ITEM 1. BUSINESS
Corporate Background
We were organized as a corporation in the state of Florida on November 13, 2007 under the name “Pashminadepot.com, Inc.” Until May 31, 2009, we were focused on the business of developing a website to sell pashmina and other accessories. Due to the state of the economy, we conducted virtually no business other than organizational matters, filing our registration statement and filing periodic reports with the SEC. We abandoned this business plan and sought an operating company with which to merge or to acquire.
On September 10, 2009, we entered into a Stock Purchase Agreement with SwissINSO SA, a Swiss company (“SwissINSO”), and its shareholders pursuant to which we agreed to purchase all of the shares of SwissINSO. The transaction was consummated on October 19, 2009, and SwissINSO became a wholly-owned subsidiary of the Registrant and the shareholders of SwissINSO received in exchange for their shares an aggregate of 50,000,000 shares of the Registrant’s common stock, or 65.62% of the then issued and outstanding share capital of the Registrant. At the same time, the Registrant issued 1,097,145 shares of its common stock to the principal shareholder of SwissINSO, Michel Gruering, upon conversion of his existing shareholder loan to SwissINSO SA. Reference is hereby made to the Current Reports on Form 8-K filed with the SEC on September 15, 2009 and October 22, 2009 for further information regarding the acquisition of SwissINSO.
On October 28, 2009, we changed our state of incorporation from Florida to Delaware by the merger of Pashminadepot.com, Inc. with and into our wholly-owned subsidiary, SwissINSO Holding Inc., a Delaware corporation, which we had formed for such purpose. In connection with such merger, our company’s name changed from “Pashminadepot.com, Inc.” to “SwissINSO Holding Inc.” Each issued share of the common stock of Pashminadepot.com, Inc. from and after the effective time of such merger was converted into one share of the common stock of SwissINSO Holding Inc. Reference is hereby made to the definitive Information Statement on Schedule 14C filed with the SEC on October 7, 2009 for further information regarding the change in our state of incorporation and company name.
Prior to the acquisition of SwissINSO, we were in the development stage and had no revenues or business operations. Following the acquisition of SwissINSO, the Registrant’s business became exclusively the business of SwissINSO described below.
Business of SwissINSO
General
SwissINSO was incorporated in Switzerland on May 30, 2006. SwissINSO utilizes its intellectual property assets to provide environmentally friendly, innovative solar energy solutions and related technology to meet growing global needs. SwissINSO’s goal is to become a world leader in turn-key solutions using renewable energy for the purification and desalination of water and the air cooling and heating of buildings.
SwissINSO’s product strategy is to provide complete solutions to the marketplace that drive key customer value immediately, are sustainable and contribute to global energy saving. Critical to this strategy is how SwissINSO’s proprietary embedded technologies provide clear competitive advantage while offering efficient “green” solutions.
Since its inception, SwissINSO has devoted substantially all of its efforts to planning, raising capital, research and development, determining market needs, obtaining the rights to the technologies to be used in its business, developing markets for its products and identifying sources for the manufacture of its products. SwissINSO has not generated any revenues since its inception.
Principal Markets
SwissINSO’s principal markets and industries are water purification and energy control of buildings.
On water purification, SwissINSO focuses its activities on the huge and growing demand for an affordable, localized and continuous supply of clean water in large parts of the world experiencing supply shortage and energy supply restrictions or difficulties. The end-user applications include solar-powered high purity water production for households and community needs. The production unit is mobile, easy to install, requires little or no maintenance, continuously produces large amounts of potable water and can be operated without substantial technological expertise.
SwissINSO’s high efficiency solar-powered air cooling/heating system is aimed at the construction industry’s continued efforts to find increasingly cost-effective alternative renewable energy and architecturally innovative design solutions for cooling/heating of large industrial, public and commercial office sites. Solar energy applications have thus far been used primarily as a complement to grid-supplied electricity, as their use has been mostly limited to roof applications due to their unaesthetic look. SwissINSO’s system can be mounted on the building facades and even enhances the visual quality of the curtain wall. New products have been developed by SwissINSO for thermal and photovoltaic use on facades as well as on roofs for buildings and individual houses.
Principal Products
SwissINSO is focused on the manufacture and sale of two products: Krystall, a self-contained solar-powered water purification unit using a patented low energy membrane filtration system, and Klymaa, unique, proprietary colored cladding solar thermal panels to provide environmentally-friendly power, air conditioning and heating solutions for buildings and houses.
Water Purification
To address the global shortage of clean, healthy drinking water, SwissINSO has developed KRYSTALL, a self-contained mobile water purification unit using a proprietary membrane filtration system, powered by highly efficient photovoltaic solar panels and hosted in standard-sized transportable containers. Each unit is energy self-sufficient with minimal operational and maintenance costs. SwissINSO believes that this product represents the first truly “green” solution to drinking water shortages, as it is autonomous, decentralized and sustainable and because each unit is capable of converting brackish, sea or spoiled surface water into 25,000 to 200,000 liters of high quality drinking water each day. Purification by reverse osmosis removes all suspended solids, turbidity, viruses, bacteria and most organic compounds. The purified water is flowing into an atmospheric tank or feeding a bottling line. The pumps and compressors are powered through an array of photovoltaic panels. SwissINSO’s target market for this product includes local communities, local water suppliers, water bottlers, beverage bottlers and housing entrepreneurs or authorities in the Middle East, Africa, Australia, Asia, Latin America and Southern Europe.
