UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
DECEMBER 31, 2010
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File No. 333-1258321
5BARz International Inc.
(Exact name of registrant as specified in it
charter)
Nevada
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26-4343002
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(State or other jurisdiction of incorporation or
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(IRS Employer Identification
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organization)
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No.)
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25910 Acero, Suite 370
Mission Viejo, California 92691
(Address of principal executive offices)
949-916-3261
(Registrant's telephone number, including area
code)
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 has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).
Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated filer
o
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Non-Accelerated Filer
o
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Accelerated Filer
o
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Smaller Reporting Company
x
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Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes
o
No
x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each issuer's classes
of common stock, as of the latest practicable date: 88,943,411 issued and outstanding as of November 14, 2011
TABLE OF CONTENTS
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Page
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PART I
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FINANCIAL INFORMATION
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3
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Item 1.
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Financial Statements
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3
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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17
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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30
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Item 4.
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Controls and Procedures
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30
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PART II
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OTHER INFORMATION
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Item 1.
Item 1A
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Legal Proceedings
Risk Factors
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31
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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31
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Item 3.
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Defaults Upon Senior Securities
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32
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Item 4.
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(Removed and Reserved)
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32
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Item 5.
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Other Information
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32
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Item 6.
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Exhibits
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33
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2
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements
5BARZ INTERNATIONAL, INC.
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(A Development Stage Enterprise)
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Balance Sheet As of December 31, 2010 and September 30, 2011
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September 30,
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December 31,
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2011
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2010
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(Unaudited)
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ASSETS
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Current assets:
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Cash
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$
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1,349
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$
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-
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Due from shareholder
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-
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(8,602)
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Total current assets
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1,349
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(8,602)
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Fixed Assets
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Furniture and equipment, net
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5,156
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-
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Other assets
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Due from Cellynx - Line of credit
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241,038
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-
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Deposit on investment in Cellynx
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170,000
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-
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Intellectual property
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1,883,650
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1,883,650
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Total other assets
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2,294,688
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1,883,650
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TOTAL ASSETS
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$
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2,301,194
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$
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1,875,048
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LIABILITIES
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Current liabilities:
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Accounts payable and accrued expenses
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$
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160,718
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$
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$15,220
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Due to Cellynx
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1,200,651
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1,439,566
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Convertible debenture
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67,513
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-
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Note payable convertible
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42,537
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-
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Total current liabilities
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1,471,419
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1,454,786
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Related party loans
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150,419
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434,997
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TOTAL LIABILITIES
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1,621,838
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1,889,783
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STOCKHOLDERS' EQUITY
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Common stock, $.001 par value, 250,000,000 shares authorized;
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88,905,911 and 87,569,800 shares issued and outstanding
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as of September 30, 2011 and December 31 2010, respectively
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88,906
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87,570
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Capital in excess of par value
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1,212,089
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(49,075)
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Deficit accumulated during the development stage
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(621,639)
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(53,230)
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Total stockholders' deficit
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679,356
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(14,735)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
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$
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2,301,194
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$
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1,875,048
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The accompanying notes are an integral part of these financial statements.
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3
5BARZ INTERNATIONAL, INC.
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(A Development Stage Enterprise)
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Statements of Operations for the six months ended September 30, 2011, September 30, 2010 and three months ended September 30, 2011 and September 30, 2010
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Cumulative,
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Inception,
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November 17,
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2008 Through
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Three months ended
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Nine months ended
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September 30, 2011
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September 30, 2011
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September 30, 2010
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September 30, 2011
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September 30, 2010
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(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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Sales
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$
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-
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$
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-
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$
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-
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$
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-
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$
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-
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Cost of Sales
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-
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-
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-
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Amortization and depreciation
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863
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236
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58
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416
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175
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Bank charges and interest
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16,191
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3,899
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75
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14,776
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285
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Sales and marketing expenses
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165,982
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39,284
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-
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162,982
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-
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General and administrative
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449,037
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102,208
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4,439
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402,824
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10,606
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Total operating expenses
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632,073
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145,627
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4,572
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580,998
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11,066
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(Loss) from operations
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(632,073)
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(145,627)
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(4,572)
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(580,998)
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(11,066)
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Other income (expense):
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Interest Income
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7,538
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4,419
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-
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7,538
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-
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Currency gains/(losses)
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2,896
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5,052
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(160)
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5,051
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695
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(Loss) before taxes
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(621,639)
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(136,156)
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(4,732)
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(568,409)
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(10,371)
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Provision (credit) for taxes on income
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-
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-
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-
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-
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-
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Net (loss)
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$
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(621,639)
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$
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(136,156)
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$
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(4,732)
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$
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(568,409)
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$
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(10,371)
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Basic earnings (loss) per common share
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$
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(0.0015)
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$
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(0.0001)
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$
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(0.0064)
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$
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(0.0001)
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Weighted average number of shares outstanding
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88,878,906
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71,969,800
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88,556,147
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71,969,800
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The accompanying notes are an integral part of these financial statements.
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4
5BARZ INTERNATIONAL, INC.
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(A Development Stage Enterprise)
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Statements of Cash Flows for the six months ended September 30, 2011 and September 30, 2010
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Cumulative,
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Inception,
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November 17,
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2008 Through
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Nine Months Ended
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Nine Months Ended
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September 30, 2011
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September 30, 2011
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September 30, 2010
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(unaudited)
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(unaudited)
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(unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$
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(621,639)
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$
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(568,409)
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$
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(10,371)
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Adjustments to reconcile net loss to net cash used in operating activities:
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0
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Depreciation and amortization
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863
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416
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175
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Shareholder loan
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(8,602)
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(8,602)
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0
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Changes in operating assets and liabilities:
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Change in accounts payable and accrued expenses
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160,272
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145,497
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1,500
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Unpaid interest expense
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8,147
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8,147
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0
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Unpaid interest income
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(7,538)
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(7,538)
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0
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Net cash used in operating activities
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(468,499)
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(430,489)
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(8,696)
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Deposit on investment in Cellynx
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(170,000)
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(170,000)
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0
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Purchase of intellectual property
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(2,122,565)
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(238,915)
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0
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Notes payable - asset acquisition
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1,581,875
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(292,688)
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0
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Purchase of furniture and equipment assets
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(5,572)
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(5,572)
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0
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Net cash used in investing activities
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(716,262)
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(707,175)
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0
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CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
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Payment under line of credit agreement Cellynx
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|
(233,500)
|
|
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(233,500)
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|
|
0
|
Proceeds from convertible debenture
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|
67,513
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|
67,513
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0
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Proceeds from note payable convertible
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42,500
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|
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42,500
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|
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0
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Proceeds from issuance of common stock
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1,300,995
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1,262,500
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0
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Advances from shareholder
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8,602
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|
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0
|
|
|
7,887
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Net cash provided by financing activities
|
|
1,186,110
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|
|
1,139,013
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|
|
7,887
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|
|
|
|
|
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NET INCREASE IN CASH
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1,349
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1,349
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(809)
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CASH, BEGINNING OF PERIOD
|
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0
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|
|
0
|
|
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1,274
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|
|
|
|
|
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|
CASH, END OF PERIOD
|
|
1,349
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|
$
|
1,349
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$
|
465
|
|
|
|
|
|
|
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
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Cash paid for interest
|
$
|
16,191
|
|
$
|
14,776
|
|
$
|
285
|
Cash paid for income taxes
|
$
|
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part
of these consolidated financial statements.
|
5
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
Note 1 - Organization
The unaudited financial statements have been prepared by 5BARz International
Inc., formerly known as Bio - Stuff (hereinafter referred to as “5BARz” or the “Company”), pursuant to
the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present
the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial
statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted
pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements
and footnotes included in the Company’s Annual Report on Form 10-K. The results for the nine months ended September 30, 2011,
are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.
