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Registration No. 333-170633
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-effective
Amendment No. 2 to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SWISHER HYGIENE INC.
(Exact Name of registrant as specified in its charter)
 
         
Delaware
(State or other jurisdiction of
incorporation or organization)
  7342
(Primary Standard Industrial
Classification Code Number)
  27-3819646
(I.R.S. Employer
Identification Number)
 
4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina 28210, (704) 364-7707
 
 
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
     
Steven R. Berrard, President and Chief Executive Officer
Swisher Hygiene Inc.
4725 Piedmont Row Drive, Suite 400,
Charlotte, North Carolina 28210
Telephone: (704) 364-7707
Fax: (704) 602-7980

(Name, address, including zip code, and telephone number,
including area code, of agent for service)
  Please send a copy of all communications to:
Edward L. Ristaino Esq.
Michael Francis Esq.
Akerman Senterfitt
One Southeast Third Ave., 25th Floor
Miami, Florida 33131-1714
Telephone: (305) 982-5581
Fax: (305) 374-5095
 
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  þ
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
CALCULATION OF REGISTRATION FEE
 
                                     
              Proposed Maximum
      Proposed Maximum
      Amount of
Title of Each Class of
    Amount
      Offering
      Aggregate
      Registration
Securities to be Registered     to be Registered       Price per Share(2)       Offering Price       Fee
Common Stock, par value $0.001 per share
      67,589,611 (1)                     (3)
Common Stock, par value $0.001 per share, underlying outstanding warrants
      5,500,000                       (3)
Common Stock, par value $0.001 per share, underlying outstanding promissory notes
      2,631,914       $ 4.88(2 )     $ 12,843,741(2 )     $1,492(3)(4)
                                     
 
(1) 55,789,632 of these shares are subject to lock-up agreements and may not be sold under this registration statement until the lock-up agreements expire. These shares include those held by H. Wayne Huizenga, Steven R. Berrard, and other former shareholders of Swisher International, Inc. The lock-ups expire on the earlier of (i) the public release of Swisher Hygiene’s earnings for the 2011 financial year or (ii) March 31, 2012.
(2) Estimated solely for the purpose of calculating the registration fee which was computed in accordance with Rule 457(c) under the Securities Act of 1933, as amended (the “Securities Act”), on the basis of the average high and low sales prices as reported on the Toronto Stock Exchange on January 4, 2011.
(3) $29,160 was previously paid.
(4) A fee of $166 is being paid with the filing of this pre-effective amendment. The fee relates to up to 291,928 shares underlying two of the promissory notes. The fee with respect to shares underlying the other promissory notes was previously paid.
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.
 


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The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
 
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JANUARY 11, 2011.
 
(SWISHER LOGO)
 
75,721,525 Shares
 
SWISHER HYGIENE INC.
 
The selling stockholders may offer and sell from time to time up to an aggregate of 75,721,525 shares of Swisher Hygiene Inc. common stock that they own. These shares include 55,789,632 shares of common stock, subject to lock-up agreements, including 50,010,670 shares held by H. Wayne Huizenga and Steven R. Berrard. These shares also include up to 5,500,000 shares of common stock underlying warrants held by Michael Serruya and up to 2,631,914 shares issuable upon the conversion of outstanding promissory notes. For information concerning the selling stockholders and the manner in which they may offer and sell shares of our common stock, see “Selling Stockholders” and “Plan of Distribution” in this prospectus.
 
We are not selling any securities under this prospectus and we will not receive any proceeds from the sale by the selling stockholders of their shares of common stock.
 
Our common stock trades on the Toronto Stock Exchange (“TSX”). On January 7, 2011, the last reported sale price for our common stock on the TSX was $5.49 per share (in U.S. dollars).
 
Investing in shares of our common stock involves a high degree of risk. See the section titled “Risk Factors,” which begins on page 3.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
You should rely only on the information contained in this prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless of the time of delivery of this prospectus or the sale of any common stock. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
The date of this prospectus is                 , 2011.


 

 
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PROSPECTUS SUMMARY
 
This summary does not contain all of the information that is important to you. You should read the entire prospectus, including the Risk Factors and our consolidated financial statements and related notes appearing elsewhere in this prospectus before making an investment decision.
 
Our Business
 
Swisher Hygiene Inc., through its consolidated subsidiaries, franchisees, and international licensees, provides hygiene solutions to more than 35,000 customers throughout North America and internationally through its network of company owned operations, franchises, and master licenses. Our solutions include products and services designed to promote superior cleanliness and sanitation in commercial environments, enhancing the safety, satisfaction, and well-being of employees and patrons. Our solutions are typically delivered on a regularly scheduled basis and involve providing our customers with: (i) the sale of consumable products such as soap, paper, cleaning chemicals, detergents, and supplies, together with the rental and servicing of dish machines and other equipment for the dispensing of those products; (ii) the rental of facility service items requiring regular maintenance and cleaning, such as floor mats, mops, and bar towels; and (iii) manual cleaning of their facilities. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, industrial, and healthcare industries.
 
Going forward, we intend to increase the sale of our products and services to customers in existing geographic markets as well as expand our reach into additional markets through a combination of organic growth and the acquisition of Swisher franchises, independent chemical service providers, and related businesses.
 
We are a Delaware corporation, originally organized in Canada in 1994. Our principal executive offices are located at 4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina, 28210. On November 2, 2010, we completed a business transaction with Swisher International, Inc., through a merger with a wholly-owned subsidiary of Swisher Hygiene. We refer to this event as the Merger. Immediately before the Merger, Swisher Hygiene redomiciled to Delaware from Canada, where it had been a publicly-traded corporation, listed on the Toronto Stock Exchange (the “TSX”) under the name CoolBrands International Inc. (“CoolBrands”), and trading under the symbol “COB.” We refer to this event as the Redomestication. Upon completion of the Merger and the Redomestication, Swisher Hygiene inherited the reporting issuer status of CoolBrands and Swisher Hygiene’s shares of common stock began trading on the TSX under the symbol “SWI.” CoolBrands was a Canadian company that historically focused on marketing and selling a broad range of ice creams and frozen snacks. Since the end of the 2005 financial year, subsidiaries of CoolBrands disposed of a majority of CoolBrands’ business operations. Since that time, CoolBrands’ principal operations consisted of the management of its cash resources, reviewing and considering potential opportunities to invest such cash resources. CoolBrands held $61,757,316 in cash, cash equivalents and short term investments as of the closing date of the Merger.
 
In the Merger, the former stockholders of Swisher International received 57,789,630 shares of Swisher Hygiene common stock, representing, on a fully diluted basis, a 48% ownership interest in Swisher Hygiene. The stockholders of CoolBrands retained 56,225,433 shares of Swisher Hygiene common stock, representing, on a fully diluted basis, a 52% ownership interest in Swisher Hygiene. As a result of the Merger, Swisher International is a wholly-owned subsidiary of Swisher Hygiene.
 
All references in this Registration Statement to “Swisher,” “Swisher Hygiene,” the “company,” “we,” “us,” and “our” refer to Swisher Hygiene Inc. and its consolidated subsidiaries, except where the discussion relates to times or matters occurring before the Merger, in which case these words, as well as “Swisher International,” refer to Swisher International, Inc. and its consolidated subsidiaries.


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THE OFFERING
 
Common Stock Offered: The selling stockholders are offering a total of 75,721,525 shares of common stock, these shares include 55,789,632 shares of common stock, currently subject to lock-up agreements, which were issued to former shareholders of Swisher International, Inc. in the Merger including shares held by H. Wayne Huizenga and Steven R. Berrard. Pursuant to the lock-up agreements, the locked-up stockholders will not, subject to certain exceptions, offer, sell, contract to sell or enter into any other agreement to transfer the economic consequences of any Swisher Hygiene shares for a period ending the earlier of (i) the public release of Swisher Hygiene’s earnings for the 2011 financial year or (ii) March 31, 2012.
 
Outstanding Shares of Common Stock: As of January 7, 2011, 114,015,063 shares, of our common stock were issued and outstanding.
 
Use of Proceeds: We are not selling any securities under this prospectus and we will not receive any proceeds from the sale of shares by the selling stockholders. To the extent any of the 5,500,000 warrants to purchase shares of our common stock held by Mr. Serruya are exercised, we will receive the $0.50 per share exercise price. If Mr. Serruya exercises the warrants in full, we estimate that our net proceeds will be approximately $2,750,000. We intend to use any proceeds from warrant exercises for working capital and other general corporate purposes. We cannot estimate how many, if any, warrants Mr. Serruya will exercise.


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RISK FACTORS
 
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with the other information contained in this registration statement, before you decide to invest in our common stock. If any of the following risks, which address all of the material risks presently known to us, develop into actual events, then our business, financial condition, results of operations, or prospects could be materially adversely affected. As a result, the market price of our common stock could decline, and you could lose all or part of your investment.
 
We have a history of significant operating losses and as such our future revenue and operating profitability are uncertain.
 
Our future revenue and operating profitability are difficult to predict and are uncertain. Swisher International recorded an operating loss of $6.8 million for the year ended December 31, 2009 and ended the year with an accumulated deficit of $47.0 million. In addition, Swisher International recorded operating losses of approximately $10.5 million and $9.3 million for the years ended December 31, 2008 and 2007, respectively. We may continue to incur operating losses for the foreseeable future, and such losses may be substantial. We will need to increase revenues in order to generate sustainable operating profit. Given Swisher International’s history of operating losses, we cannot assure you that we will be able to achieve or maintain operating profitability on an annual or quarterly basis or at all.
 
We may be harmed if we do not penetrate markets and grow our current business operations.
 
If we fail to further penetrate our core and existing geographic markets, or to successfully expand our business into new markets or through the right sales channels, the growth in sales of our products and services, along with our operating results, could be materially adversely impacted. One of our key business strategies is to grow our business through acquisitions. Acquisitions involve many different risks, including (1) the ability to finance acquisitions, either with cash, debt, or equity issuances; (2) the ability to integrate acquisitions; (3) the ability to realize anticipated benefits of the acquisitions; (4) the potential to incur unexpected costs, expenses, or liabilities; and (5) the diversion of management attention and company resources. Many of our competitors may also compete with us for acquisition candidates, which can increase the price of acquisitions and reduce the number of available acquisition candidates. We cannot assure you that efforts to increase market penetration in our core markets and existing geographic markets will be successful. Further, we cannot ensure that we will be able to acquire businesses at the same rate that we have in the past. Failure to do so could have an adverse effect on our business, financial condition and results of operations.
 
We may require additional capital in the future and no assurance can be given that such capital will be available on terms acceptable to us, or at all.
 
We will require substantial capital or available debt or equity financing to execute on acquisition and expansion opportunities that may come available. We cannot assure you that we will be able to obtain additional financial resources on terms acceptable to us, or at all. Failure to obtain such financial resources could adversely affect our plans for growth, or result in our being unable to satisfy financial or other obligations as they come due, either of which could have a material adverse effect on our business and financial condition. Until a reliable market providing for sufficient liquidity of our common stock develops, sellers of acquisition candidates may be unwilling to accept our common stock as consideration in a transaction, which could adversely impact our ability to execute our acquisition strategy.
 
Although the current credit environment has not had a significant adverse impact on our liquidity or cost of borrowing, the availability of funds has tightened and credit spreads on corporate debt have increased. Therefore, obtaining additional or replacement financing may be more difficult and the cost of issuing new debt or replacing a credit facility will likely be at a higher cost than under our current credit facilities, which mature in February 2011. In addition, the current credit and capital markets could adversely impact the liquidity or financial conditions of suppliers or customers, which could, in turn, impact our business and financial results.


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To date, a significant amount of our cash requirements have been met through loans or advances from the former Swisher International stockholders. In addition, Mr. Huizenga has provided guarantees with respect to $20 million of our credit facility. Neither Messrs. Huizenga or Berrard have agreed to provide the company additional loans, advances, or guarantees in the future. We cannot assure you that sufficient financing will be available in the future on a timely basis, on terms that are acceptable to us or at all. In the event that financing is not available or is not available in the amounts or on terms acceptable to us, the implementation of our acquisition strategy could be impeded, which could have a material adverse effect on our business, financial condition and future prospects.
 
Failure to attract, train, and retain personnel to manage our growth could adversely impact our operating results.
 
Our strategy to grow our operations may place a greater strain on our managerial, financial and human resources than that experienced by our larger competitors, as they have a larger employee base and administrative support group. As we grow we will need to:
 
  •  build and train sales and marketing staff to create an expanding presence in the evolving marketplace for our products and services, and to keep staff informed regarding the features, issues and key selling points of our products and services;
 
  •  attract and retain qualified personnel in order to continue to develop reliable and saleable products and services that respond to evolving customer needs; and
 
  •  focus personnel on expanding our internal management, financial and product controls significantly, so that we can maintain control over our operations and provide support to other functional areas within our business as the number of personnel and the size of our operations increases.
 
Competition for such personnel can be intense, and we cannot assure you that we will be able to attract or retain highly qualified marketing, sales and managerial personnel in the future. Our inability to attract and retain the necessary management, technical, sales and marketing personnel may adversely affect our future growth and profitability. It may be necessary for us to increase the level of compensation paid to existing or new employees to a degree that our operating expenses could be materially increased.
 
We may not be able to properly integrate the operations of acquired businesses and achieve anticipated benefits of cost savings or revenue enhancements.
 
Our business strategy includes growing our business through acquisitions. The success of any business combination depends on management’s ability following the transaction to consolidate operations and integrate departments, systems and procedures, and thereby create business efficiencies, economies of scale, and related cost savings. In addition, the acquired customer base must be integrated into the existing service route structure to improve absorption of fixed costs and create operational efficiencies. The retention and integration of the acquired customer base will be a key factor in realizing the revenue enhancements that should accompany each acquired business. We cannot assure you that future results will improve as a result of cost savings and efficiencies or revenue enhancements from any future acquisitions or proposed acquisitions, and we cannot predict the timing or extent to which cost savings and efficiencies or revenue enhancements will be achieved, if at all.
 
We may incur unexpected costs, expenses, or liabilities relating to undisclosed liabilities of acquired businesses.
 
In the course of performing due diligence investigations on the companies or businesses we may seek to acquire, we may fail or be unable to discover liabilities of the acquisition candidate that have not otherwise been disclosed. These may include liabilities arising from non-compliance with federal, state or local environmental laws by prior owners, pending or threatened litigation, and undisclosed contractual obligations, for each of which we, as a successor owner, may be responsible. Although we will generally seek to minimize exposure to such liabilities by obtaining indemnification from the sellers of the acquired companies, we cannot


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assure you that such indemnifications, even if obtainable, will be enforceable, collectible, or sufficient in amount, scope, or duration to fully offset the potential liabilities arising from the acquisitions.
 
We may recognize impairment charges which could adversely affect our results of operations and financial condition.
 
We assess our goodwill and other intangible assets and long-lived assets for impairment when required by generally accepted accounting principles (“GAAP”) in the U.S. These accounting principles require that we record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. If our assessment of goodwill, other intangible assets, or long-lived assets indicates an impairment of the carrying value for which we recognize an impairment charge, it may adversely affect our results of operations.
 
Goodwill resulting from acquisitions may adversely affect our results of operations.
 
Goodwill and other intangible assets are expected to increase principally as a result of future acquisitions, and potential impairment of goodwill and amortization of other intangible assets could adversely affect our financial condition and results of operations. We consider various factors in determining the purchase prices of acquired businesses, and it is not anticipated that any material portion of the goodwill related to any of these acquisitions will become impaired or that other intangible assets will be required to be amortized over a period shorter than their expected useful lives. However, future earnings could be materially adversely affected if management later determines either that the remaining balance of goodwill is impaired or that shorter amortization periods for other intangible assets are required.
 
Future issuances of shares of our common stock could have a dilutive effect on your investment.
 
We could issue additional shares of our common stock in connection with future acquisitions or for other business purposes, or under the Swisher Hygiene Inc. 2010 Stock Incentive Plan (the “Plan”). Future acquisitions may involve the issuance of our common stock as payment, in part or in full, for the businesses or assets acquired. The benefits derived by us from an acquisition might not exceed the dilutive effect of the acquisition. Pursuant to the Plan, our board of directors may grant stock options, restricted stock units, or other equity awards to our directors and employees. When these awards vest or are exercised, the issuance of shares of our common stock underlying these awards may have a dilutive effect on our common stock. The Plan and the grants thereunder are subject to stockholder and TSX approval.
 
Our business and growth strategy depends in large part on the success of our franchisees and international licensees, and our brand reputation may be harmed by actions out of our control that are taken by franchisees and international licensees.
 
A portion of our earnings are expected to come from royalties and other amounts paid to us by our franchisees and international licensees. Franchisees and licensees are independent operators and have a significant amount of flexibility in running their operations, and their employees are not our employees. We provide training and support to, and monitor the operations of, franchisees, but the quality of their operations may be diminished by any number of factors beyond our control. Despite the operating obligations the franchisees and licensees are subject to pursuant to our operations manual or the franchise or licensee agreements, franchisees may not successfully operate their business in a manner consistent with our standards and requirements and may not hire and train qualified managers and other personnel. While we may ultimately take action to terminate franchisees and licensees that do not comply with the standards contained in the franchise or licensee agreements and our operations manual, we may not be able to identify problems and take action quickly enough and, as a result, our image and reputation may suffer, potentially causing revenue to decline. Any operational shortcoming of a franchisee is likely to be attributed by the public to our entire system, thus damaging our brand reputation and potentially affecting revenues and operating results. Furthermore, if a significant number of the franchisees were to become insolvent or otherwise were unwilling or unable to pay for products and supplies purchased from us or pay royalties, rent or other fees, our revenues and operating results would decrease.


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Failure to retain our current clients and renew existing client contracts could adversely affect our business.
 
Our success depends in part on our ability to retain current customers and renew existing customer service agreements. Our ability to retain current clients depends on a variety of factors, including the quality, price, and responsiveness of the services we offer, as well as our ability to market these services effectively and differentiate our offerings from those of our competitors. We cannot assure you that we will be able to renew existing customer contracts at the same or higher rates or that our current customers will not turn to competitors, cease operations, elect to bring the services we provide in-house, or terminate existing service agreements. The failure to renew existing service agreements or the loss of a significant number of existing service agreements would have a material adverse effect on our business, financial condition, and results of operations.
 
The pricing, terms, and length of customer service agreements may constrain our ability to recover costs and to make a profit on our contracts.
 
The amount of risk we bear and our profit potential will vary depending on the type of service agreements under which products and services are provided. We may be unable to fully recover costs on service agreements that limit our ability to increase prices, particularly on multi-year service agreements. In addition, we may provide services under multi-year service agreements that guarantee maximum costs for the customer based on a specific criteria, for example, cost per diner, or cost per passenger day, putting us at risk if we do not effectively manage customer consumption. Our ability to manage our business under the constraints of these service agreements may have a material adverse effect on our financial condition.
 
Changes in economic conditions that impact the industries in which our end-users primarily operate in could adversely affect our business.
 
During the last few years, conditions throughout the U.S. and worldwide have been extremely weak and those conditions may not improve in the foreseeable future. As a result, our customers or vendors may have financial challenges, unrelated to us that could impact their ability to continue doing business with us. Economic downturns, and in particular downturns in the foodservice, hospitality, travel, and food processing industries, can adversely impact our end-users, who are sensitive to changes in travel and dining activities. The recent decline in economic activity is adversely affecting these markets. During such downturns, these end-users typically reduce their volume of purchases of cleaning and sanitizing products, which may have an adverse impact on our business. We cannot assure you that current or future economic conditions, and the impact of those conditions on our customer base, will not have a material adverse effect on our business, financial condition and results of operations.
 
If we are required to change our pricing models to compete successfully, our margins and operating results may be adversely affected.
 
The cleaning and maintenance solutions industry is highly competitive. We will compete with national, regional, and local providers, many of whom have greater financial resources, less leverage or lower costs. We will compete in the same market primarily on the basis of brand name recognition, price, product quality, and customer service. Competitive markets may require us to reduce our prices for products and services. If our competitors offer discounts on certain products or services in an effort to recapture or gain market share, we may be required to lower prices or offer other favorable terms to compete successfully. Any such change would likely reduce margins and could adversely affect operating results. Some of our competitors may bundle products and services that compete with our products and services for promotional purposes as a long-term pricing strategy or may provide guarantees of prices and product implementations. Also, competitors may develop new or enhanced products and services more successfully and sell existing or new products and services better than we do. In addition, new competitors may emerge. These practices could, over time, limit the prices that we can charge for our products and services. If we cannot offset price reductions or other pricing strategies with a corresponding increase in sales or decrease in spending, then the reduced revenue resulting from lower prices would adversely affect our margins and operating costs.


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Several members of our senior management team are critical to our business and if these individuals do not remain with us in the future, it may have an adverse impact on our financial condition and results of operations.
 
Our future success depends, in part, on the continued efforts and abilities of our senior management team. Their skills, experience and industry contacts are expected to significantly benefit our business. The loss of any member of our senior management team would disrupt our operations and divert the time and attention of the remaining members of the senior management team, which could have a material adverse effect on our business, operating results, and financial condition. Because the market for qualified management is highly competitive, we may not be able to retain our leadership team or fill new management positions or vacancies created by expansion or turnover at existing compensation levels. We do not carry “key-person” insurance on the lives of our senior management team or management personnel to mitigate the impact that the loss of a key member of our management team would cause. If we lose the services of one or more of these individuals, or if one or more of them decide to join a competitor or otherwise compete directly with us, our business, operating results, and financial condition could be materially and adversely affected.
 
The financial condition and operating ability of third parties may adversely affect our business.
 
We will initially conduct limited manufacturing operations and will primarily depend, and for the foreseeable future will continue to depend, on third parties for the manufacture of the products we sell. We will rely on third party suppliers to provide us with components and services necessary for the completion and delivery of our products and services. We expect to significantly expand our customer base and product offerings, but our expansion may be limited by the manufacturing capacity of third party manufacturers. Such manufacturers may not be able to meet our needs in a satisfactory and timely manner, particularly if there are raw material shortages.
 
We purchase the majority of our chemicals from a single manufacturer and our dispensing equipment and dish machines are also primarily supplied by single suppliers. Should any of these third party suppliers experience production delays, we may need to identify additional suppliers, which may not be possible on a timely basis or on favorable terms, if at all. A delay in the supply of our chemicals or equipment could adversely effect relationships with our customer base and could cause potential customers to delay their decision to purchase services or cause them not to purchase our services at all. Further, our primary chemical manufacturer operates from a single location. We cannot assure you that our primary manufacturer will be able to meet our needs in a timely enough manner to avoid a material disruption of our business, which in turn could have an adverse effect on our ability to maintain desired levels of profitability and volume, and could adversely affect relationships with our customers.
 
In the event that any of the third parties with whom we have significant relationships files a petition in or is assigned into bankruptcy or becomes insolvent, or makes an assignment for the benefit of creditors or makes any arrangements or otherwise becomes subject to any proceedings under bankruptcy or insolvency laws with a trustee, or a receiver is appointed in respect of a substantial portion of its property, or such third party liquidates or winds up its daily operations for any reason whatsoever, then our business, financial position and results of operations may be materially and adversely affected.
 
Increases in fuel and energy costs could adversely affect our results of operations and financial condition.
 
The price of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries, regional production patterns, limits on refining capacities, natural disasters and environmental concerns. In recent years, fuel prices have fluctuated widely and have generally increased. Fuel price increases raise the costs of operating vehicles and equipment. We cannot predict the extent to which we may experience future increases in fuel costs or whether we will be able to pass these increased costs through to our customers. If fuel costs rise, the operating costs of our distribution operations would increase, resulting in a decrease in margins and


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profitability. A fuel shortage, higher transportation costs or the curtailment of scheduled service could result, any of which could adversely impact our relationship with franchisees and reduce our profitability. If we experience delays in the delivery of products to our customers, or if the products are not delivered to the customers at all, relationships with our customers could be adversely impacted, which could have a material adverse effect on our business and prospects. As a result, future increases in fuel costs could have a material adverse effect on our results of operations and financial condition.
 
