**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 June 30, 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.)**383
                Dorchester Avenue, Suite 220, Boston, MA**
            
            **02127**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





**(617)
      868-1700**


Registrant’s
      Telephone Number, Including Area Code





Not
      Applicable


(Former
      Address - **529
      Main Street, Ste 330, Boston, MA** )





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 Filero
            Accelerated
                Filero
            Non-Accelerated
                Filerx




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 June 30, 2008**Common
                Stock, par value $0.0001
            
            15,257,564
                shares










**LIGHTSPACE
      CORPORATION**


**FORM
      10 - Q**


**FOR
      THE THREE AND SIX MONTHS ENDED JUNE 30, 2008**


**INDEX**





**PAGE****PART
                I - FINANCIAL INFORMATION**Item
                1 – Unaudited Consolidated Financial Statements
            
            3Statements
                of Consolidated Financial Position as of June 30, 2008 and December
                31,
                2007
            
            3Statements
                of Consolidated Operations for the Three and Six Months EndedJune
                30, 2008 and 2007
            
            4Statements
                of Consolidated Changes in Stockholders’ Equity (Deficit) for the Year
                EndedDecember
                31, 2007 and the for the Six Months Ended June 30, 2008
            
            5Statements
                of Consolidated Cash Flows for the Six Months Ended June 30, 2008
                and
                2007
            
            6Notes
                to Unaudited Consolidated 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
                1A – Risk Factors
            
            25Item
                2 – Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            25Item
                3 - Defaults upon Senior Securities
            
            25Item
                4 - Submission of Matters to a Vote of Security Holders
            
            26Item
                5 - Other Information
            
            26Item
                6 - Exhibits
            
            26Signatures
            
            27




2




**PART
      I - FINANCIAL INFORMATION**


Item
      1 –
Unaudited Consolidated Financial Statements


**LIGHTSPACE
        CORPORATION**
 **STATEMENTS
        OF CONSOLIDATED FINANCIAL POSITION**
 **June
                    30,**
                
                **December
                    31,****2008**
                
                **2007****ASSETS**Current
                    AssetsCash
                    and cash equivalents
                
                $
                19,282
                
                $
                585,737Accounts
                    receivable (net of allowance for doubtful accounts of $59,006
                    and $50,130
                    at June 30, 2008 and December 31, 2007)
                
                
                103,602
                
                
                144,293Inventory
                
                
                435,645
                
                
                193,854Inventory
                    deposits
                
                
                -
                
                
                223,116Other
                    current assets
                
                
                9,019
                
                
                3,321Total
                    current assets
                
                
                567,548
                
                
                1,150,321Property
                    and Equipment - Net
                
                
                99,949
                
                
                163,209Security
                    Deposits
                
                
                20,002
                
                
                102,400Intangible
                    Assets
                
                
                23,605
                
                
                47,211Total
                    Assets
                
                $
                711,104
                
                $
                1,463,141**LIABILITIES
                    AND STOCKHOLDERS' EQUITY (DEFICIT)**Current
                    LiabilitiesNotes
                    payable
                
                $
                237,381
                
                $
                237,381Accounts
                    payable
                
                
                774,000
                
                
                514,380Accrued
                    interest
                
                
                49,279
                
                
                63,612Accrued
                    expenses
                
                
                124,749
                
                
                407,030Deferred
                    revenue
                
                
                203,822
                
                
                96,280Total
                    current liabilities
                
                
                1,389,231
                
                
                1,318,683Long-term
                    Debt
                
                
                950,000
                
                
                950,000Stockholders'
                    Equity (Deficit)Common
                    stock, $0.0001 par value; authorized 75,000,000 shares; 15,282,495
                    shares
                    issued and 15,257,564 shares outstanding at June 30, 2008 and
                    December 31,
                    2007
                
                
                1,528
                
                
                1,528Treasury
                    stock - 24,931 shares
                
                
                (2
                )
                
                (2
                )Additional
                    paid-in capital
                
                
                14,356,451
                
                
                14,305,125Retained
                    earning (deficit)
                
                
                (15,986,104
                )
                
                (15,112,193
                )Total
                    stockholders' equity (deficit)
                
                
                (1,628,127
                )
                
                (805,542
                )Total
                    Liabilities and Stockholders' Equity (Deficit)
                
                $
                711,104
                
                $
                1,463,141
 
 See
        notes
        to unaudited consolidated financial statements
  3





**LIGHTSPACE
      CORPORATION**


**STATEMENTS
      OF CONSOLIDATED OPERATIONS**


**Three Months Ended June 30,**
              
              **Six Months Ended June 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**RevenuesProduct
                  sales
              
              $
              363,694
              
              $
              484,600
              
              $
              1,232,212
              
              $
              801,134Other
              
              
              138,380
              
              
              22,095
              
              
              229,583
              
              
              39,520Total
                  revenues
              
              
              502,074
              
              
              506,695
              
              
              1,461,795
              
              
              840,654Product
                  Cost
              
              
              412,641
              
              
              353,605
              
              
              1,086,229
              
              
              624,870Gross
                  Margin
              
              
              89,433
              
              
              153,090
              
              
              375,566
              
              
              215,784Operating
                  ExpensesResearch
                  and development
              