Air Cooling and Heating
Utilizing a proprietary nanotechnology coating process technology, SwissINSO has developed KLYMAA, novel colored opaque thermal solar panels that provide an energy and cost-effective air cooling or heating solution for the building industry. SwissINSO’s system combines water circulation solar collectors to generate thermal energy with adsorption coolers to transform the generated hot water into cold air to refresh the building. Naturally, the generated hot water can also be stored for the hot water needs and circulated for heating. The system uses solar technology colored glazed cladding panels to capture solar radiation and convert it to heat. The panels, which are opaque to the human eye but transparent to sunlight, form a full or partial solar envelope around a building to maximize the heat capturing capability of the facades. Water circulating within the panels is heated and then feeds the heating system of the building or is converted into cold water in an adsorption chiller which then cools the air flowing around it and then circulates it through the building’s ventilation system. The system is a totally “green” solution as it is self-powered with solar energy, eliminates the need for grid-powered HVAC installations, is capable (subject to the orientation of and other details related to the building) of meeting 100% of a building’s thermal control needs with solar power, is sustainable and does not emit carbon dioxide. SwissINSO’s target market for this product includes architects, property developers, building contractors and curtain wall manufacturers worldwide.
Intellectual Property
SwissINSO has entered into exclusive technology transfer and license agreements for what we believe are breakthrough technologies that serve as the core of our business and that we believe will provide high value to customers and also carry significant barriers to entry. These licenses bring a breadth of fully-developed, proven technologies to SwissINSO, thereby minimizing development time, costs and risks. SwissINSO’s technologies include a novel reverse osmosis filtration technology from Membran-Filtrations-Technik GmbH (“MFT”) whose low energy consumption now permits us to power the whole water purification process by solar energy without extensive photovoltaic panels array and a new technology of high-transmission colored solar glass coating from Ecole Polytechnique Federale de Lausanne (“EPFL”) for the energy needs of buildings (i.e., heating, cooling and power).
EPFL Agreement
Pursuant to a Technology Transfer and Research Agreement with EPFL signed on December 12, 2008, EPFL will transfer the scientific and technical knowledge with respect to the technology of color glazing by magnetron sputtering for solar thermal collectors in order for SwissINSO to further develop and commercially exploit this technology. The EPFL agreement also provides for EPFL to perform certain research work with regard to this technology for the benefit of SwissINSO. Pursuant to the EPFL agreement, SwissINSO agreed to make payments to EPFL aggregating CHF 920,000 (approximately $771,328) during the four year term of the agreement. An initial payment of CHF 322,800 (approximately $310,727) was made to EPFL on September 14, 2009, a subsequent payment of CHF 300,000 (approximately $276,120) was made to EPFL on April 29, 2010 and payments of CHF 128,500 (approximately $139,341) were made to EPFL in the first quarter of 2012.
MFT Agreement
On August 10, 2009, SwissINSO entered into a Technical Cooperation Agreement with MFT. Pursuant to this agreement, MFT granted to SwissINSO the exclusive right to manufacture, use and sell the MFT-designed assembly of Microfiltration, Ultrafiltration, Nanofiltration and Reverse Osmosis equipment for treating water with membrane technology (collectively, the “Membrane Products”) using the Industrial Rights and Technical Information (as such terms are defined in the agreement) furnished by MFT. The agreement also contemplates MFT providing technical assistance and consultancy and other services as requested by SwissINSO. Pursuant to the agreement, SwissINSO agreed to make an initial payment to MFT of EURO 250,000 (approximately $357,100) and royalty payments to MFT of 3% of the net selling price of the Membrane Products (with a minimum annual royalty of EURO 30,000 (approximately $42,852) during the five (5) year term of the agreement. The initial payment of EURO 250,000 (approximately $357,100) was made to MFT on December 23, 2009.
For all the terms of the EPFL agreement and the MFT agreement, reference is hereby made to such agreements annexed to the Current Report on Form 8-K filed with the SEC on October 22, 2009 as Exhibits 10.10 and 10.11. All statements made herein concerning such agreements are qualified by reference to said exhibits.
Competition
A significant and increasing number of companies have entered the sustainable resource market universe in the recent past. Solar energy supply, as a replacement for unsustainable fossil fuel resources, forms one aspect of this global enterprise. Water purification is another aspect but aims, via new technologies, to increase availability of an abundant natural resource to meet critical global socio-economic development needs. The industry is, however, in its infancy, and projected future global demand is very large and growing. The key to success in this growing and evolving market is essentially a company’s technological advantage over its competitors and its ability rapidly to capitalize on market opportunities and sustain this advantage over time. In the water purification and thermal control of buildings sectors in which SwissINSO operates, the solutions being marketed are very diverse and, at present, address mostly broad-based application needs geared to mega-market dynamics (e.g., general electrical energy supply and mega-desalination facilities). Most of the companies involved in such broad-based application needs have significantly greater financial and other resources with which SwissINSO cannot compete. As a result, SwissINSO has strategically elected to apply its proprietary technologies, which it believes are four to five years ahead of its competitors, to benefit very specific and more targeted end-user requirements - the “grid-independent” delivery of 100% of a glass building’s air cooling/heating energy needs and a conventional energy-free solution to powering a best-in-class mobile water purification system - in two self-defined niche markets where SwissINSO can make a significant and immediate impact.
Employees
SwissINSO currently has no employees. All of its sales, marketing, financial and administrative activities are performed by independent contractors and consultants.
Significant Subsidiaries
As of December 31, 2011, our sole subsidiary was SwissINSO.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's Website at www.sec.gov.
We make available free of charge our annual, quarterly and current reports, proxy statements and other information upon request. To request such materials, please contact Clive Harbutt, our interim Chief Financial Officer, at PSE - Parc Scientifique de l’EPFL, Route J.D. Colladon, Building D - 3rd Floor, 1015 Lausanne, Switzerland, or call (011) 41 21 693 8640.