We may be subject to legal proceedings and disputes.
 
We may be involved in litigation from time to time in the ordinary course of business. We may also be subject to legal proceedings and disputes with current or former joint venture partners, franchisees, licensees and others. We cannot assure you that the ultimate resolution of any legal proceedings will not have a material adverse effect on our business and results of operations.
 
Our products contain hazardous materials and chemicals, which could result in claims against us.
 
We use and sell a variety of products that contain hazardous materials and chemicals. There are hazardous chemicals in some of our products but in all cases these materials have short term hazardous actions that can easily be neutralized or disposed of with minimal effect on the environment or situations that would require long term remediation treatments due to environmental contamination. Like all products of this nature, misuse of the hazardous material based products can lead to injuries and damages but in all cases if these products are used at the prescribed usage levels with the proper PPEs (Personal Protection Equipment) and procedures the chances of injuries and accidents are extremely rare. Nevertheless, because of the nature of these substances or related residues, we may be liable for certain costs, including, among others, costs for health-related claims, or removal or remediation of such substances. We may be involved in claims and litigation filed on behalf of persons alleging injury as a result of exposure to such substances or by governmental or regulatory bodies related to our handling and disposing of these substances. Because of the unpredictable nature of personal injury and property damage litigation and governmental enforcement, it is not possible to predict the ultimate outcome of any such claims or lawsuits that may arise. If any such claims and lawsuits, individually or in the aggregate, were resolved against us, our results of operations and cash flows could be adversely affected.
 
We are subject to environmental, health and safety regulations, and may be adversely affected by new and changing laws and regulations, that generate ongoing environmental costs and could subject us to liability.
 
We are subject to laws and regulations relating to the protection of the environment and natural resources, and workplace health and safety. These include, among other things, reporting on chemical inventories and risk management plans, and the management of hazardous substances. Violations of existing laws and enactment of future legislation and regulations could result in substantial penalties, temporary or permanent facility closures, and legal consequences. Moreover, the nature of our existing and historical operations exposes us to the risk of liability to third parties. The potential costs relating to environmental and product registration laws and regulations are uncertain due to factors such as the unknown magnitude and type of possible contamination and clean-up costs, the complexity and evolving nature of laws and regulations, and the timing and expense of compliance. Changes to current laws, regulations or policies could impose new restrictions, costs, or prohibitions on our current practices and could have a material adverse effect on our business or results of operations.
 
If our products are improperly manufactured, packaged, or labelled or become adulterated, those items may need to be recalled.
 
We may need to recall the products we sell if products are improperly manufactured, packaged, or labelled or if they become adulterated. Widespread product recalls could result in significant losses due to the costs of a recall and lost sales due to the unavailability of product for a period of time. A significant product recall could also result in adverse publicity, damage to our reputation, and loss of customer confidence in our


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products, which could have a material adverse effect on our business, financial condition, or results of operations.
 
Changes in the types or variety of our service offerings could affect our financial performance.
 
Our financial performance is affected by changes in the types or variety of products and services offered to our customers. For example, as we begin to evolve our business to include a greater combination of products with our services, the amount of money required for the purchase of additional equipment and training for associates may increase. Additionally, the gross margin on product sales is often less than gross margin on service revenue. These changes in variety or adjustment to product and service offerings could have a material adverse effect on our financial performance.
 
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.
 
Our ability to compete effectively depends in part on our rights to service marks, trademarks, trade names and other intellectual property rights we own or license, particularly our registered brand names, including “Swisher” and “Sani-Service.” We may not seek to register every one of our marks either in the U.S. or in every country in which it is used. As a result, we may not be able to adequately protect those unregistered marks. Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same protection in other countries as we would in the U.S. and Canada. Failure to protect such proprietary information and brand names could impact our ability to compete effectively and could adversely affect our business, financial condition, or results of operations.
 
Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products or services infringe on their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources. A successful claim of trademark, patent or other intellectual property infringement against us, or any other successful challenge to the use of our intellectual property, could subject us to damages or prevent us from providing certain services under our recognized brand names, which could have a material adverse effect on our business, financial condition, or results of operations.
 
If we are unable to protect our information and telecommunication systems against disruptions or failures, our operations could be disrupted.
 
We are dependent on internal and third party information technology networks and systems, including the Internet, to process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for fulfilling and invoicing customer orders, applying cash receipts, determining reorder points and placing purchase orders with suppliers, making cash disbursements, and conducting digital marketing activities, data processing, and electronic communications among business locations. We also depend on telecommunication systems for communications between company personnel and our customers and suppliers. Future system disruptions, security breaches, or shutdowns could significantly disrupt our operations or may result in financial damage or loss due to lost or misappropriated information.
 
Our business could suffer in the event of a work stoppage or increased organized labor activity.
 
Presently, no Swisher employees are members of any union or organized labor group. While we consider our relations with employees to be generally good, we cannot assure you that we will not experience work stoppages, strikes, or slowdowns in the future. In addition, for the foreseeable future we will primarily outsource to third parties the manufacturing of the products we sell, and we cannot assure you that these third parties will not experience work stoppages, strikes or slowdowns in the future. A prolonged work stoppage, strike, or slowdown at any of these facilities could have a material adverse effect on our results of operations. Moreover, we cannot assure you that we will not become subject to labor union organizing efforts. If any of our operations unionize, we could incur increased risk of work stoppages and possibly higher labor costs.


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Insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could adversely impact our business.
 
Our business is subject to all of the operating hazards and risks normally incidental to handling, storing, and transporting the products we sell. We maintain insurance policies in such amounts and with such coverage and deductibles that we believe are reasonable and prudent. Nevertheless, our insurance coverage may not be adequate to protect us from all liabilities and expenses that may arise from claims for personal injury or death or property damage arising in the ordinary course of business, and our current levels of insurance may not be able to be maintained or available at economical prices. If a significant liability claim is brought against us that is not covered by insurance, we may have to pay the claim with our own funds, which could have a material adverse effect on our business, financial condition, and results of operations.
 
Our current size and growth strategy could cause our revenues and operating results to fluctuate more than some of our larger, more established competitors or other public companies.
 
Our revenue is difficult to forecast and we believe it is likely to fluctuate significantly from quarter to quarter as we continue to grow. Some of the factors affecting our future revenue and results, many of which will be outside of our control and are discussed elsewhere in the Risk Factors, include:
 
  •  competitive conditions in our industry, including new products and services, product announcements and incentive pricing offered by our competitors;
 
  •  the ability to hire, train and retain sufficient sales and professional services staff;
 
  •  the ability to develop and maintain relationships with partners, franchisees, distributors, and service providers;
 
  •  the discretionary nature of our customers’ purchase and budget cycles and changes in their budgets for, and timing of, chemical, equipment and services purchases;
 
  •  the length and variability of the sales cycles for our products and services;
 
  •  strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
 
  •  our ability to complete our service obligations in a timely manner; and
 
  •  timing of product development and new product and service initiatives.
 
Given our current amount of revenue, particularly as compared with some of our competitors, even minor variations in the rate and timing of conversion of our sales prospects into revenue could cause us to plan or budget inaccurately, and have a greater percentage impact on our results than the same variations would have on our larger competitors.
 
In light of the foregoing, quarter-to-quarter comparisons of our operating results are not necessarily representative of future results and should not be relied upon as indications of likely future performance or annual operating results. Any failure to achieve expected quarterly earnings per share or other operating results could cause the market price of our common shares to decline or have a material adverse effect on our business, financial condition and results of operations.
performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
 
The former stockholders of Swisher International will be able to exert control over the corporate actions of Swisher Hygiene.
 
The former Swisher International stockholders, including Messrs. Huizenga and Berrard, own 48% of Swisher Hygiene common stock on a fully diluted basis. As a result, these stockholders may be in a position to exert control over all matters requiring stockholder approval, including the election of directors, determination of significant corporate actions, amendments to Swisher’s certificate of incorporation and by-laws, and the


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approval of any business transaction, such as mergers or takeover attempts, in a manner that could conflict with the interests of other stockholders. Although there are no agreements or understandings between the former Swisher International stockholders as to voting, if they voted in concert, they would exert control over Swisher Hygiene.
 
Future sales of Swisher Hygiene shares by former Swisher International or CoolBrands stockholders could affect the market price of our shares.
 
Of the Swisher Hygiene shares issued in the Merger, 55,789,632 shares issued to the former Swisher International shareholders, including shares held by H. Wayne Huizenga and Steven R. Berrard, are subject to lock-up agreements. Pursuant to the lock-up agreements, the locked-up shareholders will not, subject to certain exceptions, offer, sell, contract to sell or enter into any other agreement to transfer the economic consequences of any Swisher Hygiene shares for a period ending the earlier of (i) the public release of Swisher Hygiene’s earnings for the 2011 financial year or (ii) March 31, 2012. After the lock-up agreements relating to the Swisher Hygiene shares issued in the Merger to the former Swisher International stockholders terminate, the market price of Swisher Hygiene shares could decline as a result of sales of our shares by former Swisher International or CoolBrands stockholders, or the perception that such sales could occur. These sales, or the perception that such sales could occur, might also make it more difficult for Swisher Hygiene to sell equity securities at a time and price that is deemed appropriate. In addition, Swisher Hygiene may issue additional shares of common stock as part of the purchase price of future acquisitions or in connection with future financings. Any actual sales, or any perception that sales of a substantial number of shares may occur, could adversely affect the market price of Swisher Hygiene common stock.
 
Provisions of Delaware law and our organizational documents may delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders.
 
Provisions of Delaware law and our certificate of incorporation and bylaws may discourage, delay or prevent a change of control that our stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or delay attempts by stockholders to replace or remove management or members of our board of directors. These provisions include:
 
  •  the absence of cumulative voting in the election of directors, which means that the holders of a majority of our common stock may elect all of the directors standing for election;
 
  •  the inability of our stockholders to call special meetings;
 
  •  the requirement that our stockholders provide advance notice when nominating director candidates or proposing business to be considered by the stockholders at an annual meeting of stockholders;
 
  •  the ability of the our board of directors to make, alter or repeal our bylaws;
 
  •  the requirement that the authorized number of directors be changed only by resolution of the board of directors; and
 
  •  the inability of stockholders to act by written consent.


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USE OF PROCEEDS
 
We are not selling any securities under this prospectus and we will not receive any proceeds from the sale of shares by the selling stockholders. To the extent any of the 5,500,000 warrants to purchase shares of our common stock held by Mr. Serruya are exercised, we will receive the $0.50 per share exercise price. If Mr. Serruya exercises the warrants in full, we estimate that our net proceeds will be approximately $2,750,000. We intend to use any proceeds from warrant exercises for working capital and other general corporate purposes. We cannot estimate how many, if any, warrants Mr. Serruya will exercise.
 
DILUTION
 
Other then the shares underlying the warrants held by Mr. Serruya, the shares of common stock to be sold by the selling stockholders are currently issued and outstanding. Accordingly, there will be no dilution to our existing stockholders in connection with the offer and sale by the selling stockholders of such shares of common stock under this prospectus. If any of the warrants to purchase 5,500,000 shares of common stock are exercised, our stockholders may experience a reduction in their ownership interest in our Company, however such reduction would not be material.


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SELLING STOCKHOLDERS
 
The selling stockholders may offer and sell from time to time up to an aggregate of 75,721,525 shares of Swisher Hygiene common stock that they own. These shares include 55,789,632 shares of common stock, currently subject to lock-up agreements, which were issued to former shareholders of Swisher International in the Merger, including shares held by H. Wayne Huizenga and Steven R. Berrard.
 
Except as otherwise indicated, the following table sets forth certain information with respect to the beneficial ownership of our common stock including the names of the selling stockholders, the number of shares of common stock known by the company to be owned beneficially by the selling stockholders as of January 7, 2011, the number of shares of our common stock that may be offered by the selling stockholders pursuant to this prospectus, the number of shares owned by the selling stockholders after completion of the offering and the percentage of shares to be owned by the selling stockholders after completion of the offering. The table has been prepared based upon a review of information furnished to us by or on behalf of the selling stockholders.
 
                                 
                      Percent of
 
                Shares of
    Common
 
                Stock Owned
    Stock to be
 
                by the
    Owned by the
 
          Shares of Stock
    Selling
    Selling
 
          to be Offered
    Stockholder
    Stockholder
 
    Shares of Stock
    for the Selling
    After
    After
 
Name of Selling
  Owned Prior to
    Stockholder’s
    Completion of
    Completion of
 
Stockholder
  Offering     Account     the Offering     the Offering  
 
1082272 Ontario Inc. 
    4,078,301 (1)     4,078,301 (1)            
Thomas Aucamp
    1,300,265 (2)     1,300,265 (2)            
Steven R. Berrard
    25,005,311 (2)     25,005,311 (2)            
David Braley
    5,194,800       5,194,800              
Cris Branden
    577,901 (2)     577,901 (2)            
Thomas Byrne
    1,300,265 (2)     1,300,265 (2)            
Romeo DeGasperis
    6,700       6,700              
Richard Handley
    577,901 (2)     577,901 (2)            
Robert Henninger
    577,901 (2)     577,901 (2)            
H. Wayne Huizenga
    25,005,359 (2)     25,005,359 (2)            
Jack Lynn
    288,927 (2)     288,927 (2)            
Ken MacKenzie
    10,000       10,000              
Alex Muxo
    577,901 (2)     577,901 (2)            
William Pierce
    577,901 (2)     577,901 (2)            
David Prussky
    243,000       243,000              
Michael Rapoport
    1,499,999       1,499,999              
Aaron Serruya
    133,665 (3)     133,665 (3)            
Michael Serruya
    5,633,515 (4)     5,633,515 (4)            
Philip Wagenheim
    499,999       499,999             ——  
Gateway ProClean, Inc.
    1,312,864 (5)     1,312,864 (5)            
Lasfam Investments, Inc.
    1,027,122 (6)     1,027,122 (6)            
Cheney Bros., Inc.
    291,928 (7)     291,928 (7)            
 
 
(1) 1082272 Ontario Inc., an entity owned 50% by Michael Serruya and 50% by his brother, Aaron Serruya, owns 4,078,301 shares of common stock. Michael Serruya is a director and President of 1082272 Ontario Inc., and has investment power over 2,039,151 shares of common stock held by 1082272 Ontario Inc. Aaron Serruya has investment power over the remaining shares of common stock owned by 1082272 Ontario Inc.
 
(2) These shares are subject to lock-up agreements. Pursuant to the lock-up agreements, the locked-up shareholders will not, subject to certain exceptions, offer, sell, contract to sell or enter into any other agreement to transfer the economic consequences of any Swisher Hygiene shares for a period ending the earlier of (i) the public release of Swisher Hygiene’s earnings for the 2011 financial year or (ii) March 31, 2012.
 
(3) The number of shares owned by Aaron Serruya before the offering does not include shares owned by 1082272 Ontario Inc., as described in footnote one to this table.


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(4) Includes the registration of shares of common stock underlying warrants to purchase 5,500,000 shares of common stock. Of these warrants, Mr. Michael Serruya is the beneficial owner of warrants to purchase 299,776 shares of common stock, and Mr. Michael Serruya holds the balance of such warrants on behalf of and in trust for various members of the Serruya family. The number of shares owned by Mr. Serruya before the offering assumes the vesting and subsequent exercise by Mr. Serruya of all warrants. The number of shares owned by Mr. Serruya before the offering does not include shares owned by 1082272 Ontario Inc., as described in footnote (1) to this table.
 
(5) Registering the resale of shares underlying a convertible promissory note issued in connection with the acquisition of certain assets of Gateway ProClean, Inc. Thomas P. Wohlgemuth, Patrick D. Sale, and Thomas M. Wohlgemuth share investment control of Gateway ProClean, Inc.
 
(6) Registering the resale of shares underlying a convertible promissory note issued in connection with the acquisition of certain assets of Lasfam Investments, Inc. Elliot Laskin has investment control of Lasfam Investments, Inc.
 
(7) Registering the resale of shares underlying two convertible promissory notes issued in connection with the entry into a distribution agreement with Cheney Bros., Inc. and the acquisition of certain assets of Cheney Bros. Byron Russell has investment control of Cheney Bros., Inc.
 
None of the selling stockholders has, or within the past three years has had, any position, office or material relationship with us or any of our predecessors or affiliates except as follows:
 
  •  Thomas Aucamp owns common stock in the company and served as Executive Vice President of Swisher International from 2006 to 2010. Mr. Aucamp continues to serve as Executive Vice President of the company, and has served as Secretary of the company since November 2010.
 
  •  Steven R. Berrard owns common stock of the company and served as Chief Executive Officer and a director of Swisher International from 2004 to 2010. Mr. Berrard continues to serve as Chief Executive Officer and a director of the company.
 
  •  David Braley owns common stock in the company and has served as a director of the company since November 1, 2010.
 
  •  Cris Branden owns common stock in the company and served as a director of Swisher International from 2004 to 2010.
 
  •  Thomas Byrne owns common stock in the company and served as Executive Vice President of Swisher International from 2004 to 2010 and as a director of Swisher International from 2004 to 2010. Mr. Byrne continues to serve as Executive Vice President of the company.
 
  •  Romeo DeGasperis owns common stock in the company and served as a director of CoolBrands from November 2006 to 2010.
 
  •  Richard Handley owns common stock in the company and served as a director of Swisher International from 2004 to 2010.
 
  •  H. Wayne Huizenga owns common stock in the company and has served as a director of the company since November 1, 2010.
 
  •  Messrs. Henninger, Muxo, and Pierce own common stock of the Company. Each of them is an employee of Huizenga Holdings, Inc., and in this capacity, they have provided advisory services to Mr. Huizenga in connection with his investment in Swisher International and Swisher Hygiene.
 
  •  Jack Lynn is an employee of Swisher Hygiene.
 
  •  Ken MacKenzie owns common stock in the company and served as the Chief Financial Officer and Secretary of CoolBrands from April 2007 to 2010.
 
  •  Michael Rapoport and Philip Wagenheim worked at Broadband Capital Management, the financial advisor to Swisher International in connection with the Merger.
 
  •  David Prussky owns common stock in the company and served as a director of CoolBrands from February 2010 to November 2010. Mr. Prussky continues to serve as a director of the company.
 
  •  Aaron Serruya owns common stock in the company and was a co-founder of CoolBrands. As described in footnote (1) to the Selling Stockholders table, Mr. Serruya also owns, 50% of 1082272 Ontario Inc.
 
  •  Michael Serruya owns common stock in the Company and was a co-founder of CoolBrands. Mr. Serruya was appointed a director of CoolBrands in 1994 and served as President and Chief Executive Officer of CoolBrands from 2006 to 2010. Mr. Serruya continues to serve as a director of the Company. As described in footnote (1) to the Selling Stockholders table, Mr. Serruya also is a director and the


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  President of 1082272 Ontario Inc., an entity owned 50% by Michael Serruya and 50% by his brother, Aaron Serruya.
 
  •  We acquired the business operations and selected net assets of Gateway ProClean on November 8, 2010. Following the acquisition, we entered into an employment agreement with Thomas M. Wohlgemuth, stockholder of Gateway ProClean. Neither Thomas P. Wohlgemuth nor Mr. Sale, who share investment control of Gateway with Thomas M. Wohlgemuth, has any other relationship with the Company as set forth in Item 507 of Regulation S-K.
 
  •  We acquired the business operations and selected net assets of Lasfam Investments, Inc. on December 7, 2010. Mr. Laskin, who has investment control of Lorform, has no other relationship with the Company as set forth in Item 507 of Regulation S-K.
 
  •  We entered into a distribution agreement with Cheney Bros., Inc. on December 31, 2010. Pursuant to the agreement, we will serve as Cheney Bros.’ provider of warewashing and laundry-related chemicals and we will utilize Cheney Bros. as a distribution partner in Florida and Georgia. Pursuant to the agreement, we also purchased certain assets relating to Cheney Bros.’ warewashing and laundry business. Mr. Russel, who has investment control of Cheney Bros., has no other relationship with the Company as set forth in Item 507 of Regulation S-K.
 
INFORMATION WITH RESPECT TO THE REGISTRANT
 
Overview
 
Swisher Hygiene Inc., through its consolidated subsidiaries, franchisees, and international licensees, provides hygiene solutions to more than 35,000 customers throughout North America and internationally through its network of company owned operations, franchises, and master licenses. Our solutions include products and services designed to promote superior cleanliness and sanitation in commercial environments, while enhancing the safety, satisfaction, and well-being of employees and patrons. Our solutions are typically delivered on a regularly scheduled basis and involve providing our customers with: (i) the sale of consumable products such as soap, paper, cleaning chemicals, detergents, and supplies, together with the rental and servicing of dish machines and other equipment for the dispensing of those products; (ii) the rental of facility service items requiring regular maintenance and cleaning, such as floor mats, mops, and bar towels; and (iii) manual cleaning of their facilities. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, industrial, and healthcare industries.
 
Going forward, we intend to increase the sale of our products and services to customers in existing geographic markets as well as expand our reach into additional markets through a combination of organic growth and the acquisition of Swisher franchises, independent chemical service providers, and related businesses.
 
We are a Delaware corporation, originally organized in Canada in 1994. Our principal executive offices are located at 4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina, 28210. The financial information about operating segments appearing in Note 10 to the consolidated financial statements in this registration statement is incorporated herein by this reference.
 
Our History
 
We were originally founded in 1986 as Swisher International, Inc., a Nevada corporation. From our founding through 2004, we operated primarily as a franchisor and licensor of restroom hygiene services offering: (i) weekly cleaning and sanitizing services of our customers’ restroom fixtures, along with the restocking of soap and air freshener dispensers and (ii) the sale of restroom paper products, such as toilet paper and hand towels. We provided these services to a customer base largely comprised of small, locally owned bars, restaurants, and retail locations. Franchisees had exclusive rights to use the Swisher name and business processes in designated United States and Canadian geographic markets typically ranging in size from 500,000 to 3,000,000 persons, while licensees had substantially similar rights in the respective countries in which they operated. Although franchisees licensed the same business model, the manner in which they


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executed and adopted Swisher programs varied greatly, resulting in historically inconsistent levels of service and differing product offerings across geographic markets.
 
In November 2004, H. Wayne Huizenga and Steve Berrard acquired a majority interest in Swisher, which at the time was a publicly traded company. Subsequently, in May 2006, Messrs. Huizenga and Berrard acquired the remaining outstanding shares of Swisher and began operating Swisher as a private company.
 
The primary goal of acquiring ownership of Swisher was to transition the business to take greater advantage of the Swisher brand and nationwide service and distribution network, and to better leverage the under-utilized platform to expand both product and service offerings. Specifically, Messrs. Huizenga and Berrard planned to transition the company’s focus from generating revenue almost exclusively from restroom cleaning services to building a full-service hygiene solutions provider that offers a broad complement of products and services, addressing the complete hygiene and cleaning needs of our customers throughout their facilities. We believed that such a transition would provide Swisher with a competitive advantage, allowing us to retain existing customers over time and provide them with additional products and services that were essential to the operations of their businesses. Moreover, we sought to leverage Swisher’s national infrastructure with product offerings and service expertise in core lines of products, including cleaning chemicals, required by larger corporate customers nationwide.
 
An important component of this business strategy was the acquisition of a sufficient number of franchise locations or other similar businesses, providing us direct control over the implementation of changes to a consistent business model. To address this component of the business strategy, Messrs. Huizenga and Berrard formed HB Service, LLC to acquire franchises and related businesses under the Swisher name. Through September 2010, HB Service acquired and operated 68 former franchises of the company and purchased nine other related businesses. Effective July 13, 2010, HB Service entered into a Contribution Agreement with the company pursuant to which Messrs. Huizenga and Berrard contributed their membership interests in HB Service to the company, at which time HB Service became a wholly-owned subsidiary of Swisher International.
 