              
              112,359
              
              
              1,541,691
              
              
              463,478
              
              
              1,791,739Selling
                  and marketing
              
              
              59,873
              
              
              358,481
              
              
              358,895
              
              
              659,424General
                  and administrative
              
              
              102,787
              
              
              242,042
              
              
              370,727
              
              
              474,385Total
                  operating expenses
              
              
              275,019
              
              
              2,142,214
              
              
              1,193,100
              
              
              2,925,548Operating
                  Loss
              
              
              (185,586
              )
              
              (1,989,124
              )
              
              (817,534
              )
              
              (2,709,764
              )Other
                  Income (Expense)Interest
                  expense - net
              
              
              (28,825
              )
              
              (9,524
              )
              
              (56,377
              )
              
              (21,374
              )Total
                  other income (expense)
              
              
              (28,825
              )
              
              (9,524
              )
              
              (56,377
              )
              
              (21,374
              )Loss
                  Before Provision For Income Taxes
              
              
              (214,411
              )
              
              (1,998,648
              )
              
              (873,911
              )
              
              (2,731,138
              )Provision
                  For Income Taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  Loss
              
              $
              (214,411
              )
              $
              (1,998,648
              )
              $
              (873,911
              )
              $
              (2,731,138
              )Basic
                  and Diluted Net Loss Per Share
              
              $
              (0.01
              )
              $
              (0.15
              )
              $
              (0.06
              )
              $
              (0.22
              )Weighted
                  Average Common Shares Outstanding
              
              
              15,257,564
              
              
              13,719,367
              
              
              15,257,564
              
              
              12,156,239





See
      notes
      to unaudited consolidated financial statements




4




**STATEMENTS
        OF CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
        (DEFICIT)**
 
 **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
              )
              $
              297,009Private
                  placement of equity securities
              
              
              4,689,384
              
              
              469
              
              
              
              
              
              
              
              
              3,751,038
              
              
              
              
              
              3,751,507Expenses
                  of private placement
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (311,507
              )
              
              
              
              
              (311,507
              )Stock
                  option compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              47,409
              
              
              
              
              
              47,409Loss
                  for the six month period
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,731,138
              )
              
              (2,731,138
              )Balance
                  June 30, 2007
              
              
              15,282,495
              
              
              1,528
              
              
              -
              
              
              -
              
              
              14,094,525
              
              
              (13,042,773
              )
              
              1,053,280Stock
                  repurchase
              
              
              
              
              
              
              
              
              (24,931
              )
              
              (2
              )
              
              
              
              
              
              
              
              (2
              )Stock
                  option compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              210,600
              
              
              
              
              
              210,600Loss
                  for the six month period
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,069,420
              )
              
              (2,069,420
              )Balance
                  December 31, 2007
              
              
              15,282,495
              
              
              1,528
              
              
              (24,931
              )
              
              (2
              )
              
              14,305,125
              
              
              (15,112,193
              )
              
              (805,542
              )Stock
                  option compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              51,326
              
              
              
              
              
              51,326Loss
                  for the six month period
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (873,911
              )
              
              (873,911
              )Balance
                  June 30, 2008
              
              
              15,282,495
              
              $
              1,528
              
              
              (24,931
              )
              $
              (2
              )
              $
              14,356,451
              
              $
              (15,986,104
              )
              $
              (1,628,127
              )


See
      notes
      to unaudited consolidated financial statements




5


**LIGHTSPACE
        CORPORATION**
 **STATEMENTS
        OF CONSOLIDATED CASH FLOWS**


**Six Months Ended June 30,****2008**
              
              **2007**Cash
                  Flows (Uses) from Operating Activities:Net
                  loss
              
              $
              (873,911
              )
              $
              (2,731,138
              )Adjustments
                  to reconcile net loss to cash (used) in operating
                  activities:Depreciation
                  and amortization
              
              
              72,259
              
              
              20,400Amortization
                  of fair value of stock warrants
              
              
              23,606
              
              
              23,610Provision
                  for stock option compensation
              
              
              51,326
              
              
              47,409R&D
                  acquisition
              
              
              -
              
              
              950,000Other
                  changes in assets and liabilities:Accounts
                  receivable
              
              
              40,691
              
              
              9,445Inventory
              
              
              (241,791
              )
              
              (103,835
              )Other
                  current assets
              
              
              217,418
              
              
              1,744Other
                  assets
              
              
              82,398
              
              
              -Accounts
                  payable and accrued expenses
              
              
              (36,994
              )
              
              1,920Deferred
                  revenue
              
              
              107,542
              
              
              (44,379
              )Net
                  cash (used) in operating activities
              
              
              (557,456
              )
              
              (1,824,824
              )Cash
                  Flows (Uses) From Investing Activities:Purchases
                  of property and equipment
              
              
              (8,999
              )
              
              (58,151
              )Net
                  cash (used) in investing activities
              
              
              (8,999
              )
              
