Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As
used in this Form 10-Q, references to the “Company,” “we,” “our” or “us” refer
to the Registrant and our subsidiary, SwissINSO SA, unless the context otherwise indicates.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains forward-looking information. Forward-looking information includes statements relating to
future actions, future performance, costs and expenses, interest rates, outcome of contingencies, financial condition, results
of operations, liquidity, business strategies, cost savings, objectives of management and other such matters of the Company. The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage
companies to provide prospective information about themselves without fear of litigation so long as that information is identified
as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the information.
Forward-looking information may be included in this
Quarterly Report on Form 10-Q or may be incorporated by reference from other documents filed with the Securities and Exchange
Commission (the “SEC”) by us. You can find many of these statements by looking for words including, for example, “believes,”
“expects,” “anticipates,” “estimates” or similar expressions in this Quarterly Report on Form
10-Q or in documents incorporated by reference in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new information or future events.
We
have based the forward-looking statements relating to our operations on management's current expectations, estimates, and projections
about us and the industry in which we operate. These statements are not guarantees of future performance and involve risks, uncertainties
and assumptions that we cannot predict. In particular, we have based many of these forward-looking statements on assumptions about
future events that may prove to be inaccurate. Accordingly, our actual results may differ materially from those contemplated by
these forward-looking statements. Any differences could result from a variety of factors, including, but not limited to general
economic and business conditions, competition, and other factors.
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 unaudited financial statements
as of June 30, 2015 and 2014, 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
–
Three months ended June 30, 2015 compared to Three Months ended June 30, 2014
During
the three month period ended June 30, 2015, the Company generated revenues totaling $37,056 relating to the sale of Kromatix™
glass. During the three months ended June 30, 2015, we incurred $173,464 of general and administrative expenses as we continued
the development of the business of SwissINSO and $23,163 in interest charges related to a bridge loan received in September 2009
and short-term loans received during 2011, 2012, 2013, 2014 and the first six months of 2015. However, as a result of receiving
reimbursement of expenses relating to 2014 and totaling $35,064 from Emirates Insolaire, we had total other income of $32,977.
In
comparison, during the three months ended June 30, 2014, the Company generated no revenues but incurred $442,014 of general and
administrative expenses as we continued the development of the business of SwissINSO and $4,591 in interest charges related to
bridge loans received in September 2009, convertible notes and warrants sold in a private placement from December 2009 through
December 2010 and short-term loans received during 2011, 2012, 2013 and the first six months of 2014 and, as a result of an $81,700
gain from abandonment of debt during the period, had total other income of $32,977.
During
the three months ended June 30, 2015, we had a net loss before foreign currency translation adjustments of $143,542, as compared
to a net loss before foreign currency translation adjustments during the three months ended June 30, 2014 of $364,832.
Results
of Operations
–
Six months ended June 30, 2015 compared to Six Months ended June 30, 2014
During
the six month period ended June 30, 2015, the Company generated revenues totaling $42,199 relating to the sale of Kromatix™
glass. During the six months ended June 30, 2015, we incurred $428,271 of general and administrative expenses as we continued
the development of the business of SwissINSO and $45,390 in interest charges related to a bridge loan received in September 2009
and short-term loans received during 2011, 2012, 2013, 2014 and the first six months of 2015. However, as a result of receiving
reimbursement of expenses relating to 2014 and totaling $641,134 from Emirates Insolaire, we had total other income of $656,057.
In
comparison, during the six months ended June 30, 2014, the Company generated no revenues, but incurred $766,306 of general and
administrative expenses as we continued the development of the business of SwissINSO and $9,821 in interest charges related to
bridge loans received in September 2009, convertible notes and warrants sold in a private placement from December 2009 through
December 2010 and short-term loans received during 2011, 2012, 2013 and the first six months of 2014 and, as a result of a $109,226
gain from abandonment of debt during the period, had total other income of $109,227.
During
the six months ended June 30, 2015, we had net income before foreign currency translation adjustments of $207,647, as compared
to a net loss before foreign currency translation adjustments during the six months ended June 30, 2014 of $666,900.
Liquidity
and Capital Resources
As
of June 30, 2015, we had a working capital deficit of $4,906,327 as compared with a working capital deficit at December 31, 2014
of $4,968,851. During the past twelve (12) months, we have incurred significant operating expenses, and we expect to incur additional,
but less significant, operating expenses for overheads, research and development, sampling and certification, sales channel development,
general and administrative expenses and debt payments during the next twelve (12) months.
During
the six months ended June 30, 2015, the Company borrowed approximately $436,110 from InsOglass. Of this amount, $433,041 represents
payment of current period expenses, and $3,069 represents cash received by the Company. Offsetting this amount is $513,828 in
reimbursements that were paid directly to InsOglass. These loans were sufficient to enable the Company to meet the working capital
needs of SwissINSO.
We
do not have any other available credit, bank financing or other external sources of liquidity except those provided by our Chief
Executive Officer and will need to obtain additional capital in order to continue SwissINSO’s business operations. In order
to obtain such capital, we will need to sell additional securities and/or borrow additional funds from lenders.
There
can be no assurance that we will obtain additional funding which is sufficient until substantial revenue from sales has started.
We will also need to commercialize our Kromatix™ business. If we are not successful in raising sufficient capital, either
from sales of securities, additional borrowings, revenues generated by the Kromatix™ 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.
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 revenues 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 and (b) developing the Kromatix™ business.
We
realized net income before foreign currency translation adjustments during the six months ended June 30, 2015 of $207,647. Despite
this positive result, which was primarily due to the reimbursement of prior year expenses, there are significant financial challenges
that continue to raise concern as to the ability of the Company to continue as a going concern. As discussed above, management
plans include attempting to obtain additional capital from sales of securities and private borrowings and from the commercialization
of the Kromatix™ 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.