By the end of 2005, through HB Service, we had acquired 26 franchisees and other related businesses and implemented a long-range plan to increase the number and types of products we offer. In addition, we discontinued the sale of new franchises, replaced information systems, established a fleet of company-owned vehicles, upgraded our facilities, hired experienced route-based operations managers to develop consistency in our operating model, expanded the geographic area covered by our locations, and eliminated low volume customers that were unprofitable or marginally profitable under our new business model. During this time, acquisitions continued but at a less aggressive pace, as we focused on executing the aforementioned business strategies. By mid-2007, we had purchased and converted to company-owned locations a total of 50 businesses, including 44 franchisees that represented 49.4% of our U.S.-based franchises.
 
In the latter half of 2007 and first half of 2008, we focused almost exclusively on rolling-out new information systems to company-owned operations and franchisees alike, integrating the disparate acquired business models into a centrally-managed operation, which integration continued to include the elimination of low volume customers that were not candidates to purchase our increased suite of products and services. During the period from mid-2007 through the end of 2008, we acquired two franchises. It was during this period that we also first began to experience the impact of the economic downturn, which continues to impact our business and the businesses of our customers. Our customers, many of whom operate in the foodservice market, were particularly affected by the contracting economy through reduced customer traffic and spending. To address in part the financial difficulties experienced by their businesses, these customers reduced their discretionary spending on items such as our legacy restroom cleaning business and delayed decisions to institute new programs or add new products and services. As a result of these economic conditions, coupled with our continual elimination of small unprofitable and marginally profitable customers, our operations, before giving effect to acquisitions, experienced a 1.9% decline in revenue in 2008 as compared to 2007, while franchise fees and other revenue, before giving effect to acquisitions, declined 6.5% in 2008 as compared to 2007.


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Poor economic conditions continued during the first quarter of 2009; prompting us to aggressively accelerate a number of steps we had taken to combat the decline in business. Specifically, we: (i) reduced our field sales force, which primarily called on smaller, single-unit customers; (ii) continued elimination of certain unprofitable or marginally profitable customers by, in many instances, introducing minimum stop charges or price increases; (iii) eliminated certain customers that were payment or credit risks; (iv) realigned our branch and corporate workforce; and (v) reduced other costs. As a result, company operations, before giving effect to acquisitions, experienced a 13.6% decline in revenue in 2009 as compared to 2008, while franchise fees and other revenue, before giving effect to acquisitions, declined 15.8% in 2009 as compared to 2008.
 
In the second half of 2009, we refocused our efforts on positioning the company for future growth by: (i) investing in our corporate account and distributor sales programs; (ii) acquiring franchises to help leverage our field cost structure and fill remaining geographic gaps in our service delivery markets; and (iii) accelerating the development of our chemical program to provide a comprehensive offering focused on detergents, cleaners, and sanitizers used regularly by most of our customers in their warewashing, laundry, and general cleaning applications. We believe that our chemical program is a key component of our future growth as these products are necessary to maintain proper sanitation and cleanliness and require dispensing equipment that we sell or rent, install, and service on a regular basis to ensure proper dilution and delivery of the chemicals. In addition, the purchase of chemical products by our regional and national chain customers is directed by corporate headquarters of those chains. As a result of this and the fact that we have the ability to provide chemical services throughout the continental U.S., the majority of our new business now comes from larger regional or corporate accounts as well as regional distributor partners.
 
In summary, our transition from a restroom cleaning services business to a full service hygiene solutions provider offering a complete chemical and facility service program has required significant investments. These investments included:
 
  •  Acquisitions of 82 businesses, including 68 franchises;
 
  •  Replacement of management information systems;
 
  •  Introduction of delivery service vehicles;
 
  •  Addition of substantial industry experience throughout the organization;
 
  •  Upgrade of branch facilities;
 
  •  Significant expansion of product lines and services to include dust control and a complete chemical program; and
 
  •  Development of a corporate account and distributor sales organization.
 
As a result of these investments, from January 1, 2005, through September 30, 2010, Swisher has incurred cumulative losses of $54,508,159. To help finance these losses and make the investment necessary to create the platform we have today, which we believe will enable us to experience significant growth and profitability, Messrs. Huizenga and Berrard have contributed and advanced the company $64,405,152 and the company has incurred indebtedness of: (i) $24,946,932 under bank lines of credit (ii) $12,981,798 in notes issued by Swisher to sellers in connection with acquisitions made by Swisher (the “Seller Notes”); and (iii) $4,122,915 of third party financing for software development and capital leases for equipment. Mr. Huizenga has guaranteed $20,000,000 of the bank line of credit, and $3,050,000 of the Seller Notes are secured by letters of credit. The letters of credit are secured by certain assets of Messrs. Huizenga and Berrard.
 
As of the date of this registration statement, we have 68 company-owned locations and 11 franchises located throughout the U.S. and Canada and we have entered into ten master license agreements covering the United Kingdom (“U.K.”), Ireland, Portugal, the Netherlands, Singapore, the Philippines, Taiwan, Korea, Hong Kong/Macau/China, and Mexico.


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The number of company-owned locations, franchises, and international master licenses since the end of 2006 through the date of this registration statement is as follows:
 
                                                 
    2006   2007   2008   2009   2010   2011
 
Company-Owned Locations
    43       47       44       60       68       68  
Franchises
    45       39       35       15       11       11  
International Master Licenses(1)
    13       11       11       10       10       10  
 
 
(1) Number of countries in which Swisher licensees operate.
 
Going forward, we will continue to expand our reach into additional U.S. and Canadian geographic markets through acquisitions of independent chemical distributors, franchise repurchases, execution of agreements with distributor partners, and organic growth. Additionally, we will be opportunistic as it relates to acquiring or partnering with complementary businesses that (i) can provide us a competitive advantage; (ii) leverage, expand, or benefit from our distribution network; or (iii) provide us economies of scale or cost advantages over our existing supply chain. Collectively, these efforts are centered on making us an attractive alternative for larger customers in foodservice, hospitality, healthcare, retail, and industrial markets. In addition, we will seek to aggressively license our business model internationally. Our success largely depends on our ability to execute on these strategies and increase the sales of our products and services to corporate accounts and distribution partners.
 
The Merger
 
On November 1, 2010, Swisher Hygiene redomiciled to Delaware from Canada, where it had been a publicly-traded corporation, listed on the Toronto Stock Exchange (the “TSX”) under the name CoolBrands International Inc. (“CoolBrands”), and trading under the symbol “COB.” We refer to this event as the Redomestication.
 
CoolBrands was a Canadian company that historically focused on marketing and selling a broad range of ice creams and frozen snacks. Since the end of the 2005 financial year, subsidiaries of CoolBrands disposed of a majority of CoolBrands’ business operations. Since that time, CoolBrands’ principal operations consisted of the management of its cash resources, reviewing and considering potential opportunities to invest such cash resources. CoolBrands held $61,757,316 in cash, cash equivalents and short term investments at the effective time of the Merger.
 
One day after completion of the Redomestication, CoolBrands Nevada, Inc. (“CoolBrands Nevada”), a wholly-owned subsidiary of Swisher Hygiene, merged with and into Swisher International, with Swisher International continuing as the surviving corporation. We refer to this event as the Merger. Pursuant to the Merger Agreement, at the effective time of the Merger, the following steps took place, giving effect to the Merger:
 
(a) the articles of incorporation and by-laws of Swisher International that were in effect immediately before the Merger became the articles of incorporation and by-laws of the surviving entity, and the directors and officers of Swisher International immediately before the Merger became the initial directors and officers of the surviving entity;
 
(b) all shares of common stock of Swisher International issued and outstanding immediately before the Merger were cancelled and converted into 57,789,630 shares of common stock of Swisher Hygiene; and
 
(c) each share of common stock of CoolBrands Nevada issued and outstanding immediately before the Merger converted into one share of common stock of the surviving entity, which is the only outstanding share of common stock of Swisher International following the Merger.
 
As a result of the Merger, Swisher International became a wholly-owned subsidiary of Swisher Hygiene. Upon completion of the Merger and the Redomestication, Swisher Hygiene inherited the reporting issuer status of CoolBrands. Swisher Hygiene’s shares of common stock began trading on the TSX under the symbol “SWI” on November 4, 2010. As CoolBrands was a reporting issuer (or equivalent) in each of the provinces of Canada, Swisher Hygiene became a reporting issuer in each of the provinces in Canada.


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In the Merger, the former stockholders of Swisher International received 57,789,630 shares of Swisher Hygiene common stock, representing, on a fully diluted basis, a 48% ownership interest in Swisher Hygiene. The stockholders of CoolBrands retained 56,225,433 shares of Swisher Hygiene common stock, representing, on a fully diluted basis, a 52% ownership interest in Swisher Hygiene. 55,789,632 of the shares issued to former shareholders of Swisher International are subject to lock-up agreements. Pursuant to the lock-up agreements, the locked-up shareholders may not offer, sell, contract to sell or enter into any other agreement to transfer the economic consequences of any Swisher Hygiene shares for a period ending the earlier of (i) the public release of Swisher Hygiene’s earnings for the 2011 financial year or (ii) March 31, 2012. Under the lock-up agreements, transfers may be made to family members, trusts and similar entities for estate planning purposes, and to affiliated entities that are wholly-owned by the transferring shareholder. In each of these situations, the recipient of the shares must execute an agreement stating that the recipient is receiving and holding the shares subject to the provisions of the lock-up agreement. Shareholders subject to the lock-up agreement may also pledge the subject shares as collateral for debt.
 
In accordance with the Merger Agreement, the Swisher Hygiene Board of Directors consists of eight members, five of whom were appointed by the former shareholders of Swisher International, and three of whom were appointed by CoolBrands. Further, following the merger, our executive officers consist entirely of former officers and executive officers of Swisher International. Accordingly, the former owners and management of Swisher International have effective operating control of the combined company.
 
The following chart shows the corporate structure of Swisher Hygiene Inc. after the Merger, including its key shareholders and its material subsidiaries and their respective jurisdictions of incorporation. Percentage ownership of Swisher Hygiene is based on 114,015,063 shares of common stock outstanding at January 7, 2011.


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Swisher Hygiene Inc. Corporate Structure
 
 
(FLOW CHART)
 
 
Background to the Merger
 
The Merger is the result of arm’s length negotiations conducted between representatives of CoolBrands and Swisher International and their respective advisors. The following is a summary of the meetings, negotiations, discussions and actions between the parties that preceded the execution and public announcement of the Merger Agreement.
 
Michael Serruya, Chairman, President and CEO of CoolBrands first became familiar with Swisher International in 2009 when he sat on the board of directors of an unrelated company with, among others, Mr. Berrard and Tom Byrne, Executive Vice President and Director of Swisher International. Mr. Serruya took an interest in Swisher International upon learning from Mr. Berrard and Mr. Byrne of Swisher’s business and


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its development since 2004 when Swisher was purchased by Messrs. Berrard and Huizenga. Mr. Berrard informally agreed to communicate with Mr. Serruya to keep him apprised of Swisher International’s progress.
 
In mid-June, 2010, Michael Rapoport of Broadband Capital Management LLC (“Broadband Capital”), financial advisors to Swisher International, contacted Mr. Serruya regarding a potential business combination of Swisher International and CoolBrands. Discussions between Mr. Serruya and Mr. Rapoport ensued with Mr. Serruya requesting information relating to Swisher International. As a result of these discussions, on June 18, 2010, CoolBrands and Swisher International entered into a non-disclosure agreement.
 
In late June 2010, Mr. Serruya received a presentation from Mr. Rapoport, which contained a detailed overview of Swisher International and its business. Mr. Byrne presented Swisher International’s business overview to the CoolBrands board of directors in early July 2010 with Mr. Bob Henninger of Huizenga Holdings, Inc., also present representing was Mr. Huizenga. After discussion and deliberation, the CoolBrands board of directors authorized CoolBrands’ senior management to continue negotiating terms of a proposed transaction.
 
Following the Swisher International presentation, Mr. Serruya and Mr. Berrard entered into discussions regarding a potential business combination of the two companies. Broadband Capital provided CoolBrands with industry research reports containing detailed information concerning the commercial hygiene industry in which Swisher International operates.
 
In mid-July, 2010, Swisher International provided representatives of CoolBrands with access to the Swisher International due diligence data room. From July 20, 2010 to July 22, 2010, representatives of CoolBrands met with senior executives of Swisher International at Swisher International’s corporate office in Charlotte, North Carolina to discuss a potential transaction and perform additional on-sight due diligence.
 
On July 30, 2010, CoolBrands engaged Clarus Securities Inc. (“Clarus”) to act as financial advisor to the CoolBrands board of directors.
 
In early August, 2010, at the request of the Market Surveillance division of the Investment Industry Regulatory Organization of Canada, CoolBrands issued a press release announcing that it was in discussions with various parties with respect to a potential transaction.
 
CoolBrands’ legal, operational and financial due diligence of Swisher International continued from early August, 2010 until mid-August, 2010.
 
On August 17, 2010, the CoolBrands board of directors met to consider the Merger and the Merger Agreement, to receive the independent assessment and advice of Clarus, and to consider other factors relevant to the Merger. As part of these discussions, Stikeman Elliott LLP led the CoolBrands board of directors through a discussion of the Merger Agreement and Clarus provided a presentation regarding its analysis of the transaction from a financial point of view. As part of Clarus’ presentation, the CoolBrands board of directors was advised by Clarus that, based upon certain analyses, assumptions, qualifications, and limitations, in its opinion, the Merger is fair, from a financial point of view, to the shareholders of CoolBrands. After discussion, the CoolBrands board of directors unanimously resolved and determined that: (i) the Merger is fair from a financial point of view to the shareholders of CoolBrands and the Merger is in the best interests of CoolBrands; (ii) it recommend that the shareholders of CoolBrands vote in favor of the Merger; and (iii) CoolBrands enter into the Merger Agreement and perform its obligations thereunder.
 
The Merger Agreement was executed on August 17, 2010 and CoolBrands issued a press release announcing the execution of the Merger Agreement before markets opened on August 18, 2010.
 
On September 24, 2010, the Ontario Superior Court of Justice (Commercial List) issued an interim order authorizing CoolBrands to call a special meeting of its shareholders to consider and, if deemed advisable, approve an arrangement to effect the Redomestication.
 
On October 27, 2010, the arrangement to effect the Redomestication and the Merger was approved by 99% of the shareholders of CoolBrands.


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On October 29, 2010, the Ontario Superior Court of Justice (Commercial List) issued a final order approving the arrangement to effect the Redomestication.
 
On November 1, 2010, the Redomestication was completed.
 
On November 2, 2010, the Merger was completed.
 
Benefits of and Reasons for the Merger
 
In the course of their evaluation of the Merger, the CoolBrands board of directors consulted with CoolBrands’ senior management, legal counsel and financial advisors, reviewed information relating to Swisher International and the commercial hygiene industry, including information derived from CoolBrands’ due diligence review of Swisher International, and considered a number of expected benefits of completing a merger with Swisher International, including, the following:
 
  •  Participation in a Company That Will be Well-Positioned for Profitable Growth. Swisher International has spent the past four years building and investing in a delivery and service platform capable of serving large corporate customers in the hygiene and chemical services markets. Swisher International has transitioned its business from a disparate group of franchisees providing relatively low value-add restroom hygiene services under a common brand, each executing on the business in different ways, into an integrated network of company locations focused on providing consistent customer service across a broader range of hygiene-related products and services required by its customers on a regular basis.
 
  •  Participation in a Company That Will Have Financial Strength That Should Enable its Growth. On a pro forma basis for the year ended December 31, 2009, the revenue of the combined company was $56.8 million. On a pro forma basis for the six months ended June 30, 2010, the revenue of the combined company was $29.8 million. These revenues, if continued, should enable the combined company to finance growth opportunities. On a pro forma basis, the combined company had cash and cash equivalents of $62.7 million at June 30, 2010.
 
  •  Experienced Management.  The combined company will have a highly experienced board of directors and management team with complementary skills in franchising, business and project development and operations, including Messrs. Huizenga and Berrard who have been involved in the growth of four Fortune 500 companies.
 
  •  Continued Participation by CoolBrands Shareholders in the Assets of CoolBrands and Participation in the Assets of Swisher. Shareholders of CoolBrands will own approximately 52% of the combined entity upon completion of the Merger, on a fully diluted basis, and as such, will benefit from Swisher International’s operations supported by CoolBrands’ financial liquidity.
 
The Merger Agreement
 
The following summarizes the material terms of the Merger Agreement by and among CoolBrands, Swisher International, and CoolBrands Nevada, dated August 17, 2010.
 
Completion of the Merger was subject to a number of conditions being satisfied or waived by one or both of CoolBrands and Swisher International at or before the closing date, including the following:
 
  •  approval of the Redomestication by the affirmative vote of two-thirds of the votes cast by the shareholders of CoolBrands present in person or by proxy at a meeting of CoolBrands shareholders, which we refer to as the Special Meeting;
 
  •  approval of the issuance of shares of Swisher Hygiene to Swisher International shareholders in connection with the Merger by the affirmative vote of a simple majority of votes cast by the shareholders of CoolBrands in person or by proxy at the Special Meeting;
 
  •  receipt of a final order by the Ontario Superior Court of Justice (Commercial List) approving an arrangement to effect the Redomestication;


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  •  performance in all material respects by CoolBrands and Swisher International of all covenants required to be performed under the Merger Agreement;
 
  •  the representations and warranties of CoolBrands and Swisher International contained in the Merger Agreement being true and correct as of the closing date;
 
  •  no material adverse change with respect to CoolBrands or Swisher International having occurred;
 
  •  the receipt of all required approvals, consents, permits, waivers, exemptions and orders;
 
  •  the TSX having conditionally approved the listing of the shares to be issued pursuant to the Merger, subject to the satisfaction of the customary listing requirements of the TSX; and
 
  •  the Redomestication having become effective at least one day before to the closing date.
 
Pursuant to the Merger Agreement, CoolBrands agreed not to, directly or indirectly, solicit or participate in any discussions or negotiations with any person (other than Swisher International) regarding an “Acquisition Proposal,” as such term defined in the Merger Agreement. The CoolBrands board of directors was permitted to consider and accept a “Superior Proposal,” as such term is defined in the Merger Agreement under certain conditions. Swisher International was entitled to a five business day period during which it could exercise the right to match any Superior Proposal. If CoolBrands entered into an agreement regarding a Superior Proposal, CoolBrands was required to pay to Swisher International the termination fee of $1.2 million.
 
The Merger Agreement provided that CoolBrands would pay a termination fee of $1.2 million to Swisher International if the Merger Agreement was terminated by: (a) CoolBrands, if it had entered into a definitive agreement in respect of a Superior Proposal; or (b) Swisher International, if the CoolBrands board of directors withdrew or modified, in a manner adverse to Swisher International or CoolBrands Nevada, its approval or recommendation of the Merger, approved or recommended an Acquisition Proposal or approved an agreement in respect of an Acquisition Proposal.
 
Our Market
 
We compete in many markets, including institutional and industrial cleaning chemicals, foodservice chemicals, restroom supply service, paper, and other facility products, including floor mats and other facility service rental items. In each of these markets, there are numerous participants ranging from large multi-national companies to local and regional competitors. The focus of our company-owned operations remains the U.S. and Canada, however we may pursue new international opportunities in the future through additional licensing, joint ventures, or other forms of company expansion.
 
Based on our analysis of publicly available industry research and trade reports, as well as our competitors’ public filings, we estimate that the combined addressable market in the U.S. and Canada for the products and services we currently offer exceeds $36.8 billion, in aggregate, as the pie chart and corresponding table below highlights.


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Cleaning Chemicals
  $ 17.9 Billion  
Paper and Plastic
  $ 7.9 Billion  
Dust Control and Linen
  $ 4.3 Billion  
Food Safety
  $ 2.8 Billion  
Restroom Hygiene
  $ 2.4 Billion  
Other Facility Service Products
  $ 1.5 Billion  
 
 
(1)  We consider the “addressable” market as our estimate of the aggregate market potential of the products and services we currently offer and is not necessarily indicative of the actual market size today.
 
 
We believe our primary competitors in our legacy hygiene services, paper, and facilities service rental market are large facility service providers, as well as numerous small local and regional providers, many of whom may focus on one particular product offering, such as floor mat rental. The paper distribution market for the customers we target not only has competition among the providers listed above, but also from the foodservice, broad-line and janitorial-sanitation distributors.
 
We believe the chemical, institutional, and industrial cleaning chemical market is addressed both by large manufacturers as well as a number of local and regional competitors. However, we believe that we are one of the only competitors to maintain the service employees necessary to effectively service national and regional restaurant and other chains.


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Our Strategy
 
We believe we are well positioned to take advantage of the markets we serve. Our ability to service customers throughout the U.S. and parts of Canada, our broad customer base and our strategy of combining a service-based platform with opportunities to leverage internal and external distribution capabilities, provide multiple avenues for organic revenue growth. We believe our recently introduced service and product offerings, including our warewash, laundry, and cleaning chemical initiative will allow us to increase revenue through existing customers, who will be able to benefit from the breadth and depth of our current product and service offerings. We expect to generate additional revenue with minimal incremental fixed cost by adding new product and service customers within our current route structure, providing the potential for significant and profitable acquisition growth.
 
Organic Growth
 
Government regulations focusing on hygiene, food safety, and cleanliness have increased significantly locally, nationally and worldwide. Climate change, water scarcity, and environmental concerns have combined to create further demand for products, services, and solutions designed to minimize waste and support broader sustainability. In addition, many of our customers require tailored cleaning solutions that can assist in reducing labor, energy, and water use, and the costs related to cleaning, sanitation and hygiene activities.
 
We intend to capitalize on these industry dynamics by offering customers a “one-stop shopping” partner focused on commercial hygiene. This entails leveraging our route-based weekly cleaning service and restroom product platform with additional complementary chemical and facility service products and other services, particularly warewashing and laundry detergents, and related products, cleaning chemicals, and various cleaners, disinfectants and sanitizers regularly used by our end customers. We believe our suite of products and services is a customer-facing portfolio none of our competitors offer in full and as a result the customer need not shop for its commercial hygiene needs on a piece-meal basis. In addition, our management believes that we provide our customers with more frequent service, better results, and lower pricing than our competitors. As a result, we believe we can increase our total revenue per customer stop for such items and that we are well positioned to secure new accounts.
 
Our national footprint and existing route structure provides us with a highly scalable service infrastructure, which we believe gives us a lower relative cost of service compared to local and regional competitors, and an attractive margin on incremental revenue from existing customers as well as revenue from new customers. We also believe the current density of our routes coupled with our go-to-market strategy of utilizing both third-party distributors and company personnel to deliver products, provides us sufficient capacity in our current route structure to efficiently service additional customer locations with minimal, if any, incremental infrastructure or personnel costs, while also reducing average driver time, mileage and fuel costs incurred between customer stops.
 
We believe that substantially all of the target accounts not currently served by us are in markets currently served by our route network. We also believe that at current capacity levels, new customers acquired in our current service network would be accretive to our earnings, with minimal need for network expansion. Accordingly, as we grow our network, we expect our scale and route density to further drive operating performance.
 
Acquisition Growth
 
We believe the market for chemical service providers is highly fragmented, with numerous local and regional competitors accounting for a majority of the total market. As such, these market participants do not benefit from economies of scale when purchasing chemicals, offer a limited suite of products or services and are unable to provide the necessary level of support and customer service to larger regional and national accounts.
 
We believe the range of our product and service offerings in the commercial hygiene industry, coupled with our national service infrastructure makes us the “acquiror of choice” in the industry. As such, we believe


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that targeted strategic acquisitions provide us the opportunity to increase revenue of the acquired business or assets by providing access to corporate accounts, access to additional products and services, and access to our broader marketing strategy. In addition these strategic acquisitions will, we believe, result in improved gross margin and route margin (defined as gross margin less service personnel payroll costs and vehicles costs) of the acquired revenue through greater buying efficiencies, route consolidation, and consolidation of back office and administrative support.
 
Our Products and Services
 
We provide products and services to end-customers, through our company-owned locations, and to our franchisees and licensees. While we report sales to and royalty revenue from franchisees and licensees separately, we utilize the same administrative and management personnel to oversee the daily operations of our franchisees and licensees.
 