Organization and Line of Business
The Company was originally incorporated under the laws of the State
of Nevada on November 17, 2008.
The Company holds a 50% interest in certain intellectual property
underlying the 5BARz products, a highly engineered microcell technology often referred to as “cellular network extenders.”
In addition, the Company has entered into a global sales and distribution agreement which provides for the global sales and marketing
of products produced under the 5BARz brand.
Prior thereto, the Company was a designated “shell Company”
holding certain technology related to bio-degradable product
Going Concern
These financial statements have been prepared on a going concern
basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business.
At September 30, 2011, the Company was engaged in a business and
had suffered losses from development stage activities to date. In addition, the Company has minimal operating funds. Although management
is currently developing its sales and marketing program for the sales of 5BARz product, the Company has made no revenue to date. The
Company is seeking additional sources of equity or debt financing, and there is no assurance these activities will be successful.
These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Development Stage
The Company has been in the development stage since its formation
and has not yet realized any revenues from its planned operations.
6
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America. Changes in classification of 2010 amounts have
been made to conform to current presentations.
Cash
Cash and cash equivalents include cash in hand and cash in time
deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk
Cash includes deposits in accounts maintained at financial institutions. Certain
financial instruments, which subject the Company to concentration of credit risk, consist of cash. The Company maintains balances
at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks
located in the United States. As of September 30, 2011 and September 30, 2010, the Company did not have any deposits in excess
of federally-insured limits. To date, the Company has not experienced any losses in such accounts.
Equipment
Equipment is recorded at historical cost and is depreciated using
the straight-line method over their estimated useful lives. The useful life and depreciation method are reviewed periodically
to ensure that the depreciation method and period are consistent with the anticipated pattern of future economic benefits. Expenditures
for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses
on disposals are included in the results of operations. The useful life of the equipment is being depreciated over three to five
years.
7
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
Intangible Assets
Acquired patents, licensing rights and trademarks are capitalized
at their acquisition cost or fair value. The legal costs, patent registration fees, and models and drawings required for filing
patent applications are capitalized if they relate to commercially viable technologies. Commercially viable technologies are those
technologies that are projected to generate future positive cash flows in the near term. Legal costs associated with applications
that are not determined to be commercially viable are expensed as incurred. All research and development costs incurred in developing
the patentable idea are expensed as incurred. Legal fees from the costs incurred in successful defense to the extent of an evident
increase in the value of the patents are capitalized.
Capitalized costs for patents are amortized on a straight-line basis
over the remaining twenty-year legal life of each patent after the costs have been incurred. Once each patent or trademark is issued,
capitalized costs are amortized on a straight-line basis over a period not to exceed 20 years and 10 years, respectively. The licensing
right is amortized on a straight-line basis over a period of 10 years.
Impairment or Disposal of Long-lived Assets
The Company applies the provisions of Accounting Standards Codification
(“ASC”) Topic 360, “Property, Plant, and Equipment,” which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets
are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair values are reduced for the cost of disposal. Based on its review, the Company believes that as of September
30, 2011 and December 31, 2010, there was no significant impairment of its long-lived assets.
Revenue Recognition
The Company's revenue recognition policies are in compliance with
ASC Topic 605, “Revenue Recognition.” Revenue is recognized at the date of shipment to customers, and when
the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability
is reasonably assured.
Fair Value of Financial Instruments
We have adopted Accounting Standards Codification regarding
Disclosure
About Derivative Financial Instruments and Fair Value of Financial Instruments
. The carrying amounts of cash, accounts payable,
accrued expenses, and other current liabilities approximate fair value because of the short maturity of
8
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
these items. These fair value estimates are subjective in nature
and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect these estimates. We do not hold or issue financial instruments for trading purposes,
nor do we utilize derivative instruments in the management of foreign exchange, commodity price or interest rate market risks.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic
740, “Income Taxes.” ASC 740 requires a company to use the asset and liability method of accounting for income taxes,
whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if
it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption
had no effect on the Company’s financial statements. Penalties and interest incurred related to underpayment of
income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating
to income taxes have been incurred during the three and nine months ended September 30, 2011 and 2010.
Net Loss Per Share
The Company reports loss per share in accordance with the ASC Topic
260, “Earnings Per Share.” , which requires presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements,
basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common
stock outstanding during the period. We do not have a complex capital structure requiring the computation of diluted
earnings per share.
9
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (“FASB”)
issued Accounting Issued Update (“ASU”) No. 2010-28—
Intangibles—Goodwill and Other (Topic 350):
When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
. The amendments
in this Update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those
reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill
impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider
whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent
with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an
event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying
amount. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2010. The adoption of this ASU is not expected to have a material impact on the Company’s
financial statements.
Note 3 – Equipment
Equipment consisted of the following at September 30, 2011 and December
31, 2010:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Office furniture and equipment
|
|
$
|
919
|
|
|
$
|
0
|
|
Computer equipment
|
|
|
4,653
|
|
|
|
0
|
|
|
|
|
5,572
|
|
|
|
0
|
|
Accumulated depreciation
|
|
|
(416
|
)
|
|
|
0
|
|
Equipment, net
|
|
$
|
5,156
|
|
|
$
|
0
|
|
Note 4 - Federal income tax:
We follow Accounting Standards
Codification regarding
Accounting for Income Taxes
. Deferred income taxes reflect the net effect of (a) temporary difference
between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes,
and (b) net operating loss carryforwards. No net provision for refundable Federal income tax has been made in the accompanying
statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating
loss carryforward has been recognized, as it is not deemed likely to be realized.
10
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
The provision for refundable Federal income tax consists
of the following:
|
|
2011
|
|
2010
|
Refundable Federal income tax attributable to:
|
|
|
|
|
Current operations
|
$
|
(568,409)
|
|
(10,371)
|
Less, Nondeductible expenses
|
|
-0-
|
|
-0-
|
-Less, Change in valuation allowance
|
|
568,409
|
|
10,371
|
Net refundable amount
|
|
-
|
|
-
|
The cumulative tax effect at the expected rate of 35%
of significant items comprising our net deferred tax amount is as follows:
|
|
2011
|
|
2010
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
Net operating loss carryover current year
|
$
|
198,043
|
$
|
3,629
|
Net
|
Operating loss carryforward – Beginning of year
|
|
9,901
|
|
2,883
|
|
Less, Valuation allowance
|
|
( 208,304)
|
|
(6,512)
|
|
Net deferred tax asset
|
|
-
|
|
-
|
|
At September 30, 2011, an unused net operating loss carryover
approximating $208,304 is available to offset future taxable income; those losses start to expire in 2028.
Note 5 - Cumulative sales of stock:
Since its inception, we have issued shares of common stock
as follows:
On November 17, 2008, our Directors
authorized the issuance of 7,100,000 founder shares at par value of $0.001. These shares are restricted under rule 144 of the Securities
Exchange Commission.
On various days in December 2008,
our Directors authorized the issuance of 1,776,100 shares of common stock at a price of $0.01 per share as fully paid and non-assessable
to the subscriber. These shares are not restricted and are free trading.
On November 15, 2010, our Directors
initiated a forward stock split of 18:1 and increased the authorized shares from 100,000,000 to 250,000,000
11
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
On December 30, 2010, the Directors
approved the cancellation of 87,800,000 shares of common stock.
On December 31, 2010, the Directors issued 15,600,000 shares in
conjunction with the acquisition of certain assets, more fully described in Note 6
On January 10, 2011 the Company issued 300,000 shares of common
stock at a price of $1.00 per share for aggregate proceeds of $300,000.
On January 15, 2011 the Company issued 200,000 shares of common
stock at a price of $1.00 per share for aggregate proceeds of $200,000.
On March 9, 2011 the Company issued 150,000 shares of common stock
at a price of $1.00 per share for aggregate proceeds of $150,000.
