Celsia Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

March 31,September 30, 2008

Celsia Technologies, Inc. (the "Company" or "Celsia"), a US Corporation incorporated in the State of Nevada, is formerly known as iCurie, Inc. Celsia’sCelsia'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 thisits 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’sCompany'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. OurCelsia's operations in Seoul, Korea remainremained as a sales and administrative office for the region. OurThe 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.

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’smanagement'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 accoutingaccounting for convertible debentures.

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 Subsidiariessubsidiaries have recently commenced limited revenue producing operations and have sustained accumulated losses of approximately $42.0$45.3 and $40.3 million as of March 31,September 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’sCompany's ability to continue as a going concern.

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

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 March 31,September 30, 2008 and December 31, 2007.

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

The Company recognized revenues of $305,688$948,203 and $99,323$506,921 for the threenine months ended March 31,September 30, 2008 and 2007, respectively, from customer orders for test samples and commercial deliveries.

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 threenine months ended March 31,September 30, 2008 and March 31, 2007 amounted to $193,300$548,492 and $5,053,$231,925, respectively.

Furniture and equipment are summarized as follows:

Furniture and equipment are stated at cost. Major renewals and betterments, which prolong the useful life or enhance the value of assets, are capitalized. 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 threenine months ended March 31,September 30, 2008 and 2007 amounted to $16,969$58,693 and $43,474,$133,637, respectively.

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.

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.

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’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 threenine months ended March 31,September 30, 2008 and 2007 amounted to ($16,519)79,195) and $37,258,($51,293), respectively. Accordingly, comprehensive loss for the threenine months ended March 31,September 30, 2008 and 2007 amounted to $1,695,630$5,045,374 and $1,079,465,$13,574,532, respectively.

The Company’sCompany'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.

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:

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. Effective October 1, 2008, the Company terminated the contract with Core Strategies and hired the CEO and sales executive.

The Company has recorded a liability of $94,030$87,556 and $86,683 as of March 31,September 30, 2008 and December 31, 2007, respectively, for employment retirement benefits. The Company believes that thisany liability will not be paid withinsettled with the currentclosing of the Korean office to be completed by year and it has therefore been recorded as a long term liability.end.

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’sSubsidiary'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.

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 Directordirector of the Company) holds an interest in. Hansen Gray is an entity in which Alan Miller (a former Directordirector of the Company) holds an interest in.

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. The Company has written off the value of both of these assets in connection with the closing of the Korean subsidiary.

The Company entered into a registration rights agreement with the Preferredholders of the Series B share holdersPreferred 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’sCompany'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,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.

On October 19, 2007, the Company’sCompany's former President, CEO, and Board of Director, filed a lawsuit in the Miami-Dade County Circuit Court claiming failure to pay bonses,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’sCompany'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’semployee'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’sCompany's financial position.

The bond payable (Won 300 million) at March 31,September 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:

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’sCompany's former Chief Executive Officer and former Chief Financial Officer were returned to them.

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 acreteaccrete 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:

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 Shareholdersshares 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 Shareholdersshares waived any future anti-dilution rights.

Upon issuing the Debentures, the Company triggered certain anti-dilution provisions in the Company’sCompany'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 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 threesix months ended March 31,June 30, 2008, the Company amortized $423,316$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.

At March 31,September 30, 2008 and December 31, 2007, the Company had an authorized number of shares of 500,000,000750,000,000 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 March 31,September 30, 2008, the total issued and outstanding shares were 85,565,71386,561,449 Common Shares, 22,032,96321,306,261 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 threenine months ended March 31,September 30, 2008, 287,6351,014,337 shares of Preferred Series A were converted to Common Shares, respectively, at a rate of 1:1.

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’sCompany'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’sCompany'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’sCompany'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’scompany'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).

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.

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.

Through March 31,September 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’smanagement'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 threenine months ended March 31,September 30, 2008 and 2007, approximately 0 and 78,000166,000 shares, respectively, vested and a charge to compensation expense of $4,750$14,250 and $51,838,$37,922, respectively, was recorded. The remaining unvested shares valued at approximately $23,750$14,250 are being amortized over their respective vesting periods.

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 threenine months ended March 31,September 30, 2008 and 2007, the Company recognized stock-based compensation of $51,882$148,814 and $41,603,$116,842, 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 threenine months ended March 31,September 30, 2008 and 2007, the Company issued 2.2 million and 0 options, respectively, to purchase common stock.stock which had a fair market value of $32,780 and $0, respectively, which was calculated using the Black-Scholes option-pricing model.

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 year ended December 31, 2007 and 2006noted periods using the Black-Scholes option-pricing model:

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 acheivementachievement 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’sCompany'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:

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: