Celsia (CMTD) 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

 SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended June 30, 2008

 OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

 SECURITIES EXCHANGE ACT OF 1934

 For the transition period from ________________ to ________________

Commission file number: 333-64840

CELSIA TECHNOLOGIES INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	91-2015441
(State or Other Jurisdiction of	(IRS Employer
Incorporation or Organization)	Identification No.)
1395 Brickell Avenue, Suite 800, Miami Florida	33131
(Address of Principal Executive Offices)	(Zip Code)

(305) 529-6290

(Registrant’s Telephone Number, Including Area Code)

None

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

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

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

Class	Outstanding at August 12, 2008
Common Stock, $.01 par value per share	85,823,638 shares

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2008 (unaudited) and
December 31, 2007	1
Consolidated Statements of Operations (unaudited) for the three
month and six month periods ended June 30, 2008 and 2007	2
Consolidated Statements of Cash Flows (unaudited) for the six
month periods ended June 30, 2008 and 2007	3
Notes to Consolidated Financial Statements	4 -10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures about Market Risk	15
Item 4T. Controls and Procedures	15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	17
Item 2. Submission of Matters to a Vote of Security Holders	17
Item 3. Exhibits	18
Signatures	19

i

FORWARD-LOOKING STATEMENTS

Some of the statements under ‘‘Business,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ “Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our strategy, future operations, future financial position, future revenues, projected costs, prospects, and the plans and objectives of management and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, implied or inferred by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘���will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘would,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential’’ or ‘‘continue’’ or the negative of such terms and other comparable terminology.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not know whether we can achieve positive future results, levels of activity, performance, or goals. Actual events or results may differ materially. We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advise readers that forward-looking statements involve various risks and uncertainties. We undertake no obligation to update any of the forward-looking statements after the date of this Quarterly Report to conform to those statements to reflect the occurrence of unanticipated events, except as required by applicable law.

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements.

Celsia Technologies, Inc. and Subsidiaries

Consolidated Balance Sheet

(US Dollars) 

	June 30, 2008			December 31, 2007
	(unaudited)
Assets
Current Assets
Cash and cash equivalents	$	1,605,255		$	3,046,624
Receivable		551,326			298,799
Inventory		88,521			74,465
Prepaid expenses		78,525			45,661
Other		37,300			31,785
Total current assets		2,360,927			3,497,334
Guarantee deposits		23,545			26,157
Advance payments		133,640			154,287
Furniture and equipment, net (note 1)		697,871			639,947
Deferred Financing Costs (note 1)		1,366,438			1,721,630
Royalty Advance (note 3)		-			-
Intangible Assets, net (note 3)		89,630			85,049
Total assets	$	4,672,051		$	6,124,404
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable	$	588,480		$	282,055
Bond Payable (note 4)		286,602			322,582
Accrued expenses
Payroll and Related		676,917			652,917
Other		608,022			576,917
Other		42,289			26,545
Total current liabilities		2,202,310			1,861,016
Convertible Debenture, net of $3,255,420 as of June 30, 2008 and $4,092,051 as of December 31, 2007 unamortized discount (note 6)		5,642,363			4,400,796
Accrual for Employee Retirement Benefits (note 3)		94,618			86,683
Total liabilities		7,939,291			6,348,495
Stockholders' Equity (Deficit) (note 6 & 7)
Preferred Stock, Series A; $.001 par value; 30,000,000 shares authorized; 22,032,963 as of June 30, 2008 and 22,320,598 as of December 31, 2007 issued and outstanding		22,033			22,321
Preferred Stock, Series B; $.001 par value; 7,000,000 shares authorized; 3,063,402 as of June 30, 2008 and December 31, 2007 issued and outstanding		3,063			3,063
Common stock; $.001 par value; 500,000,000 shares authorized; 85,823,638 as of June 30, 2008 and 85,273,680 as of December 31, 2007 issued and outstanding		85,824			85,273
Common stock subscribed		6,158			6,158
Additional paid-in-capital		40,150,827			40,032,066
Other comprehensive loss		(90,108	)		(80,478	)
Accumulated (deficit)		(43,445,037	)		(40,292,494	)
Total stockholders' equity (deficit)		(3,267,240	)		(224,091	)
Total liabilities and stockholders' equity (deficit)	$	4,672,051		$	6,124,404

See accompanying notes to consolidated financial statements

1

Celsia Technologies, Inc. and Subsidiaries

Consolidated Statements of Operations

(US Dollars)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Revenue	$	414,358		$	199,332		$	720,046		$	298,655
Costs and expenses
Cost of Sales		447,716			381,400			742,441			547,938
Selling and Administrative expenses		680,261			585,342			1,420,816			1,542,304
Depreciation		19,922			45,757			36,891			89,231
Amortization of deferred financing cost (note 1)		177,596			79,111			370,896			84,164
Miscellaneous (income) expense		12,607			4,289			24,319			4,952
Total costs and expenses		1,338,102			1,095,899			2,595,363			2,268,589
Operating (loss)		(923,744	)		(896,567	)		(1,875,317	)		(1,969,934	)
Other income (expenses)
Financing Expense (note 6)		-			(6,060,564	)		(177,956	)		(6,060,564	)
Interest and other income		17,535			66,645			101,074			39,345
Interest expense (notes 5 and 6)		(567,223	)		(169,907	)		(1,200,344	)		(185,963	)
Total other income (expenses)		(549,688	)		(6,163,826	)		(1,277,226	)		(6,207,182	)
Net (loss)	$	(1,473,432	)	$	(7,060,393	)	$	(3,152,543	)	$	(8,177,116	)
Dividend on Series A Preferred Stock (note 7)	$	(96,679	)	$	(41,144	)	$	(194,621	)	$	(41,144	)
Deemed Dividend on Series A & B Preferred Stock				$	(652,318	)				$	(652,318	)
Net Loss Attributable to Common Shareholders	$	(1,570,111	)	$	(7,753,855	)	$	(3,347,164	)	$	(8,870,578	)
Net Loss per Share:
Basic and Diluted	$	(0.02	)	$	(0.14	)	$	(0.04	)	$	(0.19	)
Weighted Average Shares Outstanding		85,502,822			54,809,238			85,439,597			45,646,974

See accompanying notes to consolidated financial statements

2

Celsia Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(US Dollars)