On April 4, 2011 the Company issued 350,000 shares of common stock
at a price of $1.00 per share for aggregate proceeds of $350,000.
On April 7, 2011 the Company issued 200,000 shares of common stock
at a price of $1.00 per share for aggregate proceeds of $200,000.
On June 3, 2011 the Company issued 5,000 shares of common stock
at a price of $0.70 per share for aggregate proceeds of $3,500.
On July 18, 2011 the Company issued 100,000 shares of common stock
at a price of $0.45 per share for aggregate proceeds of $45,000.
On July 24, 2011 the Company issued 31,111 shares of common stock
at a price of $0.45 per share for aggregate proceeds of $14,000.
On October 20, 2011 the Company completed a private placements of
37,500 common shares to accredited investors for aggregate proceeds of $7,500.The Company issued the securities pursuant to a Regulation
“S” exemption from registration.
12
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
Note 6 - Asset acquisition Agreement:
On December 31, 2010, the Company
acquired the assignment of four agreements providing the right title and interest in;
(i)
An “Amended and Restated Master Global Marketing and Distribution Agreement.”
(ii)
An asset purchase agreement
(iii)
A line of credit agreement
(iv)
A security agreement
The agreements relate principally
to the development of the sales and marketing of the 5BARz line of products and related accessories.
The purchase of this assignment agreement
was made for proceeds of $383,650, which is comprised of a note payable in the amount of $370,000 and the issuance of 15,600,000
shares of common stock. The note payable bears no interest and has no specific terms of repayment.
Pursuant to the terms of the asset
purchase agreement, as amended the Company is obligated to a series of payments for a ½ interest in the 5BARz intellectual
property for aggregate payments of $1,500,000. Payable as follows; I
n addition to the $299,349 paid to September 30, 2011
that the payment of the unpaid balance of $1,200,6
51,
is due on or before March 31, 2012.
As consideration for the licenses granted by CELLYNX, the Company
shall pay to CELLYNX a fee (the “Marketing and Distribution Fee”) amounting to 50% of the Company’s Net Earnings.
The Marketing and Distribution Fee will be paid on a quarterly basis, payable in cash or immediately available funds and shall
be due and payable not later than 45 days following the end of each calendar quarter of the year.
In the event that the Buyer fails to pay any Marketing and Distribution
Fee when due, simple interest shall accrue on such unpaid Marketing and Distribution Fee at a rate of six percent (6%) (the “Default
Interest”), and shall continue to accrue until such unpaid Marketing and Distribution Fee, plus any accrued interest, is
paid in full to the Seller.
Note 7 – Convertible Debenture
On August 15, 2011, the Company entered into a Convertible Debenture
Agreement for a principal amount of
Fifty Thousand Euros (€50,000)
. That debenture
bears interest at a rate of 8.5%, and is due on November 15, 2011. Holder may convert principal and unpaid interest
on the debenture into shares of the Company’s common stock, at a price per share of twenty cents USD ($0.20)
The Company has the right to pre-pay the Debenture without prepayment
penalty of any kind.
13
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
Note 8 – Convertible Promissory Note:
On September 20, 2011, 5BARz International Inc., (“the Company”),
completed a transaction pursuant to a Convertible Promissory Note agreement (the Note), through which the Company borrowed $42,500.
The Note bears interest at a rate of 8%, and is due on June 22,
2012, (the “Due Date”). The Company may settle that note within the first 90 days following the issue date
by paying to the Lender 140% of the principle amount of the note plus accrued interest. The Company may settle the note during
the period which is 91 days from the issue date of the note to 180 days from the issue date of the note by payment of 150% of the
principle amount of the note plus accrued interest. The lender may not convert the note during this first 180 day period subsequent
to the date of issue.
Subsequent to March 20, 2012 the lender may convert the principal
and unpaid interest on the note into shares of the Company’s common stock, with the number of shares issuable determined
by dividing the amount to be converted by the conversion price (the “Conversion Price”) which is equal to 55% of the
average of the three lowest trading prices of the Company’s common stock over the ten trading days prior to the date of the
conversion. Lender is prohibited under the Note from converting amounts if principal and interest that would result
in Lender receiving shares, which when combined with shares of the Company’s common stock held by Lender, would result in
Lender holding more than 4.99% of the Company’s then-outstanding common stock. No registration rights were granted
in connection with the purchase of the Note, and the shares of common stock, if any, issued upon conversion, will be restricted
securities as defined pursuant to the terms of Rule 144.
Pursuant to the terms of the Note, while there remains any unpaid
amounts owing on the Note, the Company may not incur additional debt without Lender’s approval except for (i) debt that was
owed or committed as of the date of the Note and of which the Company had informed Lender; (ii) indebtedness to trade creditors
or financial institutions in the ordinary course of business; (c) debt which in the aggregate does not exceed $250,000; or (d)
debt the proceeds of which are used to repay the Note.
Pursuant to the Note, the Company agreed to grant to Lender a right
of first refusal for any subsequent transactions occurring during the twelve month period following the Closing Date, which was
defined as September 20, 2011. The right of first refusal does not apply to any transactions in excess of $250,000.
In the above transaction, the Note was issued to an accredited investor
pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and rules promulgated
pursuant thereto.
14
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
Note 9 - Related Party Transactions:
On December 30, 2010 the Company acquired by way of an assignment
agreement all right title and interest in a set of agreements from a Company of which the Director is also the Director of the
reporting Company. The proceeds to be paid for that assignment agreement is comprised of a note payable in the amount of $370,000,
and the issuance of 15,600,000 shares of common stock.
At September 30, 2010 the Company had a note payable in the amount
of $62,506 (2010 - $370,000), due to Dollardex Group Corp. a related party which is controlled by the President and Director of
the Company. The note payable accrues interest at a rate of 5% per annum, and during the quarter, interest in the amount of $1,151
was charged pursuant to the terms of this note. Aggregate interest due under the note at September 30, 2011 is $8,109. In addition
the Company had an amount due to that related party comprised of payments made by the related party on behalf of the Company aggregating
$79,804 (2010 - $64,997).
NOTE 10 - Commitments:
On December 30, 2010 the Company entered into a commitment to provide
to the co-owner of the Company’s intellectual property a revolving line of credit in the amount of $2.5 million dollars.
The payment schedule as amended is as follows;
i.
|
Paid to date
|
$
|
433,500
|
ii.
|
Interest accrued to September 30, 2011
|
|
7,538
|
|
Repaid by allocation to asset purchase agreement
|
|
(200,000)
|
|
Net Amount due under LOC Agreement
|
|
241,038
|
iii.
|
Commitment to fund on or before December 1, 2011
|
$
|
2,066,500
|
The revolving line of credit agreement provides that interest accrued
under the terms of the agreement is to be paid annually commencing on October 1, 2011. That interest calculated at an interest
rate of 6% is $7,538 and was not paid on October 1, 2011 or to date. Accordingly the Revolving Line of Credit is in default. As
a result, the full amount of the line of credit becomes due currently and future interest on the unpaid balance is calculated at
a rate of 15% per annum. Further as a result of the event of default, the Company has the right, to suspend or terminate any obligation
that it may have to make any further advances under the line of credit agreement.
Security Agreement
The Company holds, pursuant to the security agreement referred to
herein, a security interest in all assets of Cellynx Group Inc.(“borrower”), to secure the obligations of borrower
under the revolving line of credit agreement. That security agreement was registered with the State of Nevada on June 15, 2011.
15
5BARz International, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2011 and 2010
(Unaudited)
NOTE 11 - Stock purchase agreement of Cellynx
On January 7, 2011 the Company entered into a stock purchase agreement
from two shareholders of Cellynx Group, Inc. to acquire in aggregate 63,412,638 shares of the capital stock of Cellynx Group, Inc.
for total proceeds of $634,126. To date the Company has paid $170,000 as a deposit to secure this agreement.
