibits filed with the Form 10-Q.


**Exhibit
                  No.**
              
              
              
              **Description**31.1
              
              *
              
              Certification
                  Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 - Gary
                  Florindo32.1
              
              *
              
              Certification
                  Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 - Gary
                  Florindo*
                  Filed herewith


22


**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.


LIGHTSPACE
                CORPORATIONDate: May
              14,
              2008
            By:
            /s/ GARY
              FLORINDOGary
                Florindo
              President,
                Chief Executive Officer and
              Chief
                Financial Officer


23