              (58,151
              )Cash
                  Flows (Uses) From Financing Activities:Proceeds
                  from notes payable
              
              
              70,000
              
              
              -Repayment
                  of notes payable
              
              
              (70,000
              )Proceeds
                  from sale of common stock
              
              
              -
              
              
              3,751,507Expense
                  of private placement
              
              
              -
              
              
              (311,507
              )Net
                  cash provided from financing activities
              
              
              -
              
              
              3,440,000Net
                  Increase (Decrease) in Cash and Cash Equivalents
              
              
              (566,455
              )
              
              1,557,025Cash
                  and Cash Equivalents - beginning of period
              
              
              585,737
              
              
              879,987Cash
                  and Cash Equivalents - end of period
              
              $
              19,282
              
              $
              2,437,012Non-cash
                  financing activities:Issuance
                  of notes payable
              
              $
              -
              
              $
              950,000


See
        notes
        to unaudited consolidated financial statements
  6




**LIGHTSPACE
      CORPORATION**


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


**JUNE
      30, 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 childrens’ play areas,
      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 June 30, 2008, we had an accumulated retained earnings deficit of
      $15,986,104 and a stockholders’ deficit of $1,628,127. We have funded our
      operations through June 30, 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
      consolidated financial statements at June 30, 2008 include the accounts of
      Lightspace Emagipix Corporation, a wholly-owned subsidiary, organized as of
      March 29, 2007. All intercompany transactions have been eliminated in
      consolidation.





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 $873,911 for the six months ended June 30, 2008. Further,
      we
      have accumulated net losses from operations of $15,986,104 as of June 30, 2008.
      Our cash balance at June 30, 2008 was $19,282. 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
      statement of consolidated financial position as of June 30, 2008, the statements
      of consolidated operations for the three months and six months ended June 30,
      2008 and 2007, the statements of consolidated cash flows for the six months
      ended June 30, 2008 and 2007, and the statement of consolidated changes in
      stockholders’ equity (deficit) for the period from January 1, 2007 through June
      30, 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 annual 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 (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.




7




**LIGHTSPACE
      CORPORATION**


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


**JUNE
      30, 2008**





**2.
      BASIS OF PRESENTATION (continued)**





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.





**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.
      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 technology emagipix, an interactive lighting technology that
      utilizes electroluminescent sheets. On April 30, 2007, LEC completed the
      acquisition of the emagipix technology. The purchase price for the emagipix
      technology consisted of $300,000 and the issuance of a $950,000 convertible
      term
      secured non-recourse note to Illumination Design Works, Inc. In connection
      with
      the acquisition, the developer of the emagipix technology, David Hoch, (a former
      officer and co-founder of Lightspace Corporation and the principal owner of
      Illumination Design Works, Inc.), re-commenced employment with us. Upon
      employment as Chief Scientist, the Company granted Mr. Hoch options to purchase
      250,000 shares of common stock at an exercise price of $0.80 per
      share.





The
      $950,000 convertible term secured non-recourse note bears interest at 5% per
      annum, payable yearly, and is due and payable on April 30, 2010. 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, 2010, at the option of the
      holder, into the common stock of the Company at a conversion price of $0.80
      per
      share, the fair market value of the Company’s common stock at April 30, 2007.
      Upon the occurrence of certain defined events of default by the noteholder,
      the
      Company 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.





The
      Company accounted for the acquisition of the emagipix technology as the
      acquisition of in process research and development and recorded a charge to
      operations in the June 30, 2007 quarter of $1,306,612, which included legal
      fees
      incurred in connection with the acquisition. The Company’s initial estimates
      that the cost to complete the development of the emagipix technology would
      be
      between $1.5 million and $2.0 million and that the technology would be
      commercially available within three years have been revised. The Company’s cash
      situation at December 31, 2007 and subsequent thereto has necessitated that
      development work of the emagipix technology be deferred until sufficient capital
      has been raised to fund the current operations of the Company and thereafter
      recommence the development efforts with respect to the emagipix
      technology.




8




**LIGHTSPACE
      CORPORATION**


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


**JUNE
      30, 2008**





**4.
      TECHNOLOGY ACQUISITION AND PRIVATE PLACEMENT OF SECURITIES
      (continued)**





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 expenses of the offering
      of $311,507, the net proceeds to the Company were $3,440,000. 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.





In
      connection with the sale of the equity units, we 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 cash
      purchase price of $300,000. The balance of the net proceeds was used for general
      working capital purposes.





**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, 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:





**June
                30,****2008**
            
            **2007**Common
                stock options
            
            
            1,741,070
            
            
            1,718,685Common
                stock warrants
            
            
            23,634,205
            
            
            23,634,205Convertible
                debt
            
            
            1,187,500
            
            
            1,187,500Total
            
            
            26,562,775
            
            
            26,540,390




9




**LIGHTSPACE
      CORPORATION**


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


**JUNE
      30, 2008**





**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.





No
      incentive stock options were granted in the six month period ended June 30,
      2008. 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.