NOTE 12 - Subsequent events
Formation of Subsidiary Company, 5BARz AG
On October 6, 2011, the Registrant, 5Barz International Inc., a
Nevada corporation, (“5BARz”), organized under the laws of Switzerland, in the Canton of Zurich, a subsidiary called
5BAR AG. In so doing the registrant acquired 5,100,000 shares, of the issued and outstanding stock of the newly incorporated Company.
Aggregate proceeds paid for the shares were CHF 51,000 representing the fully paid price of CHF 0.01 per share. 5BARz AG simultaneously
issued 4,900,000 fully paid shares, registered in the name of 5Barz AG at a price of CHF 0.01 per share for aggregate proceeds
of CHF 49,000. These treasury shares are being held for resale, more fully described herein. The net proceeds received on re-sale
will be paid into 5Barz AG as additional paid in capital.
The newly formed subsidiary has appointed two directors, one of
which, Mr. Daniel Bland is the President, CEO and a Director of the registrant. The other Director is Mr. Peter Burkhardt of Oberengstringen,
Zurich, Switzerland.
Engagement of BDC Investment AG:
On October 15, 2011, 5Barz AG, entered into an agreement with BDC
Investment AG., an independent investment Company in Oberengstringen, Zurich, Switzerland to act as agent for the Company for the
sale of the 4,900,000 shares referred to above, on a best efforts basis. In addition to acting as agent for the 5BARz AG, BDC Investment
AG will provide consulting services and will be responsible for corporate communications, for 5BARz AG in the European marketplace.
Global Marketing and Distribution Agreement
On October 19, 2011, the registrant, 5BARz International Inc. entered
into a Marketing and Distribution agreement with 5BARz AG, through which 5Barz AG holds the exclusive rights for the marketing
and distribution of Products produced under the 5BARz
Brand for markets in Switzerland, Austria and Germany. That agreement
does not have a royalty payment required as 5BARz Ag is a consolidated subsidiary of 5BARz International Inc.
All of the above referenced subsequent events represents
a description of the interrelated transactions as negotiated and understood by the directors, of 5BARz AG and 5BARz International
Inc. Most but not all documentation has been received on these transactions from Europe, but are in process and expected in due
course.
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Forward Looking Statements
Certain statements in the Management’s Discussion and Analysis
(“MD&A”), other than purely historical information, including estimates, projections, statements relating to our
business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified
by the words “believe,” “project,” “expect,” “anticipate,” “forecast,”
“estimate,” “intend,” “strategy,” “plan,” “may,” “should,”
“will,” “would,” “will be,” “will continue,” “will likely result,”
and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks
and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake
no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events,
or otherwise.
As used in this Form 10-Q, unless the context requires otherwise,
“we” or “us” or the “Company” or “5BARz” means 5BARz International Inc..
Plan of Operations
Overview
5BARz International Inc. holds the exclusive global marketing
and distribution rights and holds a 50% ownership interest in the technology underlying the 5BARz™ products. 5BARz™
is a cellular network extender for use in the small office, home and mobile market places. 5BARz™ incorporates a patent-pending
technology to create a highly engineered, single-piece, plug ‘n play unit that strengthens weak cellular signals to deliver
high quality signals for voice, data and video reception on cell phones and other cellular equipped devices. 5BARz™ represents
a key solution for cellular network operators in providing clear, high quality signal for their subscribers with a growing need
for high quality connectivity.
The Companies initial product, the
5BARz™
Road
Warrior
was
named
an International CES Innovations 2010 Design and Engineering Awards
Honoree for achievements in product design and engineering. CES is the largest consumer electronics show in the world. Products
entered in this program are judged by a pre-eminent panel of independent industrial designers, engineers and members of the media
to honor outstanding design and engineering in cutting edge consumer electronics products across 36 product categories.
The
Road Warrior
, has passed FCC Certification, and has been
produced in limited quantities to date by a contract manufacturer in the Philippines.
The Market Opportunity
The market opportunity for the 5Barz
technology represents some 5.4 billion cell phone subscribers worldwide. Integration into that market is facilitated through the
900 cellular network carriers in the world as well as the wholesale to retail distribution channels and direct to consumer channels
which the Company will be integrating over time. The 5BARz market opportunity is not only expansive but has reached a point of
growth globally that is in great need of the 5BARz technology. Consider the following industry facts;
•
Poor coverage/signal quality is the #1 reason customers select/switch their mobile network
provider (before price and handset offerings)
•
“In-building penetration” is among the key factors in selecting data services
(besides cost and geographical coverage)
17
Most mobile phone and wireless data
subscribers have experienced dropped calls or dropped connections, areas without coverage ("dead zones"), and low signal
quality resulting in poor voice quality or low data rates. These problems aren't limited to use while mobile. DeadCellZones.com,
a database whose data are provided by subscribers, estimates that 50% of U.S. homes have insufficient wireless coverage in various
places in the home.
Why Poor Signals Exist
A variety of factors may cause dropped
calls and dead zones, including congestion, radio signal interference, tower hand-off, and lack of coverage. Despite continued
infrastructure investment by operators, and antenna technology improvements by base station providers and mobile phone makers,
these problems will continue for the foreseeable future. This is because many of the contributing factors can't be controlled by
the operators and manufacturers. To understand how innovative 5BARz products are in improving phone signals, it's first important
to understand the causes of poor signal quality.
Congestion
In 1999, sales of mobile phones surpassed
combined sales of personal computers and automobiles. By 2010, mobile phones had replaced land-line phones in 30% of U.S. households.
Smart phones, led by iPhones and Android phones, have become indispensible personal assistants. Laptop computer sales outnumber
desktop computer sales, and most laptops are equipped with cellular data chipsets or USB modems. Apple's iPad has sparked the connected
tablet market too. Vending machines, automobiles, mobile sensors, and many other devices include "machine to machine"
cellular data modules. As a result, the number of cellular voice and data devices will soon exceed the number of people on Earth.
If sheer numbers weren't enough, new
uses for mobile devices are causing even faster growth in bandwidth usage. Obvious uses include video entertainment, videoconferencing,
downloaded and streaming music, MMS, email, and application downloads. Facebook, Twitter, Foursquare, and many other social networking
applications put further load on operator networks. Also, surprising sources of traffic have emerged, such as deliberate "miscalls".
A miscall is when one subscriber calls another, but hangs up before the receiving party answers. Since operators don't charge for
these uncompleted calls, subscribers are using miscalls as a free way to communicate. In India, orders for milk are made this way.
In Syria, five miscalls in a row signals the recipient to "go online" to the Internet and chat. In Bangladesh, it's estimated
that up to 70% of traffic at peak times is due to miscalls. This practice isn't limited to countries with low per-capita income,
and yet it places a high load on operator networks.
There are sources of congestion based
on location and time, too. Transportation clusters like airports, major highway intersections, bridges, and toll road gates all
bring many people together at peak times. Also, because of home land-line replacement, many residential neighborhoods have many
mobile phones in simultaneous use in mornings and evenings. Lastly, local population growth and immigration can result in too many
phones for existing infrastructure. Due to long planning times, investment requirements, local government permits, and construction
time, it's difficult for infrastructure to keep up with the pace of change in many developing areas, especially in growth countries.
Radio Signal Interference
Interference comes from both obvious
and subtle causes. Certain materials aren't transparent to radio signals, especially durable materials used in buildings, large
structures, and even automobiles. As a result there are radio shadows in which a mobile phone can't sense the signal from a base
station. In addition, radio signals from adjacent channels or reflected signals can interfere with each other due to wave cancellation
effects. In some cases these forms of interference primarily attenuate the signal (make it weaker). However, interference can also
add noise, so that the ratio of signal to noise becomes too low for the mobile phone and the base station to understand each other.