Company-Owned Operations
 
Our full-service hygiene solutions typically involve providing our customers with: (i) the sale of consumable products such as chemicals, soap and paper, together with the rental and servicing of dish machines and other equipment for the dispensing of those products; (ii) the rental of facility service items requiring regular maintenance and cleaning, such as floor mats, mops, and bar towels; and (iii) the performance of manual cleaning processes. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, industrial, and healthcare industries. Many of our products are consumable and require the use of a dispensing system installed by us. Our services on those systems are typically preventative in nature and are required on a regularly scheduled basis. We strive to position ourselves to customers as the “one-stop-shop” for the full breadth of products and services we offer. We believe this comprehensive approach to providing complete hygiene solutions to our customers, coupled with the rental, installation, and service of dish machines and dispensing equipment that provide rental income and require the use of our products helps provide stability in our business and discourages customers from switching vendors.
 
We typically enter into service agreements with customers ranging from one to five years which outline the scope and frequency of services we will provide, as well as the pricing of any consumables or rental equipment or products the customer requires. Given that we typically install, at no charge, dispensers for many of the consumable products we sell to customers, our service agreements usually provide for an early termination fee.
 
Hygiene and Facility Service.  Our legacy business was restroom hygiene, offering a regularly scheduled service that typically included cleaning the bowls, urinals, and sinks in a restroom, the application of a germicide to such surfaces to inhibit bacteria growth, and the restocking of air-fresheners and soap dispensers, all for a fixed weekly fee. Additionally, we managed the customer’s restroom paper needs by providing and installing the tissue and hand towel dispensers, and selling and re-stocking the paper in such dispensers on an as-needed basis. This entire offering was intended to supplement the daily janitorial or custodial requirements of our customers and free customers from purchasing and securing an inventory of paper products.
 
After the acquisition of Swisher by Messrs. Huizenga and Berrard, we greatly modified and expanded our hygiene and facility service business by un-bundling, where appropriate, the air-freshener and soap sales from the overall service price in order to economically provide more hygienic and sanitary single use products. We also introduced a more complete line of specialized soaps as well as various grades of paper and associated dispensing options, including hands-free soap dispensers. Additionally, we introduced a number of new complementary products and solutions required by our customers both inside and outside of restrooms, including power washing of restrooms and other areas, and the rental and cleaning of floor mats, mops, and linens.
 
These products and services are delivered to customers by our employees in company vehicles. We utilize GPS technology to monitor various driving habits, mileage, and vehicle diagnostic information. In several markets, we operate our own laundry processing facilities to maintain and clean rental items such as floor


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mats, mops, and linens, while, in other markets where we offer dust control, we outsource the processing to third parties.
 
Chemicals.  Since early 2009, we have placed particular emphasis on the development of our chemical offering, particularly as it relates to warewashing and laundry solutions. Warewashing products consist of cleaners and sanitizers for washing glassware, flatware, dishes, foodservice utensils, and kitchen equipment, while laundry products include detergents, stain removers, fabric conditioners, softeners, and bleaches in liquid, powder, and concentrated forms to clean items such as bed linen, clothing, and table linen. Our warewashing and laundry solutions are designed to address the needs of small and large customers alike, ranging from single store operators to multi-unit chains and large resorts. We often consult with customers that may have specialized needs or require custom programs to address different fabric or soil types. For warewashing customers, we sell, rent, lease, or make available, as well as install and service, dishwashing machines, pre-rinse units, chemical dispensing units, dish tables and racks, food handling and storage products, and parts, while for customers using our laundry services we offer various dispensing systems. We enter into service agreements with customers using our chemical services to whom we rent or lease equipment, provide 24 hour, seven days-a-week customer service, and perform regularly scheduled preventative maintenance. Typically, these agreements require customers to purchase from us all of the products used in the rented equipment. The chemicals themselves may be delivered to the customer by a Swisher technician or one of our distributor partners; however, the service and maintenance is always provided by a Swisher technician. We also provide a full line of concentrated and ready-to-use chemicals and cleaning products. This product line includes general purpose cleaners, disinfectants, detergents, oven and grill cleaners, general surface degreasers, floor cleaners, and specialty cleaning products, which when in concentrated form, benefit from the use of a dilution system to ensure the proper mix of chemicals for safe and effective use.
 
Chemical sales, which include our laundry, warewashing, and concentrated and ready-to-use chemical products and cleaners, and soap, accounted for 18.2%, 10.8%, and 8.9% of consolidated net sales in 2009, 2008, and 2007, respectively. The sale of paper items, including hand towels and tissue paper accounted for 20.3%, 19.9%, and 20.2% of consolidated net sales in 2009, 2008, and 2007, respectively. The service component of our hygiene and facility service offering, which includes both the manual cleaning services as well as service delivery fees, represented 29.2%, 31.0%, and 33.7% of consolidated net sales in 2009, 2008, and 2007, respectively. The rental and other component of our business consists of rental fees and ancillary other product sales and represented 9.6%, 9.8%, and 6.3% of consolidated net sales in the 2009, 2008, and 2007, respectively. We anticipate that over time, our revenue from chemical sales will grow at a faster rate than any of our other product lines.
 
Franchise Operations
 
We currently have 11 franchisees located throughout the U.S. and Canada as well as 10 master licensees operating in the U.K., Ireland, Portugal, the Netherlands, Singapore, the Philippines, Taiwan, Korea, Hong Kong/Macau/China, and Mexico.
 
We collect royalty, marketing, and/or business service fees from our franchisees and licensees in exchange for maintaining and promoting the Swisher marks, continuing to develop the Swisher offering, managing vendors and sourcing new products, marketing and selling Swisher services to prospective customers that may have locations in franchise territories, and providing various ancillary services, including billing and collections on their behalf. Franchisees are obligated to buy most of the products used in their business from us. Further discussion of revenue received from our franchisees and licensees, including royalties, revenue from product sales, and business service fees, is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this registration statement.
 
Sales and Distribution
 
We market and sell our products and services primarily through: (i) our field sales group, including the service technicians, which pursues new customers and offers existing customers who typically operate single or several smaller locations additional products and service; (ii) our corporate account sales team, which


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focuses on larger regional or national customers in the markets previously identified; and (iii) independent third-party distributor partners.
 
Selling to a new corporate account is an involved and lengthy process that includes either displacing an existing supplier of the products and services or working with the customer to centralize and consolidate disparate purchasing decisions. These prospective customers often go through a vendor qualification process that may involve multiple criteria, and we often work with them in various test locations to validate both product efficacy and our ability to deliver the services on a national level. Additionally, large corporate accounts may operate via a franchise network of their own; the selection process with such corporate accounts may only result in a vendor qualification allowing us the right to sell our products and services to their franchisees. We believe that as we continue to grow, the time to close such sales or qualify as a provider to franchisees of corporate account prospects will shorten. To date, we have been in vendor qualification processes with larger accounts that have ranged from less than three months to over 12 months. Contract terms on corporate account customers typically range from three to five years and we generally provide all services to these accounts, although our larger corporate accounts may request that we deliver the consumable products through specific distribution partners with whom they coordinate the delivery and procurement of other products.
 
We believe expanding our distributor program provides additional opportunities for organic growth. Sales to and through distributors are targeted toward regional and local foodservice and other distributors that are seeking not only to leverage the revenue and margin they can drive by increasing the number of products they deliver to each customer, but also to provide such distributors a “hook” into customers that reduces their customer attrition. Foodservice distribution is a highly competitive business operating on low margins and with minimal switching costs for their customers, who generally only purchase commodities and widely manufactured consumables. We work with distributors as their chemical supplier, dispensing product, and dish machine provider, including the service arm required for such equipment. As such, the distributor can typically earn a higher profit margin on the chemicals it sells to end customers as compared to its food items. Moreover, a distributor partner is then able to market to its end customers the “service” required to maintain their dish machines and chemical dispensing equipment. This service is provided by Swisher and documented under a separate contract between Swisher and the end customer. In effect, by Swisher partnering to be the service arm for the distributor, we help to generate demand for our rental equipment and our consumable products, while providing the distributor a competitive advantage. We contract with distributors on an exclusive or non-exclusive basis, depending on the markets they serve and the size of their customer base.
 
With the exception of product sales delivered via distributors, and select remote markets in the northern plains states, including North and South Dakota, Idaho, and Montana, all of our services and products in the U.S. are delivered through delivery vehicles operated by company-owned branches and franchisees. Our field-based sales force focuses its efforts on increasing route density and lowering the average time and distance traveled between stops, thereby reducing the average cost per delivery and optimizing fixed cost absorption.
 
Customer Dependence
 
Our business is not materially dependent upon a single customer, and no one customer accounts for 10% or more of our consolidated revenue. Our customer base ranges from large multi-national companies to entrepreneurs who operate a single location. We believe more than 50% of our revenue is attributable to customers we consider as foodservice and hospitality related customers, including quick-service and full-service restaurants.
 
Sources and Availability of Raw Materials
 
We currently conduct limited manufacturing operations and primarily purchase the products we sell from third-party manufacturers and suppliers with whom we believe we have good relations. Most of the items we sell are readily available from multiple suppliers in the quantities and quality acceptable to both us and our customers. We do not have any minimum annual or other periodic purchase requirements with any vendors for any of the finished goods products we use or sell. We are not currently party to any agreement, including with


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our chemical manufacturer, where we bear the commodity risk of the raw materials used in manufacturing; however, nothing prevents (i) the vendor trying to pass through the incremental costs of raw materials or (ii) us from considering alternative suppliers or vendors. We believe the raw materials used by the manufacturers of the products we currently sell, including petroleum-based surfactants, detergents, solvents, chlorine, caustic soda, and paper, are readily available; however, pricing pressure or temporary shortages may from time to time arise, resulting in increased costs and, we believe, under extreme conditions only, a loss in revenue from our inability to sell certain products.
 
We purchased 43.4% and 58.1% of the chemicals required for operations in 2009 and through the first ten months of 2010, respectively, from one supplier that operates from a single manufacturing location. We have contingency plans to outsource production to other parties in the event that we need to, which we believe could mitigate any disruptions in the supply of chemicals from this supplier.
 
We recently acquired the assets of a small chemical manufacturer, which will provide us limited production capacity representing less than 5% of our current needs in certain foodservice and laundry chemicals.
 
Patents, Trademarks, Licenses and Franchises
 
We maintain a number of trademarks in the U.S., Canada and in certain other countries. We believe that many of these trademarks, including “Swisher,” the “Swisher” design, the “Swisher Hygiene” design, and the “S” design are important to our business. Our trademark registrations in the U.S. are renewable for ten-year successive terms and maintenance filings must be made as follows: (i) for “Swisher” by January 2014, (ii) for the “Swisher” design by January 2013, (iii) for “the Swisher Hygiene” design by April 2015, and (iv) for the “S” design by February 2012. In Canada, we have agreed not to: (i) use the word SWISHER in association with any wares/services relating to or used in association with residential maid services other than as depicted in our trademark application and (ii) use the word SWISHER with our “S” design mark or by itself as a trade mark at any time in association with wares/services relating to or used in association with cleaning and sanitation of restrooms in commercial buildings. Thus, our franchisees operate as SaniService® in Canada. We own, have registered, or have applied to register the Swisher trademark in every other country in which our franchisees or licensees operate.
 
While most of the chemical products we sell have Swisher-branded labeling and product names, we do not currently own or have exclusive rights to their formulae. We believe the chemical manufacturing industry has a sufficient number of both contract and tolling manufacturers, many of whom have their own formulas or chemists on staff, to provide us sufficient access to products to support our business.
 
Seasonality
 
In the aggregate, our business is typically not seasonal in nature, with revenue occurring relatively evenly throughout the year. However, our operating results may fluctuate from quarter to quarter or year to year due to factors beyond our control, including unusual weather patterns or other events that negatively impact the foodservice and hospitality industries. The majority of our customers are in the restaurant or hospitality industries, and the revenue we earn from these customers is directly related to the number of patrons they service. As such, events adversely affecting the business of the customer may have an adverse impact on our business.
 
Regulatory and Environmental
 
We are subject to numerous U.S. federal, state, local, and foreign laws that regulate the manufacture, storage, distribution, transportation, and labeling of many of our products, including all of our disinfecting, sanitizing, and antimicrobial products. Some of these laws require us to have operating permits for our production facilities, warehouse facilities, and operations. In the event of a violation of these laws, we may be liable for damages and the costs of remedial actions, and may also be subject to revocation, non-renewal, or modification of our operating and discharge permits and revocation of product registrations. While we have not yet been subject to any such action, any revocation, non-renewal, or modification may require us to cease


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or limit the sale of products from one or more of our facilities and may have a material adverse effect on our business, financial condition, results of operations, and cash flows. The environmental regulatory matters most significant to us are discussed below.
 
Product Registration and Compliance
 
Various U.S. federal, state, local, and foreign laws and regulations govern some of our products and require us to register our products and to comply with specified requirements. In the U.S., we must register our sanitizing and disinfecting products with the U.S. Environmental Protection Agency (the “EPA”). When we register these products, or our registered supplier if we are subregistering, we must also submit to the EPA information regarding the chemistry, toxicology, and antimicrobial efficacy for the agency’s review. Data must be identical to the claims stated on the product label. In addition, each state where these products are sold requires registration and payment of a fee.
 
Numerous U.S. federal, state, local, and foreign laws and regulations relate to the sale of products containing ingredients such as phosphorous, volatile organic compounds, or other ingredients that may impact human health and the environment. Specifically, the State of California has enacted Proposition 65, which requires us to disclose specified ingredient chemicals on the labels of our products. To date, compliance with these laws and regulations has not had a material adverse effect on our business, financial condition, results of operations, or cash flows.
 
Occupational Safety and Health
 
The Occupational Safety and Health Act of 1970, as amended (“OSHA”), establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by OSHA, and various record keeping, disclosure, and procedural requirements. Various OSHA standards may apply to our operations. To date, compliance with OSHA, and its regulations and standards, has not had a material adverse effect on our business, financial condition, results of operations, or cash flows.
 
Other Environmental Regulation
 
We recently purchased a small manufacturing operation and we may buy additional manufacturing capacity in the future. Many such facilities are subject to various U.S. federal, state, local, or foreign laws and regulations governing the discharge, transportation, use, handling, storage, and disposal of hazardous substances. In the U.S., these statutes include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), as well their similar state, local, and foreign laws. Because we may potentially be a generator of hazardous wastes in the future, we, along with any other person who disposes or arranges for the disposal of our wastes, may be subject to financial exposure for costs associated with an investigation and any remediation of sites. Specifically, we would likely have exposure if we have disposed or arranged for the disposal of hazardous wastes at sites that become contaminated, even if we fully complied with applicable environmental laws at the time of disposal. We currently are unaware of any past action which may lead to any liability, but, in the event we do ultimately have liability at some point in the future for past or future actions, the costs of compliance and remediation would likely have a material adverse effect on our business, financial condition, results of operations, or cash flows.
 
We believe that it is possible that, in the future, we will be subject to more stringent environmental laws or regulations, including those related to the reduction of greenhouse gas emissions, which may result in new or additional restrictions being imposed on our processing and distribution activities, which may result in possible violations, substantial fines, penalties, damages, or other significant costs. Notwithstanding the fact that our recently-acquired manufacturing operations are relatively small and currently provide us less than 5% of the chemicals we use in our business, the potential cost to us relating to environmental matters, including the cost of complying with the foregoing potential laws or regulations and remediation of contamination, is uncertain due to such factors as the unknown magnitude and type of possible pollution and clean-up costs, the


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complexity and evolving nature of laws and regulations, including those outside the U.S., and the timing, variable costs, and effectiveness of clean-up methods.
 
Employees
 
As of January 7, 2011, we had 726 employees. We are not a party to any collective bargaining agreement and have never experienced a work stoppage. We consider our employee relations to be good.
 
Properties
 
We lease our current corporate headquarters facility in Charlotte, North Carolina, pursuant to a lease expiring in February 2017. As of November 12, 2010, we also lease numerous facilities relating to our operations. These facilities are located in the following 31 states: Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Kansas, Kentucky, Massachusetts, Maryland, Michigan, Minnesota, Missouri, North Carolina, New Jersey, New Mexico, Nevada, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, and Wisconsin. We also lease facilities related to our Canadian operations in Vancouver, British Columbia, Edmonton and Calgary, Alberta, and Toronto, Ontario. These facilities consist primarily of warehouses. We believe that our facilities are sufficient for our current needs and are in good condition in all material respects.
 
Legal Proceedings
 
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.
 
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
 
We are a reporting issuer in Canada and our common stock is listed and posted for trading on the TSX under the trading symbol “SWI.” Before the Merger was complete, we traded on the TSX under the trading symbol “COB.” On January 10, 2011, the effective date of our Registration Statement on Form 10, we became a public U.S. reporting company under the Exchange Act. The following table sets out the reported high and low sale prices on the TSX for the periods indicated as reported by the exchange:
 
                 
    TSX  
    High     Low  
 
Fiscal Year 2009
               
First Quarter
  $ 0.64     $ 0.38  
Second Quarter
  $ 0.69     $ 0.48  
Third Quarter
  $ 0.84     $ 0.55  
Fourth Quarter
  $ 1.26     $ 0.76  
Fiscal Year 2010
               
First Quarter
  $ 1.23     $ 1.02  
Second Quarter
  $ 1.54     $ 1.04  
Third Quarter
  $ 3.91     $ 1.04  
Fourth Quarter
  $ 5.97     $ 3.32  
Fiscal Year 2011
               
First Quarter (through January 7, 2011)
  $ 5.54     $ 4.76  
 
On October 29, 2010, the last trading day before the Redomestication, the last reported sale price of CoolBrands’ common stock on the TSX was Cdn$4.09 ($4.01). As of January 7, 2011, there were


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114,015,063 shares of common stock issued and outstanding. As of January 7, 2011, we had 1,025 registered stockholders of record.
 
We have not paid any cash dividends on our common stock and do not plan to pay any cash dividends in the foreseeable future. Our board of directors will determine our future dividend policy on the basis of many factors, including results of operations, capital requirements, and general business conditions.
 
Auditors
 
The consolidated financial statements of Swisher Hygiene Inc. at and for the three years ended December 31, 2009 included in this registration statement, to the extent and for the periods indicated in their report, have been audited by Scharf Pera & Co., PLLC (“Scharf”), independent registered public accountants, and are included herein in reliance upon the authority of such firm as experts in accounting and auditing in giving such report. The offices of Scharf are located at 4600 Park Road, Suite 112, Charlotte, North Carolina 28209.
 
The consolidated financial statements of CoolBrands International, Inc. as of August 31, 2010 and 2009 and for each of the three years in the period ended August 31, 2010, included in this registration statement have been so included in reliance on the report of PricewaterhouseCoopers LLP (“PWC”), an independent registered public accounting firm, given on the authority of such firm as experts in auditing and accounting.
 
On November 2, 2010, we terminated the engagement of Scharf as our independent registered public accounting firm. Our Audit Committee recommended and approved the decision to terminate Scharf. Scharf’s reports on the financial statements of Swisher International for the fiscal years ended December 31, 2009 and December 31, 2008 did not contain an adverse opinion nor a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
 
In connection with its audits of Swisher International financial statements for the fiscal years ended December 31, 2009 and December 31, 2008, and through the interim period ended November 2, 2010, we have had no disagreements with Scharf on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Scharf, would have caused Scharf to make a reference to the subject matter of the disagreements in connection with its reports on the consolidated financial statements for the fiscal years ended December 31, 2009 and December 31, 2008.
 
A letter from Scharf dated November 16, 2010 is attached as Exhibit 16.1 to this registration statement.
 
On November 1, 2010, we terminated the engagement of PWC as our independent registered public accounting firm. Our Board of Directors recommended and approved the decision to terminate PWC. PWC’s reports on the financial statements of CoolBrands for the fiscal year ended August 31, 2010 and August 31, 2009 did not contain an adverse opinion nor a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
 
In connection with CoolBrands’ audits of its financial statements for the fiscal years ended August 31, 2010 and August 31, 2009, and through the interim period ended November 1, 2010, we have had no disagreements with PWC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of PWC, would have caused PWC to make a reference to the subject matter of the disagreements in connection with it reports on the consolidated financial statements for the fiscal years ended August 31, 2010 and August 31, 2009.
 
Effective November 2, 2010, our Audit Committee engaged BDO USA, LLP (“BDO”) as the Company’s independent registered public accountant for the fiscal year ended December 31, 2010. Before engaging BDO, neither Swisher Hygiene nor anyone acting on Swisher Hygiene’s behalf, consulted BDO regarding the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on Swisher Hygiene’s financial statements, and no written or oral advice was provided that was an important factor considered by Swisher Hygiene in reaching a decision as to any accounting, auditing, or financial reporting issues.


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SELECTED FINANCIAL DATA
 
Selected condensed consolidated financial data for the nine-months ended September 30, 2010 and 2009 and the years ended December 31, 2009, 2008, 2007, 2006, and 2005 is as follows:
 
                                                         
    For the
       
    Nine-Months Ended September 30,     For the Year Ended December 31,  
    2010     2009     2009     2008     2007     2006     2005  
    (Unaudited)                                
 
Revenue
  $ 45,953,570     $ 41,673,220     $ 56,814,024     $ 64,108,891     $ 65,190,254     $ 54,707,906     $ 35,998,604  
                                                         
Operating loss
  $ (6,496,523 )   $ (4,550,117 )   $ (6,814,482 )   $ (10,482,544 )   $ (9,271,518 )   $ (13,317,705 )   $ (3,350,156 )
                                                         
Net loss
  $ 7,500,159     $ (5,158,540 )   $ (7,258,989 )   $ (11,987,871 )   $ (10,568,357 )   $ (14,775,179 )   $ (3,259,358 )
                                                         
Basic EPS
  $ (0.13 )   $ (0.09 )   $ (0.13 )   $ (0.21 )   $ (0.18 )   $ (0.26 )   $ (0.06 )
                                                         
Diluted EPS
  $ (0.13 )   $ (0.09 )   $ (0.13 )   $ (0.21 )   $ (0.18 )   $ (0.26 )   $ (0.06 )
                                                         
Total Assets
  $ 44,037,979     $ 34,007,779     $ 38,917,939     $ 30,280,958     $ 34,363,938     $ 31,946,669     $ 22,938,018  
                                                         
Shareholder’s equity/(deficit)
  $ (26,853,469 )   $ (17,153,884 )   $ (19,455,206 )   $ (12,300,787 )   $ 172,410     $ 8,366,774     $ 15,724,688  
                                                         
Long-term debt
  $ 8,837,157     $ 40,686,818     $ 48,874,841     $ 6,343,346     $ 20,927,665     $ 12,809,934     $ 2,362,195  
                                                         


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion and analysis in conjunction with the “Selected Financial Data” above and our consolidated financial statements and the related notes thereto included in this registration statement beginning on page F-1. In addition to historical consolidated financial information, this discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Actual results could differ from these expectations as a result of factors including those described under the heading “Risk Factors” in this registration statement.
 
Executive Overview
 
Swisher Hygiene Inc. provides hygiene solutions to more than 35,000 customers throughout North America and internationally through its network of company-owned operations, franchises, and master licenses. Our solutions include products and services designed to promote superior cleanliness and sanitation in commercial environments, while enhancing the safety, satisfaction, and well-being of employees and patrons. Our solutions are typically delivered on a regularly scheduled basis and involve providing our customers with: (i) the sale of consumable products such as soap, paper, cleaning chemicals, detergents, and supplies, together with the rental and servicing of dish machines and other equipment for the dispensing of those products; (ii) the rental of facility service items requiring regular maintenance and cleaning, such as floor mats, mops, and bar towels; and (iii) manual cleaning of their facilities. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, industrial, and healthcare industries.
 
Going forward, we intend to increase the sale of our products and services to customers in existing geographic markets as well as expand our reach into additional markets through a combination of organic growth and the acquisition of Swisher franchises, independent chemical service providers, and related businesses.
 