ITEM 1A.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information under this item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
We do not own any real estate or other properties. The Registrant’s and SwissINSO’s executive offices are located at PSE - Parc Scientifique de l’EPFL, Building D - 3rd floor, Route J.D. Colladon, 1015 Lausanne, Switzerland, and its telephone number is (011) 41 21 693 8640. SwissINSO also has warehousing and assembly space located at c/o Felix Constructions, Route de la Pale 14, 1026 Denges, Switzerland. We believe our properties are adequate for our current needs and will be sufficient to serve the needs of our operations for the foreseeable future.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our shares of Common Stock are publicly traded on the OTC Bulletin Board under the symbol “SWHN.OB”. During the fiscal years ended December 31, 2010 and 2011, the high and low bid prices for our Common Stock were:
Record Holders
As of April 13, 2012, there were 78,599,287 shares of Common Stock issued and outstanding, held by approximately 40 holders of record as indicated on the records of our transfer agent.
Dividends
We have not declared or paid dividends on our capital stock to date and do not intend to pay dividends on our Common Stock in the foreseeable future. The payment of dividends in the future will be contingent upon our revenues, earnings, capital requirements and general financial condition. The payment of dividends is entirely within the discretion of our Board of Directors, and it is the present intention of the Board of Directors to retain all earnings for future investment and use in our business operations.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements, as discussed above. Please see the section entitled “Forward-Looking Statements” for a discussion of the assumptions associated with these forward-looking statements.
The following discussion and analysis of our financial condition and results of operations are based on the audited financial statements as of December 31, 2011 and 2010, all of which were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). You should read the discussion and analysis together with such financial statements and the related notes thereto.
Results of Operations - Year ended December 31, 2011 compared to year ended December 31, 2010
We are in the development stage and did not generate any revenues for the fiscal year ended December 31, 2011 or 2010. During the fiscal year ended December 31, 2011, we incurred $2,623,134 of general and administrative expenses and $180,465 of research and development expenses as we continued the development of the business of SwissINSO and $846,039 of debt issuance expense. In addition, we incurred $462,178 in interest charges related to $750,000 of bridge loans received in September 2009, $6,035,000 of convertible notes sold in a private placement from December 2009 through December 2010 and $411,600 of short-term loans received during 2011. In comparison, during the fiscal year ended December 31, 2010, we incurred $3,777,546 of general and administrative expenses and $287,632 of research and development expenses as we accelerated the development of the business of SwissINSO and $712,968 of debt issuance expense. In addition, we incurred $399,856 in interest charges related to $750,000 of bridge loans received in September 2009 and $6,035,000 of convertible notes sold in a private placement from December 2009 through December 2010. Our net loss before foreign currency translation adjustments during the fiscal year ended December 31, 2011 was $699,111, including a non-cash gain of $3,412,358, representing the change from December 31, 2010 to December 31, 2011 in fair value for accounting purposes of the outstanding warrants issued in connection with the sale of our convertible notes and warrants in a private placement, as compared to a net loss before foreign currency translation adjustments during the fiscal year ended December 31, 2010 of $5,980,379, including a non-cash charge of $797,600, representing the change from December 31, 2009 to December 31, 2010 in fair value for accounting purposes of the outstanding warrants issued in connection with the sale of our convertible notes and warrants in the private placement.
Liquidity and Capital Resources
As of December 31, 2011, we had a working capital deficit of $3,098,571 as compared with a working capital deficit at December 31, 2010 of $465,377. During the past twelve (12) months, we have incurred significant operating expenses, and we expect to continue to incur additional significant operating expenses for manufacturing, research and development, marketing, sales channel development, general and administrative expenses and debt payments during the next twelve (12) months, contingent upon raising capital.
During the year ended December 31, 2011, we did not sell any additional convertible notes and warrants in our ongoing private placement after having sold $6,035,000 of such convertible notes and warrants in 2009 and 2010. We did, however, receive short-term loans aggregating $411,600 during 2011 from our former and current Chief Executive Officers, our former Chief Financial Officer, one of our former directors and one of our shareholders, but these loans have been insufficient to enable the Company to meet the working capital needs of SwissINSO. We have not received any other cash infusions, are unable to meet our current obligations to employees, suppliers, vendors, landlords, service providers and lenders and are negotiating extended payment terms with some of our creditors. In addition, we have substantially reduced our personnel and sharply curtailed most of our business operations.
We do not have any other available credit, bank financing or other external sources of liquidity and will need to obtain substantial additional capital in order to continue SwissINSO’s business operations. In order to obtain such capital, we will need to sell additional notes and warrants in the private placement, sell other securities to purchasers and/or borrow additional funds from lenders. There can be no assurance that we will be successful in obtaining such additional funding. We will also need to sell KRYSTALL units and commercialize our KLYMMA business. Despite initial progress in building our distribution network following the launch of KRYSTALL in April 2010, a longer than expected sales cycle, political and economic upheaval in the Middle East and Northern Africa and the Company’s lack of available funds have prevented us from reaching some of our initial sales milestones for KRYSTALL and from further developing our business generally. If we are not successful in raising sufficient capital, either from the sale of additional notes and warrants in the private placement, from the sale of other securities, from additional borrowings, from revenues generated by sales of KRYSTALL units or the KLYMMA business, from the sale of all or parts of the SwissINSO business or from the entry into a joint venture with a partner for all or parts of the SwissINSO business, this would have a material adverse effect on our business, results of operations, liquidity and financial condition, and we would be forced to liquidate the business of SwissINSO.
