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5BARZ INTERNATIONAL, INC. - 10-Q/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(Edgar Glimpses Via Acquire Media NewsEdge) 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
5BARz International Inc.("5BARz" or the "Company") is in the business of the
development, sales and marketing of a line of cellular network infrastructure
devices for use in the small office, home and mobile market places. This next
generation cellular network extender, branded as 5BARz™ incorporates a patented
technology to create a highly engineered, single-piece, plug 'n play unit that
strengthens weak cellular signals to deliver higher quality signals for voice,
data and video reception on cell phones, and other cellular devices.
The Company's initial product, the Road Warrior, won the prestigious 2010
innovation of the year award at CES (the largest consumer electronics show in
the world) for achievements in product design and engineering. 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 for the 5Barz technology represents some 5.4 billion cell
phone subscribers worldwide serviced by 900 cellular network operators. These
cellular network operators represent the Company's primary point of entry to the
Global marketplace.
The 5BARz business opportunity to bring this state of the art technology to
market represents a significant step forward in the deployment of micro-cell
technology, referred to as a 'cellular network infrastructure device" in the
industry. A step that management believes will significantly improve the
functionality of cellular networks by managing cellular signal within the
vicinity of the user. This technology facilitates cellular usage in areas where
structures, create "cellular shadows" or weak spots within metropolitan areas,
and highly congested areas such as freeways, and also serves to amplify cellular
signal as users move away from cellular towers in urban areas. The market
potential of the technology is far reaching.
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Company History
5BARz was incorporated on November 17, 2008 and is a Nevada Corporation. On
December 30, 2010 the Company acquired the "Master Global Marketing and
Distribution Agreement" for the marketing and distribution of 5BARz products
throughout the world. In addition to the acquisition of the marketing and
distribution rights, the Company entered into an agreement, as amended, for the
acquisition of a 60% interest in the underlying intellectual property comprising
the 5BARz products, and holds a security interest over the balance of those
assets.
On March 27, 2012, 5BARz acquired a 60% controlling interest in Cellynx Group,
Inc. the entity which originally developed the 5BARz technology. This represents
a significant step forward in bringing the originators of the technology
together and under common control with the Company, to facilitate a more
synergistic and clearly defined development platform for the globalization of
the 5BARz technology.
On November 7, 2011, the Company commenced the incorporation of a subsidiary
Company in Zurich Switzerland called 5BARz AG. At December 31, 2011 the Company
held a 99.5% equity interest in that entity. 5Barz Ag has been granted the
exclusive rights by way of a sub-license for the Sales and Marketing of the
5BARz products in the region, commonly referred to as the "DACH" in Europe,
comprised of Germany, Austria and Switzerland.
Prior to December 30, 2010 the Registrant was a designated shell Company
pursuant to Section 12B-2 of the Exchange Act of 1934, and operated under the
name Bio-Stuff Inc. The business of Bio-Stuff was comprised of the development
of bio-degradable products. That business has been abandoned by the Company.
Milestones
2007: A 5BARz working prototype was developed of an affordable consumer friendly
single piece plug 'n play booster with a minimum of 45dB of gain in both up and
down paths.
July 22, 2008: Dollardex Group entered into an exclusive "Master Global
Marketing and Distribution Agreement" (the "Distribution Agreement") for the
5BARz products.
July 2009: First production run and FCC Certification of 5BARz Road Warrior
August 2009: Field testing and final modification of 5BARz Road Warrior
January 2010: 5BARz Road Warrior Selected as CES Innovations 2010 Design and
Engineering Award. Marketing commenced in the US.
January 2011: 5BARz International Inc. acquires the "Master Global Marketing and
Distribution Agreement" for the marketing and distribution of 5BARz products
throughout the world, and enters into agreement for the acquisition of a 50%
interest in the underlying intellectual property from Dollardex.
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2011 - 5BARz International Inc. engages sales agents in Latin America, to
present prototype products to R&D departments at major wireless carriers in the
region, with positive results.