	June 30,
	2008			2007
Cash flows from operating activities:
Net (loss)	$	(3,152,543	)	$	(8,177,116	)
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
Depreciation		36,891			89,231
Amortization of Deferred Financing Costs		370,896			84,164
Issuance of Common Stock for Debenture Principal and Interest Conversion		12,438
Interest on Convertible Debt		-			112,935
Issuance of warrants for service		-			75,229
Amortization of Debt Discount		836,632			-
Accrete Interest on Convertible Debenture		404,936			-
Financing Expense		-			6,060,564
Stock Based Compensation		109,848			183,025
Changes to certain other accounts:
Receivable		(252,527	)		(117,022	)
Inventory		(14,056	)		3,634
Advance payments		20,647			18,091
Prepaid expenses		(32,864	)		18,748
Accounts payable		306,425			(112,797	)
Accrued expenses		55,105			(299,328	)
Accrual for Employee Retirement Benefits		7,935			(18,004	)
Other		(58,929	)		(10,955	)
Net cash (used) by operating activities		(1,349,166	)		(2,089,601	)
Cash flows from investing activities:
Guarantee Deposits		2,612			(22,727	)
Purchase of furniture and equipment		(94,815	)		(51,855	)
Net cash (used) by investing activities		(92,203	)		(74,582	)
Cash flows from financing activities:
Deferred Finance Charge		-			(1,107,966	)
Proceeds from Issuance of Convertible Debt		-			8,000,000
Net cash provided by financing activities		-			6,892,034
Net (decrease) increase in cash and cash equivalents		(1,441,369	)		4,727,851
Cash and cash equivalents - beginning of period	$	3,046,624		$	295,400
Cash and cash equivalents - end of period	$	1,605,255		$	5,023,251
Supplemental cash flow disclosure
Noncash financing activity
During 2008 and 2007 the Company recorded stock compensation
arrangements for certain employees and directors	$	109,848		$	132,111
During 2008 Preferred Shares were converted into Common Shares	$	288		$	-
During 2008, the Company recorded a premium given to the Debenture Holders
as a Financing Expense	$	177,956		$	-
During 2007, the Company recorded a premium on the conversion of
issued notes payable to convertible debenture as a deferred finance charge	$	-		$	115,000
During 2007, the Company issued warrants to placement agents
for convertible debenture as a deferred finance charge	$	-		$	355,328

See accompanying notes to consolidated financial statements

3

Celsia Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2008

Note 1 - Summary of significant accounting policies

Organization

 

Celsia Technologies, Inc. (the "Company" or "Celsia"), a US Corporation incorporated in the State of Nevada, is formerly known as iCurie, Inc. Celsia's operations consist of research, development, and commercialization of next-generation cooling solutions. The Company was founded in 2000 to address the emerging heat problem that now threatens the development of higher-performing microelectronic products. Celsia is taking its innovative thermal management technology from the laboratory to high volume manufacturing, and operating as both a licensor of the technology and a vertically integrated provider of customized applications.

The Company's corporate headquarters is located in Miami, Florida, USA with subsidiaries in London, United Kingdom, Seoul, South Korea, and Taipei, Taiwan. During 2007, the Company relocated its Design and Manufacturing operations from Seoul, Korea to Taipei, Taiwan. Celsia's operations in Seoul, Korea remain as a sales and administrative office for the region. The Company's patented NanoSpreader™ is a completely new alternative to conventional cooling devices. By utilizing a nano scale environment, the laws of physics are manipulated enabling our cooling technology to be thinner, lighter and deliver significantly higher thermal conductivity (heat transfer capacity) versus conventional options such as Heat Pipes. And, we can supply our plate-shaped heat spreaders in virtually any shape that a design engineer requires. As a result, customers are able to achieve improved product performance without trading off size, weight or cost considerations.

Celsia's subsidiaries consist of (i) Celsia Technologies UK Limited ("UK Subsidiary"), a United Kingdom Company formerly known as iCurie Lab Holdings Limited, (ii) Celsia Technologies Korea, Inc. ("Korea Subsidiary"), a Korean Company formerly known as iCurie Lab, Inc, and (iii) Celsia Technologies Taiwan, Inc. ("Taiwan Subsidiary"). In consolidation, all significant intercompany balances and transactions have been eliminated.

Financial reporting

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements. Although these statements are based on management's best knowledge of current events and actions that the Company may undertake in the future, actual results could differ from those estimates.

Significant estimates required to be made by management include the valuation of equity securities issued, registration rights, intangible assets,

and accounting for convertible debentures.

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company and its subsidiaries have recently commenced limited revenue producing operations and have sustained accumulated losses of approximately $43.4 and $40.3 million as of June 30, 2008 and December 31, 2007, respectively. The Company and its Subsidiaries have funded operations through equity and debt financing since inception. All these factors raise substantial doubt over the Company's ability to continue as a going concern.

Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and highly liquid investments, including time deposits, which are readily convertible into known amounts of cash and have an original maturity dates of three months or less. The Company and its Subsidiary's cash and cash equivalents are maintained in banks and financial institutions in the United States, United Kingdom, South Korea, and Taiwan, and they have not experienced any losses on their cash balances.

Inventory

Inventory consists of finished goods ready to be sold to customers. Inventories are carried at the lower of cost or market value.

Investment

The UK Subsidiary owns 527,000 shares of an entity formerly affiliated through common management. These shares have been fully reserved and carry a book value of $0 as of June 30, 2008 and December 31, 2007.

Revenue recognition

The Company's policy is to record revenue as earned when the following attributes are met:

- Persuasive evidence of a sale arrangement exists;

- Delivery has occurred to the customers;

- The sales price to the customer is fixed or determinable; and

- Collection is reasonably assured.

The Company recognized revenues of $720,046 and $298,655 for the six months ended June 30, 2008 and 2007, respectively, from customer orders for test samples and commercial deliveries.

4

Deferred financing costs

In connection with obtaining debt financing as described in Note 6, the Company incurred legal and other related fees. Deferred financing costs incurred in connection with long-term financing amounted to $2,131,150 and are being amortized on a straight-line basis over the stated term of the loan. Amortization expense for the six months ended June 30, 2008 and 2007 amounted to $370,896 and $84,164, respectively.

Furniture and equipment

Furniture and equipment are summarized as follows:

	June 30,			December 31,
	2008			2007
Vehicles	$	49,554		$	73,331
Machinery		682,778			596,505
Furniture and fixtures		403,360			429,148
		1,135,692			1,098,984
Accumulated depreciation		(437,821	)		(459,037	)
	$	697,871		$	639,947

Furniture and equipment are stated at cost. Major renewals and betterments, which prolong the useful life or enhance the value of assets, are apitalized. Depreciation is computed using the straight-line method over the estimated life of five years for machinery and equipment, furniture and fixtures, and vehicles. Depreciation expense for the six months ended June 30, 2008 and 2007 amounted to $36,891 and $89,231, respectively.

Net Loss per Share

Basic Loss per share is computed by dividing net loss attributable to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted-average number of shares plus

the dilutive effect of convertible debt and preferred shares and outstanding options and warrants. Approximately 22 million and 3 million shares to be issued upon conversion of Series A and Series B Preferred Shares, respectively, were excluded from the calculation of diluted earnings per share for the periods ended June 30, 2008 and 2007, respectively, because they were anti-dilutive. Approximately 136 million and 65 million shares to be issued upon conversion of the convertible debentures were excluded from the calculation of diluted earnings per share as of June 30, 2008 and 2007, respectively, because they were anti-dilutive.

Long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be

recoverable. When the aggregate undiscounted future cash flows is less than the carrying value of the asset, an impairment loss is recognized, based on the fair value of the asset.

Business risks

The Company is subject to the risks associated with start-up and high growth companies such as the risks of raising adequate capital, producing profitable operations, and operating in various countries throughout the world.

Foreign currency translatio

The reporting and functional currency of the Company and its UK Subsidiary is the U.S. Dollar, while the functional currency of the Korea and Taiwan subsidiaries are the Korean Won and the New Taiwanese Dollar, respectively.