Going Concern Consideration
The accompanying financial statements have been prepared assuming that we will continue as a going concern. As discussed in the notes to the financial statements, we have not yet established an ongoing source of revenue sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern and ultimately to attain profitable operations is dependent on (a) raising capital to meet our past due, current and future obligations to employees, suppliers, vendors, landlords, service providers and lenders and to fund SwissINSO’s business plan, (b) making sales of KRYSTALL units, (c) expanding our distribution network for KRYSTALL around the world and (d) developing the KLYMAA business. We incurred a net loss before foreign currency translation adjustments during the fiscal year ended December 31, 2011 of $699,111, including a non-cash gain of $3,412,358, representing the change from December 31, 2010 to December 31, 2011 in fair value for accounting purposes of the outstanding warrants issued in connection with the sale of our convertible notes and warrants in a private placement, and have an accumulated deficit since inception of $11,409,380, primarily comprised of $8,743,875 in general and administrative expenses and research and development expenses incurred to create the Company, develop the business of SwissINSO and maintain the Company’s existence as a public company and $888,321 in interest charges incurred on the bridge loans and convertible debt used to finance the Company and the business of SwissINSO. These factors continue to raise substantial doubt about our ability to continue as a going concern. As discussed above, management plans include attempting to obtain additional capital from the sale of securities, from bank and private borrowings, from sales of KRYSTALL units, from the commercialization of the KLYMMA business and from attempting to find a buyer or partner for all or part of SwissINSO’s business. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is included herein beginning at page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Exchange Act. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Our management, including our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, and as discussed in greater detail below, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were effective:
● to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and
● to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements. Our internal control over financial reporting includes those policies and procedures that:
●
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets,
●
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of management and directors and
●
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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on the assessment using those criteria, our management concluded that the internal control over financial reporting was effective at December 31, 2011.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth the names, ages, years elected and principal offices and positions of our current directors and executive officers:
Rafic Hanbali is a private investor and independent business entrepreneur who has founded and managed various companies in international trade, food production and distribution, wireless communications, technology and aircraft finance services in Brazil and Europe. Mr. Hanbali’s main strengths are to identify business opportunities, foresee business trends and organize business enterprises to develop and commercialize products. He has had significant experience in both establishing new companies to take advantage of business opportunities and in restructuring and turning around existing companies. Mr. Hanbali’s business and restructuring experience led to the conclusion that he should serve as a director of the Company.
Clive D. Harbutt is the founder and managing partner of Swiss Investment Consulting Group SA (“SICG”), based in Geneva, Switzerland. SICG works closely with venture capital funds and investors in technology, cleantech and life sciences, providing support on the various non-scientific and technical challenges facing investors and companies as they grow. Mr. Harbutt is also co-founder of Strategic Impact Consulting Group S.A., which focuses on Lean Six Sigma process improvement, internal controls, audit and pre-acquisition due diligence. Mr. Harbutt has extensive audit, finance and accounting experience, having held senior corporate finance positions in a number of global blue-chip companies such as Pfizer, Howmedica, Serono and Firmenich. Born and raised in London, England, Mr. Harbutt has worked in Latin America, the United States and Europe. He is a qualified accountant and a Lean Six Sigma Black Belt, a member of the American International Club of Geneva and the British-Swiss Chamber of Commerce and an ambassador for the MBA program at the University of Geneva. Mr. Harbutt’s experience with venture capital funds and investors in businesses like SwissINSO and his audit, finance and accounting experience in senior corporate finance positions in a number of global blue-chip companies led to the conclusion that he should serve as a director of the Company.
Frederic Strittmatter is an independent business executive who has held senior management positions with various companies in the computer industry and financial industry within Switzerland for over 25 years, including Telehouse (Suisse) S.A., Gottex Brokers S.A., Compaignie Financiere Espirito Santo S.A., Texas Instruments (Suisse) S.A., NCR (Suisse) S.A. and Burroughs (Suisse) S.A. Mr. Strittmatter has a Bachelor Degree in Economics from the University of Lausanne (Switzerland). Mr. Strittmatter’s senior management experience led to the conclusion that he should serve as a director of the Company.
Paul de Belay has been Vice President Sales & Marketing of SwissINSO from November 2009 until July 2011 and again since February 2012. From 2007 until June 2009 he was Marketing and Programs Director, EMEA for PPG Europe Sarl, an architectural glass and protective coatings company in Rolle, Switzerland. From July 2005 until December 2006, Mr. de Belay was General Manager, EMEA for Hyosung Corp., a textile fibers company in Milan and Geneva, and for twenty years prior thereto he held various marketing, sales and management positions in Geneva, Hong Kong and Warsaw with DuPont de Nemours International. Mr. de Belay is a Swiss citizen and holds a BS degree in International Relations and Economics from Beloit College.
There are no family relationships among any of our directors or executive officers. None of our directors or executive officers is, or has been during the past five years, a director in any other U.S. reporting companies. During the past ten years, none of our directors or executive officers has been involved in any legal proceedings that are material to an evaluation of the ability or integrity of such person.
Each of our directors serves for a term of one year or until his successor is elected at our annual shareholders’ meeting and is qualified, subject to removal by our shareholders. Each officer serves, at the pleasure of the Board of Directors, for a term of one year and until his successor is elected at the annual meeting of the Board of Directors and is qualified.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in their ownership with the SEC, and forward copies of such filings to us. We believe, based solely on our review of the copies of such forms, that during the fiscal year ended December 31, 2011, all reporting persons complied with all applicable Section 16(a) filing requirements, except that Michel Gruering, our former President and director, did not file Form 4s for various sales transactions during 2011.