History of Swisher
 
We were originally founded in 1986 as Swisher International, Inc., a Nevada corporation. From our founding through 2004, we operated primarily as a franchisor and licensor of restroom hygiene services offering: (i) weekly cleaning and sanitizing services of our customers’ restroom fixtures, along with the restocking of soap and air freshener dispensers and (ii) the sale of restroom paper products, such as toilet paper and hand towels. We provided these services to a customer base largely comprised of small, locally owned bars, restaurants and retail locations. Franchisees had exclusive rights to use the Swisher name and business processes in designated United States and Canadian geographic markets typically ranging in size from 500,000 to 3,000,000 persons, while licensees had substantially similar rights in the respective countries in which they operated. Although franchisees licensed the same business model, the manner in which they executed and adopted Swisher programs varied greatly, resulting in historically inconsistent levels of service and differing product offerings across geographic markets.
 
In November 2004, H. Wayne Huizenga and Steve Berrard acquired a majority interest in the company, which at the time was a publicly traded company. Subsequently, in May 2006, Messrs. Huizenga and Berrard acquired the remaining outstanding shares of the company and began operating it as a private company.
 
The primary goal of acquiring ownership of the company was to transition the business to take greater advantage of the Swisher brand and nationwide service and distribution network, and to better leverage the under-utilized platform to expand both product and service offerings. Specifically, Messrs. Huizenga and Berrard planned to transition the company’s focus from generating revenue almost exclusively from restroom cleaning services to building a full-service hygiene solutions provider that offers a broad complement of products and services, addressing the complete hygiene and cleaning needs of our customers throughout their facilities. We believed that such a transition would provide the company with a competitive advantage, allowing us to retain existing customers over time and provide them with additional products and services that were essential to the operations of their businesses. Moreover, we sought to leverage Swisher’s national


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infrastructure with product offerings and service expertise in core lines of products, including cleaning chemicals, required by larger corporate customers nationwide.
 
An important component of this business strategy was the acquisition of a sufficient number of franchise locations or other similar businesses, providing us direct control over the implementation of changes to a consistent business model. To address this component of the business strategy, Messrs. Huizenga and Berrard formed HB Service, LLC to acquire franchises and related businesses under the Swisher name. Through September 2010, HB Service acquired and operated 68 former franchises of the company and purchased nine other related businesses. Effective July 13, 2010, HB Service entered into a Contribution Agreement with the company pursuant to which Messrs. Huizenga and Berrard contributed their membership interests in HB Service to the company, at which time HB Service became a wholly-owned subsidiary of the company.
 
By the end of 2005, through HB Service, we had acquired 26 franchisees and other related businesses and implemented a long-range plan to increase the number and types of products we offer. In addition, we discontinued the sale of new franchises, replaced information systems, established a fleet of company-owned vehicles, upgraded our facilities, hired experienced route-based operations managers to develop consistency in our operating model, expanded the geographic area covered by our locations, and eliminated low volume customers that were unprofitable or marginally profitable under our new business model. During this time, acquisitions continued but at a less aggressive pace, as we focused on executing the aforementioned business strategies. By mid-2007, we had purchased and converted to company-owned locations a total of 50 businesses, including 44 franchisees that represented 49.4% of our U.S.-based franchises.
 
In the latter half of 2007 and first half of 2008, we focused almost exclusively on rolling-out new information systems to company-owned operations and franchisees alike, integrating the disparate acquired business models into a centrally-managed operation, which integration continued to include the elimination of low volume customers that were not candidates to purchase our increased suite of products and services. During the period from mid-2007 through the end of 2008, we acquired two franchises. It was during this period that we also first began to experience the impact of the economic downturn, which continues to impact our business and the businesses of our customers. Our customers, many of whom operate in the foodservice market, were particularly affected by the contracting economy through reduced customer traffic and spending. To address in part the financial difficulties experienced by their businesses, these customers reduced their discretionary spending on items such as our legacy restroom cleaning business and delayed decisions to institute new programs or add new products and services. As a result of these economic conditions, coupled with our continual elimination of small unprofitable and marginally profitable customers, our operations, before giving effect to acquisitions, experienced a 1.9% decline in revenue in 2008 as compared to 2007, while franchise fees and other revenue, before giving effect to acquisitions, declined 6.5% in 2008 as compared to 2007.
 
Poor economic conditions continued during the first quarter of 2009; prompting us to aggressively accelerate a number of steps we had taken to combat the decline in business. Specifically, we: (i) reduced our field sales force, which primarily called on smaller, single-unit customers; (ii) continued elimination of certain unprofitable or marginally profitable customers by, in many instances, introducing minimum stop charges or price increases; (iii) eliminated certain customers that were payment or credit risks; (iv) realigned our branch and corporate workforce; and (v) reduced other costs. As a result, company operations, before giving effect to acquisitions, experienced a 13.6% decline in revenue in 2009 as compared to 2008, while franchise fees and other revenue, before giving effect to acquisitions, declined 15.8% in 2009 as compared to 2008.
 
In the second half of 2009, we refocused our efforts on positioning the company for future growth by: (i) investing in our corporate account and distributor sales programs; (ii) acquiring franchises to help leverage our field cost structure and fill remaining geographic gaps in our service delivery markets; and (iii) accelerating the development of our chemical program to provide a comprehensive offering focused on detergents, cleaners, and sanitizers used regularly by most of our customers in their warewashing, laundry, and general cleaning applications. We believe that our chemical program is a key component of our future growth as these products are necessary to maintain proper sanitation and cleanliness and require dispensing equipment that we sell or rent, install, and service on a regular basis to ensure proper dilution and delivery of the chemicals. In addition,


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the purchase of chemical products by our regional and national chain customers is directed by corporate headquarters of those chains. As a result of this and the fact that we have the ability to provide chemical services throughout the continental U.S., the majority of our new business now comes from larger regional or corporate accounts as well as regional distributor partners.
 
In summary, our transition from a restroom cleaning services business to a full service hygiene solutions provider offering a complete chemical and facility service program has required significant investments. These investments included:
 
  •  Acquisitions of 82 businesses, including 68 franchises;
 
  •  Replacement of management information systems;
 
  •  Introduction of delivery service vehicles;
 
  •  Addition of substantial industry experience throughout the organization;
 
  •  Upgrade of branch facilities;
 
  •  Significant expansion of product lines and services to include dust control and a complete chemical program; and
 
  •  Development of a corporate account and distributor sales organization.
 
As a result of these investments, from January 1, 2005, through September 30, 2010, the company has incurred cumulative losses of $54,508,159. To help finance these losses and make the investment necessary to create the platform we have today, which we believe will enable us to experience significant growth and profitability, Messrs. Huizenga and Berrard have contributed and advanced the company $64,405,152 and the company has incurred indebtedness of: (i) $24,946,932 under bank lines of credit; (ii) $12,981,798 in notes issued by Swisher to sellers in connection with acquisitions made by the company (the “Seller Notes”); and (iii) $4,122,915 of third party financing for software development and capital leases for equipment. Mr. Huizenga has guaranteed $20,000,000 of the bank line of credit, and $3,050,000 of the Seller Notes are secured by letters of credit. The letters of credit are secured by certain assets of Messrs. Huizenga and Berrard.
 
On November 2, 2010, Swisher International completed the Merger with Swisher Hygiene, through a merger with a wholly-owned subsidiary of Swisher Hygiene. Immediately before the Merger, Swisher Hygiene completed its Redomestication to Delaware from Ontario, Canada, where it had been a publicly-traded corporation, listed on the TSX under the name CoolBrands International Inc., and trading under the symbol “COB.” In the Merger, the former stockholders of Swisher International received 57,789,630 shares of Swisher Hygiene common stock, representing, on a fully diluted basis, a 48% ownership interest in Swisher Hygiene. The stockholders of CoolBrands retained 52% of the company. As a result of the Merger, Swisher International is a wholly-owned subsidiary of Swisher Hygiene. Swisher Hygiene will continue to trade on the TSX under the symbol “SWI.”
 
In accordance with the Merger Agreement, the board of directors consists of eight members, five of whom were appointed by the former shareholders of Swisher International, and three of whom were appointed by CoolBrands. Further, following the merger, the executive officers of the Company consist entirely of former officers and executive officers of Swisher International. Accordingly, the former owners and management of Swisher International have effective operating control of the combined company.
 
The Merger is accounted for as a reverse recapitalization with a non-operating company, which essentially accounts for the issuance of stock by a private company in consideration of the net monetary assets of the non-operating company, with the balance sheet recapitalized to reflect the stock issuance. The transaction is recorded at book value and no goodwill or intangible assets are recognized.
 
As of the date of this registration statement, we have 68 company-owned locations and 11 franchises located throughout the United States and Canada and we have entered into 10 master license agreements


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covering the United Kingdom, Ireland, Portugal, the Netherlands, Singapore, the Philippines, Taiwan, Korea, Hong Kong/Macau/China, and Mexico.
 
The number of company-owned locations, franchises, and international master licenses since the end of 2006 through the date of this registration statement is as follows:
 
                                                 
    2006   2007   2008   2009   2010   2011
 
Company-owned Locations
    43       47       44       60       68       68  
Franchises
    45       39       35       15       11       11  
International Master Licenses(1)
    13       11       11       10       10       10  
 
 
(1) Number of countries in which Swisher licensees operate.
 
Going forward, we will continue to expand our reach into additional U.S. and Canadian geographic markets through acquisitions of independent chemical distributors, franchise repurchases, execution of agreements with distributor partners, and organic growth. Additionally, we will be opportunistic as it relates to acquiring or partnering with complementary businesses that (i) can provide us a competitive advantage; (ii) leverage, expand or benefit from our distribution network; or (iii) provide us economies of scale or cost advantages over our existing supply chain. Collectively, these efforts are centered on making us an attractive alternative to larger customers in foodservice, hospitality, healthcare, retail, and industrial markets. In addition, we will seek to aggressively license our business model internationally. Our success largely depends on our ability to execute on these strategies and the successful penetration of our products and services to corporate accounts and distribution partners.
 
Recent Developments
 
On November 2, 2010, our board of directors approved the Swisher Hygiene Inc. 2010 Stock Incentive Plan (the “Plan”) to attract, retain, motivate and reward key officers and employees. The Plan, which is subject to stockholder and TSX approval, allows for grant of stock options, restricted stock units and other equity instruments up to a total of 6,000,000 shares of our common stock. Under the Plan, the board approved awards of options to purchase 1,001,137 shares of our common stock. The options vest in four equal annual installments beginning on the first anniversary of the grant date and are exercisable at $4.18 per share. The options expire in 2020. The board also approved the award of 2,507,449 restricted stock units at $4.18 per share. The restricted stock units vest in four equal annual installments beginning on the first anniversary of the grant date.
 
On November 8, 2010, we acquired the business operations and selected net assets of Gateway ProClean, Inc. (“Gateway”), a St. Louis-based hygiene and chemicals company for $7,536,000 including $2,000,000 in cash, $5,000,000 in a secured, convertible promissory note and the assumption of $536,000 of bank and other trade debt. The promissory note matures on June 30, 2011 and has a fixed interest rate of 6%. During the term of the note, at the option of the holder and subject to the effectiveness of a registration statement providing for the resale of the shares of common stock issuable upon conversion of the note, the promissory note may be converted into common stock based on a fixed conversion price of $3.81 per share. The maximum number of shares issuable upon conversion is 1,312,864 shares of our common stock.
 
On December 7, 2010, we acquired the business operations and selected net assets of Lasfam Investments, Inc. (“Lasfam”) for $5,566,400, including $1,669,920 in cash and a $3,896,480 convertible promissory note that matures on June 30, 2011 and has a fixed interest rate of 4%. During the term of the note, at the option of the holder and subject to the effectiveness of a registration statement providing for the resale of the shares of common stock issuable upon conversion of the note, the promissory note may be converted into common stock based on a fixed conversion price of $3.88 per share. After April 7, 2011, the note may be converted into shares of common stock at a fixed conversion price of $3.88 per share, if a resale registration statement relating to the shares of Swisher Hygiene of common stock issuable upon conversion of the note is effective and our common stock trades on the Toronto Stock Exchange or any other North American stock exchange for ten consecutive trading days at a combined total volume weighted average price equal to or exceeding 105% of the fixed conversion price. If the note is not converted, the Company may settle the fixed obligation


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(principal value of the note and accrued but unpaid interest) in cash, shares or a combination thereof, provided that at least 50% of the balance owed is paid in cash, based on the stock’s trading price on the day before maturity. The maximum number of shares issuable in repayment of the note is 1,027,122 shares.
 
On December 31, 2010, we entered into a distribution agreement with food service distributor Cheney Bros., Inc. (“Cheney Bros.”). Pursuant to the agreement, we will serve as Cheney Bros.’ provider of warewashing and laundry-related chemicals and we will utilize Cheney Bros. as a distribution partner in Florida and Georgia. Pursuant to the agreement, we also purchased certain assets relating to Cheney Bros.’ warewashing and laundry business and received an option to buy selected other warewash assets from Cheney any time before July 1, 2011. In connection with the agreements, we paid to Cheney Bros. $267,988 in cash, assumed certain liabilities relating to the purchased assets, and issued two convertible promissory notes in the aggregate amount of $850,000. Each note matures in September 30, 2011 and has a fixed interest rate of 4%. The promissory notes are convertible into a maximum of 291,928 shares of our common stock. The notes are convertible at the election of the holder during the term of the note at a conversion price equal to $4.18 anytime following (i) conditional approval by the Toronto Stock Exchange of the listing of the Company’s shares of common stock and (ii) the date that the Company’s Registration Statement on Form S-1 for the resale of common stock is declared effective by the Securities Exchange Commission. Each promissory note will automatically be converted into shares of common stock at a fixed conversion price of $4.18 per share, if a resale registration statement relating to the shares of our common stock issuable upon conversion of each note is effective and our common stock is listed on the Toronto Stock Exchange or any other major exchange, and provided that the combined total volume weighted average price is equal to or exceeds $4.18 for three consecutive trading days. If each note is not converted, the Company may settle the note (principal value of the note and accrued but unpaid interest) in cash, shares, or a combination thereof at any time before and including the maturity date. In connection with the distribution agreement, the Company provided Cheney Bros. a guarantee that its operating cash flows associated with the agreement would not fall below certain agreed-to minimums and should they do so, subject to certain pre-defined conditions, will re-imburse Cheney Bros. for any such shortfall.
 
In addition to the acquisitions and transactions described above, during 2010, the company acquired seven other businesses, each of which was significantly smaller in size and scope of operations than the acquisitions detailed above. While the terms, price, and conditions of each of these seven acquisitions were negotiated individually, consideration to the sellers in these smaller transactions typically consisted of a combination of cash, promissory notes having interest rates ranging from 4% to 6% with maturities of up to 36 months, earn-out provisions, and the assumption of certain liabilities. In 2010, aggregate consideration paid for these additional seven acquired businesses was $2,995,000, consisting of $890,000 in cash and $2,105,000 in promissory notes, plus potential earn-outs of up to $691,998 and $768,679 in assumed liabilities.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The discussion of the financial condition and the results of operations are based on the consolidated financial statements, which have been prepared in conformity with United States generally accepted accounting principles. As such, management is required to make certain estimates, judgments and assumptions that are believed to be reasonable based on the information available. These estimates and assumptions affect the reported amount of assets and liabilities, revenue and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.
 
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, the most important and pervasive accounting policies used and areas most sensitive to material changes from external factors. See Note 2 to the Consolidated Financial Statements for additional discussion of the application of these and other accounting policies.
 
Accounts Receivable
 
Accounts receivable consist of amounts due from customers for product sales and services as well as from franchisees and master licensees for product sales, royalties and fees for marketing and administrative


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services. Accounts receivable are reported net of an allowance for doubtful accounts. The allowance is management’s best estimate of uncollectible amounts and is based on a number of factors, including overall credit quality, age of outstanding balances, historical write-off experience and specific account analysis that projects the ultimate collectability of the outstanding balances. The Company does not accrue interest on past due accounts and records an adjustment to write-off balances once all reasonable efforts to collect have been exhausted. As of December 31, 2009 and 2008, and the nine-months ended September 30, 2010, the allowance for doubtful accounts was $334,156, $564,635 and $385,630, respectively. We believe that our allowance for doubtful accounts is a critical accounting estimate because it is susceptible to change and dependence upon events that may or may not occur. The impact of recognizing additional allowances for doubtful accounts may be material to the assets reported on our balance sheet and in our results of operations.
 
Inventory
 
Inventories are stated at the lower of cost or market determined using the first in-first out (FIFO) cost method. We routinely review inventory for excess and slow moving items as well as for damaged or otherwise obsolete items and for items selling at negative margins. When such items are identified, a reserve is recorded to adjust their carrying value to their estimated net realizable value. We believe that the development of such inventory reserves is a critical accounting estimate because they are susceptible to change and dependence upon events that may or may not occur. The impact of recognizing additional inventory reserves may be material to the assets reported on our balance sheet and in our results of operations.
 
Notes Receivable
 
Notes receivable consist of amounts due from franchisees and master licensees. Notes receivable are reported net of an allowance for doubtful accounts. The allowance is management’s best estimate of uncollectible amounts and is based on a number of factors including overall franchisee or master licensee credit quality, historical write-off experience and specific account analysis that projects the ultimate collectability of the outstanding balances. As of December 31, 2009 and 2008, and the nine-months ended September 30, 2010, the allowance was $357,261. We believe that the recovery of the reported value of our notes receivable is a critical accounting estimate because it is susceptible to the future operating performance of master licensee and other events.
 
Goodwill and Other Intangible Assets
 
The cost of acquisitions in excess of the fair value of the identifiable net assets acquired is recorded as goodwill and allocated to the respective branch locations, which represent the company’s defined reporting units (there were in excess of 50 defined reporting units as of September 30, 2010) in accordance with Accounting Standards Codification (“ASC”) 350, Goodwill and Other Intangible Assets. Other intangible assets include acquired customer relationships and non-compete agreements. The fair value of these intangible assets at the time of acquisition is estimated based upon discounted future cash flow projections. The customer relationships are amortized on a straight-line basis over the expected average life of the acquired accounts, which is five years. The non-compete agreements are amortized on a straight-line basis over the term of the agreements, which are between two to five years.
 
Pursuant to the requirements of ASC 350, we are required to perform a valuation of each of our reporting units annually, or upon significant changes in our business environment. We conducted our annual impairment analysis in the fourth quarter of 2009. To determine the fair value of each reporting unit we utilized discounted cash flows using five years of projected unleveraged free cash flows and a terminal value. The discount rates used for the analysis reflected a weighted average cost of capital based on industry and capital structure adjusted for equity and size risk premiums. Expected cash flows are based on historical customer growth, including attrition, and continued long term growth of the business. These estimates can be affected by factors such as customer growth, pricing, and economic conditions that can be difficult to predict. The fair value of each reporting unit exceeded its carrying value as of the fourth quarter of 2009.
 
As of the fourth quarter of 2009 less than 7% of the reporting units had fair values that exceeded the carrying value by less than 100% of the carrying value. Those reporting units with fair values in excess of


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carrying values, but by less than 100% have a combined recorded goodwill value of $5,749,811 and average fair value in excess of 65% over carrying value as of December 31, 2009. Management does not believe this presents a material risk for impairment.
 
The company also performs tests of other intangible assets for impairment on an annual basis or when circumstances change that would more likely than not reduce the fair value of the intangible assets to an amount that is less than its carrying amount. As part of this impairment testing, management also assesses the useful lives assigned to the customer relationships and non-compete agreements considering actual historical customer attrition rates.
 
For the years ended December 31, 2009, 2008, 2007, impairment losses on goodwill and other intangible assets was $30,000, $223,000, and $131,000 respectively. There were no impairment losses on goodwill and other intangible assets for the nine-months ended September 30, 2010. We believe that the assessment for such potential impairment losses is a critical accounting estimate as it is dependent upon future events and requires substantial judgment. Any resulting impairment loss could have a material impact on our financial condition and the results of operations.
 
Long-lived Assets
 
In accordance with Financial Accounting Standards Board (“FASB”) ASC 360-10-35 “Impairment or Disposal of Long-lived Assets,” losses related to the impairment of long-lived assets are recognized when the carrying amount is not recoverable and exceeds its fair value. When facts and circumstances indicate that the carrying values of long-lived assets may be impaired, management of the company evaluates recoverability by comparing the carrying value of the assets to projected future cash flows, in addition to other qualitative and quantitative analyses. The company also performs a periodic assessment of the useful lives assigned to the intangible assets. We believe that this impairment assessment represents a critical accounting policy as it is dependent on future events and may require substantial judgement. Any resulting impairment loss could have a material impact on our financial condition and the results of operations.
 
Non-controlling Interest
 
In the majority of its acquisitions, the company acquires 100% of the business being acquired. However, in a few instances, the former owner retains a non-controlling interest in the acquired business. Profit and loss are allocated to the non-controlling interest based on its pro-rata share.
 
Revenue Recognition
 
Revenue from product sales and services is recognized when the services are performed or the products are delivered to the customer, provided that persuasive evidence of a sales arrangement exists, both title and risk of loss have passed to the customer, and collection is reasonably assured. For arrangements with multiple deliverables, revenues are recognized based on the fair value for each unit of accounting, as determined by the price charged for each element when sold separately. Franchise and other revenue include product sales, royalties and other fees charged to franchisees in accordance with the terms of their franchise agreements. Royalties and fees are recognized when earned.
 
The company has entered into franchise and license agreements, which grant the exclusive right to develop and operate within specified geographic territories for a fee. The initial franchise or license fee is deferred and recognized as revenue when substantially all significant services to be provided by the company are performed. Direct incremental costs related to franchise or license sales for which revenue has not been recognized is deferred until the related revenue is recognized.
 
Income Taxes
 
Effective on January 1, 2007, the company’s shareholders elected that the corporation be taxed under the provisions of Subchapter S of the Internal Revenue Code of 1986, as amended (the “Code”). Under this provision, the shareholders were taxed on their proportionate share of the company’s taxable income. As a


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Subchapter S corporation, the company bore no liability or expense for income taxes. As a result of the Merger, the company’s Subchapter S election terminated, and the company became a C corporation. For state income tax purposes, the company has net operating losses of approximately $2,247,000, which begin to expire in 2017. It is expected that these net operating losses will be available for use after the Merger. HB Service, LLC is a limited liability company that reported as a partnership under the Code from January 1, 2007 until Messrs. Huizenga and Berrard contributed 100% of their equity interests of the company in July 2010. Under these provisions, the members are taxed on the limited liability company’s taxable income.
 
As a result of becoming a C corporation, the cumulative timing differences between book income and taxable income will be recorded as of November 2, 2010, the closing date of the Merger. Thereafter, the company will provide for the tax effects of transactions reported in the statements of operations, which will include taxes currently due plus deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting purposes. Deferred tax assets that arise from net operating loses will receive a full valuation allowance until such time as the company considers it likely that such assets will be utilized.
 
FASB ASC 740-10, “Income Taxes,” clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the balance sheet. It also provides guidance on derecognition, measurement and classification of amounts related to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim period disclosures and transition relating to the adoption of new accounting standards. Under FASB ASC 740-10, the recognition for uncertain tax positions should be based on a more likely than not threshold that the tax position will be sustained upon audit. The tax position is measured as the largest amount of benefit that has a greater than fifty percent probability of being realized upon settlement.
 
Foreign Currency Translation
 
Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. The effect of exchange rate fluctuations on translation of assets and liabilities at the balance sheet date are recorded as a component of stockholders’ equity as other comprehensive income or loss. Amounts transferred from cumulative comprehensive income or loss upon the sale or liquidation of an investment in a foreign entity is reported as part of the gain or loss on sale or liquidation. Results of operations for foreign operations are translated using the average exchange rates throughout the period.
 
Fair Value of Financial Instruments
 
At December 31, 2009 and 2008, and the nine-months ended September 30, 2010, the company did not have any outstanding financial derivative instruments. The carrying amounts of cash and the current portion of accounts and notes receivable approximate fair value due to the short maturity of these instruments. The non-current notes receivable are presented at fair value due to rates generally being at current market rates. The fair value of the company’s long-term debt, estimated based on the current borrowing rates available to the company for bank loans with similar terms and maturities, approximates the carrying value of these liabilities.
 