The assets and liabilities of the Korea and Taiwan Subsidiaries have been translated into U.S. Dollars at the prevailing period-end rate of exchange, while the related income and expense items were translated at the average rate of exchange during the period. The resulting translation adjustments are accumulated in a separate component of stockholders' equity (deficit).

The Company follows Financial Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive Income." SFAS 130 requires a Company to report comprehensive income (loss) and its components in a full set of financial statements. Comprehensive income (loss) includes the change in equity during a period from transactions and other events and circumstances from non-owner sources, such as unrealized gains (losses) on foreign currency translation adjustments. Changes in unrealized foreign currency translation gains (losses) for the six months ended June 30, 2008 and 2007 amounted

to ($9,630) and ($18,982), respectively. Accordingly, comprehensive loss for the six months ended June 30, 2008 and 2007 amounted to $3,162,173 and $8,196,098, respectively.

Fair value of financial instruments

The Company's cash, receivables, accounts payable, short-term debt, bonds payable, and the face amount of its convertible debentures represent financial instruments whose carrying amounts reasonably approximate their fair value.

Recent accounting pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which provides guidance for measuring the fair value of assets and liabilities, as well as requires expanded disclosures about fair value measurements. SFAS 157 indicates that fair value should be determined based on the assumptions marketplace participants would use in pricing the asset or liability, and provides additional guidelines to consider in determining the market-based measurement. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The adoption of this standard did not have a material effect on the Company’s results of operations or financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits all entities to choose to measure eligible items at fair value at specified election dates. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of this standard did not have a material effect on the Company’s results of operations or financial position.

5

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS 141. SFAF 141(R) requires assets and liabilities acquired in a business combination, contingent consideration, and certain acquired contingencies to be measured at their fair values as of the date of acquisition. SFAS 141(R) also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008 and will be effective for business combinations entered into after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment ARB No. 51” (“SFAS 160”). SFAS 160 clarifies the accounting for noncontrolling interests and establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not currently have any minority interests. In March 2008, the FASB issued SFAS No. 161 “Disclosure about Derivative Instruments and Hedging Activities - an amendment of FASB statements No. 133” (“SFAS 161”) which provides revised guidance for enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133, and how derivative instruments and the related hedged items affect and entity’s financial position, financial performance and cash flows. SFAS 161 is effective for the Company’s fiscal year beginning January 1, 2009. The Company does not currently have any derivative instruments and is not involved in any hedging activities.

In May 2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Acceptable Accounting Principles” (“SFAS 162”). SFAS 162 identifies the source of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles in the United States. This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. Although the Company will continue to evaluate the application of SFAS 162, the Company does not currently believe the adoption of SFAS 162 will have a material impact on its consolidated financial statements.

Note 2 - Income Taxes

The Company recognizes deferred tax assets and liabilities created by temporary differences between the financial statement and tax basis of assets and liabilities. Deferred tax assets and liabilities are computed on such temporary differences, including available net operating loss carry forwards and tax credits, by applying enacted statutory tax rates applicable to the years when such differences are expected to reverse. A valuation allowance is provided on deferred tax assets to the extent that it is more likely than not that such deferred tax assets will not be realized.

The Company currently operates in the United States, while its Subsidiaries operate in the United Kingdom South Korea, and Taiwan. Operating loss carry forwards in the United States approximated $6,800,000 at December 31, 2007, and can be carried forward for 20 years, expiring in the years 2025-2027. Operating loss carryforwards in the United Kingdom approximated $5,000,000 at December 31, 2007, and can be carried forward indefinitely, provided the Company (i) doesn't cease operations and (ii) doesn't change its business nature, while operating loss carryforwards in South Korea approximated $6,300,000 at December 31, 2007, and expire in the years 2008-2012. At December 31, 2007, the Company has a deferred tax asset of approximately $5,600,000 and has recorded a full valuation allowance against the deferred tax asset resulting from these tax loss carry forwards.

Note 3 - Commitments and Contingencies

Operating Leases

The Company has a lease in Seoul, Korea for its Sales and Administrative office which expires in October 2009. The Company has a lease in Taipei, Taiwan for its Design and Manufacturing Center which expires in September 2009. As of December 31, 2007, the minimum future rental commitments under all non-cancelable operating leases with terms greater than one year, are as follows:

Year Ending December 31,
2008	$	100,599
2009	$	77,953
	$	178,552

Employment contracts

The Company has entered into employment agreements with some of its officers / employees for terms ranging between one and two years. Under the terms of the contracts these officers / employees are entitled to minimum compensation of approximately $274,000 in 2008. Other employees contracts have expired and are employed at will with no minimum compensation.

On August 15, 2007, the Company entered into an agreement with Core Strategies, LLC (“Core Strategies”) which provides services of several Core Strategies partners including Joseph Formichelli as Chief Executive Officer of the Company on a full-time basis, and a marketing and sales executives on a part-time basis. The agreement is effective from August 15, 2007 through August 14, 2009. The Company pays Core Strategies $20,000 per month and has issued 8,000,000 warrants to purchase the Company’s common stock.

Accrual for Employment Retirement Benefits

The Company has recorded a liability of $94,618 and $86,683 as of June 30, 2008 and December 31, 2007, respectively, for employment retirement benefits. The Company believes that this liability will not be paid within the current year, and it has therefore been recorded as a long term liability.

Royalty Agreement

On May 18, 2005, the UK Subsidiary entered into a Royalty Agreement with CHL Investment Partnership ("CHL") and Hansen Gray & Company, Inc. ("Hansen Gray"). The terms of the agreement call for a payment of 1.14% and 0.86% of revenue to CHL and Hansen Gray, respectively, once the UK Subsidiary's revenue exceeds $25 million. The agreement is terminated once the aggregate payment to CHL and Hansen Gray totals $50 million. During 2005, the Company paid a Royalty Advance to Hansen Gray totaling $500,000.

6

On July 18, 2007, the Company and AMF Capital, Inc. (formerly known as Hansen Gray & Company, Inc) (“AMF”) entered into a Settlement Agreement and Release pursuant to which the Company and AMF resolved certain claims of AMF against the Company. Pursuant to the Settlement Agreement, the Company paid a Royalty advance of $100,000 in cash to AMF and issued to AMF a warrant to purchase 1,000,000 shares of common stock of the Company at an exercise price of $0.88 per share, and AMF released the Company from any and all claims except for certain specified contractual rights as set forth in the Settlement Agreement. The Company has recorded a full valuation allowance resulting from these prepaid royalties.

CHL is an organization in which Dr. Jeong Hyun Lee (a former director of the Company) holds an interest in.Hansen Gray is an entity in which Alan Miller (a former director of the Company) holds an interest in.

Intangible Assets

In April 2007, Celsia acquired certain assets and liabilities together with two sales executives and a thermal management customer base from CheongNam International Co. Ltd. ("CNIT"), a Korean entity, for approximately $70,000. The Company has recorded assets of approximately $88,000, liabilities of approximately $82,000 and intangible asset (which is the value assigned to the acquired customer list) of approximately $64,000. The Company is amortizing this customer list over 36 months.

The Company has also recorded an intangible asset for costs incurred with filing approved patents and trademarks of approximately $34,000.