Code of Ethics
We have adopted a Code of Conduct and Ethics for Directors, Officers and Employees. A copy of such code was filed as Exhibit 14 to the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2010 filed with the SEC on June 17, 2011.
Committees
At this time, we do not have a separate audit committee, nominating committee or compensation committee, as the functions of such committees are performed by the entire Board of Directors. The Board of Directors has determined that Clive D. Harbutt, our Interim Chief Financial Officer, would qualify as an “audit committee financial expert” as defined by the applicable SEC rules. However, Mr. Harbutt would not be deemed to be independent as independence for audit committee members is defined in Section 10A-3(B) of the Exchange Act. We have not yet established procedures by which our shareholders may recommend nominees to our Board of Directors.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation awarded to, paid to or earned by our President and Chief Executive Officer, our former Chief Executive Officer, our former President, our former and current Interim Chief Financial Officer, our former Chief Financial Officer and the Vice President Sales & Marketing of SwissINSO for the fiscal years ended December 31, 2011, 2010 and 2009. During such fiscal years, there were no other executive officers or significant employees.
(1) Salary and all other compensation were paid in Swiss francs and have been converted at a rate of 1 Swiss franc= 0.8866 US dollars for 2011, 1 Swiss franc=0.95877 US dollars for 2010 and 1 Swiss franc=0.96934 US dollars for 2009. Other than $58,275 of salary paid to Mr. de Belay in 2011 and $13,918 of car leasing payments made in 2011 for Mr. de Belay and Mr. Gruering, all salary and other compensation in 2011 was accrued but not paid to or for the benefit of the listed persons.
(2) Represents total employer’s benefits contribution accrued during 2011.
(3) Represents total employer’s benefits contribution paid during 2010.
(4) Represents total employer’s benefits contribution paid during 2009.
(5) Represents consulting fees accrued during 2011 and $10,812 of car leasing payments made during 2011.
(6) Represents consulting fees paid during 2010.
(7) Represents consulting fees paid during 2009.
(8) Represents consulting fees accrued during 2011.
(9) Represents total employer’s benefits contribution accrued during 2011 and $3,106 of car leasing payments made during 2011.
There are no outstanding equity awards for any of our executive officers.
Employment and Consulting Agreements
None
Compensation of Directors
During the fiscal year ended December 31, 2011, we accrued directors’ fees to the following individuals for their service as directors for the fiscal year ended December 31, 2011:
No other director received any directors’ fees or other compensation for services as a director for such fiscal year. Mr. Tolhurst served as a director from February 24, 2010 until his resignation on January 31, 2011, Mr. Saad served as a director from December 16, 2009 until his resignation on June 29, 2011, Mr. Harbutt served as a director from October 13, 2009 until his resignation on July 1, 2011 and currently serves as a director since December 20, 2011, Mr. Gruering served as a director from October 19, 2009 until his resignation on December 16, 2011 and Mr. Ducommun served as a director from October 19, 2009 until his resignation on December 20, 2011.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table lists, as of April 13, 2012, the number of shares of Common Stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than five percent (5%) of the outstanding Common Stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of Common Stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within sixty (60) days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The percentages below are calculated based on 78,599,287 shares of our Common Stock issued and outstanding as of April 13, 2012.
(1) Owned by InsOglass Holding SA, of which Mr. Hanbali is the ultimate beneficial owner and of which Mr. Strittmatter is President and director.
(2) Consists of 1,500,000 shares owned by SICG S.A., of which Mr. Harbutt is the principal shareholder, officer and director.
(3) Includes 22,000,000 shares owned by InsOglass Holding SA, 2,500,000 shares owned by Mr. Strittmatter and 1,500,000 shares owned by SICG, S.A.
Securities Authorized for Issuance under Equity Compensation Plans
On December 13, 2010, the SwissINSO Holding Inc. 2009 Stock Incentive Plan (the “Plan”), which provides for the grant of stock options and other rights to purchase an aggregate of 10 Million shares of the Registrant’s Common Stock to the employees, officers, directors and service providers of the Registrant and its subsidiaries and affiliates, became effective. The Plan had been approved by the Registrant’s Board of Directors on December 16, 2009 and by the holders of a majority of the Registrant’s Common Stock on November 4, 2010. For all the terms of the Plan, reference is made to the complete text of the Plan attached as Annex B to the Registrant’s definitive Information Statement on Schedule 14C filed with the SEC on November 22, 2010. All statements made herein concerning the Plan are qualified by reference to said annex.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
During 2011, Yves Ducommun, our former Chief Executive Officer, and Rafic Hanbali, our current President and Chief Executive Officer loaned SwissINSO an aggregate of $146,228 and $142,127, respectively, to meet the working capital needs of SwissINSO. $136,228 of the indebtedness to Mr. Ducommun bears interest at the rate of 9% per annum. The remaining amount of the indebtedness to Mr. Ducommun and the full amount of the indebtedness to Mr. Hanbali are non-interest bearing. The indebtedness to Mr. Ducommun was due on January 31, 2012, and the indebtedness to Mr. Hanbali is due on a to be agreed future date.
Director Independence
We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, are not at this time required to have our Board of Directors comprised of a majority of “independent directors”.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate audit fees billed for each of the last two fiscal years for professional services rendered by our principal accountant were $41,710 for the fiscal year ended December 31, 2011 and $36,980 for the fiscal year ended December 31, 2010. The audit fees for the fiscal year ended December 31, 2011 included reviews of our interim financial statements and Quarterly Reports on Form 10-Q filed with the SEC for the periods ended March 31, 2011, June 30, 2011 and September 30, 2011. The audit fees for the fiscal year ended December 31, 2010 included reviews of our interim financial statements and Quarterly Reports on Form 10-Q filed with the SEC for the periods ended March 31, 2010, June 30, 2010 and September 30, 2010.