18
Tower Hand-Off
Mobile phone networks are called "cellular"
networks because they are made up of overlapping areas of coverage that are provided by base stations in fixed locations. As a
mobile subscriber travels by automobile or train, he will eventually reach the limit of a base station's coverage. At that point,
his mobile phone will "hand off" to a base station for the next coverage area. If signal quality is poor due to interference,
or if the new base station is congested with too many mobile phones, the subscriber's connection may be lost.
Lack of Coverage
Some rural or developing areas don't
have enough people or population density for operators to justify the cost of installing base stations except at wide intervals.
In these areas the signal strength from the base station or the mobile phone may be too low to create or maintain a connection.
This results in "dead zones" or dropped calls.
Solutions to Poor Signal Quality
Operators know that dead zones, dropped
calls, and poor voice quality are big problems, and that re-dialing while driving can be unsafe. Operators also are concerned about
subscribers' ability to make emergency calls. They understand that people rely on mobile phones for business and connecting with
family. As mobile phones replace landlines, operators are especially aware that mobile signal quality is critical. Operators also
see that wireless data is increasingly important for personal and business use.
To help, operators work with phone and
base station manufacturers to improve antenna performance. They invest in new base stations in growth areas. They invest in technologies
that enable more connections per base station. Operators have even provided refunds for dropped calls.
However, many factors causing poor signal
quality can't be controlled by operators. Therefore products have emerged to help, provided by operators or companies who sell
to either operators or subscribers.
Femtocells
Operators can provide femtocells to
subscribers with poor signal quality at home. Usually the subscriber pays for hardware, installation, or a monthly fee. Femtocells
are carrier grade, and are like small base stations that communicate with operators by using the home Internet connection as a
"backhaul". They often can't be moved after installation, must be installed by a skilled technician in order to work
properly and to avoid causing network problems. Many femtocells provide only a voice connection, not data. Lastly, femtocells usually
only work with phones from one operator, so families with phones from multiple operators may have to request multiple femtocells.
Repeaters
Repeaters are usually carrier-grade
equipment and are programmed for a specific operator. They extend cellular networks into buildings and small offices. As with femtocells,
installation is complex and if not done properly they can cause network problems. Unlike femtocells, repeaters do not use the local
Internet connections, but rather receive and re-transmit the signals between base stations and mobile phones.
Boosters
Boosters are usually sold online and
through retail. They vary widely in amplification power, quality of amplification, and power balance. For example, these products
amplify signals at 1, 3, 5, or even 10 watts all the time. Using power over 1 watt increases the probability that a booster will
interfere with surrounding mobile devices. Also, it would be more energy efficient to adapt amplification power as needed, rather
than to simply use the same wattage constantly. Many boosters don't support balanced power in both directions between base station
and mobile phone. This may result in only solving the signal quality problem in one direction. Since communication is bi-directional,
this doesn't actually solve the problem. Varying quality of amplification also introduces noise, which can interfere with surrounding
devices.
19
A New Class of Solution
5BARz has evaluated the causes of poor
signal quality, the needs of both operators and subscribers, and the solutions in the market. Femtocells, repeaters, and boosters
either don't solve all parts of the problem, or aren't optimal due to cost or other drawbacks. Using expertise from a team of engineers
who designed sophisticated base station amplifiers for operators, 5BARz has developed a new class of carrier-grade technology.
This is a hybrid of repeaters and boosters, and is intended for automotive, home, and office use. 5BARz has tested these products
in the lab, in the real world, and with operators, and also won the Innovation of the Year award at the 2010 CES conference. These
products advance the state of the art to provide the following advantages:
Low Power Use
5BARz products only amplify when required.
The automotive products use less than 1/2 watt, while the home product uses less than 1 watt. This not only saves energy, but also
minimizes interference with other wireless devices and the network itself. In fact, new rules being proposed by the U.S. Federal
Communications Commission are expected to mandate low power standards such as 5BARz now provides.
Simple Setup
5BARz products don't require a technician
to run wires, carefully determine proper location, or optimize orientation. No use of home Internet connection is required, and
there are no switches or settings.
Balanced Amplification
Received and sent signals need balanced
assistance in order for both directions of a communication channel to be improved. 5BARz products are not only
smart
about
adapting amplification levels, but also about balancing amplification for incoming signals from the base station, and return signals
from the mobile phone.
Signal Stability
5BARz has done extensive design, testing,
and re-design to avoid a number of problems experienced by the antenna design of alternatives. For example, booster products can
experience oscillations when people, animals, or vehicles move nearby. These oscillations can weaken the booster effect or cause
interference with other wireless devices. Many booster products achieve size similar to 5BARz' products by putting antennas close
together in the same product package, but don't optimize radio wave interactions between those antennas. This weakens the boosters'
effectiveness, and is one reason why other manufacturers compensate by using too much wattage, in turn wasting power and increasing
the probability of interfering with other radio frequency devices and the network.
The Products
The
Road Warrior
product, the first product to be produced
by the Company, provides to consumers a value proposition, that represents a significant improvement over that which exists in
the market today as follows;
•
The unit is Plug-and-Play, which alleviates a significant problem which exists with competitors
products which involve complex and expensive integration and set-up of the unit.
•
Our solution improves reception in the home, office and can be used while mobile in your vehicle,
boat or otherwise.
•
Our product involves no installation or recurring fees,
•
Our product works with most any wireless carriers, whereas competitors products like the Femtocel
technology is carrier specific.
•
The product is highly engineered, which incorporates;
•
Real time RF monitoring
•
Balanced power control
•
Smart amplification technology utilized
20
•
stronger signal, better reception & reduced dropped calls
•
Low cost – MSRP - $300
•
Does not disrupt wireless carrier network
•
FCC Compliant
•
Supports voice and data
•
Supports 3G
•
Cellular and PCS bands
•
No backhaul required
•
best in class power management
•
Options on supplying power
•
45 dB Maximum Gain
The Company has a number of other products in various stages of
development, including operating prototypes which are protected by patent applications and expected to come to market in the upcoming
12 to 18 months. On May 5, 2011 the Company announced that Mr. James Fraley had joined the Company to oversee these developments.
Mr. Fraley is an accomplished executive with more than twenty years experience in the telecommunications
Industry. He has extensive engineering experience designing and deploying wireless solutions in multi platform environments, and
has spent many years in business development for major industry leaders such as Samsung Telecommunications America, SONY Wireless
Telecommunications Company (WTC), Oki Telecommunications and Qualcomm.
Marketing and Distribution
The Company has embarked upon a multi-faceted sales and marketing
strategy, with initial emphasis on the Latin America marketplace representing some 568 million cellular subscribers. This sector
not only represents one of the fastest growing sectors in the world, but has reached a level of maturity, that participants in
the marketplace are beginning to place an increased emphasis upon quality of service and maintenance of their substantive subscriber
base. Management considers the 5BARz products will become a very important part in ensuring that the customer experience is the
best that it can be in terms of connectivity and quality of service. Accordingly the Company is expanding its presence in this
marketplace in recent months.
This sales and marketing initiative is also being pursued in the
North American marketplace, representing a further 327 million subscribers with planned expansion into the global marketplace within
the next 12 to 18 months.
The Company has entered into non-disclosure agreements (NDA’s)
with several cellular network providers, to facilitate them to take the Company’s products into their labs and analyze the
products with a view toward adopting the products for use within their network. These analysis programs are not long term endeavors
in emerging markets and consequently management expect to see some positive results in the current fiscal year.
On April 27, 2011, the Company announced that it had entered into
an agreement with Aero Voice to provide supply chain and logistical services including but not limited to order taking, warehousing,
inventory management, packaging, labeling, shipping, and invoicing of 5BARz products to designated purchasers of the product, such
as stores, service centers, agents and retailers. The agreement also addresses the provision of warranty services. The scope of
service is primarily the US marketplace with a view to expansion beyond that market.