July 2011 - The Company received initial purchase order for the balance of
limited production in the 5BARz Road Warrior units comprised of 16,000 units or
$3.2 million dollar purchase order.
November 2011 - Incorporated a subsidiary Company, 5BARz Ag (completed in March
2012), and sub-licensed that entity for the Sales and Marketing Rights for the
region commonly referred to as the "DACH", Germany, Austria and Switzerland. The
Company engaged the services of BDC Investment Ag, of Zurich, Switzerland to
finance that entity and develop within the German speaking European marketplace.
February/March 2012 - The Company formed an Advisory Board comprised of leading
executives within the technology sector to assist in the integration of the
5BARz technology and products into global markets. See bios in news -
www.5barz.com
Dr. Gil Amelio - Director ATT, Former CEO -Apple Computer
Mr. Marcelo Caputo - CEO Telefonica USA
Mr. Finis Connor - Founder of Seagate Technology and Connor Peripherals
Mr. George Lauro - Co-founder of Alteon Capital Partners with Dr. Amelio
March 2012 - 5BARz International Inc. completed the acquisition of a 60%
interest in Cellynx Group, Inc. (the originator of the 5BARz technology),
developing a fully integrated subsidiary for the global deployment of the 5BARz
business opportunity.
July/ August 2012 - Company secures investment banking support to finance
commercialization operations.
August 2012 - Internal Engineering achieve initial presentation stage units of
the revised cradle-less 5BARz cellular network extender with several new and
improved features over the Road Warrior unit.
The Market Opportunity
The market opportunity for the 5BARz technology represents some 4.8 billion cell
phone subscribers worldwide and is growing as a result of the following factors;
· Dead zones, weak signals, and dropped calls are the biggest problems in the
industry. Now, by adding internet and video, the quality issue is increasing
exponentially.
· 76% of cellular subscribers use their mobile phone as the primary phone
· More consumers are using mobile phones for web browsing, up and down-
loading photos, videos and music
· More mobile phones are operating at higher frequencies which have less
ability to penetrate buildings
· Weak signals make internet applications inaccessible and slow and increase
the drain on cell phone batteries.
· Forty percent of all mobile phone users report inadequate service in their
homes or office and we estimate that 60% of the 4.8 billion mobile phone
users worldwide consider continuous connectivity to be very important.
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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.
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.
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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.
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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
smartabout 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.
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Choosing the Right 5BARz Product
5BARz has one model in production and three in development of three mobile
products with a range of features and prices, as well as a home/office product:
5BARz offers three mobile products with a range of features and prices, as well
as a home product:
Road Warrior The Road Warrior won the 2010 CES Innovation of the[[Image Removed: Road Warrior]] Year award for product design and engineering. It
improves wireless voice and data signals in the home,
office, or vehicle. It works with any wireless
operator, needs no installation, and can easily be
moved.
The Road Warrior features real-time radio frequency
monitoring, self-adjusting radio frequency levels,
and balanced power control for incoming and return
signals. It is FCC compliant, and supports 3G
cellular and PCS bands. There is no backhaul
(Internet connection) required. The 45 dB maximum
gain is limited to the small area around the phone
cradle.
5BARz SC The 5BARz SC provides the benefits of the Road[[Image Removed: 5BARz SC]] Warrior in a single unit (with optional cradle) with
a larger coverage area of about 2 meters. It only
amplifies communication signals, not noise.
In addition to the 45 dB gain and features of the
Road Warrior, the Road Warrior II provides a medium
power option, and radio frequency band auto
configuration.
In addition, the Road Warrior II uses a
state-of-the-art, high-performance antenna by
PinyonTM.
5BARz 4G The 5BARz 4G is a single unit package with a 45 dB[[Image Removed: 5BARz 4G]] gain and a coverage area of about 2 meters.
It provides the features and benefits of the Road
Warrior II, but additionally supports a full radio
frequency range of 700Mhz to 2.6Ghz, and supports 4G.