Registration Rights

The Company entered into a registration rights agreement with the holders of the Series B Preferred shares dated December 16, 2005. Under the terms of the Registration Rights Agreement, the Company was required to use its best efforts to file a Registration Statement covering the underlying Common Stock within six months after the Company's Registration Statement on Form SB-2 (SEC File No. 333-128856) was declared effective. The Company was required to maintain the effectiveness of the Initial Registration Statement through the first anniversary of the Closing Date and was to use its best efforts to maintain the effectiveness of the Initial Registration Statement through the second anniversary of the Closing Date. This agreement was amended on May 25, 2007 to reflect the subordination of rights under this agreement to the registration rights agreement entered into by the Company on May 25, 2007 as described below.

The Company entered into a registration rights agreement with the Convertible Debenture Holders dated May 25, 2007 (see Note 6). Under the terms of the registration rights agreement, the Company is required to file a Registration Statement (the "Initial Registration Statement") covering the Common Stock (i) into which the Debentures are convertible and (ii) for which the Warrants and Placement Agent Warrants are exercisable (collectively, the “Registrable Securities”) within 30 days of a demand by Debenture Holders or within six (6) months after the Closing Date. If the Initial Registration Statement is not filed on or prior to its Filing Date, or in certain other circumstances, the Company shall pay to each Debenture Holder an amount in cash equal to 1.0% of the aggregate purchase price paid by such Debenture Holder pursuant to the Purchase Agreement for any unregistered securities then held by such Debenture Holder. The Company has fulfilled its requirements by filing the Registration Statement on Form SB-2 (SEC File No. 333-147564) which was declared effective on December 11, 2007.

Litigation

On October 19, 2007, the Company's former President, CEO, and Board of Director, filed a lawsuit in the Miami-Dade County Circuit Court claiming failure to pay bonuses, severance, and other benefits in connection with his previously reported termination by the Company. The Company has filed a motion to Compel Arbitration and Stay Proceedings as provided by the employment contract with the Company. On April 16, 2008, the court granted the Company's motion and ordered (i) that the Plaintiff commence arbitration in accordance with the terms of the employment agreement within six (6) months of the date of the order and (ii) all proceedings are stayed until the conclusion of the arbitration proceedings.  Pursuant to the court order, if arbitration is not timely commenced the action will be dismissed. The Company believes the employee's claims are without merit and intends to defend the action vigorously. The settlement of this action is not expected to have a material impact on the Company's financial position.

Note 4 - Bond payable

The bond payable (Won 300 million) at June 30, 2008 and December 31, 2007, was issued to a third party in December 2002 and matures in December 2007. The bond carries no interest and has been discounted using a 7% interest rate. The bond payable is summarized as follows:

	June 30,			December 31,
	2008			2007
Face Amount	$	286,602		$	322,582
Less: Discount		(93,926	)		(93,926	)
Plus: Amortization of discount		93,926			93,926
Carrying value	$	286,602		$	322,582

Note 5 - Notes Payable

On February 20, 2007 and April 20, 2007, the Company issued Secured Convertible Promissory Notes (the “Notes”) in an aggregate principal amount of $1,000,000 and $150,000, respectively, to certain purchasers (the “Noteholders”) pursuant to the terms of Securities Purchase Agreements dated as of February 20, 2007 by and between the Company and the Noteholders. The Notes carry an annual interest rate of 10%, with all principal and accrued interest being due and payable on June 20, 2007; provided, however, that upon the terms and subject to the conditions of the Notes, all outstanding principal and interest on the Notes will automatically convert into securities of the Company issued pursuant to a Company financing meeting certain conditions (a “Qualified Financing”), if such Qualified Financing is effectuated on or prior to June 20, 2007. All principal and accrued interest on the Notes shall become payable prior to June 20, 2007 upon certain events of default relating to, among things, the bankruptcy or dissolution of the Company, the sale of substantially all of the Company’s assets and certain breaches by the Company of the terms and conditions of the Notes and related agreements. The obligations evidenced by the Notes were secured by a pledge of substantially all of the Company’s assets, including the capital stock of Celsia Technologies UK Limited and Celsia Technologies Korea, Inc. In connection with the issuance of the Notes, the Company’s former Chief Executive Officer and former Chief Financial Officer had agreed to transfer approximately 735,000 shares of Company common stock held by such executives to the Noteholders in the event that a Qualified Financing does not occur on or prior to June 20, 2007.

On May 25, 2007, the Company issued Convertible Debentures which met the conditions of a Qualified Financing.The Notes, totaling principal of $1,150,000, interest of $27,847, and a 10% premium on principal totaling $115,000, were automatically converted into the Convertible Notes (see Note 6). Upon completion of the transaction, the 735,000 shares of Company common stock pledged by the Company's former Chief Executive Officer and former Chief Financial Officer were returned to them.

7

Note 6 - Convertible Debentures

On May 25, 2007, the Company issued 8% Secured Convertible Debentures due May 25, 2010 (the “Debentures”) in the aggregate principal amount of $8,142,847 to certain individuals and entities, together with warrants exercisable for a total of 70,752,778 shares of the Company’s common stock at a price of $0.144, for an aggregate of $6,850,000 in cash and the surrender of previously outstanding promissory notes of the Company totaling $1,292,847 (see Note 5). The Company used the Black Scholes option-pricing model to value the warrants issued to the Debenture Holders and applied it to the principal amount to determine the convertible debt discount. The Company will amortize the discount over the life of the Debenture (36 months).

On August 17, 2007, the Company issued an additional 8% Secured Convertible Debenture due May 25, 2010 in the principal amount of $350,000, together with a warrant to purchase 2,800,000 shares of the Company’s common stock at a price of $0.144, for $350,000 in cash, on the same terms as the Company’s debentures and warrants issued on May 25, 2007.

On January 1, 2008, the Company elected to accrete to, and increase, the outstanding principal amount due under the Debenture by $404,936 pursuant to the terms of the Debenture.

The convertible debentures payable is summarized as follows:

	June 30,			December 31,
	2008			2007
Face Amount	$	8,897,783		$	8,492,847
Less: Discount		(5,062,256	)		(5,062,256	)
Plus: Amortization of discount		1,806,836			970,205
Carrying value	$	5,642,363		$	4,400,796

The sale of Debentures and Warrants (the “Debenture Offering”) was effected pursuant to a Securities Purchase Agreement dated as of May 25, 2007 between the Company and the Debenture Holders (the “Purchase Agreement”). In connection with the Debenture Offering, the Company entered into a Security Agreement and Registration Rights Agreement, each dated as of May 25, 2007, with the Debenture Holders (see Note 3).

In connection with the Debenture Offerings, the placement agents (i) received a cash fee of approximately $618,000 and (ii) are entitled to receive warrants to purchase 5,120,000 shares of the Company’s common stock at a price of $0.144. The Company has recorded payments to the placement agents as a deferred cost (see Note 1).