In October 2011 the Company incorporated a new subsidiary 5BARz
AG in Switzerland and has entered into a licensing agreement with that entity for the marketing and distribution of the 5BARz Brand
of products in Austria, Germany and Switzerland. The Company also engaged an Investment firm, BDC Investment AG, in Switzerland
to finance the operations of the Company. The Company has issued 10,000,000 shares of common stock of which 4,900,000 or 49% are
treasury shares available for sale on a best efforts basis.
21
Cellynx Agreements
On December 30, 2010, the Registrant, 5Barz International Inc.,
a Nevada corporation, (“5BARz”), acquired, pursuant to an Assignment Agreement from Dollardex Group Corp., a Panamanian
Corporation, all right title and interest in a set of agreements with Cellynx Group, Inc., comprised of an “Amended and Restated
Master Global Marketing and Distribution Agreement”, an “Asset Purchase Agreement”, a “Line of Credit Agreement”
and a “Security Agreement”, collectively referred to as “The Agreements”. The Agreements, relate principally
to the development of the sales and marketing of the 5BARz™ line of products and related accessories, and the acquisition
of a 50% interest in the underlying intellectual property, by 5Barz International Inc.
Asset Acquisition Agreement:
On December 30, 2010, the Company acquired the assignment of four
agreements providing the right title and interest in;
(i)
An “Amended and Restated Master Global Marketing and Distribution Agreement.”
(ii)
An asset purchase agreement
(iii)
A
line of credit agreement
(iv)
A
security agreement
The agreements relate principally to the development of the sales
and marketing of the 5BARz line of products and related accessories.
The purchase of this assignment agreement was made for proceeds
of $383,650, which is comprised of a note payable of $370,000 and the issuance of 15,600,000 shares of common stock. The
note payable bears interest at a rate of 5% per annum and has no specific terms of repayment. The agreement was assigned by a Company,
the Director of which is a Director of the reporting enterprise. This is a related party transaction.
Amended and Restated Master Global Marketing and Distribution
Agreement
The Master Global Marketing and Distribution agreement provides
for the exclusive worldwide rights granted to 5BARz International Inc. for the marketing and distribution of the “cellular
network extender” products developed based upon the 5BARz technology. This license provides to Cellynx Group , Inc., a 50%
interest in the Net Income of 5BARz International Inc. based upon their sales of 5BARz products as defined therein.
Asset Purchase Agreement
Pursuant to the terms of the asset purchase agreement, and subsequent
amendments thereto the Company is obligated to a series of payments for a ½ interest in the 5BARz intellectual property
for aggregate payments of $1,500,000. payable as follows;
(a)
$299,349 which has been paid to date.
(b)
$1,200,651 due on or before March 31, 2012
22
Revolving Line of Credit Agreement
On December 30, 2010 the Company entered into a commitment to provide
to the co-owner of the Company’s intellectual property a revolving line of credit in the amount of $2.5 million dollars.
The payment schedule as amended is as follows;
i.
|
Paid to date
|
$
|
433,500
|
ii.
|
Interest accrued to September 30, 2011
|
|
7,538
|
|
Repaid by allocation to asset purchase agreement
|
|
(200,000)
|
|
Net Amount due under LOC Agreement
|
|
241,038
|
iii.
|
Commitment to fund on or before December 1, 2011
|
$
|
2,066,500
|
The revolving line of credit agreement provides that interest accrued
under the terms of the agreement is to be paid annually commencing on October 1, 2011. That interest calculated at an interest
rate of 6% is $7,538 and was not paid on October 1, 2011 or to date. Accordingly the Revolving Line of Credit is in default. As
a result, the full amount of the line of credit becomes due currently and future interest on the unpaid balance is calculated at
a rate of 15% per annum. Further as a result of the event of default, the Company has the right, to suspend or terminate any obligation
that it may have to make any further advances under the line of credit agreement.
Security Agreement
The Company holds, pursuant to the security agreement referred to
herein, a security interest in all assets of Cellynx Group Inc.(“borrower”), to secure the obligations of borrower
under the revolving line of credit agreement. That security agreement was registered with the State of Nevada on June 15, 2011.
Convertible Promissory Note Agreement - $42,500
On September 20, 2011, 5BARz International Inc., (“the Company”),
completed a transaction pursuant to a Convertible Promissory Note agreement (the Note), through which the Company borrowed $42,500.
The Note bears interest at a rate of 8%, and is due on June 22,
2012, (the “Due Date”). The Company may settle that note within the first 90 days following the issue date
by paying to the Lender 140% of the principle amount of the note plus accrued interest. The Company may settle the note during
the period which is 91 days from the issue date of the note to 180 days from the issue date of the note by payment of 150% of the
principle amount of the note plus accrued interest. The lender may not convert the note during this first 180 day period subsequent
to the date of issue.
Subsequent to March 20, 2012 the lender may convert the principal
and unpaid interest on the note into shares of the Company’s common stock, with the number of shares issuable determined
by dividing the amount to be converted by the conversion price (the “Conversion Price”) which is equal to 55% of the
average of the three lowest trading prices of the Company’s common stock over the ten trading days prior to the date of the
conversion. Lender is prohibited under the Note from converting amounts if principal and interest that would result
in Lender receiving shares, which when combined with shares of the Company’s common stock held by Lender, would result in
Lender holding more than 4.99% of the Company’s then-outstanding common stock. No registration rights were granted
in connection with the purchase of the Note, and the shares of common stock, if any, issued upon conversion, will be restricted
securities as defined pursuant to the terms of Rule 144.
Pursuant to the terms of the Note, while there remains any unpaid
amounts owing on the Note, the Company may not incur additional debt without Lender’s approval except for (i) debt that was
owed or committed as of the date of the Note and of which the Company had informed Lender; (ii) indebtedness to trade creditors
or financial institutions in the ordinary course of business; (c) debt which in the aggregate does not exceed $250,000; or (d)
debt the proceeds of which are used to repay the Note.
23
Pursuant to the Note, the Company agreed to grant to Lender a right
of first refusal for any subsequent transactions occurring during the twelve month period following the Closing Date, which was
defined as September 20, 2011. The right of first refusal does not apply to any transactions in excess of $250,000.
In the above transaction, the Note was issued to an accredited investor
pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and rules promulgated
pursuant thereto. Additionally, the underlying shares of common stock, if any, issued upon conversion of the Note will be issued
pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and rules promulgated
pursuant thereto. All certificates for such shares will contain the appropriate legends restricting their transferability absent
registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to
ask questions about the Company.
The status of this transaction remains the same as of the date of
this filing.
Convertible Debenture - $50,000 Euro
On August 15, 2011 the Company entered into a convertible debenture
agreement in the amount of 50,000 Euros. (USD $71,965). Pursuant to the terms of that convertible debenture, interest is due and
payable on that debenture in the amount of 8.5% per annum.
The Holder is entitled, at its option, to
convert, and sell subject to applicable 144 rules, from time-to-time, until payment in full of this Debenture, all or any part
of the principal amount of the Debenture, in denominations of not less than fifty thousand euros (€50,000), plus accrued interest,
into shares (the “
Conversion Shares
”) of the Company’s Common Stock (“
Common Stock
”),
at the price per share (the “
Conversion Price
”) equal to
$0.20 USD per share. That convertible
debenture becomes due and payable on November 15, 2011.
Recent Developments
On July 14, 2011, the Company received a purchase order for 16,000
Road Warrior units in the process of manufacture for proceeds of $3,200,000 to be delivered to Mexico City, Mexico. The Company
is in the process of securing regulatory compliance for the sale of those units in Mexico as well as financing and completing the
production of those units.