It also supports multiple phones simultaneously. It
is also programmable according to operator
requirements.
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5BARz 3000 5BARz 3000 product provides a 70dB maximum gain at a
maximum power of 0.6 watts, with coverage over a[[Image Removed: 5BARz 3000]] large area inside the home. It supports 3G and 4G,
both voice and data, for multiple phones
simultaneously.
@Home is a single unit package with both antennas in
the base unit. It is a carrier-grade product and
operator configurable (fully programmable from 700Mhz
to 2.6Ghz). It includes patent-pending isolation
feedback, with radio frequency isolation typically
30dB better than the Road Warrior.
@Home can optionally be configured with GPS and
wireless LAN.
Intellectual property
5BARz technology is based on achieving unique isolation between antennas,
without oscillation greatly improving signal gain for individual, home and
office coverage.
Title Patent Application Patent Issued
Cell Phone Signal Booster 11/625331 8005513Dual Cancellation Loop Wireless Repeater 12/106468
Wireless Repeater Management Systems 12/328076
Dual Loop Active and Passive Repeater
Antenna Isolation Improvement
12/425615
5BARz Trademark 78/866260
12/235313 + Foreign
Multi-Band Wireless Repeater filings 8027636
Antenna Docking Station 12/625347
Turning Weak Spots Into Sweet Spots
Trademark 78-938374
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Comparative Analysis
5BARz Femtocell Traditional Repeaters
· Carrier-specific box · Bi-directional
· Plug and play that connects to the amplifier and external
Options for solutions that internet through the antennas Installation
Consumer significantly broadband service at the of antennas required
improve wireless home and acts like a with minimum spacing
service short-range network tower of 35 feet or more
site between the antennas
· Need to determine
what the two pieces of
equipment, cables, and
multiple power cords
· Simply place are for
the unit where · Complex manual …
there is some or · Connect the unit to your Determine the ideal
marginal wireless broadband service where location for bothEasy to service, turn on your router is located and antennas, outdoor
Understand the unit and the the voice only wireless network antenna and
voice and data service should be improved indoor coverage
wireless service throughout the home antenna, then
is improved for determine ideal
everyone location for the
bi-directional
amplifier for proper
cable routing to the
antennas
·
· Equipment charge $250 · Equipment charge
for each carrier, 2 carrier starting at $350 for
· One-time house or SOHO equals $500 dual band Professional
Cost equipment charge equipment charge Equipment installation starting
only$299 5BARz won't work if you change at $200 Higher
Road Warrior carriers Possible monthly performance antennas
fee Requires use of starting at $100
broadband service
· Go on roof to
measure signal level;
· Plug 'n play No outdoor network
adjustments One · Carrier-specific set up antenna placement
Setup part works for all May require ISP support based on testing for 2
carriers Currently Voice Only bars or more signal
strength Antennas need
to be spaced 35 feet
or more apart
· Designed by
engineers and
brought to
production by Broadband vulnerable:
managers trained Degraded broadband · External antennas
in the Six Sigma throughput Power outage less reliableReliability quality process Depends on carrier Connectors Outdoor
Self contained, down/power down on carrier mounting Oscillation
fewest command Intermittent prone
cables/connectors handoffs with macro network
· Oscillation
suppression
circuitry
· Needs to be collocated
with broadband service GPS · ProfessionalInstallation · None; Plug 'n antenna may need to be installation
play installed near a window recommended
with a cable going to the
femtocell
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MARKETING STRATEGY - 2012
The Company has embarked upon a multi channel marketing strategy with
significant emphasis in Latin America as a direct result of the very favorable
factors and the stage of development of the cellular markets in South and
Central America and Mexico, more fully addressed herein.
During 2011, that Company has had several NDA's signed by major wireless
operators in that region as they are currently in the process of analyzing the
5BARz products in their labs. This is the initial step before full scale
endorsement of the technology and integration into their marketing
infrastructure.