Audit-Related Fees
None
Tax Fees
The aggregate tax fees billed for each of the last two fiscal years for professional services rendered by our principal accountant were $5,500 for the fiscal year ended December 31, 2011 and $6,400 for the fiscal year ended December 31, 2010. The tax fees for the fiscal year ended December 31, 2011 included preparation of our Federal and state income tax returns for the fiscal year ended December 31, 2011. The tax fees for the fiscal year ended December 31, 2010 included preparation of our Federal and state income tax returns for the fiscal year ended December 31, 2010.
Other Fees
None
Pre-Approval Policies and Procedure
Section 10A(i) of the Securities Exchange Act of 1934 prohibits our auditors from performing audit services for us, as well as any services not considered to be “audit services”, unless such services are pre-approved by the audit committee or the Board of Directors (in lieu of the audit committee) or unless the services meet certain de minimis standards. Accordingly, our Board of Directors pre-approves all services, including audit services, provided by our independent accountants.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature
Title
Date
/s/ Rafic Hanbali
Chief Executive Officer and Director (Principal Executive Officer)
April 13, 2012
Rafic Hanbali
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Rafic Hanbali
Chief Executive Officer and Director (Principal Executive Officer)
April 13, 2012
Rafic Hanbali
/s/ Clive D. Harbutt
Interim Chief Financial Officer and Director (Principal Financial Officer and Principal Accounting Officer)
April 13,2012
Clive D. Harbutt
/s/ Frederic Strittmatter
Director
April 13, 2012
Frederic Strittmatter
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of SwissInso Holding Inc.
We have audited the accompanying consolidated balance sheets of SwissInso Holding Inc. (a development stage company) as of December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income, changes in stockholders' deficit, and cash flows for each of the years in the two-year period ended December 31, 2011 and for the period from June 1, 2006 (inception) to December 31, 2011. SwissInso Holding Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SwissInso Holding Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011 and for the period from June 1, 2006 (inception date) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, these conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
/s/ EFP Rotenberg, LLP
EFP Rotenberg, LLP
Rochester, New York
April 16, 2012
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
(1) The Stockholders equity of Swissinso SA has been recapitalized to give effect to the shares received by the existing holders of Swissinso SA from the share exchange agreement with Pashminadepot.com Inc.
The accompanying notes are an integral part of these consolidated financial statements.
SWISSINSO HOLDING INC.(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2011
NOTE 1 - Organization and Business
SwissINSO Holding Inc., (the “Company”) was incorporated in the state of Florida on November 13, 2007 under the name “Pashminadepot.com, Inc.” Until May 31, 2009, it focused on the business of developing a website to sell Pashmina and other accessories. Due to the state of the economy, virtually no business was conducted and this business plan was abandoned. Management then sought an operating company with which to merge or to acquire.
On September 10, 2009 the Company entered into a Stock Purchase Agreement with SwissINSO SA, a Swiss company (“SwissINSO”), and its shareholders pursuant to which the Company agreed to purchase all of the shares of SwissINSO to develop new business opportunities. The transaction was consummated on October 19, 2009, and SwissINSO became a wholly-owned subsidiary of the Company and the shareholders of SwissINSO received in exchange for their shares an aggregate of 50,000,000 shares of the Company’s common stock, or 65.62% of the then issued and outstanding share capital of the Company. At the same time, the Company issued 1,097,145 shares of its common stock to the principal shareholder of SwissINSO, Michel Gruering, upon conversion of his existing shareholder loan to SwissINSO.
On October 28, 2009, the state of incorporation was changed from Florida to Delaware by the merger of Pashminadepot.com, Inc. with and into its wholly-owned subsidiary, SwissINSO Holding Inc., a Delaware corporation, which had been formed for such purpose. In connection with such merger, the Company’s name changed from “Pashminadepot.com, Inc.” to “SwissINSO Holding Inc.” Each issued share of the common stock of Pashminadepot.com, Inc. from and after the effective time of such merger was converted into one share of the common stock of SwissINSO Holding Inc.
Prior to the acquisition of SwissINSO, the Company was in the development stage and had no revenues or business operations. Following the acquisition of SwissINSO, the Company’s business became exclusively the business of SwissINSO described below.
SwissINSO was incorporated in Switzerland on May 30, 2006. SwissINSO utilizes its intellectual property assets to provide environmentally friendly, innovative solar energy solutions and related technology to meet growing global needs. SwissINSO’s goal is to become a world leader in turn-key solutions using renewable energy for the purification and desalination of water and the air cooling and heating of buildings.
SwissINSO’s product strategy is to provide complete solutions to the marketplace that drive key customer value immediately, are sustainable and contribute to global energy saving. Critical to this strategy is how SwissINSO’s proprietary embedded technologies provide clear competitive advantage while offering efficient “green” solutions.
Since its inception, SwissINSO has devoted a substantial part of its efforts to planning, raising capital, research and development, determining market needs, obtaining the rights to the technologies to be used in its business, developing markets for its products and identifying sources for the manufacture of its products. SwissINSO has not generated any revenues to date. In the quarter ended March 31, 2010 SwissINSO assembled its first unit for water purification application.
On April 22, 2010 SwissINSO officially launched its first completely solar powered industrial size water purification unit, trade named KRYSTALL™.