As part of the debt financing, each holder of Series A & B Preferred Stock who certified their status as an accredited investor was issued 2.19 shares of Common Stock for each share of Preferred Stock held. The Company has recorded a financing expense of $6,060,564 representing the fair value of the 50,504,696 shares of Common Stock issued as an inducement to the Series A & B Preferred Shareholders to consent to the convertible debenture. As of December 31, 2007, 46,517,737 shares of Common Stock have been issued and the remaining 3,986,959 shares have been recorded as Common Stock subscribed. As part of the same consent, the holders of the Series A & B Preferred shares agreed to modify the terms of the preferred stock to eliminate their seniority to the Debenture holders in regards to the sale or liquidation of the Company, forfeit any unpaid and undeclared dividends through May 24, 2007, lower the dividend rate on the Series A Preferred Stock to two percent per annum (2%) going forward, and eliminate certain additional rights of the preferred stock. In addition, the holders of the Series A & B Preferred shares waived any future anti-dilution rights.

Upon issuing the Debentures, the Company triggered certain anti-dilution provisions in the Company's warrants which lowered the conversion price and increased the number of shares the warrant is convertible for. The Company used the Black-Scholes option-pricing model to determine the fair market value of the adjusted warrants and recorded a deemed dividend of $652,318 (see note 7).

The Debenture Holders shall be entitled to receive interest on the aggregate unconverted and then outstanding principal amount of their Debentures at the rate of 8% per annum, payable quarterly, in cash or Common Stock at the discretion of the Company, and subject to certain limitations and restrictions. The Debentures are secured by substantially all of the Company’s assets. The Debenture Holders have the right to convert the Debentures at any time into shares of Common Stock at an initial conversion price of $0.125. The exercise price of the Warrants and Placement Agent Warrants are $.144 per share. The initial conversion price of the Debentures and the exercise price of the Warrants and Placement Agent Warrants are subject to adjustment upon certain events.

The Company triggered adjustments to the conversion price of the Debenture and the exercise price of the Warrants as a result of the Company's financial results for the period ending September 30, 2007, which became effective November 15, 2007.The Debenture Holders now have the right to convert the Debentures at any time into shares of Common Stock at a conversion price of $0.0625. The number of Warrants issued to the Debenture Holders and the Placement Agents increased to 147,105,556 and 10,240,000, respectively, and the exercise price was reduced to $0.072 per share.

The Company used the Black Scholes option-pricing model to value the adjusted warrants issued to the Debenture Holders and applied it to the principal amount to determine the convertible debt discount which totaled $5,062,256. The Company will amortize the discount over the life of the Debenture (36 months). During the six months ended June 30, 2008, the Company amortized $836,632 of the debt discount into interest expense. As a result of the adjustment to the conversion price, the Company has recognized a beneficial conversion feature and recorded a Financing Expense totaling $3,430,591 during the year ended December 31, 2007.

On March 26, 2008, the Company obtained consent from more than 70% of the Debenture Holders to modify the terms of the Debentures to provide that, in lieu of making the interest payments due thereunder in cash or in shares of common stock of the Company on the interest payment due dates, the interest payments shall accrue and be paid in full in cash on May 25, 2010, the Debenture maturity date.  As an incentive to provide the consent, the Company shall distribute to the Debenture Holders a one time distribution equal to the value of 2% of the outstanding principal amount due under the Debentures as of March 31, 2008 totaling approximately $178,000, which will be paid in cash on the maturity date.   Each Debenture Holder shall have the right, in its sole discretion, to convert any accrued but unpaid interest on the principal amount due under the Debentures into shares of common stock of the Company at the applicable Interest Conversion Rate at any time prior to the maturity date.

During the six month period ended June 30, 2008, the Company issued 160,000 shares of common stock for the conversion of $10,000 in Debentures principal and issued 97,925 shares of common stock for the conversion of $2,350 in accrued interest.

8

Note 7 - Stockholders' equity

Capital stock

At June 30, 2008 and December 31, 2007, the Company had an authorized number of shares of 500,000,000 Common Shares and 100,000,000 of Preferred Shares, 30,000,000 of which has been designated as Preferred Series A Shares and 7,000,000 of which has been designated Preferred Series B Shares. As of June 30, 2008, the total issued and outstanding shares were 85,823,638 Common Shares, 22,032,963 Preferred Series A Shares, and 3,063,402 Preferred Series B Shares. As of December 31, 2007, the total issued and outstanding shares were 85,273,680 Common Shares, 22,320,598 Preferred Series A Shares, and 3,063,402 Preferred Series B Shares.

During the years ended December 31, 2007, 740,907 shares of Preferred Series A were converted to Common Shares, respectively, at a rate of 1:1.

During the six months ended June 30, 2008, 287,635 shares of Preferred Series A were converted to Common Shares, respectively, at a rate of 1:1.

Share Exchange Agreement and Series A Offering

Effective as of July 11, 2005, the Company issued 20,995,239 shares of Series A Preferred Stock, together with warrants exercisable for a total of 6,441,895 shares of the Company's common stock at prices ranging from $0.88 - $1.32, to various parties in exchange for approximately $12.48 million in cash (at a cash price of $0.88 per share of Series A Preferred Stock) and the transfer of $4.6 million of previously issued promissory notes issued by various parties. (These transactions are collectively referred as the “Series A Offering").

In connection with the Series A Offering, the Company entered into a Registration Rights Agreement dated as of July 11, 2005 with the Company's shareholders, Series A Shareholders, and certain additional parties. Under the terms of the Registration Rights Agreement, if a registration statement is not filed within 60 days of July 11, 2005 or declared effective within 120 days of July 11, 2005 (each a "Non-registration Event"), then for each 30 day period during the pendancy of such a Non-Registration Event, the company is required to pay to the selling shareholders liquidated damages in an amount equal to one percent (1%) of the aggregated price such selling shareholders paid for the Company's series A Preferred stock (deemed to be $0.88 per share), which the company may pay in cash or additional shares of series A Preferred Stock (valued at $0.88 per share), at the company's option. The registration statement was filed on October 6, 2005 and was declared effective in April 2006. On August 10, 2006, the Company issued 970,550 Series A Preferred Shares valued at $902,611 to Preferred Series A Share Holders in settlement of the Non-Registration Events. This agreement was amended on May 25, 2007 to reflect the subordination of rights under this agreement to the registration rights agreement entered into by the Company on May 25, 2007 (see Note 3).

Terms of Series A Preferred

Subject and subordinate to the liquidation rights of the Company’s Secured Convertible Promissory Noteholders, the holders of the Series A Preferred shall be entitled to receive in preference to the holders of the Series B and Common Stock a per share amount equal to $0.88 plus any accrued, unpaid dividends, in the event of any sale or dissolution of the Company. The holders of the Series A Preferred have the right to convert the Series A Preferred at any time into shares of Common Stock at an initial conversion rate of 1:1, as defined. At the option of the Company, if certain criteria as defined in the agreement are met, the Series A Preferred can be converted into Common Stock.

Prior to May 25, 2007, the holders of Series A Preferred Stock were entitled to receive cumulative, compounding dividends at a rate of eight percent (8%) per annum as, when and if declared by the Board of Directors of the Company. The dividends may be paid in cash or shares of Series A Preferred Stock (valued at original issue price) at the sole discretion of the Company. Holders of Series A Preferred Stock also receive on an as-converted basis any distributions paid on the common stock. No dividends may be paid on common stock unless all unpaid cumulative dividends on the Series A Preferred Stock are paid. On August 10, 2006, the Company issued approximately 1,700,000 shares of Series A Preferred Stock as dividends to all holders of record on July 11, 2006, valued at approximately $1,500,000. As of May 25, 2007, the Series A Preferred Stock consented to waive any unpaid and undeclared dividends which resulted in the elimination of approximately $1,172,000 in accumulated, unpaid and undeclared dividends (see Note 6). In addition, the Series A Preferred Shareholders consented to lower the compounding dividend rate to two percent (2%) per annum. As of March 31, 2007, accumulated, undeclared dividends on the Series A Preferred Shares totaled approximately $339,400.