The
      provision (benefit) for stock option-based compensation for the quarters ended
      June 30, 2008 and 2007 was ($40,734) and $7,163, respectively. The provision
      for
      stock option-based compensation for the six month periods ended June 30, 2008
      and 2007 was $51,326 and $47,409, respectively. We did not record a tax benefit
      or provision related to the provision (benefit) for stock-based compensation
      due
      to our net operating loss carryforwards; accordingly, the net loss for the
      periods was directly increased or decreased by the amount of the provision
      (benefit) for stock option-based compensation.





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 was 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 June 30, 2008 and December 31, 2007,
      inventory consisted of finished products of $80,791and $161,157 and raw
      materials of $354,854 and $32,697, respectively. At December 31, 2007, advance
      payments for purchase of inventory were $223,116 and were separately classified
      in the accompanying statement of financial position. At June 30, 2008 there
      were
      no advance payments for the purchase of inventory.





**8.
      ACCRUED EXPENSES**





Accrued
      expenses at June 30, 2008 and December 31, 2007 consists of the
      following:





**June 30,**
            
            **December 31,****2008**
            
            **2007**Earned
                vacation compensation
            
            $
            30,249
            
            $
            64,346Professional
                fees
            
            
            34,500
            
            
            84,500Reserve
                for warranty
            
            
            35,000
            
            
            32,000Operating
                lease payment differential
            
            
            -
            
            
            141,541Other
            
            
            25,000
            
            
            84,643Total
                accrued expenses
            
            $
            124,749
            
            $
            407,030




10


**LIGHTSPACE
      CORPORATION**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**





**9.
      NOTES PAYABLE AND LONG TERM DEBT**





Notes
      payable and long term debt consists of the following:





**June
                30,**
            
            **March 31,**
            
            **December 31,****Rate**
            
            **2008**
            
            **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
            
            
            237,381
            
            
            237,381Long
                term debt
            
            
            5.0
            %
            
            950,000
            
            
            950,000
            
            
            950,000Total
            
            
            
            
            
            1,187,381
            
            
            1,257,381
            
            
            1,187,381





*Short
      term promissory note*


On
      March
      27, 2008 we received a $70,000 loan from two former directors and a stockholder.
      The directors’ notes bore interest rate at a 9% annual rate and the stockholder
      note was non-interest bearing. All three notes were due and payable on April
      28,
      2008. The loans were made in connection with a vendor lawsuit which was settled
      in March 2008. In April 2008, the short term notes were repaid.





*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.





*Long
      term debt*


As
      part
      of the acquisition of the emagipix in-process development technology, 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 at 5% per annum,
      payable yearly, and is due and payable on April 30, 2010. 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, 2010, 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.





The
      first
      annual payment of interest of $47,500 was due and payable on April 15, 2008.
      At
      June 30, 2008, Lightspace had made installment payments of $3,958 against the
      amount of interest due and is currently in arrears in the monthly installment
      payments. The non-payment of the total amount of yearly interest when due is
      defined as an event of default under the terms of the note. Upon an event of
      default, and after written notice of such event of default by the holder of
      the
      note, the holder may pursue remedies with respect to the collection of the
      principal of the note and unpaid interest. Such remedies are limited solely
      to
      the collateral security for the note, 76% of the stock of LEC. Lightspace and
      the holder of the note are negotiating payment terms for the remaining balance
      of interest due under the note, and to date, Lightspace has not received written
      notice of an event of default.




11




**LIGHTSPACE
      CORPORATION**


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


**JUNE
      30, 2008**





**10.
      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.





**11.
      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.




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 as determined by the Board of Directors. In 2007, under the 2006 Stock
      Plan, we granted to officers and key employees 830,000 options to purchase
      830,000 shares of common stock at exercise prices of $0.80 and $1.10 per option.
      We have 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. The 2007 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 as determined by the Board
      of
      Directors. 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.




Combined
      information with respect to stock options issued under the 2005, 2006 and 2007
      Stock Plans for the six month period ended June 30, 2008 is summarized as
      follows:





**June 30, 2008****Weighted****Number of**
            
            **Average****Shares**
            
            **Exercise Price**Options outstanding January
                1, 2008
            
            
            5,143,610
            
            $
            1.01Options
                granted
            
            
            -
            
            
            -Options
                exercised
            
            
            -
            
            
            -Options
                cancelled
            
            
            (3,402,540
            )
            
            (1.06
            )Options
                outstanding June 30, 2008
            
            
            1,741,070
            
            $
            0.96Options
                exercisable at June 30, 2008
            
            
            184,576
            
            $
            0.80-Weighted
                average contractual life (years) options outstanding
            
            
            8
                3/4Options
                available for grant at June 30, 2008
            
            
            4,377,552




12




**LIGHTSPACE
      CORPORATION**


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


**JUNE
      30, 2008**





**12.
      STOCK WARRANTS**





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





**Exercise**
            
            **June 30,**
            
            **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
      entered into a Registration Rights 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.
      As
      of June 30, 2008, these securities have not been registered for resale.