KRYSTALL™ is housed in two 49ft containers and comes in several configurations capable of purifying in excess of 100,000 liters of brackish water and desalinating 50,000 liters of seawater per day into high-quality drinking water. High tech photovoltaic panels are used to capture the solar energy necessary to power each unit and charge batteries which provide a continuous source of power during non daylight hours.
NOTE 2 - Going Concern
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on raising additional capital to fund its business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company's ability to continue as a going concern. The Company has funded its initial operations by way of entering into a private placement offering. From inception through December 31, 2011 subscriptions of $6,035,000 had been received under the terms of the private placement documents.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 - Significant Accounting Policies
Accounting Basis
These consolidated financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.
Principles of Consolidation
The consolidated financial statements include the historical financial information of SwissINSO SA from inception to December 31, 2011. Intercompany transactions and balances have been eliminated.
Translation of Foreign Currency Financial Statements and Foreign Currency Transactions
The financial statements of the Company’s international subsidiary have been translated into United States dollars by translating balance sheet accounts at year end and period end exchange rates except for non-current assets which are translated at historical exchange rates, and statement of operations accounts at average exchange rates for the periods. Foreign currency transaction gains and losses are reflected in the equity section of the Company’s consolidated balance sheet in Accumulated Other Comprehensive Income. The balance of the foreign currency translation adjustment, included in Accumulated Other Comprehensive Income, was a gain of $108,787 as of December 31, 2011.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The more significant areas requiring the use of estimates include asset impairment, stock-based compensation, and future income tax amounts. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of current bank balances. The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Inventory
The Company values its inventory at the lower of cost and market. The Company’s inventory is comprised of one unit of industrial equipment for reverse osmosis water purification unit valued at actual cost.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation of furniture and equipment is provided using the straight-line method based on the estimated useful lives of assets, which range from four to ten years. Computer equipment is amortized using the straight-line method over the useful life of three years. Upon the disposition of property and equipment, the accumulated depreciation is deducted from the original cost and any gain or loss is reflected in current earnings.
Financial Instruments
The Company's financial instruments consist of notes payable to third parties and subscriptions to convertible debt at $0.50 per share issued under the terms of a private placement offering. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from its financial instruments and that their fair values approximate their carrying values except where separately disclosed.
Derivative Financial Instruments
The Company’s objectives in using derivative financial instruments are to obtain the lowest cash cost-source of funds. Derivative liabilities are recognized in the consolidated balance sheets at fair value based on the criteria specified in FASB ASC topic 815-40 "Derivatives and Hedging - Contracts in Entity’s own Equity". The estimated fair value of the derivative liabilities is calculated using the Black-Scholes-Merton method where applicable and such estimates are revalued at each balance sheet date, with changes in the value recorded as stock warrant expense in the consolidated statements of operations.
General and Administrative Expenses
General and administrative expenses consist primarily of salary and related employee benefit costs, professional and consultants’ fees, marketing and promotional expenses, and various other general corporate expenses.
Employee Benefits
Mandatory contributions are made under Government retirement benefit and unemployment schemes at the minimum statutory rates in force during the period, based on gross salary payments. The costs of these payments are charged to the statement of income in the same period as the related salary costs.
Research and Development
Costs incurred in acquiring technological expertise and corresponding research and development, are charged to expense when incurred.
Other Expenses
Other expenses are comprised of fees for negotiating Company financing.
Net Loss Per Share
Basic net loss per share is calculated using the weighted average number of common shares outstanding and the treasury stock method is used to calculate diluted earnings per share. The Company has issued convertible notes with warrants which are potentially dilutive common shares. For the periods presented, this calculation proved to be anti-dilutive. As a result, the basic net loss per share is the same as diluted net loss per share for the year ended December 31, 2011.
Income Taxes
The Company and its subsidiary provide for income taxes in accordance with FASB ASC 740-10 (Prior authoritative literature: FASB Statement No. 109, “Accounting for Income Taxes.”) FASB ASC 740-10 requires the use of an asset and liability approach in accounting for income taxes.FASB ASC 740-10 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. No provision for income taxes is included in the statement due to its immaterial amount, net of the allowance account, based on the likelihood of the Company and its subsidiary to utilize the loss carry-forward.
Operating Leases
Rent expense on operating leases arises on a straight line basis and is charged to general and administrative expenses as it occurs.
Debt Issuance Costs
Debt issuance costs (i.e. placement agent costs) are capitalized when the expense is incurred and are amortized equally over a 24 month period.
NOTE 4 - Inventory
The Company produced its first Water Purification unit in March, 2010. This unit was deployed in Switzerland for the product launch which took place on April 22, 2010.
Inventories are stated at the lower of cost (first-in, first-out) or market. The Company’s policy is to regularly assesses slow-moving, excess and obsolete inventory and establish a reserve against any amounts determined to have such characteristics. No slow-moving, obsolete or excess inventory was determined necessary as of December 31, 2011.
The following table presents the classification of inventory on-hand as of December 31, 2011 and 2010:
NOTE 5 - Property and Equipment
Property and equipment at December 31, 2011 and 2010 at cost, consisted of the following:
Depreciation expense on property and equipment for the years ended December 31, 2011 and 2010 was $59,420 and $15,820.
NOTE 6 - Notes Payable
The Company has issued promissory notes or loan acknowledgements to independent third parties as follows: (a) $250,000 bearing interest at 9% per annum repayable once the Company raised $6,000,000 through the sale of securities; and (b) $500,000 without interest repayable on or before May 11, 2011. These amounts remain outstanding.