Terms of Series B Preferred

Subject and subordinate to the liquidation rights of the Company’s Secured Convertible Promissory Noteholders and Series A Preferred Stock, the holders of the Series B Preferred shall be entitled to receive in preference to the holders of the Common Stock a per share amount equal to $1.00, in the event of any sale or dissolution of the Company. The holders of the Series B Preferred have the right to convert the Series B Preferred at any time into shares of Common Stock at an initial conversion rate of 1:1, as defined. At the option of the Company, if certain criteria as defined in the agreement are met, the Series B Preferred can be converted into Common Stock. Holders of the Series B Preferred Stock receive on an as-converted basis any distributions paid on the Common Stock.

Stock Compensation

Through June 30, 2008 and 2007, the Company has granted approximately 4.6 and 6.6 million, respectively, of its common stock to employees and others, of which approximately 4.4 and 4.3 million, respectively, common shares have vested. These shares issuances were valued between $0.07-0.50 based upon management's estimate of the fair value of the common stock on the date of issuance. These stocks grants have certain vesting provisions through May 2009. For the six months ended June 30, 2008 and 2007, approximately 0 and 156,000 shares, respectively, vested and a charge to compensation expense of $9,500 and $102,904, respectively, was recorded. The remaining unvested shares valued at approximately $19,000 are being amortized over their respective vesting periods.

Employee Stock Options

On January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment,” using the modified prospective method. For the six months ended June 30, 2008 and 2007, the Company recognized stock-based compensation of $100,348 and $83,206, respectively. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating its forfeiture rate. Given the limited history of outstanding options, the Company has estimated a 0% forfeiture rate and has only recorded actual forfeitures as incurred.

Stock options issued under the Company’s Long-term Incentive Plans are granted with an exercise price equal or greater than the market price of the Company’s stock at the date of grant and expire ten years from the date of grant. These options generally vest over a two- or three-year period. During the six months ended June 30, 2008 and 2007, the Company issued 2.2 million and 0 options, respectively, to purchase common stock.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing method. Given its limited trading history, the Company used volatility from companies in the same industry. The Company estimated the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The Company has not made any dividend payments on common stock nor does it have plans to pay dividends in the foreseeable future. The following assumptions were used to estimate the fair value of options granted during the noted periods using the Black-Scholes option-pricing model:

	2008			2007
Risk free interest rate		5.00	%		7.33-8.25	%
Expected Term (years)		5			5
Expected volatility		100.00	%		100.00	%
Dividend Yield		0.00	%		0.00	%

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Information about all employee options outstanding is as follows:

For the six months ended June 30,	2008				2007
			Weighted Average					Weighted Average
	Shares		Exercise Price		Shares			Exercise Price
Options Outstanding at beginning of period		16,117,500	$	0.15		3,176,015		$	0.79
Granted		2,200,000	$	0.0625		0		$	-
Cancelled		0	$	-		(104,000	)	$	0.88
Options Outstanding at end of period		18,317,500	$	0.14		3,072,015		$	0.79

As of June 30, 2008, a total of 6,566,473 employee stock options are exercisable and the unamortized stock compensation is $273,008.

Warrants to Purchase Common Stock

During 2005, the Company issued various warrants to various parties in connection with the Series A and B Offerings. On May 25, 2007, upon issuing the Debentures, the Company triggered certain anti-dilution provisions in these warrant agreements which lowered the conversion price and increased the number of shares the warrant is convertible for. The Company used the Black-Scholes option-pricing model to determine the fair market value of the adjusted warrants and recorded a deemed dividend of $652,318. The tables below show the effect of the repriced warrants and increase in the number of shares.

On September 11, 2006, the Company issued warrants to purchase 1,500,000 of Celsia common stock to a third party as part of a distribution agreement. As part of the same agreement, the Company received warrants to purchase 500,000 shares of the distributors common stock. The warrants vest 25% in December 2006, 25% in December 2007, and 50% contingent upon achievement of volume thresholds. The agreement was executed with the intention that the value of each warrant to be materially similar in value. Management has estimated the fair market value of both issuances using the Black-Scholes Option pricing model and has valued the warrant issuance to them at approximately $220,000. The Company has recorded an expense totaling approximately $139,000 related to this issuance as of December 31, 2007. No value was assigned to the warrants received by the Company.

On May 25, 2007, the Company issued warrants to purchase 70,752,778 shares of Celsia common stock to the Debenture Holders (see Note 6). The Company valued the warrants to determine the discount on the debenture. In addition, the Company become obligated to issue warrants to purchase 5,120,000 shares of Celsia common stock to the Placement Agents and recorded $355,328 as deferred charges.

On July 18, 2007, the Company issued AMF Capital, Inc. a warrant to purchase 1,000,000 shares of common stock of the Company at an exercise price of $0.88 per share as part of a settlement (see Note 3). The Company recorded an expense of $32,700 for the issuances.

On August 17, 2007, the Company issued warrants to purchase 2,800,000 of Celsia common stock to the Debenture Holders (see Note 6). The Company valued the warrants to determine the discount on the debenture.

The Company triggered adjustments to the exercise price of the Debenture Warrants as a result of the Company's financial results for the period ending September 30, 2007, which became effective on November 15, 2007. The number of Warrants issued to the Debenture Holders and the Placement Agents increased to 147,105,556 and 10,240,000, respectively, and the exercise price was reduced to $0.072 per share.The Company recorded a deferred charge of $521,216 for the additional warrants issued to the placement agent.

During the year ended December 31, 2007, the Company issued warrants to purchase 1,300,000 shares of common stock to a consultant and recorded $59,410 as a consulting expense. During the year ended December 31, 2007, the Company issued 1,440,000 shares of common stock and warrants to purchase 720,000 in satisfaction of a $90,000 outstanding liability.