On October 6, 2011
the Company incorporated
a new subsidiary 5BARz AG in Switzerland and has entered into a licensing agreement with that entity for the marketing and distribution
of the 5BARz Brand of products in Austria, Germany and Switzerland. The Company also engaged an Investment firm, BDC Investment
AG, in Switzerland to finance the operations of the Company. The subsidiary Company has issued 10,000,000 shares of common stock
of which 4,900,000 or 49% are treasury shares available for sale by BDC on a best efforts basis. The Company will retain 5,100,000
shares of that subsidiary or a 51% controlling interest.
24
Results of Operations
|
3 Months ended
Sept. 30, 2011
|
3 Months ended
Sept. 30, 2010
|
Cumulative from November 14, 2008 (inception) to Sept. 30, 2011
|
Amortization and depreciation
|
236
|
58
|
863
|
Bank charges & interest
|
3,899
|
75
|
16,191
|
Sales and marketing expenses
|
39,284
|
-
|
165,982
|
General and administrative
|
102,208
|
4,439
|
449,037
|
Total Operating Expenses
|
145,627
|
4,572
|
632,073
|
Gain (loss) on foreign currency translation
|
5,051
|
(160)
|
(2,155)
|
Other income
|
4,419
|
-
|
7,538
|
Net Loss
|
$136,156
|
4,732
|
$626,690
|
|
9 Months ended
Sept. 30, 2011
|
9 Months ended
Sept. 30, 2010
|
Cumulative from November 14, 2008 (inception) to Sept. 30, 2011
|
Amortization and depreciation
|
416
|
175
|
863
|
Bank charges & interest
|
14,776
|
285
|
16,191
|
Sales and marketing expenses
|
162,982
|
-
|
165,982
|
General and administrative
|
402,824
|
10,606
|
449,037
|
Total Operating Expenses
|
580,998
|
11,066
|
632,073
|
Gain (loss) on foreign currency translation
|
5,051
|
695
|
(2,155)
|
Other income
|
7,538
|
-
|
7,538
|
Net Loss
|
$568,409
|
10,371
|
$626,690
|
The Company has incurred losses from inception, February 17, 2008
to September 30, 2011 in the aggregate amount of $626,690. On or about December 30, 2010 the Company changed from a designated
shell Corporation to an operating business with the acquisition of the assets comprising the 5BARz business opportunity. The loss
from operations of that business for the period January 1, 2011 to September 30, 2011 was $568,409 as provided in the foregoing
schedule.
25
Our financial statements have been prepared assuming that we will
continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets
and classification of liabilities that might be necessary should we be unable to continue in operation.
The company will require additional capital to meet its’ long
term operating requirements. We expect to raise additional capital through a multi faceted strategy which may include the further
sale of equity securities, debt, and factoring facilities as the Company’s sales progress. In addition in November 2011 the
Company engaged BDC Investment AG, from Zurich, Switzerland to raise equity capital for the Company through the sale of up to 49%
of the Company’s subsidiary common stock, 5BARz AG incorporated in Zurich Switzerland and engaged for the marketing and distribution
of the 5BARz products in Switzerland, Germany and Austria.
Three month period ended September 30, 2011 compared to three
month period ended September 30, 2010.
Our net loss for the three month period ended September 30, 2011
was $136,156 compared to a net loss of $4,732 for the corresponding period for the prior year. During the three month period ended
September 30, 2011 the Company continued to accelerate the development of the 5BARz business opportunity and commenced financing
the business as well as establishing the infrastructure for the sales and marketing of 5BARz products,
During the three month period ended September 30, 2011, the Company
incurred general and administrative expenses of $102,208 compared to $4,439 incurred during the quarter ended September 30, 2010.
These general and administrative expenses incurred, include consulting fees accrued and paid to personnel and consulting firms
that are active in developing equity financing for the Company, on further developing the Latin American initiatives as well as
activity focused upon the development of the Companies product line for 2012. In addition consulting, travel and accommodation
fees have been incurred in order to expand the Company’s listing, investor relations and financing and business activities
into Europe, including the listing of the Companies securities in Berlin. During the quarter administrative fees were incurred
for the incorporated a subsidiary in Switzerland, entered into a licensing agreement with that subsidiary for the marketing and
distribution of 5BARz product in Switzerland, Austria and Germany. In addition the Company engaged BDC Investment Ag in order to
finance these expanding operations. This has resulted in an acceleration of administrative expenses.
Our net loss during the three month period ended September 30, 2011
was $136,156 or ($0.0015) per share compared to a loss from operations of $4,732 or $0.0003 per share during the quarter ended
September 30, 2010. The weighted average number of shares outstanding was 88,876,906 for the three month period ended September
30, 2011 compared to 71,969,800 for quarter ended September 30, 2010, after giving retroactive effect to the 18 for 1 forward stock
split completed on November 29, 2010 and the subsequent cancellation of 87,800,000 shares on December 30, 2010.
Liquidity and Capital Resources
As at September 30, 2011
As at September 30, 2011, our current assets were $1,349 and our
current liabilities were $1,471,419, which resulted in a working capital deficit of $1,470,070 . As at September 30, 2011, current
liabilities were comprised in the most part of a net amount due to Cellynx of $959,613 comprised of the balance of the acquisition
of a 50% interest in the intellectual property of Cellynx net of advances made to Cellynx under the terms of a Line of Credit agreement
of $241,038. The balance of this is due on or before March 31, 2012. Both 5BARz and Cellynx are working very closely together in
the commercialization of the Company’s technology, to the mutual benefit of both Companies. The timing of the amount payable
is the best estimate of the parties as to the timing required to raise the proceeds by way of the sale of equity by 5BARz International
Inc. or net revenue generation.
26
As at September 30, 2011, the Company’s total assets were
$2,301,194 comprised of intellectual property in the amount of $1,883,650 representing in part a 50% interest in the patent applications
and trademark registrations related to the 5BARz technology, and the assignment of the exclusive global marketing and distribution
rights for the 5BARz products . In addition the Company has made a deposit of $170,000for the acquisition of share capital in Cellynx
Inc from two shareholders. The balance of assets is comprised of current assets addressed above in the amount of $1,349 and advances
to Cellynx, by way of a letter of credit in the amount of $241,038. The increase in total assets as at September 30, 2011 over
the assets held at December 31, 2010 was primarily due to the continued investment by 5BARz Inc. into Cellynx Group, Inc. the co-owner
of the 5BARz Intellectual property through both an deposit on an equity investment of $170,000 and line of credit advances of $241,038
As at September 30, 2011, our total liabilities were $1,621,838
comprised of current liabilities as described above as well as the balance of the amount due to Dollardex Group Corp., of $150,419
remaining from the acquisition of the assets comprising the 5BARz business. The increase in liabilities as at September 30, 2011
from quarter ended September 30, 2010 was again due to the acquisition of assets at December 30, 2010 comprising the 5BARz business
and the commencement of commercialization activities of that endeavor.
Stockholders’ equity increased
from a deficit at December 31, 2010 of $14,735 to an equity balance of $679,356 at September 30, 2011. This increase is attributable
in the most part to the sale of 1,000,000 common shares in the capital of the Company for proceeds of $1,200,000 at a price of
$1.00 per share.
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities.
For the nine month period ended September 30, 2011, net cash flows used in operating activities was $430,488, consisting primarily
of a net loss of $568,409. Net cash flows used in operating activities was decreased by an increase in accounts payable of $145,498.
For the nine months ended September 30, 2010, net cash flows used in operating activities was $8,696 as the Company was listed
but substantively inactive..
Cash Flows from Investing Activities
For the nine month period ended September 30 2011, net cash flows
used in investing activities was $707,175 comprised of payments made on the acquisition of intellectual property from Cellynx in
the amount of $238,915 in addition to a series of payments for the acquisition of the agreements comprising the 5BARz business
of $292,688 and a deposit made on an investment on the share capital of Cellynx Group, Inc. in the amount of $170,000. For the
nine months ended September 30, 2010, net cash flows used in investing activities was $-0-.