At
      June
      30, 2008 and December 31, 2007, the weighted average exercise price of the
      common stock warrants outstanding was $1.24. At June 30, 2008, the common stock
      warrants had an average remaining life of approximately three and one half
      years.





**13.
      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 2012.




13




**LIGHTSPACE
      CORPORATION**


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


**JUNE
      30, 2008**





**13.
      INCOME TAXES (continued)**





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 that date 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. Therefore, in future years, we may be required to pay income
      taxes even though significant operating loss and tax credit carryforwards
      exist.





**14.
      COMMITMENTS AND CONTINGENCIES**




Effective
      July 1, 2008, the Company entered into a triple net five-year lease for
      approximately 10,700 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 $102,000 per year. Concurrent with the signing of
      the
      new lease, the Company entered into a lease termination agreement with the
      former landlord for the approximate three remaining years under a five year
      lease agreement for office and manufacturing operations entered into effective
      May 1, 2006. Under this lease termination agreement, the Company settled all
      amounts due under the May 1, 2006 lease by a payment of $75,000. As a result
      of
      this lease termination agreement, a liability established to evenly spread
      monthly lease payments in the amount of $132,909 was no longer required and
      was
      reversed as an offset to rent expense effective June 30, 2008.





The
      Company leases its facilities and certain equipment under non-cancelable
      operating leases expiring through June 2013. Total rent expense for the three
      and six months ended June 30, 2008 and 2007 was $20,260, $96,599, $75,371and
      $151,530, respectively.





On
      June
      30, 2008, we had approximately $723,600 in purchase order commitments to our
      vendors. The majority of this is due to the manufacturer our interactive
      tiles.





The
      table
      below sets forth our contractual obligations as of June 30, 2008





**Contractual
                Obligation**
            
            **Payments
                Due by Period****Total**
            
            **1
                Year**
            
            **2-3
                Years**
            
            **4-5
                Years**
            
            **Thereafter**Facility
                lease
            
            $
            511,047
            
            $
            98,323
            
            $
            203,933
            
            $
            208,791
            
            
            -Purchase
                orders
            
            
            723,600
            
            
            723,600
            
            
            -
            
            
            -
            
            
            -Other
                leases
            
            
            5,965
            
            
            3,767
            
            
            2,198
            
            
            -
            
            
            -Total
            
            $
            1,240,612
            
            $
            825,690
            
            $
            206,131
            
            $
            208,791
            
            
            -




14




**LIGHTSPACE
      CORPORATION**


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


**JUNE
      30, 2008**





**15.
      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 June 30,**
            
            **Six Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**United
                States
            
            $
            425,494
            
            $
            308,133
            
            $
            678,297
            
            $
            524,677Europe
            
            
            40,590
            
            
            177,906
            
            
            507,644
            
            
            204,695Asia
            
            
            35,990
            
            
            20,656
            
            
            35,990
            
            
            45,947South
                America
            
            
            -
            
            
            -
            
            
            170,624
            
            
            42,417Canada
            
            
            -
            
            
            -
            
            
            69,240
            
            
            22,918Total
            
            $
            502,074
            
            $
            506,695
            
            $
            1,461,795
            
            $
            840,654





15





**Item 2.
      Management’s Discussion and Analysis 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
      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, 383 Dorchester Avenue,
      Suite 220, Boston, Massachusetts 02127, Attention, Investor
      Relations.





**Overview**





Lightspace
      provides interactive lighting entertainment products to Childrens’ play areas,
      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 Quarters and Six Months Ended June 30, 2008 and
      200** **7**





**Revenue
      and Operating Results**




For
      the
      quarter ended June 30, 2008, revenue was $502,074, a decrease of $4,621 from
      revenue of $506,695 recorded in the quarter ended June 30, 2007. The net loss
      for the quarter ended June 30, 2008 was $214,411, ($0.01) per diluted share,
      as
      compared to a net loss for the quarter ended June 30, 2007 of $1,998,648,
      ($0.15) per diluted share. The net loss for the quarter ended June 30, 2007
      included a charge in the amount of $1,306,612 to research and development
      operating expenses related to the acquisition of the emagipix in-process
      development technology.




16


Revenue
      for the quarter ended June 30, 2008 was comprised of revenue from the sale
      of
      products, $363,694 and other revenue of $138,380, as represented by deferred
      maintenance revenue, sales of miscellaneous parts and other services. In this
      period, there were twenty Lightspace Play new installation sites and two
      Lightspace Design new installation site, representing 765 interactive tiles.
      Revenue for the quarter ended June 30, 2007 was comprised of revenue from the
      sale of products, $484,600, and other revenue of $22,095, as represented by
      deferred maintenance revenue, sales of miscellaneous parts and other services.
      In the quarter ended June 30, 2007, there were eleven Lightspace Play new
      installation sites and one Lightspace Dance new installation site, representing
      734 interactive tiles.