A summary of the issued and outstanding warrants are as follows:

Old	Old		Anti-Dilution		Anti-Dilution
Exercise	# of Warrants		Exercise		# of Warrants		# of Warrants		Expiration
Price	Outstanding		Price		Outstanding		Exercisable		Date
$ 0.072		720,000		n/a		n/a		720,000		December 2012
$ 0.11		1,300,000		n/a		n/a		1,300,000		December 2012
$ 0.144		78,672,778	$	0.072		157,345,556		157,345,556		May 2012
$ 0.32		1,500,000		n/a		n/a		750,000		September 2011
$ 0.88		1,000,000		n/a		n/a		1,000,000		July 2012
$ 0.88		681,018	$	0.144		681,018		681,018		July 2009
$ 0.88		1,186,820	$	0.36		2,862,308		2,862,308		July 2010
$ 1.09		1,097,142	$	0.36		2,646,027		2,646,027		July 2010
$ 1.10		2,759,357	$	0.45		6,789,387		6,789,387		July 2010
$ 1.32		2,759,357	$	0.53		6,882,126		6,882,126		July 2010
$ 1.50		772,190	$	0.60		1,941,836		1,941,836		December 2010
$ 3.00		765,850	$	1.16		1,986,069		1,986,069		December 2010
						181,134,327		184,904,327

Warrants to Purchase Preferred Stock

During 2005, the Company issued various warrants to placement agents in connection with the Series A and B Offerings. A summary of these warrants are as follows:

Old	Old		New		New
Exercise	# of Warrants		Exercise		# of Warrants		# of Warrants		Expiration
Price	Outstanding		Price		Outstanding		Exercisable		Date
$ 0.88		1,364,528	$	0.144		1,364,528		1,364,528		July 2010
$ 1.50		210,000	$	0.144		210,000		210,000		December 2010
						1,574,528		1,574,528

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Business

Our business strategy is to become a leader in researching, developing and commercializing next-generation cooling solutions which are focused on the computer, flat panel display, LED-lighting, and communications industries. We develop, manufacture, market, sell and/or license our patented thermal management products and technology to original equipment manufacturers (OEM’s), third party design/manufacturers and to total solution providers in the thermal management business. We believe that our products absorb, transport and dissipate heat more efficiently than current heat-pipe/heat-sink cooling solutions. Our unique cooling device uses patented combinations of liquid and vapor layers to manage liquid and vapor at very high speeds through micro-channels within the assemblies.

We develop and commercialize technology and have succeeded in achieving several design wins with major suppliers of graphics and memory solutions sold at both retail and into branded end products. We engage with such companies who find our technology an attractive solution to their thermal management needs. We believe that we provide better performance than competing technologies at a competitive price. Use of our products allows the OEM’s and solution providers to either offer higher performance or run their systems cooler. We expect design wins in all of our target markets, which include LED’s, Graphics Chips, high end CPUs, communications equipment and memory applications.

We expect our product development, and project management activities to continue to be driven by commercial opportunities and undertaken as a result of potential customers requesting test units. The test orders that we receive from potential customers are fulfilled either by (1) modification of already commercialized products or (2) new solutions designed together with input from the potential customer. The majority of our R&D resources are dedicated to meeting and quoting on potential customer's requirements with an objective of commercial opportunities which will be available in quantities, to end users, within a three to four quarter time period.

We are managed by a team of professionals with significant operational and thermal solutions experience and knowledge. Our executive officers also have extensive experience with industry leaders in all of the major market segments we are engaged with, where improved cooling of electronic devices is a major competitive advantage. We intend to leverage this extensive experience and our relationships within such sectors to execute on our core strategy and build significant long-term value for our stockholders.

In December 2007, we relocated our engineering and pilot line facilities from Korea to Taiwan. Our Korean staff and facilities were downsized to a sales and administrative support function only. The net result is a more responsive unit in Taiwan at lower costs. Any capital expenditures over the next twelve months will be focused on complementing this new Taiwan pilot plant with specific volume related equipment and on specific research and development related test equipment. All investments will be driven by commercialization opportunities, customer driven projects, and/or commercial volumes.

11

Our product test orders have led to several related test product deliveries, as well as commercial orders. Test products are used by potential customers to examine our products’ features and compatibility with customer products. Although such testing procedures can involve numerous steps and significant timelines, in several instances our test products have advanced beyond the test phases and been incorporated into commercial products. The mix between sample order deliveries and commercial deliveries continues to increase in favor of commercial deliveries. Once our products are shipped to our customers, we have no additional commitment in order to recognize revenues.

Results of Operations

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

We have produced revenues of $414,358 for the three months ended June 30, 2008 compared to $199,332 for the three months ended June 30, 2007. The increase in revenues is a result of customers paying for test samples and commercial deliveries. Cost of sales for the three months ended June 30, 2008 were $447,716 compared to $381,400 for the same period for the fiscal year 2007. This increase is attributable to increased production activity originating from an increasing demand for our products.

We are currently operating with strict cost controls in order to manage our commercialization process. A majority of our expenses for the three months ended June 30, 2008 and 2007 were from selling and administrative expenses. The selling and administrative expenses for the three months ended June 30, 2008 were $680,261 compared to $585,342 for the same period in fiscal 2007. The main costs are personnel costs, professional fees, and travel expenses. We reversed a portion of our executive bonus accrual from prior periods of approximately $400,000 that was not going to materialize during the three months ended June 30, 2007. Adjusted for the expense reversal, the gross expenses were approximately $985,000 for the three months ended June 30, 2007. The decrease in expenses is due to a company wide initiative to reduce expenses and personnel. 

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

We have produced revenues of $720,046 for the six months ended June 30, 2008 compared to $298,655 for the six months ended June 30, 2007. The increase in revenues is a result of customers paying for test samples and commercial deliveries. Cost of sales for the six months ended June 30, 2008 were $742,441 compared to $547,938 for the same period for the fiscal year 2007. This increase is attributable to increased production activity originating from an increasing demand for our products.

We are currently operating with strict cost controls in order to manage our commercialization process. A majority of our expenses for the six months ended June 30, 2008 and 2007 were from selling and administrative expenses. The selling and administrative expenses for the six months ended June 30, 2008 were $1,420,816 compared to $1,542,304 for the same period in fiscal 2007. The main costs are personnel costs, professional fees, and travel expenses. We reversed a portion of our executive bonus accrual from prior periods of approximately $400,000 that was not going to materialize during the six months ended June 30, 2007. Adjusted for the expense reversal, the gross expenses were approximately $1,942,000 for the six months ended June 30, 2007. The decrease in expenses is due to a company wide initiative to reduce expenses and personnel.

12

Liquidity and Capital Resources

Our main source of liquidity and funding for our operations has historically been from monies raised from various financings. During fiscal 2007, we raised an aggregate amount of $8,492,847 in cash through the issuance of the debentures. At June 30, 2008, our operational cash outflow was approximately $300,000 per month. Our main use of cash relates to product development driven by customer projects and general and administrative expenses.

On May 25, 2007, we obtained funds through the issuance of our debentures in the aggregate amount of $8,142,847, of which $6,850,000 was paid in cash and the remainder through the surrender of our previously outstanding promissory notes. On August 17, 2007, we issued an additional debenture in the principal amount of $350,000 on the same terms as our debentures issued on May 25, 2007. Both issuances were accompanied by warrants to purchase our common stock. The debentures mature and become due on May 25, 2010.

In connection with the debenture financing, we incurred legal, due diligence, and placement agent fees of approximately $2,131,000. We have recorded these expenses as deferred charges and these expenses will be amortized over the length of the loan period. We have recorded amortization of deferred financing costs of approximately $370,896 for the six months ended June 30, 2008.  Additionally, we recorded an interest expense of approximately $1.2 million for the six months ended June 30, 2008. Approximately $847,000 in interest expense results from amortization of a debt discount recorded based upon the fair value of the warrants issued to the debenture holders and has no cash impact on us. The remaining $355,000 pertains to the debenture financing.