Cash Flows from Financing Activities
We have financed our operations primarily from the issuance of equity.
For the nine month period ended September 30, 2011, net cash flows provided from financing activities was $1,139,013, comprised
of proceeds from the sale of common stock in the amount of $1,262,500, reduced by amounts paid on loans to Cellynx of $233,500
under an operating letter of credit. For the nine months ended September 30, 2010 cash flows from financing activities consisted
of $7,887 comprised of shareholder loans.
We expect that working capital requirements will continue be funded
through further issuances of securities, debt and from proceeds generated by sales, or through the leverage of these payments.
During the quarter, the Company received it’s first purchase
order for sales of $3.2 million dollars. Our working capital requirements are expected to increase in line with the growth of our
business.
27
Plan of Operation and Funding
Existing working capital, further sales of equity securities and
anticipated cash flow are expected to be adequate to fund our operations over the next twelve months. We have no bank financing
arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt and
an increase in liabilities due from individuals and businesses that work with the Company. In connection with our business plan,
management anticipates additional increases in operating expenses and capital expenditures relating to: (i) development and marketing
of our product; and (ii) working capital. We intend to finance these expenses with further issuances of securities. Thereafter,
we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances
of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have
rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms,
or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of
prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
Material Commitments
As of the date of this Quarterly Report, the Company has entered
into a material commitment to Cellynx Group, Inc. to make available under the terms of a line of credit agreement $2.5 million
dollars. At September 30, 2011 the Company had funded $233,500 with further funding requirements on or before December 1, 2011
in the amounts of $2,476,650. This funding is being made on a best efforts basis.
Purchase of Significant Equipment
We do not intend to purchase any significant equipment during the
next twelve months.
Off-Balance Sheet Arrangements
As of the date of this Quarterly Report, we do not have any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are
material to investors.
Going Concern
In our Annual Report on Form 10-K for the year ended December 31,
2010, our independent auditors included an explanatory paragraph in its report relating to our financial statements for the years
ended December 31, 2010 and 2009, which states that we have incurred negative cash flows from operations since inception, and expect
to incur additional losses in the future and have a substantial accumulated deficit. These conditions give rise to substantial
doubt about our ability to continue as a going concern. Our ability to expand operations and generate additional revenue and our
ability to obtain additional funding will determine our ability to continue as a going concern. Our condensed consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
We have prepared our financial statements assuming that we will
continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course
of business
28
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial
condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these consolidated financial statements
requires 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 as well as the reported net sales and expenses during
the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience
and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described
in Note 1 to our financial statements, we believe that the following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and analysis.
Intangible Assets
Acquired patents, licensing rights and trademarks are capitalized
at their acquisition cost or fair value. The legal costs, patent registration fees, and models and drawings required for filing
patent applications are capitalized if they relate to commercially viable technologies. Commercially viable technologies are those
technologies that are projected to generate future positive cash flows in the near term. Legal costs associated with applications
that are not determined to be commercially viable are expensed as incurred. All research and development costs incurred in developing
the patentable idea are expensed as incurred. Legal fees from the costs incurred in successful defense to the extent of an evident
increase in the value of the patents are capitalized.
Capitalized costs for patents are amortized on a straight-line basis
over the remaining legal life of each patent after the costs have been incurred. Once each patent or trademark is issued, capitalized
costs are amortized on a straight-line basis over a period not to exceed 20 years and 10 years, respectively.
Impairment or Disposal of Long-lived Assets
The Company applies the provisions of Accounting Standards Codification
(“ASC”) Topic 360, “Property, Plant, and Equipment,” which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets
are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair values are reduced for the cost of disposal. Based on its review, the Company believes that as of December
31, 2010, and September 30, 2010, there was no significant impairment of its long-lived assets.
Revenue Recognition
The Company's revenue recognition policies are in compliance with
ASC Topic 605, “Revenue Recognition.” Revenue is recognized at the date of shipment to customers, and when
the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability
is reasonably assured.
29
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic
740, “Income Taxes.” ASC 740 requires a company to use the asset and liability method of accounting for income taxes,
whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if
it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties
and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No
significant penalties or interest relating to income taxes have been incurred during the three months ended December 31, 2010 and
2009.
Stock Based Compensation
The Company records stock-based compensation in accordance with
ASC Topic 718, “Compensation – Stock Compensation.” ASC 718 requires companies to measure compensation
cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee’s
requisite service period. Under ASC 718, the Company’s volatility is based on the historical volatility of the Company’s
stock or the expected volatility of similar companies. The expected life assumption is primarily based on historical exercise patterns
and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Regulations under the Securities Exchange Act of 1934 (the "Exchange
Act") require public companies to maintain "disclosure controls and procedures," which are defined to mean
a company's controls and other procedures that are designed to ensure that information required to be disclosed in the reports
that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms. Our Chief Executive Officer ("CEO") and a consultant providing
services commonly provided by a Chief Financial Officer ("CFO") carried out an evaluation of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this report. Based on those evaluations, as of the Evaluation
Date, our CEO and CFO believe that:
(i) our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports we file under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated
and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure;
and
(ii) our disclosure controls and procedures are not effective
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended December
31, 2010 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against
us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any
of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest
adverse to our company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
During the Nine months ended September 30, 2011 and to
the date of this report we have issued shares of common stock as follows:
On January 10, 2011 the Company issued 300,000 shares
of common stock at a price of $1.00 per share for aggregate proceeds of $300,000 pursuant to a Regulation S exemption from registration.
On January 15, 2011 the Company issued 200,000 shares
of common stock at a price of $1.00 per share for aggregate proceeds of $200,000 pursuant to a Regulation S exemption from registration.
On March 9, 2011 the Company issued 150,000 shares of
common stock at a price of $1.00 per share for aggregate proceeds of $150,000 pursuant to a Regulation S exemption from registration.
On April 4, 2011 the Company completed a private placement
of 350,000 shares of common stock at a price of $1.00 per share for aggregate proceeds of $350,000. The Company issued the securities
pursuant to a Regulation “S” exemption from registration.
On April 7, 2011 the Company completed a private
placement of 200,000 common shares to an accredited investor for aggregate proceeds of $200,000. The Company issued the
securities pursuant to a Regulation “S” exemption from registration.
On June 3, 2011 the Company completed a private
placement of 5,000 common shares to an accredited investor for aggregate proceeds of $3,500. The Company issued the
securities pursuant to a Regulation “S” exemption from registration.
In July 2011 the Company completed private
placements of 131,111 common shares to accredited investors for aggregate proceeds of $59,000. The Company issued the
securities pursuant to a Regulation “S” exemption from registration.
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On October 20, 2011 the Company completed a private
placements of 37,500 common shares to accredited investors for aggregate proceeds of $7,500. The Company issued the
securities pursuant to a Regulation “S” exemption from registration.
The proceeds from all of the above equity sales were used
for general working capital purposes and to fund the asset acquisitions from Cellynx Group, Inc.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
(REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION
(b)
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There were no changes to the procedures by which security holders may recommend nominees to our board of directors.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
Exhibit
Number
|
|
Description
|
|
|
|
|
|
|
31.1
|
|
Section 302 Certification by the Corporation’s Chief Executive Officer *
|
|
|
|
31.2
|
|
Section 302 Certification by the Corporation’s Chief Financial Officer *
|
|
|
|
32.1
|
|
Section 906 Certification by the Corporation’s Chief Executive Officer *
|
|
|
|
__________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
5BARz International Inc.
|
|
(Registrant)
|
|
|
Date: November 14, 2011
|
By:
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/s/ Daniel Bland
|
|
|
Daniel Bland
|
|
|
Chief Executive Officer
|
33