For
      the
      quarter ended June 30, 2008, sales of Lightspace products were made to customers
      in the United States - $425,494; Europe - $40,590; and Asia - $35,990. During
      this period, two customers accounted for 15% and 13% of revenues. These two
      customers were new to the Company and total sales aggregated $142,500. For
      the
      quarter ended June 30, 2007, sales of Lightspace products were made to customers
      in the United States - $308,133; Europe - $177,906; and Asia - $20,656. During
      this period, one customer accounted for over 50% of revenues, and two customers
      accounted for approximately 12% each. These three customers were new to the
      Company and total sales aggregated $372,000.





For
      the
      six months ended June 30, 2008, revenue was $1,461,795, an increase of $621,141
      or approximately 74% from revenue of $840,654 recorded in the six months ended
      June 30, 2007. The net loss for the six months ended June 30, 2008 was $873,911,
      ($0.06) per diluted share, as compared to a net loss for the six months ended
      June 30, 2007 of $2,731,138, ($0.22) per diluted share. The net loss for the
      six
      months ended June 30, 2007 included a charge in the amount of $1,306,612 to
      research and development operating expenses related to the acquisition of the
      emagipix in-process development technology.





The
      revenue for the six months ended June 30, 2008 was comprised of revenue from
      the
      sale of products, $1,232,212, and other revenue of $229,583, as represented
      by
      deferred maintenance revenue, sales of miscellaneous parts and other services.
      In the six months ended June 30, 2008, there were twenty-eight Lightspace Play
      new installation sites, four Lightspace Dance new installation site and four
      Lightspace Design new installation site, representing 2,658 interactive tiles.
      The revenue for the six months ended June 30, 2007 was comprised of revenue
      from
      the sale of products, $801,134, and other revenue of $39,520, as represented
      by
      deferred maintenance revenue, sales of miscellaneous parts and other services.
      In the six months ended June 30, 2007, there were twenty-three Lightspace Play
      new installation sites, one Lightspace Dance new installation site and one
      Lightspace Design new installation site, representing 1,243 interactive tiles.





For
      the
      six months ended June 30, 2008, sales of Lightspace products were made to
      customers in the United States - $678,297; Europe - $507,644; South America
      -
      $170,624; Canada - $69,240; and Asia - $35,990. During this period, one new
      Lightspace customer accounted for approximately 31% of revenues. For the six
      months ended June 30, 2007, sales of Lightspace products were made to customers
      in the United States - $524,677; Europe - $204,695; Asia - $45,947; South
      America - $42,417; and Canada - $22,918. During this period, one new Lightspace
      customer accounted for over 30% of revenues.





Our
      product backlog at June 30, 2008 was $235,400, representing 537 interactive
      tiles. We expect that this backlog will be installed at customer locations
      in
      the September 2008 quarter. Cancellation of a signed contract or order included
      in product backlog requires the consent of Lightspace.




17


**Product
      Cost and Gross Margin**





For
      the
      quarters ended June 30, 2008 and 2007, Lightspace recorded gross margins of
      $
      89,433, or 18%, and $153,090, or 30%, respectively. For the six months ended
      June 30, 2008 and 2007, Lightspace recorded gross margins of $375,566, or 26%,
      and $215,784, or 26%, respectively. Product margins in the quarter and six
      months ended June 30, 2008 were unfavorably impacted by $42,000 of provisions
      for obsolete tooling and disputed importation taxes. 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 operations and customer service. These latter costs tend
      to
      be a fixed cost that decreases on a per unit basis as volume increases.





**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 technology emagipix, an interactive lighting technology that
      utilizes electroluminescent sheets. On April 30, 2007, LEC completed the
      acquisition of the emagipix technology. The purchase price for the emagipix
      technology consisted of $300,000 and the issuance of a $950,000 convertible
      term
      secured non-recourse note to Illumination Design Works, Inc. In connection
      with
      the acquisition, the developer of the emagipix technology, David Hoch, (a former
      officer and co-founder of Lightspace Corporation and the principal owner of
      Illumination Design Works, Inc.), re-commenced employment with us. Upon
      employment as Chief Scientist, the Company granted Mr. Hoch options to purchase
      250,000 shares of common stock at an exercise price of $0.80 per
      share.





The
      $950,000 convertible term secured non-recourse note bears interest at 5% per
      annum, payable yearly, and is due and payable on April 30, 2010. 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 the Company at a conversion price of $0.80
      per
      share, the fair market value of the Company’s common stock at April 30, 2007.
      Upon the occurrence of certain defined events of default by the noteholder,
      the
      Company 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.





The
      Company accounted for the acquisition of the emagipix technology as the
      acquisition of in process research and development and recorded a charge to
      operations in the June 30, 2007 quarter of $1,306,612, which included legal
      fees
      incurred in connection with the acquisition. The Company initial estimates
      that
      the cost to complete the development of the emagipix technology would be between
      $1.5 million and $2.0 million and that the technology would be commercially
      available within three years have been revised. The Company’s cash situation at
      December 31, 2007 and subsequent thereto has necessitated that development
      work
      of the emagipix technology be deferred until sufficient capital has been raised
      to fund the current operations of the Company and thereafter recommence the
      development efforts with respect to the emagipix technology.