On March 26, 2008, we obtained consent from more than 70% of the debenture holders to modify the terms of the debentures to provide that, in lieu of making the interest payments due thereunder in cash or in shares of our common stock on the interest payment due dates, the interest payments shall accrue and be paid in full in cash on May 25, 2010, the debenture maturity date. As an incentive to provide the consent, we shall distribute to the debenture holders a one time distribution equal to the value of 2% of the outstanding principal amount due under the debentures as of March 31, 2008 totaling approximately $178,000, which will be paid in cash on the maturity date. Each debenture holder shall have the right, in its sole discretion, to convert any accrued but unpaid interest on the principal amount due under the debentures into shares of our common stock at the applicable interest conversion rate at any time prior to the maturity date.

Based on our current operating plan, we anticipate using our cash mainly to continue commercialization efforts and to expand the distribution network for our technology solutions. The main cash uses will be for sales and marketing, general and administrative, and research and development expenses. Investments will be focused on product development and manufacturing. All investments will be driven by commercialization opportunities. Our total cash needs for the next twelve months following July 1, 2008 is estimated to be approximately $2.4 million. The main portion of such cash need is for sales activities, operating expenses and cost of sales. A smaller portion of our cash need is for investments in manufacturing and R&D. We currently believe that our cash balances and anticipated cash flows from operations will be sufficient to meet our normal operating needs through December 2008. We expect to fund our operations including capital costs and the costs of any necessary implementation of technological innovations through cash generated from operations and additional financing.   While we expect to raise the necessary funds, there can be no assurance that we will be successful. We have a $286,602 note payable to a strategic partner that matured in 2007. As of the date of this filing, no payment demand has been received.

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The ratio between current assets and current liabilities at June 30, 2008 was approximately 1.07 to 1.0.

Our future liquidity and capital resource requirements will depend on many factors, including, but not limited to the following trends and uncertainties we face:

·   Our operations continue to depend upon the continuing business of our existing customers and our ability to attract new customers;

·   We experience competition in our industry and continuing technological changes;

·   We compete with a number of larger companies who have greater resources than those of ours;

·   We compete on the basis of industry knowledge, products, services, price, technological advances and system functionality and performance; and

·   Our ability to raise additional capital for operations.

Critical Accounting Policies andEstimates

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements. Although these statements are based on management’s best knowledge of current events and actions that we may undertake in the future, actual results could differ from those estimates. Significant estimates required to be made by management include the valuation of 1) equity securities issued, 2) registration rights, 3) intangible assets, and 4) accounting for convertible debentures.

Recent Accounting Pronouncements

See Note 1 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for Recent Accounting Pronouncements.

Off-Balance Sheet Arrangements

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 is material to investors.

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Market Risks

We operate in the United States, the United Kingdom, Taiwan, and South Korea, each of which has its own currency. This may cause us to experience and be exposed to different market risks such as changes in interest rates and currency deviations.

Our business is not seasonal and the effect of inflation on our revenue and operating results was not significant.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a small reporting company and this Item is not applicable to us.

Item 4.T. Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934, or the “Exchange Act,” is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2008 and concluded that the disclosure controls and procedures were not effective, because certain deficiencies involving internal controls constituted a material weakness as discussed below. The material weakness identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of our financial statements for the current reporting period.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate “internal control over financial reporting” as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

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(i)   pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii)   provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii)   provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our management, including our principal executive officer and principal financial officer, has used the framework set forth in the report entitled “Internal Control—Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to conduct an evaluation of the effectiveness of our internal control over financial reporting. Based on its evaluation, our management concluded that our internal control over financial reporting was not effective because certain deficiencies involving internal controls constituted a material weakness. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our interim financial statements will not be prevented or detected on a timely basis.

Our material weakness in its internal control over financial reporting relates to the monitoring and review of work performed by our Chief Financial Officer in the preparation of financial statements, footnotes and financial data provided to the our registered public accounting firm in connection with the annual audit. All of our financial reporting is carried out by our Chief Financial Officer. This lack of accounting staff results in a lack of segregation of duties necessary for an effective system of internal control. The material weakness identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of our financial statements for the current reporting period.

In order to mitigate this material weakness to the fullest extent possible, all quarterly financial reports are reviewed by the Chief Executive Officer as well as the audit committee for reasonableness. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it is immediately implemented. We intend to implement appropriate procedures for monitoring and review of work performed by our Chief Financial Officer.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

On October 19, 2007, our former President, CEO, and Board of Director, filed a lawsuit in the Miami-Dade County Circuit Court claiming failure to pay bonuses, severance, and other benefits in connection with his previously reported termination by us. We have filed a motion to Compel Arbitration and Stay Proceedings as provided by the employment contract with us. On April 16, 2008, the court granted our motion and ordered (i) that the Plaintiff commence arbitration in accordance with the terms of the employment agreement within six (6) months of the date of the order and (ii) all proceedings are stayed until the conclusion of the arbitration proceedings.  Pursuant to the court order, if arbitration is not timely commenced the action will be dismissed. We believe the employee's claims are without merit and intends to defend the action vigorously. The settlement of this action is not expected to have a material impact on our financial position.

Item 2. Submission of Matters to a Vote of Security Holders.

In connection with the Annual Meeting of Stockholders held on June 24, 2008, the following matters were submitted to a vote of the security holders during the period covered by this Quarterly Report:

1. Election of seven Directors to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified.

Director	For	Withheld
Alan Benaim	47,000,951	318,273
Carl Caricari	47,000,951	318,273
Joseph Formichelli	47,000,951	318,273
Greg Osborn	46,196,653	1,122,571
Charles Resnick	47,000,951	318,273
Peter Rugg	47,000,951	318,273
Ronald Willis	47,000,951	318,273

2. Amend and Restate our 2005 Stock Incentive Plan to increase the number of shares issuable under the plan from 30,000,000 to 50,000,000 shares of common stock.

For	Against	Abstain
46,326,376	193,550	799,298

3. Amend our Articles of Incorporation to increase the number of authorized shares of common stock from 500,000,000 to 750,000,000 shares of common stock.

For	Against	Abstain
46,313,176	206,750	799,298

4. Amendment of our Articles of Incorporation which will effect a reverse split of our common stock by a ratio of not less than one-for-five and not more that one-for-twenty at any time prior to June 10, 2010, with the exact ratio to be set at a whole number within this range to be determined by our Board of Directors in its sole discretion.

For	Against	Abstain
47,234,991	74,233	10,000

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5. Ratification of the appointment of PKF, Certified Public Accountants, as our independent registered public accounting firm for the fiscal year ending December 31, 2008.

For	Against	Abstain
47,302,724	6,500	10,000

Item 3. Exhibits.

Exhibit Number  Exhibit

31.1 Certification pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934, as amended.

31.2 Certification pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934, as amended.

32.1 Certification pursuant to 18 U.S.C. Section 1350.

32.2 Certification pursuant to 18 U.S.C. Section 1350.

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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.

	CELSIA TECHNOLOGIES, INC.
Date: August 14, 2008	By:	/s/ Joseph C. Formichelli
		Joseph C. Formichelli
		Chief Executive Officer

By:	/s/ Jorge A. Fernandez
	Jorge A. Fernandez
	Chief Financial Officer

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EXHIBIT INDEX

The following exhibits are filed as part of this Form 10-Q

Exhibit No. Description

31.1 Certification of Chief Executive Officer Pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934, as amended.

31.2 Certification of Chief Financial Officer Pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934, as amended.

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

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