Loss per Share
 
Basic and diluted loss per share was computed by dividing net loss less non-controlling interest by the weighted average number of common shares and common share equivalents (when the inclusion of such shares is not anti-dilutive) outstanding during the year.


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SWISHER HYGIENE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2010 AS COMPARED TO THE
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2009
 
                                 
    For the Three-Months Ended September 30,  
    2010     %(1)     2009     %(1)  
 
Revenue
                               
Products
  $ 9,580,267       59.7 %   $ 7,138,973       49.5 %
Services
    4,341,867       27.0 %     4,238,000       29.3 %
Franchise and other
    2,138,945       13.3 %     3,054,293       21.2 %
                                 
Total revenue
    16,061,079       100.0 %     14,431,266       100.0 %
                                 
Costs and Expenses
                               
Cost of sales
    6,107,686       38.0 %     5,810,276       40.3 %
Route expenses
    3,511,409       25.2 %     3,174,906       27.9 %
Selling, general and administrative
    7,521,046       46.8 %     6,368,549       44.1 %
Merger-related expenses
    1,425,855       8.9 %           0.0 %
Depreciation and amortization
    1,272,266       7.9 %     1,180,348       8.2 %
                                 
Total costs and expenses
    19,838,262       123.5 %     16,534,079       114.6 %
                                 
Loss from Operations
    (3,777,183 )     (23.5 )%     (2,102,813 )     (14.6 )%
                                 
Other Income (Expense)
                               
Interest income
    13,196       0.0 %     41,171       0.3 %
Interest expense
    (371,093 )     (2.3 )%     (257,640 )     (1.8 )%
Gain from bargain purchases
                56,670       0.4 %
                                 
Total other income (expense)
    (357,897 )     (2.3 )%     (159,799 )     (1.1 )%
                                 
Net Loss
    (4,135,080 )     (25.8 )%     (2,262,612 )     (15.7 )%
Net (Income) Attributable to Noncontrolling Equity Interest
    (5,393 )     0.0 %           0.0 %
                                 
Net Loss Attributable to Swisher Hygiene Inc. 
  $ (4,140,473 )     (25.8 )%   $ (2,262,612 )     (15.7 )%
                                 
Loss per share basic and diluted
  $ (0.07 )           $ (0.04 )        
                                 
                                 
                                 
    2010           2009        
 
Company-owned locations
    65               60          
Franchises
    12               15          
International Master Licenses
    10               10          
 
 
(1) Calculated as a percentage of total revenue, except for Route expenses which are calculated as a percentage of Product and services revenue, as route expenses relate solely to Product and services revenue from operations.


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Revenue
 
Total revenue and the revenue derived from each revenue type for the three-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Revenue
                               
Products and service:
                               
Hygiene services
    4,341,867       27.0 %     4,238,000       29.4 %
Chemical
    4,728,506       29.4 %     2,812,112       19.5 %
Paper
    3,135,244       19.5 %     2,855,327       19.8 %
Rental and other
    1,716,517       10.7 %     1,471,534       10.2 %
                                 
Total products and service
  $ 13,922,134       86.7 %   $ 11,376,973       78.8 %
Franchise and other:
                               
Product sales
    1,436,187       8.9 %     1,973,804       13.7 %
Fees
    702,758       4.4 %     1,080,489       7.5 %
                                 
Total franchise and other
    2,138,945       13.3 %     3,054,293       21.2 %
                                 
Total revenue
  $ 16,061,079       100.0 %   $ 14,431,266       100.0 %
                                 
 
Total revenue for the three-months ended September 30, 2010 increased $1,629,813 or 11.3% to $16,061,079 as compared to the same period of 2009. The $1,629,813 increase includes an increase of $2,012,930 in revenue from the acquisition of three franchisees and two independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the effect of these acquisitions, revenue for the three-months ended September 30, 2010 as compared to the same period of 2009 decreased $383,117 or 2.7% primarily from decreases of: (i) $657,669 or 15.5% in hygiene services and (ii) $128,300 or 4.5% in paper; and (iii) 915,348 or 30.0% in product sales and fees earned from the company’s remaining franchises, which were partly offset by increases of (x) $1,240,429 or 44.1% in chemical; and (y) $77,771 or 5.3% in rental and other.
 
The increase in chemical, rental, and other revenue is attributable to the success of the company’s corporate account and distributor sales programs that were launched during 2008, as well as sales by the company’s field employees. The decrease in hygiene services and paper revenue was primarily a result of the prolonged effect of the challenging economic conditions we have experienced. These economic conditions resulted in customer attrition, lower consumption levels of products and services, and a reduction or elimination in spending for hygiene-related products and services by customers of the company.
 
The decrease of $915,348 in product sales and fees earned from the company’s franchisees in the three months ended September 30, 2010 compared to the same period of 2009 includes a decline of $377,731 or 35.0% in fees and $537,617 or 27.2% in product sales, in part due to our acquiring three franchises in 2010 and 18 franchisees in 2009. Excluding the effect of the acquisitions, product sales and fees declined $107,180 or 3.5% for the three months ended September 30, 2010 compared to the same period of 2009. This decline of $107,180 includes increased product sales of $24,424 or 1.2% offset by lower fees of $131,604 or 12.2%. This decline is attributed to the prolonged effect of the challenging economic conditions being experienced by our franchisees. These economic conditions resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene related products and services by franchise customers.


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Cost of Sales
 
Cost of sales for the three-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %(1)     2009     %(1)  
 
Company-owned operations
  $ 4,772,207       34.2 %   $ 3,994,485       35.1 %
Franchisee product sales
    1,335,479       93.0 %     1,815,791       92.0 %
                                 
Total cost of sales
  $ 6,107,686       38.0 %   $ 5,810,276       40.3 %
                                 
 
 
(1) Represents cost as a percentage of the respective product line revenue.
 
Cost of sales consists primarily of paper, air freshener, chemical and other consumable products sold to our customers, franchisees and international licensees. Total cost of sales for the three-months ended September 30, 2010 increased $297,410 or 5.1% to $6,107,686 as compared to the same period of 2009. The $297,410 increase included an increase of $532,941 related to the acquisition of three franchises and two independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the effect of the acquisitions, total cost of sales for the three-months ended September 30, 2010 as compared to the same period of 2009 decreased $235,531 or 4.1%.
 
The cost of sales for company-owned operations for the three-months ended September 30, 2010 increased $777,722 or 19.5% to $4,772,207 as compared to the same period of 2009. The $777,722 increase included an increase of $532,941 related to the acquisition of three franchises and two independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Cost of sales for company-owned operations, excluding the impact of acquisitions, was 37.7% of related revenue for the three-months ended September 30, 2010 as compared to 37.3% for the same period of 2009. Excluding the impact of the acquisitions, cost of sales for company-owned operations increased $244,781 or 6.1% to $4,239,266 as compared to the same period of 2009. The $244,781 increase consisted primarily of $196,917 due to the current period’s increased product sales volume, $100,000 of allowances made for customer volume incentives achieved in the current period and partly offset by $52,136 of other changes in mix and improved product costs.
 
The cost of sales to franchisees for the three-months ended September 30, 2010 decreased $480,312 or 26.5% to $1,335,479 as compared to the same period of 2009 in part due to the acquisition of three franchises in 2010 and 18 franchises in 2009. Cost of sales to franchisees was 93.0% of franchisee product revenue for the three-months ended September 30, 2010 as compared to 92.0% for the same period of 2009. Excluding the effect of acquisitions, cost of goods sold increased $25,525 or 1.4% in the three months ended September 30, 2010 compared to the same period of 2009. The $25,525 increase was primarily a result of the period’s higher product sales to its remaining franchisees.
 
Route Expenses
 
Route expenses for the three-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Route Expenses
  $ 3,511,409       25.2 %   $ 3,174,906       27.9 %
                                 
 
Route expenses consist primarily of the costs incurred by the company for the delivery of products and providing services to customers.


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The details of route expenses for the three-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Compensation
  $ 2,451,906       69.8 %   $ 2,265,908       71.4 %
Vehicle expenses
    971,740       27.7 %     825,815       26.0 %
Other
    87,763       2.5 %     83,183       2.6 %
                                 
Total route expenses
  $ 3,511,409       100.0 %   $ 3,174,906       100.0 %
                                 
 
Route expenses for the three-months ended September 30, 2010 increased $336,503 or 10.6% to $3,511,409 as compared to the same period of 2009. The $336,503 increase included an increase of $680,877 related to the acquisition of three franchises and two independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, route expenses for the three-months ended September 30, 2010 as compared to the same period of 2009 decreased $344,374 or 10.8% to $2,830,532. The decrease consisted of $282,915 in compensation, $50,100 in vehicle expenses and $11,359 in other route-related expenses. These decreases are a result of route consolidation and optimization initiatives made in response to the prolonged effect of the challenging economic conditions we have experienced. These economic conditions resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene-related products and services by customers of the company. During the three month period ended September 30, 2010, compared to the same period in 2009, excluding the effect of acquisitions, the average number of route technicians decreased by 15.9%.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for the three-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Selling, general and administrative
  $ 7,521,046       46.8 %   $ 6,368,549       44.1 %
                                 
 
Selling, general and administrative expenses consist primarily of the costs incurred by the company for:
 
  •  Branch office and field management support costs that are related to field operations. These costs include compensation, occupancy expense and other general and administrative expenses.
 
  •  Sales expenses, which include marketing expenses and compensation and commission for branch sales representatives and corporate account executives.
 
  •  Corporate office expenses that are related to general support services, which include executive management compensation and related costs, as well as department cost for information technology, human resources, accounting, purchasing and other support functions.
 
Selling, general and administrative expenses for the three-months ended September 30, 2010 increased $1,152,497 or 18.1% to $7,521,046 as compared to the same period of 2009. The $1,152,497 increase included an increase of $642,181 related to the acquisition of three franchises and two independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, selling, general and administrative expenses for the three-months ended September 30, 2010 as compared to the same period of 2009 increased $510,316 or 8.0% to $6,878,865.


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The details of selling, general and administrative expenses for the three-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Compensation
    5,164,960       68.7 %   $ 4,433,036       69.6 %
Occupancy
    825,666       11.0 %     739,210       11.6 %
Other
    1,530,420       20.3 %     1,196,303       18.8 %
                                 
Total selling, general and administrative
  $ 7,521,046       100.0 %   $ 6,368,549       100.0 %
                                 
 
Compensation for the three-months ended September 30, 2010 increased $731,924 or 16.5% to $5,164,960 as compared to the same period of 2009. The $731,924 increase included an increase of $494,318 related to the acquisition of three franchises and two independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, compensation expense for the three-months ended September 30, 2010 as compared to the same period of 2009 increased $237,606 or 5.4% to $4,670,642. This increase was primarily the result of an increase in costs and expenses related to the company expansion of its corporate, field and distribution sales organizations that began in 2009 and continued into 2010 to accelerate the growth in the company’s chemical program.
 
Occupancy expenses for the three-months ended September 30, 2010 increased $86,456 or 11.7% to $825,666 as compared to the same period of 2009. The $86,456 increase included an increase of $81,698 related to the acquisition of three franchises and two independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, occupancy expenses for the three-months ended September 30, 2010, as compared to the same period of 2009, increased $4,758 or 0.6% to $743,968. This increase was primarily a result of rent modifications on a number of leases for company branch locations.
 
Other expenses for the three-months ended September 30, 2010 increased $334,117 or 27.9% to $1,530,420 as compared to the same period of 2009. The $334,117 increase included an increase of $66,165 related to the acquisition of three franchises and two independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, other expenses for the three-months ended September 30, 2010 as compared to the same period of 2009, increased $267,952 or 22.4% to $1,464,255. This increase was primarily a result of: $87,139 of office expenses, $34,156 of additional courier charges related to the increased number of locations, $21,181 of higher travel costs, increased insurance of $38,120 and the recovery of previously written off accounts in the amount of $21,484.
 
Merger-related Costs
 
As discussed more fully in Notes to the Consolidated Financial Statements Note 5 Subsequent Events, on November 2, 2010 the Company entered into a merger agreement under which all of the outstanding common shares of the Company were to be exchanged for 57,789,630 common shares of CoolBrands International Inc. (“CoolBrands”), such that the Company would become a wholly-owned subsidiary of CoolBrands. In connection with this transaction, the Company incurred certain directly-related legal, accounting and other professional expenses. These non-recurring expenses totaled $1,425,855 and were incurred entirely in the three month period ended September 30, 2010.
 
Depreciation and Amortization
 
Depreciation and amortization for the three-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Depreciation and amortization
  $ 1,272,266       7.9 %   $ 1,180,348       8.2 %
                                 


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Depreciation and amortization consists of depreciation of property and equipment and the amortization of intangible assets. Depreciation and amortization for the three-months ended September 30, 2010 increased $91,918 or 7.8% to $1,272,266 as compared to the same period of 2009. The increase of $91,918 reflects the higher level of capital spending in 2010 versus 2009 as well as higher amortization expense in connection with the acquisition of 18 franchises and an independent chemical company in 2009.
 
Other Income (Expense)
 
Other income (expense) for the three-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Interest Income
  $ 13,196       0.1 %   $ 41,171       0.3 %
Interest expense
    (371,093 )     (2.3 )%     (257,640 )     (1.8 )%
Gain from bargain purchases
          0.0 %     56,670       0.4  
                                 
Total other expense
  $ (357,897 )     (2.2 )%   $ (159,799 )     (1.1 )%
                                 
 
Interest income primarily relates to a note receivable from our master licensee in the UK. The agreement with the master licensee was executed in January 2009, but transitional issues were not settled until the third quarter of 2009. Interest income was determined and recorded at that time, resulting in significantly greater interest income compared to the comparable period of 2010. Through the nine months ended September 30, 2010, the total interest earned was $42,712, which is comparable to the interest earned in the corresponding period in 2009.
 
Interest expense represents interest on borrowings under the company’s credit facilities, notes incurred in connection with acquisitions, advances from shareholders and the purchase of equipment and software. Interest expenses for the three-months ended September 30, 2010 increased $113,453 or 44.0% to $371,093 as compared to the same period of 2009. The $113,453 increase is primarily a result of a $6,973,553 year-to-year increase in notes and shareholder advances.
 
The gain from bargain purchases recognized in 2009 was related to our acquisition of one franchisee where the fair value of the assets acquired exceeded the purchase price.


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SWISHER HYGIENE INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2010 AS COMPARED TO THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2009
 
                                 
    For the Nine-Months Ended September 30,  
    2010     %(1)     2009     %(1)  
 
Revenue
                               
Products
  $ 26,346,762       57.3 %   $ 19,693,807       47.3 %
Services
    13,142,945       28.6 %     11,905,145       28.6 %
Franchise and other
    6,463,863       14.1 %     10,074,268       24.2 %
                                 
Total revenue
    45,953,570       100.0 %     41,673,220       100.0 %
                                 
Costs and Expenses
                               
Cost of sales
    16,870,196       36.7 %     16,293,801       39.1 %
Route expenses
    9,859,640       25.0 %     9,167,683       29.0 %
Selling, general and administrative
    20,895,398       45.5 %     17,065,873       41.0 %
Merger-related expenses
    1,425,855       3.1 %            
Depreciation and amortization
    3,399,004       7.4 %     3,695,980       8.9 %
                                 
Total costs and expenses
    52,450,093       114.1 %     46,223,337       110.9 %
                                 
Loss from Operations
    (6,496,523 )     (14.1 )%     (4,550,117 )     (10.9 )%
                                 
Other Income (Expense)
                               
Interest income
    49,877       0.1 %     41,367       0.1 %
Interest expense
    (1,053,513 )     (2.3 )%     (706,460 )     (1.7 )%
Gain from bargain purchases
                56,670       0.1 %
                                 
Total other income (expense)
    (1,003,636 )     (2.2 )%     (608,423 )     (1.5 )%
                                 
Net Loss
    (7,500,159 )     (16.3 )%     (5,158,540 )     (12.4 )%
Net (Income) Attributable to Noncontrolling Equity Interest
    (7,264 )     0.0 %           0.0 %
                                 
Net Loss Attributable to Swisher Hygiene Inc. 
  $ (7,507,423 )     (16.3 )%   $ (5,158,540 )     (12.4 )%
                                 
Loss per share basic and diluted
  $ (0.13 )           $ (0.09 )        
                                 
                                 
                                 
    2010           2009        
 
Company-owned locations
    65               60          
Franchises
    12               15          
International Master Licenses
    10               10          
 
 
(1) Calculated as a percentage of total revenue, except for Route Expenses which is calculated as a percentage of Product and services revenue, as route expenses relate solely to Product and services revenue from operations.


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Revenue
 
Total revenue and the revenue derived from each revenue type for the nine-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Revenue
                               
Products and service:
                               
Hygiene services
  $ 13,142,945       28.6 %   $ 11,905,145       28.6 %
Chemical
    12,705,752       27.6 %     7,118,145       17.1 %
Paper
    9,150,729       19.9 %     8,210,636       19.7 %
Rental and other
    4,490,281       9.8 %     4,365,026       10.5 %
                                 
Total products and service
    39,489,707       85.9 %     31,598,952       75.8 %
Franchise and other:
                               
Product sales
    4,238,530       9.2 %     6,528,425       15.7 %
Fees
    2,225,333       4.8 %     3,545,843       8.5 %
                                 
Total franchise and other
    6,463,863       14.1 %     10,074,268       24.2 %
                                 
Total revenue
  $ 45,953,570       100.0 %   $ 41,673,220       100.0 %
                                 
 
Total revenue for the nine-months ended September 30, 2010 increased $4,280,350 or 10.3% to $45,953,570 as compared to the same period of 2009. The $4,280,350 increase includes an increase of $7,306,842 in revenue from the acquisitions of three franchises and three independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, product and service revenue increased $583,913 which was offset by a $3,610,405 loss in franchise products sales and fees earned in 2009 in part from the loss of sales to the acquired franchises. Excluding the effect of these acquisitions, revenue for the nine-months ended September 30, 2010 as compared to the same period of 2009 decreased $3,026,492 or 7.3% primarily from decreases of: (i) $2,439,523 or 20.5% in hygiene services; (ii) $694,537 or 8.5% in paper; (iii) $323,999 or 7.4% in rental and other; and (iv) $3,610,405 or 35.8% in product sales and fees earned from the company’s remaining franchises. These decreases were partially offset by a $4,041,972 or 56.8% increase in chemical revenue.
 
The increase in chemical revenue is attributable to the success of the company’s corporate account and distributor sales programs that were launched during 2008, as well as sales by the company’s field employees. The decrease in hygiene services, paper and rental and other revenue was primarily a result of the prolonged effect of the challenging economic conditions we have experienced. These economic conditions resulted in customer attrition, lower consumption levels of products and services, and a reduction or elimination in spending for hygiene-related products and services by customers of the company.
 
The decrease of $3,610,405 or 35.8% in product sales and fees earned from the company’s franchisees in the nine months ended September 30, 2010 compared to the same period of 2009 includes a decline of $1,320,510 or 37.2% in fees and $2,289,895 or 35.1% in product sales, in part due to our acquiring three franchises in 2010 and 18 franchisees in 2009 . Excluding the effect of the acquisitions, product sales and fees declined $456,799 or 4.5% for the nine months ended September 30, 2010 compared to the same period of 2009. This decline of $456,799 includes decreased product sales of $138,170 or 2.1% and lower fees of 318,629 or 9.0%. This decline is attributed to the prolonged effect of the challenging economic conditions being experienced by our franchisees. These economic conditions resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene related products and services by franchise customers.


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Cost of Sales
 
Cost of sales for the nine-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %(1)     2009     %(1)  
 
Company-owned operations
  $ 12,963,597       32.8 %   $ 10,318,703       32.7 %
Franchisee product sales
    3,906,599       92.2 %     5,975,098       91.5 %
                                 
Total cost of sales
  $ 16,870,196       36.7 %   $ 16,293,801       39.1 %
                                 
 
 
(1) Represents cost as a percentage of the respective product line revenue.
 
Cost of sales consists primarily of paper, air freshener, chemical and other consumable products sold to our customers, franchisees and international licensees. Total cost of sales for the nine-months ended September 30, 2010 increased $576,395 or 3.5% to $16,870,196 as compared to the same period of 2009. The $576,395 increase included an increase of $1,757,955 related to the acquisition of three franchises and three independent chemical companies in 2010 and 18 franchisees and an independent chemical company in 2009. Excluding the effect of these acquisitions, total cost of sales for the nine-months ended September 30, 2010 as compared to the same period of 2009 decreased $1,181,560 or 7.3% as compared to the same period of 2009.
 
The cost of sales for company-owned operations for the nine-months ended September 30, 2010 increased $2,644,894 or 25.6% to $12,963,597 as compared to the same period of 2009. The $2,644,894 increase included an increase of $1,757,955 related to the acquisition of three franchises and three independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Cost of sales for company-owned operations, excluding the impact of acquisitions, was 34.8% of related revenue for the nine-months ended September 30, 2010 as compared to 32.7% for the same period of 2009. Excluding the impact of the acquisitions, cost of sales for company-owned operations increased $886,939 or 8.6% to $11,205,642 as compared to the same period of 2009. The $886,939 increase consisted primarily of $795,279 in sales mix change from lower cost hygiene services to higher cost chemical product sales, $193,859 due to the current periods higher product sales volume, and partly offset by $102,199 improved product cost.
 
The cost of sales to franchisees for the nine-months ended September 30, 2010 decreased $2,068,499 or 34.6% to $3,906,599 as compared to the same period of 2009 in part due to the acquisition of three franchises in 2010 and 18 franchises in 2009. Cost of sales to franchisees was 92.2% of franchisee product revenue for the nine-months ended September 30, 2010 as compared to 91.5% for the same period of 2009. Excluding the effect of acquisitions, cost of goods sold decreased $131,946 or 2.2% in the nine months ended September 30, 2010 compared to the same period of 2009. The $131,946 decrease was primarily a result of the period’s lower product sales to its remaining franchisees.
 
Route Expenses
 
Route expenses for the nine-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Route Expenses
  $ 9,859,640       25.0 %   $ 9,167,683       29.0 %
                                 
 
Route expenses consist primarily of the costs incurred by the company for the delivery of products and providing services to customers.


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The details of route expenses for the nine-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Compensation
  $ 6,979,410       70.8 %   $ 6,625,596       72.3 %
Vehicle expenses
    2,648,847       26.9 %     2,315,643       25.3 %
Other
    231,383       2.3 %     226,444       2.5 %
                                 
Total route expenses
  $ 9,859,640       100.0 %   $ 9,167,683       100.0 %
                                 
 
Route expenses for the nine-months ended September 30, 2010 increased $691,957 or 7.5% to $9,859,640 as compared to the same period of 2009. The $691,957 increase included an increase of $2,301,041 related to the acquisition of three franchises and three independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, route expenses for the nine-months ended September 30, 2010 as compared to the same period of 2009 decreased $1,609,084 or 17.6% to $7,558,599. The decrease consisted primarily of $1,322,585 in compensation, $239,070 in vehicle expenses and $47,429 in other route expenses. These decreases are a result of route consolidation and optimization initiatives made in response to the prolonged effect of the challenging economic conditions we have experienced. These economic conditions resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene-related products and services by customers of the company. During the nine month period ended September 30, 2010 compared to the same period in 2009, excluding the effect of acquisitions, the average number of route technicians decreased 19.6%.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for the nine-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Selling, general and administrative
  $ 20,895,398       45.5 %   $ 17,065,873       41.0 %
                                 
 
Selling, general and administrative expenses consist primarily of the costs incurred by the company for:
 
  •  Branch office and field management support costs that are related to field operations. These costs include compensation, occupancy expense and other general and administrative expenses.
 
  •  Sales expenses, which include marketing expenses and compensation and commission for branch sales representatives and corporate account executives.
 
  •  Corporate office expenses that are related to general support services, which include executive management compensation and related costs, as well as department cost for information technology, human resources, accounting, purchasing and other support functions.
 