During 2011, the Company’s subsidiary borrowed an aggregate of $411,600 from current and former executive officers and directors and a shareholder of the Company to meet the working capital needs of the Company’s subsidiary. Loans aggregating $244,655 bear interest at 9% per annum, and the other loans are non-interest bearing. These amounts remain outstanding.
NOTE 7 - Convertible Notes with Warrants
The Company has received subscriptions of $6,035,000 from the sale of 9% Secured Convertible Notes with Warrants issued in a private placement. The notes are secured by all of the assets of SwissINSO and are convertible into shares of common stock at a conversion price of $0.50 per share. Conversion may be exercised by the holder at any time prior to the maturity date which is 24 months from the date of issue. The warrants are exercisable for an equivalent number of shares at an exercise price of $1.00 per share within five years of issuance date.
Notes totaling $1,185,000 plus accrued interest were converted into 2,402,142 shares of common stock during the year ended December 31, 2010. No notes were converted during 2011.
The fair value of each warrant is estimated on the date of grant using Black-Scholes-Merton option-pricing model that uses the assumptions noted in the following table.
The total derivative gain for the twelve months ended December 31, 2011 was $3,412,358, representing the change in fair value between the outstanding warrants as of December 31, 2011 and 2010, which equated to $215,642 and $3,628,000, respectively. The Company originally computed the value of the warrants based on an expected exercise of the warrants two years following their issuance. The foregoing table estimates the exercise of the warrants four years following their issuance.
The Company will issue common stock from authorized shares to those subscribers who exercise the warrants upon the exercise of the warrants. As of December 31, 2011, no warrants have been exercised.
As of December 31, 2011, certain convertible notes have come due. The Company is in discussions with the holders of such notes to extend the maturity date of their notes for an additional two years. The Company has not received any indication that any holder is looking to satisfy the amount due through collection of assets securing the Company’s obligations under the notes.
NOTE 8 - Debt Issuance Costs
Debt issuance costs (i.e. placement agent costs) are capitalized when the expense is incurred and are amortized equally over a 24 month period. In connection with the issuance of convertible debt on February 24, 2010, the Company paid its placement agent fees through the issuance of 1,117,000 stock warrants and cash of $403,500.
On February 24, 2010, the Company determined the fair value of these warrants to be $1,213,062. The fair value was determined by using the Black-Scholes-Merton option-pricing model based on the following assumptions:
Debt issuance costs as of December 31, 2011 and 2010 were as follows:
Debt issuance expense for the years ended December 31, 2011 and 2010 was $846,039 and $712,968, respectively.
NOTE 9 - Capital Stock
Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock, par value $0.0001 per share, none of which are issued and outstanding as of December 31, 2011.
Common Stock
The Company has authorized 200,000,000 shares of common stock, par value $0.0001 per share, of which 78,599,287 shares were issued and outstanding as of December 31, 2011.
NOTE 10 - Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2011 are as follows:
Through December 31, 2011, a valuation allowance has been recorded to offset the deferred tax assets, including those related to the net operating losses. At December 31, 2011, the Company had approximately $11.4 million of net accumulated operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2026.
Reconciliations of the U.S. federal statutory rate to the actual tax rate for the years ended December 31, 2011 and 2010 are as follows:
NOTE 11 - Related Party Transactions
The Company is indebted to its former Chief Executive Officer for $146,228 of loans made by such individual to the Company’s subsidiary during 2011 to meet the working capital needs of the Company and its subsidiary. The Company is indebted to its current Chief Executive Officer for approximately $142,127 of loans made by such individual to the Company’s subsidiary during 2011 to meet the working capital needs of the Company and its subsidiary.
NOTE 12 - Lease
SwissINSO rents office space pursuant to a monthly property rental agreement with Fondation Scientifique EPFL Lausanne, Switzerland that can be renewed monthly. The monthly office rental payments to EPFL (excluding TVA) were as follows:
January to June, 2011 $10,698
July, 2011 $9,513
August to September, 2011 $5,024
October to December, 2011 $2,493
The rental cost for the period ended December 31, 2011 totaled $81,710.
Additionally, SwissINSO rents warehouse and assembly space from Felix Construction incurring a total cost during 2011 of $70,559.
NOTE 13 - Concentrations of Risks
Cash Balances
The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (FDIC). Up to December 31, 2011 all non-interest bearing transaction deposit accounts at an FDIC-insured institution, including all personal and business checking deposit accounts that do not earn interest, are fully insured for the entire amount in the deposit account.
All other deposit accounts at FDIC-insured institutions are insured up to at least $100,000 per depositor. Insurance coverage for certain retirement accounts, which include all IRA deposit accounts, will remain at $250,000 per depositor.
SwissINSO maintains its cash with sound international banking institutions.
NOTE 14 - Commitments
Under agreements for the acquisition of industrial technology, the Company through its subsidiary was committed at December 31, 2011 as follows:
NOTE 15 - Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
NOTE 16 - Equity Compensation Plans
The Company has adopted the SwissINSO Holding Inc. 2009 Stock Incentive Plan, which provides for the grant of stock options and other rights to purchase an aggregate of 10,000,000 shares of the Company’s Common Stock to the employees, officers, directors and service providers of the Company and its subsidiaries and affiliates. At December 31, 2011, no stock options or other rights had been granted under such plan.
NOTE 17 - Subsequent Events
During the first quarter of 2012, the Company’s subsidiary borrowed approximately $272,454 from the Company’s Chief Executive Officer to meet the working capital needs of the Company and its subsidiary. The loans do not bear interest and are repayable on a to be agreed future date.
During the first quarter of 2012, the Company’s subsidiary made payments aggregating $139,341 to EPFL as required under the agreement between SwissINSO and EPFL for the acquisition of technology.