Advanced levels of interest with major distributors in the Latam marketplace are
expected to see substantive sales results within the current fiscal year. In
fact the Company received a purchase order for the production of 16,000 Road
Warrior units to be completed for delivery into Mexico in 2012.
The Company has been expanding its employee/consultant base in Latin America and
USA due to significant product interest. More recently we have set a structure
for the development of the German speaking market place in Europe, through a
subsidiary operation 5BARz AG in Zurich Switzerland.
The LATAM Market
The Company has analyzed the fundamentals of the mobile phone market in the
LATAM countries and has determined that to be a key point for market penetration
for the 5BARz products for the following reasons;
First, the mobile phone market has just gone through a very strong decade of
growth in Latin America, with mobile subscriptions having overtaken fixed lines
as the preferred method of communication. As a result Latin America's mobile
telephone industry has a high degree of market penetration. Mobile subscriptions
totaled 88.2% of the region's population, compared to 55.2% in Asia Pacific,
90.4% in North America and 50.6% in the Middle East and Africa. Having recently
invested heavily in subscription development, the cellular network operators are
now focusing upon the maintenance of their substantial customer base, and the
5BARz technology can contribute substantially to achieving that customer
satisfaction.
The mobile telephone industry in Latin America has benefited from generally
opening up to competition. This provides a very fertile ground for the
introduction of a technology such as 5BARz to secure customer retention through
quality of service.
The inherent geographical difficulties in laying fixed line infrastructure have
encouraged a move to mobiles, but in addition, that geography, the Andean and
Rainforest regions and expanses of rural areas again benefit from the 5BARz
technology whereby weak cellular signal is amplified within the vicinity of the
user.
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Further the LATAM countries are experiencing a renewed era of strong growth,
reflecting reviving economic growth and improving income levels. This again is a
favorable factor for the introduction of our products to meet the growing
demands of consumers.
In addition, the launch of 3G and mobile broadband services has increased demand
for mobile subscriptions. Mobile broadband is particularly desirable in areas
with no or limited access to cable internet services. Moving to mobiles offers
consumers the benefits of on-the-move communications and advantageous
introductory deals. Greater access to communications also helps to narrow
regional divides. All of these factors are enhanced by the 5BARz experience.
In fact internet usage is set to take off from 2010, with broadband internet
subscriptions generally growing by higher rates than mobile subscriptions
Initial 3G market expansion is likely to be greater in the region's wealthier
markets, such as Argentina, Chile and Mexico, and these have been specifically
targeted by our Company with very favorable results.
Number of subscribers
• Brazil: 194 million
• Mexico: 93.5 million
• Argentina: 50.4 million
• Colombia: 40.5 million
• Venezuela: 28.1 million
• Chile: 16.5 million
• Other countries: 103 million
• Total: 526 million
In fact in 2011 the Company received a purchase order for 16,000 units of the
Road Warrior for proceeds of $3.2 million, from the LATAM marketplace. That
order will be filled when proceeds are available for the production and delivery
of those units.
The DACH MARKET - 5BARz AG
The DACH/D-Deutschland or Germany, A-Austria and CH-Switzerland group of
countries in the European Union represents one of the most technologically
advanced and progressive sectors of that economic group representing a German
speaking majority population based of 90.3 million people of which Germany, 78.3
million, Austria, 7.4 million, and Switzerland, 4.6 million
Formation of Subsidiary Company, 5BARz AG
On October 6, 2011, 5BARz International Inc. commenced the organization under
the laws of Switzerland, in the Canton of Zurich, a wholly owned 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 had approved and issued to an
escrow agent 4,900,000 fully paid shares, at a price of CHF 0.01 per share for
aggregate proceeds of CHF 49,000. Those shares are being held for resale, and
are more fully described herein. The net proceeds received on re-sale will be
paid into 5BARz AG as additional paid in capital. The documentation on this
transaction was completed on March 26, 2012.
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.
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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, 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. This sales and marketing
program will commence upon completion of the corporate formation and funding.