Selling, general and administrative expenses for the nine-months ended September 30, 2010 increased $3,829,525 or 22.4% to $20,895,398 as compared to the same period of 2009. The $3,829,525 increase included an increase of $2,199,652 related to the acquisition of three franchises and three independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, selling, general and administrative expenses for the nine-months ended September 30, 2010 as compared to the same period of 2009 increased $1,629,873 or 9.6% to $18,695,746.


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The details of selling, general and administrative expenses for the nine-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Compensation
  $ 14,625,279       70.0 %   $ 11,617,872       68.1 %
Occupancy
    2,435,527       11.7 %     2,219,742       13.0 %
Other
    3,834,592       18.4 %     3,228,259       18.9 %
                                 
Total selling, general and administrative
  $ 20,895,398       100.0 %   $ 17,065,873       100.0 %
                                 
 
Compensation for the nine-months ended September 30, 2010 increased $3,007,407 or 25.9% to $14,625,279 as compared to the same period of 2009. The $3,007,407 increase included an increase of $1,704,337 related to the acquisition of three franchises and three independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, compensation expenses for the nine-months ended September 30, 2010 as compared to the same period of 2009 increased $1,303,070 or 11.2% to $12,920,942. This increase was primarily the result of an increase in costs and expenses related to the company expansion of its corporate, field and distribution sales organizations during the first nine months of 2010 to accelerate the growth in the company’s chemical program.
 
Occupancy expenses for the nine-months ended September 30, 2010 increased $215,785 or 9.7% to $2,435,527 as compared to the same period of 2009. The $215,785 increase included an increase of $278,462 related to the acquisition of three franchises and three independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, occupancy expenses for the nine-months ended September 30, 2010, as compared to the same period of 2009, decreased $62,677 or 2.8% to $2,157,065. This decrease was primarily a result of rent modifications on a number of leases for company branch locations.
 
Other expenses for the nine-months ended September 30, 2010 increased $606,333 or 18.8% to $3,834,591 as compared to the same period of 2009. The $606,333 increase included an increase of $216,853 related to the acquisition of three franchises and three independent chemical companies in 2010 and 18 franchises and an independent chemical company in 2009. Excluding the impact of acquisitions, other expenses for the nine-months ended September 30, 2010 as compared to the same period of 2009, increased $389,480 or 12.1% to $3,617,739. This increase was primarily a result of the recovery of non-recurring, previously written off accounts of $314,489 in the 2009 period and an increase in travel expenses related to the expansion of the company’s corporate and distribution locations.
 
Merger-related Costs
 
As discussed more fully in Notes to the Consolidated Financial Statements Note 5 Subsequent Events, on November 2, 2010 the Company entered into a merger agreement under which all of the outstanding common shares of the Company were to be exchanged for 57,789,630 common shares of CoolBrands, such that the Company would become a wholly-owned subsidiary of CoolBrands. In connection with this transaction, the Company incurred certain directly-related legal, accounting and other professional expenses. These non-recurring expenses totaled $1,425,855 and were incurred entirely in the three month period ended September 30, 2010.
 
Depreciation and Amortization
 
Depreciation and amortization for the nine-months ended September 30, 2010 and 2009 are as follows:
 
                                 
    (Unaudited)
          (Unaudited)
       
    2010     %     2009     %  
 
Depreciation and amortization
  $ 3,399,004       7.4 %   $ 3,695,980       8.9 %
                                 
 
Depreciation and amortization consists of depreciation of property and equipment and the amortization of intangible assets. Depreciation and amortization for the nine-months ended September 30, 2010 decreased


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$296,976 or 8.0% to $3,399,004 as compared to the same period of 2009. The $296,976 decrease is primarily as a result of a decline in amortization of certain intangible assets including the non-compete agreement of a former shareholder of the company which fully amortized in October 2009 as well as decreased depreciation of in-service equipment as installed products are now fully depreciated. These declines were partially offset by increased depreciation on warewashing and chemical dispensing equipment as the company continues to successfully execute its chemical product sales initiatives.
 
Other Income (Expense)
 
Other income (expense) for the nine-months ended September 30, 2010 and 2009 are as follows:
 
                                         
    (Unaudited)
          (Unaudited)
             
    2010     %     2009     %        
 
Interest Income
  $ 49,877           $ 41,367       0.1 %        
Interest expense
    (1,053,513 )     (2.3 )%     (706,460 )     (1.7 )%        
Gain from bargain purchases
                56,670       0.1 %        
Other
                      0. %        
                                         
Total other expense
  $ (1,003,636 )     (2.3 )%   $  (608,423 )     (1.5 )%        
                                         
 
Interest income primarily relates to a note receivable from our master licensee in the UK. Interest for the nine months ended September 30, 2010 and 2009 was $42,712 and $41,044, respectively.
 
Interest expense represents interest on borrowings under the company’s credit facilities, notes incurred in connection with acquisitions, advances from shareholders and the purchase of equipment and software. Interest expenses for the nine-months ended September 30, 2010 increased $347,053 or 49.1% to $1,053,513 as compared to the same period of 2009. The $347,053 increase is primarily a result of a $6,973,553 year-to-year increase in debt and shareholder advances.
 
The gain from bargain purchases recognized in 2009 was related to our acquisition of one franchisee where the fair value of the assets acquired exceeded the purchase price.


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SWISHER HYGIENE INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2009 AS COMPARED
TO THE YEAR ENDED DECEMBER 31, 2008
 
                                 
    2009     %(1)     2008     %(1)  
 
Revenue:
                               
Products
  $ 27,316,876       48.1 %   $ 25,935,493       40.5 %
Services
    16,573,821       29.2 %     19,895,990       31.0 %
Franchise and other
    12,923,327       22.7 %     18,277,408       28.5 %
                                 
Total revenue
    56,814,024       100.0 %     64,108,891       100.0 %
                                 
Costs and Expenses:
                               
Cost of sales
    22,304,515       39.3 %     25,071,410       39.1 %
Route expenses
    12,519,891       28.5 %     14,201,243       31.0 %
Selling, general and administrative
    24,060,048       42.3 %     30,112,150       47.0 %
Depreciation and amortization
    4,744,052       8.4 %     5,206,632       8.1 %
                                 
Total costs and expenses
    63,628,506       112.0 %     74,591,435       116.4 %
                                 
Loss from Operations
    (6,814,482 )     (12.0 )%     (10,482,544 )     (16.4 )%
                                 
Other Income (Expense):
                               
Interest income
    54,797       0.1 %     10,337       0.0 %
Interest expense
    (1,063,411 )     (1.9 )%     (1,292,664 )     (2.0 )%
Forgiveness of debt
    500,000       0.9 %           0.0 %
Gain from bargain purchase
    94,107       0.2 %           0.0 %
Impairment losses
    (30,000 )     (0.1 )%     (223,000 )     (0.3 )%
                                 
Total other expense
    (444,507 )     (0.8 )%     (1,505,327 )     (2.3 )%
                                 
Net Loss
  $ (7,258,989 )     (12.8 )%   $ (11,987,871 )     (18.7 )%
                                 
Loss per share basic and diluted
  $ (.13 )           $ (.21 )        
                                 
    2009           2008        
 
Company-owned locations
    60               44          
Franchises
    15               35          
International Master Licenses
    10               11          
 
 
(1) Calculated as a percentage of total revenue, except for Route Expenses which is calculated as a percentage of Product and services revenue, as route expenses relate solely to Product and services revenue from operations.


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Revenue
 
Total revenue and the revenue derived from each revenue type for the years ended December 31, 2009 and 2008 are as follows:
 
                                 
    2009     %     2008     %  
 
Revenue
                               
Products and service:
                               
Hygiene services
  $ 16,573,821       29.2 %   $ 19,895,990       31.0 %
Chemical
    10,319,434       18.2 %     6,914,652       10.8 %
Paper
    11,549,037       20.3 %     12,760,759       19.9 %
Rental and other
    5,448,405       9.6 %     6,260,082       9.8 %
                                 
Total product and service
    43,890,697       77.3 %     45,831,483       71.5 %
Franchise and other:
                               
Product sales
    8,732,038       15.4 %     11,904,308       18.6 %
Fees
    4,191,289       7.3 %     6,373,100       9.9 %
                                 
Total franchise and other
    12,923,327       22.7 %     18,277,408       28.5 %
                                 
Total revenue
  $ 56,814,024       100.0 %   $ 64,108,891       100.0 %
                                 
 
Total revenue for the year ended December 31, 2009 decreased $7,294,867 or 11.4% to $56,814,024 as compared to the same period of 2008. The $7,294,867 decrease includes an increase of $4,321,596 in revenue from the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008, which was offset by a $2,294,328 loss in franchise products sales and fees earned in 2008 from the acquired franchises. Excluding the effect of these acquisitions, revenue for the years ended December 31, 2009 as compared to the same period of 2008 decreased $9,322,135 or 14.5% primarily from decreases of: (i) $5,855,055 or 29.4% in hygiene services; (ii) $2,168,996 or 17.0% in paper; (iii) $1,130,467 or 18.1% in rental; and (iv) $3,059,753 or 16.7% in product sales and fees earned from the company’s remaining franchises. These decreases were partially offset by a $2,892,136 or 41.8% increase in chemical revenue.
 
The increase in chemical revenue is attributable to the success of the company’s corporate account and distributor sales programs that were launched during 2008, as well as sales by the company’s field employees. The decrease in hygiene, paper and rental and other revenue was primarily a result of the prolonged effect of the challenging economic conditions we have experienced. These economic conditions resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene-related products and services by customers of the company.
 
The decrease in product sales and fees from the company’s remaining franchisees was a result of: (i) lower sales in our U.K. operation of $1,708,738, due to the sale of that operation in January 2009; (ii) the impact of the company’s acquisition of certain franchises of $2,294,328; and (iii) a $1,351,016 decline in product sales and fees resulting from a 31.4% decrease in customer revenue experienced by our franchises. This decline is attributed to the prolonged effect of the challenging economic conditions being experienced by our franchisees. These economic conditions resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene related products and services by franchisee customers.
 
Cost of Sales
 
Cost of sales for the years ended December 31, 2009 and 2008 are as follows:
 
                                 
    2009     %(1)     2008     %(1)  
 
Product and services
  $ 14,385,596       32.8 %     14,329,153       31.3 %
Franchise and other
    7,918,919       90.7 %     10,742,257       90.2 %
                                 
Total cost of sales
  $ 22,304,515       39.3 %   $ 25,071,410       39.1 %
                                 
 
 
(1) Represents costs as a percentage of the respective product line revenue.


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Cost of sales consists primarily of paper, air freshener, chemicals and other consumable products sold to our customers, franchisees and international licensees. Total cost of sales for the year ended December 31, 2009 decreased $2,766,895 or 11.0% to $22,304,515 as compared to the same period of 2008. The $2,766,895 decrease included an increase of $806,117 related to the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008. Excluding the impact of acquisitions, total cost of sales for the years ended December 31, 2009 as compared to the same period of 2008 decreased $3,573,012 or 14.3%.
 
The cost of sales for company-owned operations for the year ended December 31, 2009 increased $56,443 or 0.4% to $14,385,596 as compared to the same period of 2008. The $56,443 increase included an increase of $806,117 in cost of sales related to the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008. Cost of sales for company-owned operations, excluding the impact of acquisitions, was 34.2% of related revenue for the year ended December 31, 2009 as compared to 31.3% for the same period of 2008. Excluding the impact of the acquisitions, cost of sales for company-owned operations decreased $749,674 or 5.2% to $13,579,479 as compared to the same period of 2009. The $749,674 decrease consisted primarily of a $1,655,760 decrease due to lower revenue volume in 2009 and $911,045 in cost reductions resulting from purchasing and operational efficiencies in 2009. These decreases were offset by an increase of $1,283,317 in sales mix shift change from lower cost hygiene services to higher cost chemical product sales and $533,814 higher freight expenses.
 
Cost of sales to franchisees for the year ended December 31, 2009 decreased $2,823,338 or 26.3% to $7,918,919 as compared to the same period of 2008. The $2,823,338 decrease included a decrease of $1,306,409 related to the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008. Cost of sales to franchisees, excluding the impact of acquisitions, was 90.6% of franchisee product revenue for the year ended December 31, 2009 as compared to 88.5% for the same period of 2008. Excluding the impact of acquisitions, cost of sales to franchisees for the year ended December 31, 2009, decreased $1,516,929 or 14.1% as compared to the same period of 2008. The $1,516,929 decrease was primarily a result of (i) a decline in products purchased by franchisees due to a 31.4% decrease in customer revenue experienced by our franchisees; (ii) and the effect of a 50% reduction in the mark-up on certain products sold to franchisees by the company; and (iii) the reduction in revenue related to our U.K. operation, which was sold in January 2009.
 
Route Expenses
 
Route expenses for the years ended December 31, 2009 and 2008 are as follows:
 
                                 
    2009     %     2008     %  
 
Total route expenses
  $ 12,519,891       28.5 %   $ 14,201,243       31.0 %
                                 
 
Route expenses consist primarily of the costs incurred by the company for the delivery of products and providing services to customers.
 
The details of route expenses for the years ended December 31, 2009 and 2008 are as follows:
 
                                 
    2009     %     2008     %  
 
Compensation
  $ 9,085,209       72.6 %   $ 9,990,412       70.4 %
Vehicle expenses
    3,144,603       25.1 %     3,810,394       26.8 %
Other
    290,079       2.3 %     400,437       2.8 %
                                 
Total route expenses
  $ 12,519,891       100.0 %   $ 14,201,243       100.0 %
                                 
 
Route expenses for the year ended December 31, 2009 decreased $1,681,352 or 11.8% to $12,519,891 as compared to the same period of 2008. The $1,681,352 decrease included an increase of $1,064,676 related to the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008. Excluding the impact of acquisitions, route expenses for the years ended December 31, 2009 as compared to the same period of 2008 decreased $2,746,028 or 19.3% to $11,455,215. The decrease consisted primarily of


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$1,838,795 in compensation and $784,045 in vehicle expenses. These cost reductions were a result of route consolidation and optimization initiatives made in response to the prolonged effect of the challenging economic conditions we have experienced. These economic conditions resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene-related products and services by customers of the company.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for the years ended December 31, 2009 and 2008 are as follows:
 
                                 
    2009     %     2008     %  
 
Selling, general and administrative
  $ 24,060,048       42.3 %   $ 30,112,150       47.0 %
                                 
 
Selling, general and administrative expenses consist primarily of the costs incurred by the company for:
 
  •  Branch office and field management support costs that are related to field operations. These costs include compensation, occupancy expense and other general and administrative expenses.
 
  •  Sales expenses, which includes marketing expenses and compensation and commission for branch sales representatives and corporate account executives.
 
  •  Corporate office expenses that are related to general support services, which includes executive management compensation and related costs, as well as department cost for information technology, human resources, accounting, purchasing and other support functions.
 
Selling, general and administrative expenses for the years ended December 31, 2009 decreased $6,052,102, or 20.1%, to $24,060,048 as compared to the same period of 2008. The decrease of $6,052,102 included an increase of $1,069,087 in expenses related to the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008. Excluding the impact of acquisitions, selling, general and administrative expenses for the years ended December 31, 2009 as compared to the same period of 2008 decreased $7,121,189, or 23.6%.
 
The details of selling, general and administrative expenses for the years ended December 31, 2009 and 2008 are as follows:
 
                                 
    2009     %     2008     %  
 
Compensation
  $ 16,975,556       70.6 %   $ 20,356,810       67.6 %
Occupancy
    3,124,466       13.0 %     2,934,305       9.7 %
Other
    3,960,026       16.4 %     6,821,035       22.7 %
                                 
Total selling, general and administrative
  $ 24,060,048       100.0 %   $ 30,112,150       100.0 %
                                 
 
Compensation for the year ended December 31, 2009 decreased $3,381,254, or 16.6%, to $16,975,556, as compared to the same period of 2008. The $3,381,254 decrease included an increase of $911,335 related to the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008. Excluding the impact of acquisitions, compensation expenses for the year ended December 31, 2009 as compared to the same period of 2008 decreased $4,292,589, or 21.1% to $16,064,221. This decrease was primarily a result of reductions in compensation of: (i) $2,955,479 in field operating and sales personal in response to changing economic conditions; (ii) $362,212 of corporate staff resulting from the discontinuation of providing certain business services to franchisees; and (iii) $974,898 related to our U.K. operation, which was sold in January 2009.
 
Occupancy expenses for the year ended December 31, 2009 increased $190,161, or 6.5%, to $3,124,466, as compared to the same period of 2008. The increase of $190,161 included an increase of $138,589 related to the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008. Excluding the impact of acquisitions, occupancy expenses for the year ended December 31, 2009 as compared to the same period of 2008 increased $51,572, or 1.8% to $2,985,877.


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Other expenses for the year ended December 31, 2009 decreased $2,861,009, or 41.9%, to $3,960,026 as compared to the same period of 2008. The $2,861,009 decrease included an increase of $19,163 related to the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008. Excluding the impact of the acquisitions, other expenses for the years ended December 31, 2009 as compared to the same period of 2008 decreased $2,880,172, or 42.2% to $3,940,863. This decrease was a result of: (i) $1,065,707 in marketing and office support costs resulting from the elimination of field operating and sales personnel; (ii) $257,428 in printing and other costs associated with the discontinuation of providing certain business services to franchisees; (iii) $537,490 of costs related to our U.K. operation, which was sold in January 2009; (iv) $392,609 in costs related to the implementation of the company’s technology platform; and (v) $626,938 in bad debt expense.
 
Depreciation and Amortization
 
Depreciation and amortization for the years ended December 31, 2009 and 2008 are as follows:
 
                                 
    2009     %     2008     %  
 
Depreciation and amortization
  $ 4,744,052       8.4 %   $ 5,206,632       8.1 %
                                 
 
Depreciation and amortization consists of depreciation of property and equipment and the amortization of intangible assets. Depreciation and amortization for the year ended December 31, 2009 decreased $462,580 or 8.9% to $4,744,052 as compared to the same period of 2008. The $462,580 decrease is primarily a result of: (i) lower depreciation of $876,580 as property and equipment purchased in earlier years which has now fully depreciated and was partly offset by (ii) increased depreciation on warewashing and chemical dispensing equipment as the company continued expanding its chemical sales programs and (iii) $61,065 of increased amortization of intangibles related to certain new business acquisitions.
 
Other Income (Expense)
 
Other income (expense) for the years ended December 31, 2009 and 2008 are as follows:
 
                                 
    2009     %     2008     %  
 
Interest Income
  $ 54,797       0.1 %   $ 10,337        
Interest expense
    (1,063,411 )     (1.9 )%     (1,292,664 )     (2.0 )%
Forgiveness of debt
    500,000       0.9 %            
Gain on bargain purchase
    94,107       0.2 %            
Impairment losses
    (30,000 )     (0.1 )%     (223,000 )     (0.3 )%
                                 
Total other expense
  $ (444,507 )     (0.8 )%   $ (1,505,327 )     (2.3 )%
                                 
 
Interest expense represents interest on borrowings under the company’s credit facility, notes incurred in connection with acquisitions and for the purchases of equipment and software. Interest expenses for the year ended December 31, 2009 decreased $229,253 or 17.7% to $1,063,411 as compared to the same period of 2008. The $229,253 decrease is primarily a result of lower interest rates on bank lines of credit offset by increased interest expense on notes incurred in connection with the 2009 acquisitions.
 
From 2006 until 2008, the company had agreed to pay a company owned by a shareholder a fee for services provided, including product development, marketing and branding strategy, and management advisory assistance totaling $500,000. In 2009, the related company waived it rights to these fees and accordingly, the accrued balance of $500,000, which was outstanding as of December 31, 2008, has been recorded as forgiveness of debt. The company considered the accounting alternatives for the treatment of this transaction and concluded that as the transaction represented the forgiveness of a previously expensed liability it was most appropriately reflected in other income.
 
The gain on bargain purchase recognized in 2009 was related to the acquisition of franchisees where the fair value of the assets acquired exceeded purchase price.
 
The company tests goodwill and other intangible assets for impairment on an annual basis or when circumstances change that would more likely than not reduce the fair value of the goodwill and intangible assets to amounts that are less than their carrying amounts. For the years ended December 31, 2009 and 2008, impairment losses were recognized on goodwill and other intangible assets totaling $30,000 and $223,000, respectively.


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SWISHER HYGIENE INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2008 AS COMPARED
TO THE YEAR ENDED DECEMBER 31, 2007
 
                                 
    2008     %(1)     2007     %(1)  
 
Revenue:
                               
Products
  $ 25,935,493       40.5 %   $ 23,077,509       35.4 %
Services
    19,895,990       31.0 %     21,948,954       33.7 %
Franchise and other
    18,277,408       28.5 %     20,163,791       30.9 %
                                 
Total revenue
    64,108,891       100.0 %     65,190,254       100.0 %
                                 
Costs and Expenses:
                               
Cost of sales
    25,071,410       39.1 %     25,859,043       39.7 %
Route expenses
    14,201,243       31.0 %     15,073,727       33.5 %
Selling, general and administrative
    30,112,150       47.0 %     29,115,436       44.7 %
Depreciation and amortization
    5,206,632       8.1 %     4,413,566       6.8 %
                                 
Total costs and expenses
    74,591,435       116.4 %     74,461,772       114.2 %
                                 
Loss from Operations
    (10,482,544 )     (16.4 )%     (9,271,518 )     (14.2 )%
                                 
Other Income (Expense):
                               
Interest income
    10,337       0.0 %     56,013       0.1 %
Interest expense
    (1,292,664 )     (2.0 )%     (1,256,512 )     (1.9 )%
Impairment losses
    (223,000 )     (0.3 )%     (131,000 )     (0.2 )%
Other
          0.0 %     34,660       0.1 %
                                 
Total other expense
    (1,505,327 )     (2.3 )%     (1,296,839 )     (2.0 )%
                                 
Net Loss
  $ (11,987,871 )     (18.7 )%   $ (10,568,357 )     (16.2 )%
                                 
Loss per share basic and diluted:
  $ (.21 )           $ (.18 )        
                                 
                                 
    2008           2007        
 
Company-owned locations
    44               47          
Franchises
    35               39          
International Master Licenses
    11               11          
 
 
(1) Calculated as a percentage of total revenue, except for Route Expenses which is calculated as a percentage of Product and services revenue, as route expenses relate solely to Product and services revenue from operations.


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Revenue
 
Total revenue and the revenue derived from each revenue type for the year ended December 31, 2008 and 2007 are as follows:
 
                                 
    2008     %     2007     %  
 
Revenue:
                               
Products and service:
                               
Hygiene services
  $ 19,895,990       31.0 %   $ 21,948,954       33.7 %
Chemical
    6,914,652       10.8 %     5,797,387       8.9 %
Paper
    12,760,759       19.9 %     13,192,081       20.2 %
Rental and other
    6,260,082       9.8 %     4,088,041       6.3 %
                                 
Total products and service
    45,831,483       71.5 %     45,026,463       69.1 %
Franchise and other:
                               
Product sales
    11,904,308       18.6 %     13,338,713       20.5 %
Fees
    6,373,100       9.9 %     6,825,078       10.4 %
                                 
Total franchise and other
    18,277,408       28.5 %     20,163,791       30.9 %
                                 
Total revenue
  $ 64,108,891       100.0 %   $ 65,190,254       100.0 %
                                 
 
Total revenue for the year ended December 31, 2008 decreased $1,081,363 or 1.7% to $64,108,891 as compared to the same period of 2007. The $1,081,363 decrease includes an increase of $1,656,188 in revenue from the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007, which was partially offset by a $584,615 loss in franchise products sales and fees earned in 2007 from the acquired franchises. Excluding the effect of these acquisitions, the revenue for the year ended December 31, 2008 as compared to the same period of 2007 decreased $2,152,936 or 3.3% primarily from a decreases of: (i) $3,562,557 or 16.2% in hygiene services; (ii) $704,765 or 5.3% in paper; and (iii) $1,301,768 or 6.5% in product sales and fees earned from the company’s remaining franchisees. These decreases were offset by a $1,494,239 or 25.8% increase in chemical revenue and a $1,921,915 or 47.0% increase in rental and other sales.
 