**Operating
      Expenses**




To
      conserve cash, Lightspace has undertaken significant staff reductions and other
      reductions in all operating departments. Staff levels, which were at twenty-five
      employees at December 31, 2007, have been reduced to six employees at June
      30,
      2008. Present staffing levels are as follows: operating department – 2; research
      and development department – 2; and administration department – 2. The financial
      impact of the reduced staff levels was not fully implemented until May of 2008;
      accordingly, fully reduced expense levels will not be realized until the
      September 2008 quarter. Additionally, effective July 1, 2008, the Company
      entered into a triple net five-year lease for approximately 10,700 square feet
      to be used for office and manufacturing operations. Concurrent with the signing
      of the new lease, the Company entered into a lease termination agreement with
      the former landlord for the approximate three remaining years under a five
      year
      lease agreement for office and manufacturing operations entered into effective
      May 1, 2006. Under this lease termination agreement, the Company settled all
      amounts due under the May 1, 2006 lease by a payment of $75,000. As a result
      of
      this lease termination agreement, a liability established to evenly spread
      monthly lease payments in the amount of $132,909 was no longer required and
      was
      reversed as an offset to rent expense effective June 30, 2008. The first year
      base monthly rental payments under the new lease are $8,194 compared to monthly
      rent payments of $24,682 under the terminated lease.




18


For
      the
      quarter ended June 30, 2008, research and development spending was $112,359
      compared to $1,541,691 for the quarter ended June 30, 2007. For the six months
      ended June 30, 2008 research and development spending was $463,478 as compared
      to $1,791,739 for the six months ended June 30, 2007. The decreased 2008
      research and development spending levels is primarily related to the acquisition
      of the Emagipix technology in April 2007 that required a valuation charge to
      research and development in the amount of $1,306,612 and to a lesser extent
      staff reductions that were affected in 2008. With the reduction of the research
      and development staff from nine employees to two employees during the first
      six
      months of 2008, research and development expenditures for the third and fourth
      quarters of 2008 will be significantly less than the comparable quarters of
      2007.




For
      the
      quarter ended June 30, 2008, selling and marketing expenditures were $59,873
      as
      compared to $358,481 for the quarter ended June 30, 2007. For the six months
      ended June 30, 2008 selling and marketing expenditures were $358,895 as compared
      to $659,424 for the six months ended June 30, 2007. The significant reduction
      in
      2008 sales and marketing expenses is directly related to the reduction in sales
      and marketing staff. The sales and marketing staff of eight employees at
      December 31, 2007 has been eliminated. At June 30, 2008, the Company’s CEO and
      vice president of operations are maintaining the sales and marketing function,
      as the Company shifts to a distributor based sales organization.




For
      the
      quarter ended June 30, 2008, administrative expenditures were $102,787 as
      compared to $242,042 for the quarter ended June 30, 2007. For the six months
      ended June 30, 2008 administrative expenditures were $370,727 as compared to
      $474,385 for the six months ended June 30, 2007. The significant reduction
      in
      2008 administrative expenses is directly related to the reduction in staff.
      The
      administrative staff of four employees at December 31, 2007 has been reduced
      to
      two employees at June 30, 2008.





**Inflation**





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





**Interest
      Expense**




Interest
      expense was $28,825 for the quarter ended June 30, 2008 as compared to $9,524
      for the quarter ended June 30, 2007. For the six month period ended June 30,
      2008, interest expense was $56,377 as compared to $21,374 in the corresponding
      period of 2007. The increased interest expense in the 2008 periods is due to
      the
      issuance in April 2007 of a $950,000 note in connection with the purchase of
      the
      emagipix technology.





**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 2012.




19


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 that date 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. Therefore, in future years, we may be required to pay income
      taxes even though significant operating loss and tax credit carryforwards
      exist.





**Liquidity,
      Capital Resources and Cash Flow**





We
      have
      incurred net operating losses and negative operating cash flows since inception.
      As of June 30, 2008, we had an accumulated retained earnings deficit of
      $15,986,104 and a stockholders’ deficit of $1,628,127. We have funded our
      operations through June 30, 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. At June 30, 2008, the Company’s cash balance was $19,282. These
      factors, among others, indicate that there is substantial uncertainty that
      we
      will continue as a going concern.





As
      part
      of the acquisition of the emagipix in-process development technology, 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 at 5% per annum,
      payable yearly, and is due and payable on April 30, 2010. 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, 2010, 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.





The
      first
      annual payment of interest of $47,500 was due and payable on April 15, 2008.
      At
      June 30, 2008, Lightspace had made installment payments of $3,958 against the
      amount of interest due and is currently in arrears in the monthly installment
      payments. The non-payment of the total amount of yearly interest when due is
      defined as an event of default under the terms of the note. Upon an event of
      default, and after written notice of such event of default by the holder of
      the
      note, the holder may pursue remedies with respect to the collection of the
      principal of the note and unpaid interest. Such remedies are limited solely
      to
      the collateral security for the note, 76% of the stock of LEC. Lightspace and
      the holder of the note are negotiating payment terms for the remaining balance
      of interest due under the note, and to date, Lightspace has not received written
      notice of an event of default.