Results of Operations
Three month period ended June 30, 2012 compared to three month period ended June
30, 2011.
3 Months ended 3 Months ended
June 30, 2012 June 30, 2011 Difference
Amortization and depreciation 6,070 134 5,936
Bank charges & interest 123,302 5,833 117,469
Sales and marketing expenses 30,076 76,272 (46,196)
General and administrative 735,091 194,333 540,758
Total Operating Expenses 894,538 276,572 617,966
Other income (expenses) (333,928) 2,377 336,305
Net Loss $ (1,228,467) (274,194) (954,273)
The three months ended June 30, 2012 reflects an increase in the net loss of
$954,273 compared to the corresponding three month period ended June 30, 2011
due in part to the fact that the current year numbers reflect the loss for the
consolidated entity Cellynx Group, Inc. and Cellynx Inc. The previous period do
not reflect those expenses as the acquisition occurred on March 29, 2012. The
most significant part of that increased loss is "general and administrative"
expenses which reflect an increase of $617,966. During the period, the Company
added several senior industry personnel to it's management and advisory team. In
conjunction with those additions, share compensation was paid during the quarter
in the amount of $248,000, which is included in the increased general and
administrative expenses. In addition Cellynx consolidated general and
administrative expenses in the amount of $181,008 were included in the current
year quarterly results, an item that is not in the comparative numbers as that
subsidiary was not included in the prior year. The current period reflects an
increase of $117,469 in interest expense, which is in the most part the result
of the prepayment of certain derivative securities in both Cellynx and 5Barz
International Inc.
Six month period ended June 30, 2012 compared to six month period ended June 30,
2011.
6 Months ended 6 Months ended Cumulative from November
June 30, 2012 June 30, 2011 14, 2008 (inception) to
June 30, 2012
Amortization and depreciation 6,260 180 7,313
Bank charges & interest 137,924 10,890 181,321
Sales and marketing expenses 86,764 124,138 316,505
General and administrative 1,170,548 300,617 1,751,538
Total Operating Expenses 1,401,495 435,825 1,751,538
Other income (expenses) 55,112 3,119 75,916
Net Loss $ (1,346,384) (432,706) $ (2,180,761)
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The Company has incurred losses from inception, February 17, 2008 to June 30,
2012 in the aggregate amount of $2,180,761. 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 June
30, 2012 was $2,127,531, after giving effect to the loss as a shell Company of
$53,230 comprised of general and administrative expenses.
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. The Company expects that the acquisition of Cellynx Group, Inc.
will be favorably viewed by capital markets due to the synergy established
between 5BARz and Cellynx in the process of commercializing the 5Barz technology
globally.
Our net loss for the six month period ended June 30, 2012 was $1,346,384
compared to a net loss of $432,706 for the corresponding period for the prior
year. During the six month period ended June 30, 2012 the Company acquired
Cellynx Group, Inc and its consolidated subsidiary Cellynx Inc. and 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 six month period ended June 30, 2012, the Company incurred general
and administrative expenses of $1,170,548 compared to $300,617 incurred during
the quarter ended June 30, 2011. These general and administrative expenses
incurred in the current year include the Cellynx expenses of $543,912 which were
not reflected in the prior year numbers as the subsidiary was not consolidated
at that time. Cellynx operations are focused upon the continued development of
the Companies technology, patent portfolio and product development initiatives,
where 5BARz has been focused upon the commercialization, corporate finance and
sales and marketing activities.
Our net loss during the six month period ended June 30, 2012 was $1,346,384 or
$0.0128 per share compared to a loss from operations of $432,706 or $0.0049 per
share during the six months ended June 30, 2011. The weighted average number of
shares outstanding was 104,975,294 for the six month period ended June 30, 2012
compared to 88,386,568 for three month period ended June 30, 2011, 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.
33
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Liquidity and Capital Resources
As at June 30, 2012
As at June 30, 2012, our current assets were $75,308 and our current liabilities
were $3,308,584, which resulted in a working capital deficit of $3,228,276. As
at June 30, 2012, current liabilities were comprised in the most part of
liabilities that were incurred by Cellynx in the aggregate amount of $2,776,333,
of which $1,444,157 are liabilities incurred in the early stages of development
of Cellynx. Several of these Cellynx liabilities date back many years, and the
Company is intent upon a detailed review of those items and dealing with them in
conjunction with financings that are in process. The parent Company 5Barz
International Inc. has a working capital deficit of some $340,000. In addition
the total liability amount includes a "beneficial conversion factor" reflecting
the "mark to market" liability associated with derivative securities of
$617,432, an amount that does not require the use of cash resources of the
Company to settle.
As at June 30, 2012, the Company's total assets were $3,675,153 comprised of
intellectual property in the amount of $2,230,266 and goodwill arising on the
acquisition of Cellynx Group, Inc in the amount of $1,364,038.The intellectual
property represents the patent applications and trademark registrations and
license related to the 5BARz technology by the combined entity. In addition the
Company has made deposits and prepaid expenses of $18,864 in Switzerland related
to their office and operations in 5BARz AG.
As at June 30, 2012, our total liabilities were $3,358,584 comprised of current
liabilities as described above as well as a $50,000 that we anticipate will be
settled by the issuance of share capital. The increase in liabilities as at June
30, 2012 from year ended December 31, 2011 was again due in the most part to the
acquisition of Cellynx Group, Inc on March 29, 2012.
Stockholders' equity decreased from a deficit at December 31, 2011 of $714,420
to a deficit balance of $316,568 at June 30, 2012. This decrease is attributable
in the most part to equity sales of common stock during the period. It should be
noted that the stockholders deficit reflect a treasury stock balance of
$1,800,000 which represents the shares issued by 5BARz International Inc. to
Cellynx Group Inc for a 60% interest in the 5Barz intellectual property.
Cash Flows from Operating Activities
For the six month period ended June 30, 2012, net cash flows used in operating
activities was $1,362,074 consisting primarily cash used for general and
administrative expenses. For the six months ended June 30, 2011, net cash flows
used in operating activities was $380,587, a number significant less than the
current year as the Company did not consolidate Cellynx Group, Inc at that
time..
Cash Flows from Investing Activities
For the six month period ended June 30, 2012, net cash flows used in investing
activities was $1,589,699, comprised of an increase in the intellectual property
acquired from Cellynx of $300,000 as well as a goodwill factor of $1,364,038 on
the acquisition of Cellynx. The original acquisition of IP from Cellynx for debt
was replaced with the investment being completed through the issuance of shares.
For the six months ended June 30, 2011, net cash flows used in investing
activities was $174,513 comprised in the most part of a $170,000 deposit on
investment in Cellynx.
Cash Flows from Financing Activities
We have financed our operations primarily from the issuance of equity and notes
payable. For the six month period ended June 30, 2012, net cash flows provided
from financing activities was $1,762,308 comprised of proceeds from the sale of
common stock in the amount of $291,000, proceeds from the issuance of notes
payable of $232,500 and the payment of certain liabilities and assets for common
stock aggregating $355,247. In addition the Company issued stock for services of
$402,990 and $250,000 of stock issued for the acquisition of Cellynx Group Inc.
For the six months ended June 30, 2011 cash flows from financing activities
consisted of $651,567 comprised of proceeds of $1,203,500 on the sale of common
stock, net of payments of $551,933 paid to Cellynx.
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.
34
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Plan of Operation and Funding
The Company has recently engaged the services of two investment banking groups
and is working with private investors to secure the financing necessary to
commercialize the 5BARz business opportunity. 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 $2.2 million dollars. This is a subsidiary Company, and this
funding will be paid when proceeds come available.
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, 2011 and 2010, 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
35
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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, 2011, and March 31, 2012, 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.
36
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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, 2011 and 2010.
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.
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