20


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 expenses of the offering
      of $311,507, the net proceeds to the Company were $3,440,000. 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.
      In
      connection with the sale of the equity units, we 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 cash
      purchase price of $300,000. The balance of the net proceeds was used for general
      working capital purposes.





**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 June 30, 2008 and December
      31, 2007 was $235,400 and $96,280, respectively.





**Off-Balance
      Sheet Arrangements**





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





Effective
      July 1, 2008, the Company entered into a triple net five-year lease for
      approximately 10,700 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 $102,000 per year. Concurrent with the signing of
      the
      new lease, the Company entered into a lease termination agreement with the
      former landlord for the approximate three remaining years under a five year
      lease agreement for office and manufacturing operations entered into effective
      May 1, 2006. Under this lease termination agreement, the Company settled all
      amounts due under the May 1, 2006 lease by a payment of $75,000. As a result
      of
      this lease termination agreement, a liability established to evenly spread
      monthly lease payments in the amount of $132,909 was no longer required and
      was
      reversed as an offset to rent expense effective June 30, 2008.





The
      Company leases its facilities and certain equipment under non-cancelable
      operating leases expiring through June 2013. Total rent expense for the three
      and six months ended June 30, 2008 and 2007 was $20,260, $96,599, $75,371and
      $151,530, respectively.





On
      June
      30, 2008, we had approximately $723,600 in purchase order commitments to our
      vendors. The majority of this is due to the manufacturer our interactive
      tiles.




21


The
      table
      below sets forth our contractual obligations as of June 30, 2008


**Contractual Obligation**
              
              **Payments Due by Period****Total**
              
              **1 Year**
              
              **2-3 Years**
              
              **4-5 Years**
              
              **Thereafter**Facility
                  lease
              
              $
              511,047
              
              $
              98,323
              
              $
              203,933
              
              $
              208,791
              
              
              -Purchase
                  orders
              
              
              723,600
              
              
              723,600
              
              
              -
              
              
              -
              
              
              -Other
                  leases
              
              
              5,965
              
              
              3,767
              
              
              2,198
              
              
              -
              
              
              -Total
              
              $
              1,240,612
              
              $
              825,690
              
              $
              206,131
              
              $
              208,791
              
              
              -




**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.





*Inventory*


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





*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.





*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.




22


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.




23


**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 United States 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.




The
      Company 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.





Since
      April 16, 2008, the date that our Chief Financial Officer was released as a
      Lightspace employee, our Chief Executive Officer has been serving as both the
      Company’s principal executive officer and principal financial officer (Chief
      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 June 30, 2008 that
      have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.





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**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 was seeking damages in the amount
      of
      lost compensation. We believed there was no merit to the lawsuit and intended
      to
      defend against it. However, to avoid the cost of protracted litigation, on
      April
      4, 2008, we agreed to settle the former employee’s claim to the mutual
      satisfaction of all parties. The settlement of this litigation did not have
      a
      significant effect on the results of operations for the three or six months
      ended June 30, 2008.





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. 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. On March 28, 2007, the Company obtained short term loans due April
      28,
      2008 for $70,000 from a stockholder and two ex-directors, the proceeds of which
      were used in payment of the $76,000. The short term loans were repaid when
      due.
      The remaining balance due to the vendor in the approximate amount of $28,000
      was
      paid prior to June 30, 2008.





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 10-K for the year ended December 31, 2007 filed with
      the
      Securities and Exchange Commission on April 1, 2008. 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**





As
      part
      of the acquisition of the emagipix in-process development technology, 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 at 5% per annum,
      payable yearly, and is due and payable on April 30, 2010. 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, 2010, 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.





The
      first
      annual payment of interest of $47,500 was due and payable on April 15, 2008.
      At
      June 30, 2008, Lightspace had made installment payments of $3,958 against the
      amount of interest due and is currently in arrears in the monthly installment
      payments. The non-payment of the total amount of yearly interest when due is
      defined as an event of default under the terms of the note. Upon an event of
      default, and after written notice of such event of default by the holder of
      the
      note, the holder may pursue remedies with respect to the collection of the
      principal of the note and unpaid interest. Such remedies are limited solely
      to
      the collateral security for the note, 76% of the stock of LEC. Lightspace and
      the holder of the note are negotiating payment terms for the remaining balance
      of interest due under the note, and to date, Lightspace has not received written
      notice of an event of default.




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





None





**Item
      5. Other Information**





On
      April
      16, 2008, Mr. 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 provided
      financial and accounting services to the Company on an outsourced basis in
      connection with the filing of our Form 10-Q for the March 2008
      quarter.




**Item
      6. Exhibits**





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





**Exhibit No.**
            
            
            
            **Description**10.1
            
            *
            
            Lease
                with Lahinch Limited Partnership - Dorchester Avenue -
                Boston31.1
            
            *
            
            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





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**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:
                August 14, 2008
            By:
            /s/
                GARY FLORINDOGary
                Florindo
              President,
                Chief Executive Officer and
              Chief
                Financial Officer




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