The increase in chemical revenue is attributable to the success of the company’s corporate account and distributor sales programs that were launched during 2008, as well as sales by the company’s field employees. The decrease in hygiene services and paper revenue was primarily a result of the prolonged effect of the challenging economic conditions we have experienced. These economic conditions resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene-related products and services by customers of the company and its franchises.
 
The decrease in product sales and fees earned from our remaining franchisees was a result of a 5.7% decrease in customer revenue experienced by our franchisees. This decline is attributed to the prolonged effect of the challenging economic conditions being experienced by our franchisees. These economic conditions resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene related products and services by franchise customers.
 
Cost of Sales
 
Cost of sales for the years ended December 31, 2008 and 2007 are as follows:
 
                                 
    2008     %(1)     2007     %(1)  
 
Cost of sales:
                               
Company-owned operations
  $ 14,329,153       31.3 %   $ 13,576,370       30.2 %
Sales to Franchisees
    10,742,257       90.2 %     12,282,673       92.1 %
                                 
Total cost of sales
  $ 25,071,410       39.1 %   $ 25,859,043       39.7 %
                                 
 
(1) Represents cost as a percentage of the respective product line revenue.


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Cost of sales consists primarily of paper, air freshener, chemical and other consumable products sold to our customers, franchisees and international licensees. Total cost of sales for the year ended December 31, 2008 decreased $787,633 or 3.0% to $25,071,410 as compared to the same period of 2007. The $787,633 decrease included an increase of $224,785 related to the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007. Excluding the impact of acquisitions, total cost of sales for the year ended December 31, 2008 as compared to the same period of 2007 decreased $1,012,418 or 3.9%.
 
The cost of sales for company-owned operations for the year ended December 31, 2008 increased $752,783 or 5.5% to $14,329,153 as compared to the same period of 2007. The $752,783 increase included an increase of $224,785 related to the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007. Cost of sales for company-owned operations, excluding the impact of acquisitions, was 31.8% of related revenue for the year ended December 31, 2008 as compared to 27.5% for the same period of 2007. Excluding the impact of the acquisitions, cost of sales for company-owned operations increased $527,998 or 3.9% to $14,104,368 as compared to the same period of 2007. The $527,998 increase consisted primarily of $1,136,370 in sales mix change from lower cost hygiene services to higher cost chemical product sales offset by decreases of $279,577 from lower revenue volume and $328,795 in cost reductions resulting from purchasing, freight and operational efficiencies.
 
Cost of sales to franchisees for the year ended December 31, 2008 decreased $1,540,416 or 12.5% to $10,742,257 as compared to the same period of 2007. The $1,540,416 decrease included a decrease of $354,683 related to the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007. Cost of sales to franchisees, excluding the impact of acquisitions was 88.5% of franchisee product revenue for the year ended December 31, 2008 as compared to 92.1% for the same period of 2007. Excluding the impact of acquisitions, cost of sales to franchisees for the year ended December 31, 2008, decreased $1,185,733 or 9.7% as compared to the same period of 2007. The $1,185,733 decrease was primarily a result of a decline in products purchased by franchisees due to a 5.7% decrease in customer revenue experienced by our franchisees.
 
Route Expenses
 
Route expenses for the years ended December 31, 2008 and 2007 are as follows:
 
                                 
    2008     %     2007     %  
 
Route Expenses
  $ 14,201,243       31.0 %   $ 15,073,727       33.5 %
                                 
 
Route expenses consist primarily of the costs incurred by the company for the delivery of products and providing services to customers.
 
The details of route expenses for the years ended December 31, 2008 and 2007 are as follows:
 
                                 
    2008     %     2007     %  
 
Compensation
  $ 9,990,412       70.4 %   $ 10,841,868       71.9 %
Vehicle expenses
    3,810,394       26.8 %     3,767,015       25.0 %
Other
    400,437       2.8 %     464,844       3.1 %
                                 
Total route expenses
  $ 14,201,243       100.0 %   $ 15,073,727       100.0 %
                                 
 
Route expenses for the year ended December 31, 2008 decreased $872,484 or 5.8% to $14,201,243 as compared to the same period of 2007. This $872,484 decrease included an increase of $257,174 related to the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007. Excluding the impact of the acquisitions of two franchises in 2008 and four franchises and an independent chemical company in 2007, route expenses for the year ended December 31, 2008 as compared to the same period of 2007 decreased $1,129,658 or 7.5% to $13,944,069. The decrease consisted of $1,069,633 in compensation and $60,025 of other. These cost reductions were a result of route consolidation and


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optimization initiatives made in response to the prolonged effect of the challenging economic conditions we have experienced.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for the years ended December 31, 2008 and 2007 are as follows:
 
                                 
    2008     %     2007     %  
 
Selling, general and administrative
  $ 30,112,150       47.0 %   $ 29,115,436       44.7 %
                                 
 
Selling, general and administrative expenses consist primarily of the costs incurred by the company for:
 
  •  Branch office and field management support costs that are related to field operations. These costs include compensation, occupancy expense and other general and administrative expenses.
 
  •  Sales expenses, which includes marketing expenses and compensation and commission for branch sales representatives and corporate account executives.
 
  •  Corporate office expenses that are related to general support services, which include executive management compensation and related costs, as well as department cost for information technology, human resources, accounting, purchasing and other support functions.
 
Selling, general and administrative expenses for the year ended December 31, 2008 increased $996,714, or 3.4%, to $30,112,150 as compared to the same period of 2007. The $996,714 increase included an increase of $481,100 in expenses related to the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007. Excluding the impact of the acquisitions, selling, general and administrative expenses for the year ended December 31, 2008 as compared to the same period of 2007 increased $515,614, or 1.8%.
 
The details of selling, general and administrative expenses for the year ended December 31, 2008 and 2007 are as follows:
 
                                 
    2008     %     2007     %  
 
Compensation
  $ 20,356,810       67.6 %   $ 18,440,230       63.3 %
Occupancy
    2,934,305       9.7 %     2,758,079       9.5 %
Other
    6,821,035       22.7 %     7,917,127       27.2 %
                                 
Total selling, general and administrative
  $ 30,112,150       100.0 %   $ 29,115,436       100.0 %
                                 
 
Compensation for the year ended December 31, 2008 increased $1,916,580, or 10.4%, to $20,356,810 as compared to the same period of 2007. The $1,916,580 increase included an increase of $432,531 related to the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007. Excluding the impact of acquisitions, compensation expenses for the year ended December 31, 2008 as compared to the same period of 2007 increased $1,484,049, or 8.0% to $19,924,279. This increase is primarily a result of a $940,294 increase in field compensation costs and a $543,755 increase in compensation cost related to the July 2007 acquisition of our U.K. master license. The increase in field compensation was a result of adding operational support personal in anticipation of future growth and to operate and manage the significant number of branch locations added through acquisitions. The increase in U.K. compensation cost was a result of a full year in compensation in 2008 as compared to six months in 2007.
 
Occupancy expenses for the year ended December 31, 2008 increased $176,226, or 6.4%, to $2,934,305 as compared to the same period of 2007. The $176,226 increase included an increase of $64,527 related to the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007. Excluding the impact of the acquisitions, occupancy expenses for the year ended December 31, 2008 as compared to the same period of 2007, increased $111,699, or 4.0% to $2,869,778. This increase was primarily a result of rent increases on existing operating facilities.


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Other expenses for the year ended December 31, 2008 decreased $1,096,092, or 13.8% to $6,821,035 as compared to the same period of 2007. The $1,096,092 included a $15,958 decrease related to the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007. Excluding the impact of acquisitions, other expenses for the year ended December 31, 2008 as compared to the same period of 2007 decreased $1,080,134, or 13.6% to $6,836,993. This decrease was primarily from reductions of: (i) $330,404 in bad debt expense; (ii) $182,367 related to the discontinuation in 2008 of certain business services provided to franchisees; (iii) $567,363 of marketing and promotion expenses.
 
Depreciation and Amortization
 
Depreciation and amortization for the years ended December 31, 2008 and 2007 are as follows:
 
                                 
    2008     %     2007     %  
 
Depreciation and amortization
  $ 5,206,632       8.1 %   $ 4,413,566       6.8 %
                                 
 
Depreciation and amortization consists of depreciation of property and equipment and the amortization of intangible assets. Depreciation and amortization for the year ended December 31, 2008 increased $793,066 or 18.0% to $5,206,632 as compared to the same period of 2007. The $793,066 increase is primarily a result of: (i) $493,395 in depreciation for the development costs and computer equipment supporting a new comprehensive technology platform, which the company began depreciating in 2008; (ii) $84,373 of additional amortization of certain intangible assets resulting from the acquisitions of two franchises in 2008 and four franchises and an independent chemical company in 2007; (iii) additional depreciation on warewashing and chemical dispensing equipment of $43,905 related to the company’s chemical sales initiatives; and (iv) $171,393 of increased depreciation from the purchase of other property and equipment in 2008 and 2007.
 
Other Income (Expense)
 
Other income (expense) for the years ended December 31, 2008 and 2007 are as follows:
 
                                 
    2008     %     2007     %  
 
Interest Income
  $ 10,337           $ 56,013       0.1 %
Interest expense
    (1,292,664 )     (2.0 )%     (1,256,512 )     (1.9 )%
Impairment losses
    (223,000 )     (0.3 )%     (131,000 )     (0.2 )%
Other
                34,660       0.1 %
                                 
Total other expense
  $ (1,505,327 )     (2.3 )%   $ (1,296,839 )     (2.0 )%
                                 
 
Interest expense represents interest on borrowings under the company’s credit facility, notes incurred in connection with acquisitions and other notes payable for equipment and software.
 
The company tests goodwill and other intangible assets for impairment for all reporting units on an annual basis or when circumstances change that would more likely than not reduce the fair value of the reporting unit to an amount that is less than its carrying amount. For the years ended December 31, 2008 and 2007, impairment losses were recognized on goodwill and other intangible assets totaling $223,000 and $131,000, respectively.


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Cash Flow Summary
 
The following table summarizes cash flows for the nine-months ended September 30, 2010 and September 30, 2009.
 
                 
    (Unaudited)
    (Unaudited)
 
    2010     2009  
 
Net cash used in operating activities
  $ (959,701 )   $ (646,086 )
Net cash used in investing activities
    (4,535,576 )     (2,522,380 )
Net cash provided by financing activities
    4,868,553       3,061,411  
                 
Net decrease in cash and cash equivalents
  $ (626,724 )   $ (107,055 )
                 
 
Operating Activities
 
For the nine-months ended September 30, 2010, net cash used in operating activities increased $313,615 to $(959,701), compared with net cash used in operating activities of $(646,086) for the same period of 2009. The $313,615 increase consisted of a $2,341,619 increased net loss, a lower adjustment for depreciation and amortization of $296,976 and a $2,324,980 improvement in working capital.
 
Investing Activities
 
For the nine-months ended September 30, 2010, net cash used in investing activities increased $2,013,196 to $4,535,576 compared with net cash used in investing activities of $2,522,380 for the same period of 2009. Capital expenditures are the largest component of our investing activities and consist primarily of purchases of dispensing equipment, dish machines and other items in service. Net cash used in investing activities is also affected by acquisitions activity.
 
Capital expenditures for the nine-months ended September, 2010 increased $1,706,736 to $3,657,192 as compared to the same period of 2009. Included in capital expenditures are expenditures related to the acquisition of three franchises and three independent companies in 2010 and 18 franchises and an independent chemical company in 2009, which decreased by $135,569 in the nine months ended September 30, 2010 compared to the same period of 2009. Excluding the impact of acquisitions, capital expenditures for the nine-months ended September 30, 2010 increased $1,842,305 largely a result of an increase in the purchases of mats, dispensing equipment and dish machines related to the Company’s expansion of its chemical and facility services program.
 
Cash used for acquisitions was $890,000 for the nine-months ended September 30, 2010 as compared to $529,950 for the same period of 2009.
 
Financing Activities
 
For the nine-months ended September 30, 2010, cash provided by financing activities increased $1,807,142 to $4,868,553 compared with net cash provided by financing activities of $3,061,411 for the same period of 2009. Net cash provided from financing activities consists primarily of: (i) net proceeds from advances from shareholders; and (ii) payments on long-term debt.
 
The net proceeds from advances from shareholders, net of distributions or repayments was $6,750,000 for the nine-months ended September 30, 2010 as compared to $4,180,000 for the same period of 2009. There was no borrowing under the credit facilities for the nine-months ended September 30, 2010 or 2009 since the Company had borrowed the maximum available under the credit facilities in 2008. The payments on long-term debt were $1,881,474 for the nine-months ended September 30, 2010 as compared to $1,118,589 for the same period of 2009. During the nine-months ended September 30, 2009, the Company realized a one-time cash inflow of $6,979 from the sale of a foreign subsidiary.


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The following table summarizes cash flows for the years ended December 31, 2009, 2008, and 2007 are as follows:
 
                         
    2009     2008     2007  
 
Net cash used in operating activities
  $ (5,700,320 )   $ (6,770,438 )   $ (3,255,360 )
Net cash used in investing activities
    (4,385,655 )     (3,654,597 )     (6,030,353 )
Net cash provided by financing activities
    11,014,580       9,693,281       9,604,639  
Effect of foreign exchange rates on cash
          (160,611 )     (19,339 )
                         
Net increase (decrease) in cash and cash equivalents
  $ 928,605     $ (892,365 )   $ 299,587  
                         
 
Operating Activities
 
For the year ended December 31, 2009, net cash used in operating activities decreased $1,076,118 to $(5,700,320), compared with net cash used in operating activities of $(6,770,438) for the same period of 2008. The $1,070,118 decrease consisted of a $4,728,882 decreased net loss, a lower adjustment for depreciation and amortization of $462,580 and a $3,196,184 change in working capital and other non-cash items.
 
For the year ended December 31, 2008, net cash used in operating activities increased $3,515,078 to $(6,770,438), compared with net cash used in operating activities of $(3,255,360) for the same period of 2007. The $3,515,078 increase consisted primarily of a $1,419,514 increased net loss, an increased adjustment for depreciation and amortization of $793,066 and a $2,880,630 change in working capital.
 
In 2008, the company borrowed $6,296,000 under its line of credit with Wachovia. In addition, the company borrowed $5,000,000 and $12,645,000 in 2008 and 2009, respectively, from Royal Palm Mortgage Group LLC (“Royal Palm”), an affiliate of Mr. Huizenga. These moneys were used for working capital purposes and for the payment of the distributions of $704,000 and $115,000 in 2008 and 2009 to shareholders, respectively.
 
Investing Activities
 
For the year ended December 31, 2009, net cash used in investing activities increased $731,058 to $4,385,655 compared with net cash used in investing activities of $3,654,597 for the same period of 2008. For the year ended December 31, 2008, net cash used in investing activities decreased $2,375,756 to $3,654,597, compared with net cash used in investing activities of $6,030,353 for the same period of 2007. Capital expenditures are the largest component of our investing activities and consist primarily of purchases of dispensing equipment, dish machines and other items in service. Net cash used in investing activities is also affected by acquisitions activity.
 
Capital expenditures for the year ended December 31, 2009 increased $106,614 to $3,572,957 as compared to the same period of 2008. The $106,614 increase included $634,873 related to the acquisition of 18 franchises and an independent chemical company in 2009 and two franchises in 2008. Excluding the impact of acquisitions, capital expenditures for the year ended December 31, 2009 as compared to the same period of 2008 decreased $528,259. This decrease is primarily attributable to the economic downturn that began in 2008 which resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene-related products and services by customers of the company. Cash used for acquisitions was $839,023 for the year ended December 31, 2009 as compared to $291,000 for the same period of 2008.
 
Capital expenditures for the year ended December 31, 2008 decreased $590,256 to $3,466,343 as compared to the same period of 2007. The $590,256 decrease included $13,390 related to the acquisition of two franchises in 2008 and four franchises and an independent chemical company in 2007. Excluding the impact of acquisitions, the decrease in capital expenditures for the year ended December 31, 2008 as compared to the same period of 2007 was $603,646 and is primarily attributable to the economic downturn that began in 2008 which resulted in customer attrition, lower consumption levels of products and services and a reduction or elimination in spending for hygiene-related products and services by customers of the company.


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Financing Activities
 
For the year ended December 31, 2009, cash provided by financing activities increased $1,321,299 to $11,014,580, compared with net cash provided by financing activities of $9,693,281 for the same period of 2008. For the year ended December 31, 2008, cash provided by financing activities increased $88,642 to $9,693,281, compared with net cash provided by financing activities of $9,604,639 for the same period of 2007. Net cash provided from financing activities consists primarily of: (i) net proceeds from advances and contributions from shareholders; (ii) borrowing under credit facilities; and (iii) payments on long-term debt.
 
The net proceeds from advances and contributions from shareholders was $12,645,000 for the year ended December 31, 2009 as compared to $5,000,000 for the same period of 2008. The company borrowed $6,296,118 under the credit facilities for the year ended December 31, 2008. There was no borrowing under the credit facilities for the year ended December 31, 2009, since the company had borrowed the maximum available under the credit facilities in 2008. The payments on long-term debt were $1,515,420 for the year ended December 31, 2009 as compared to $886,995 for the same period of 2008. The company made repayments to shareholders of $115,000 and $704,000 for the years ended December 31, 2009 and 2008, respectively.
 
The net proceeds from advances and contributions from shareholders were $5,000,000 for the year ended December 31, 2008 as compared to $2,500,000 for the same period of 2007. The company borrowed $6,296,118 and $7,655,000, under the credit facilities for the years ended December 31, 2008 and 2007, respectively. The payments on long-term debt were $886,995 for the year ended December 31, 2008 as compared to $550,361 for the same period of 2007. The company made a repayment to shareholders of $704,000 in 2008.
 
Liquidity and Capital Resources
 
The company has historically funded the development and growth of our business with cash generated from operations, shareholder loans and advances, bank credit facilities and third party financing for (i) acquisitions; (ii) software development; and (iii) capital leases for equipment.
 
In November 2005, we entered into a revolving line of credit with Wachovia Bank, National Association (“Wachovia”) for a maximum borrowing of up to $5,000,000 which was to expire in November 2008. In March 2008, this line was replaced with a new line of credit for a maximum borrowing of up to $10,000,000, which we refer to as the $10 million credit facility. Borrowings under the $10 million credit facility are used for general working capital purposes, capital expenditures and acquisitions. Our obligations under the $10 million credit facility are guaranteed by certain of our subsidiaries, HB Services, and its subsidiaries, and Mr. Huizenga. Mr. Huizenga has guaranteed up to $5 million of our obligations under the $10 million credit facility. Our obligations under the $10 million credit facility are secured by a lien on our assets, including the assets of our subsidiaries, HB Services, and its subsidiaries. Outstanding principal, accrued and unpaid interest and other amounts payable under the $10 million credit facility may be accelerated upon an event of default. Currently, borrowings under the $10 million credit facility bear interest at 3.11%, and the credit facility matures on February 28, 2011.
 
The $10 million credit facility contained various restrictive covenants which limit or prevent, without the express consent of the bank, making loans, advances, or other extensions of credit, change in control, consolidation, mergers or acquisitions, issuing dividends, selling, assigning, leasing, transferring, or disposing of any part of the business and incurring indebtedness. On October 28, 2010, we received a consent from Wachovia with respect to the Merger.
 
In September 2006, HB Service entered into a revolving credit facility with Wachovia for a maximum borrowing of up to $15,000,000. In June 2008, this facility was repaid in full and we entered into a new revolving credit facility for a maximum borrowing of up to $15,000,000 with a maturity of June 2009, which we refer to as the $15 million credit facility and together with the $10 million credit facility, our credit facility. The credit facility was modified in 2009 to extend the maturity date to January 1, 2010, and in 2010 to extend the maturity date further to February 28, 2011. Borrowings under the $15 million credit facility are


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used for general working capital purposes, capital expenditures and acquisitions. HB Service’s obligations under the $15 million credit facility are fully guaranteed by Mr. Huizenga. Outstanding principal, accrued and unpaid interest and other amounts payable under the $15 million credit facility may be accelerated upon an event of default. Currently, borrowings under the $15 million credit facility bear interest at 1.76%, and the credit facility matures on February 28, 2011.
 
The $15 million credit facility contained various restrictive covenants which limit or prevent, without the express consent of the bank, making loans, advances, or other extensions of credit, change in control, consolidation, mergers or acquisitions, issuing dividends, selling, assigning, leasing, transferring or disposing of any part of the business and incurring indebtedness. On October 28, 2010, we received a consent from Wachovia with respect to the Merger.
 
On November 5, 2010, we amended our credit facility to eliminate all restrictive and financial covenants currently included in the credit facility, except the following: (i) we must maintain, at all times, unencumbered cash and cash equivalents in excess of $15,000,000 and (ii) we may not without the consent of Wachovia incur or permit our subsidiaries to incur new indebtedness or make new investments (except for investments in franchisees) in connection with the acquisition of franchisees and other businesses within our same line of business in excess of $25 million in the aggregate at any time. The amended credit facility continues to mature on February 28, 2011. We expect to renew and extend the credit facility before it matures, but we cannot assure you that we will be able to renew and extend the credit facility on terms acceptable to us or at all. As of January 7, 2011, the outstanding principal amount under the credit facility was $24,946,932.
 
In January 2006, the company entered into agreements for the development of a new software platform for field service operations, accounting, billings and collections. Substantially all the software development cost is being financed through a Master Loan and Security Agreement (the “Agreement”). Borrowings under the Agreement are secured by a first security interest in the software or hardware acquired. The Agreement prevents a change in control in excess of 20% unless the acquiring entity assumes all of the company’s obligations under the Agreement and the net tangible assets and net worth after consolidation, sale or merger is at least equal to the net tangible assets and our net worth immediately before the consolidation, sale or merger.
 
Beginning in May 2008 through June 2010, the company borrowed an aggregate of $21,445,000 from Royal Palm, an affiliate of Mr. Huizenga, pursuant to an unsecured promissory note. The note matures in June 2011. The note bears interest at the one-month LIBOR plus 2.0%. Interest was 2.23% at December 31, 2009. In July 2010, Mr. Berrard purchased $10,722,500 of the total debt, plus accrued interest, represented by this note. In connection with and immediately before the Merger, the $21,445,000 note from Royal Palm, including those amounts of the note purchased by Mr. Berrard, was cancelled and the amounts owing there under, plus accrued interest, were contributed as capital.
 
In the latter part of 2009, Mr. Berrard advanced the company $800,000 pursuant to an unsecured promissory note. The advance was repaid in March 2010.
 
On August 9, 2010, the company borrowed $2,000,000 from Royal Palm pursuant to an unsecured promissory note. The note matures on the earlier of the one year anniversary of the effective time of the Merger or January 1, 2012. The note bears interest at the short-term Applicable Federal Rate and the interest rate will adjust on a monthly basis as the short-term Applicable Federal Rate adjusts. To date, no interest or principal has been paid. As of August 31, 2010, the outstanding amount owing under the note was $2,000,651. Upon an event of default, as defined in the promissory note, the entire unpaid principal balance of the note and accrued interest shall be immediately due and payable.
 
On August 31, 2010, the company borrowed $950,000 and on October 28, 2010 the company borrowed $320,000 from Royal Palm, both loans were pursuant to a single unsecured promissory note. The note bears interest at the short-term Applicable Federal Rate, which adjusts on a monthly basis as the short-term Applicable Federal Rate adjusts. The note matured at the effective time of the Merger and was paid in connection with the closing.


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During the year ended December 31, 2009 and 2008, the company incurred or assumed $7,954,305 and $240,000, respectively, of debt to sellers in connection with certain acquisitions. Two seller notes payable relating to this debt, totaling $3,050,000, are secured by letters of credit, which are secured by certain assets of Messrs. Huizenga and Berrard. The remaining notes payable are secured by the assets of the acquired businesses or the assets of the company. At December 31, 2009, total seller notes payable were due in monthly installments totaling $145,333 and bore interest at rates ranging between 2.5% and 11%. At December 31, 2008, these obligations were due in monthly installments totaling $42,654 and bore interest at rates ranging between 5% and 6%. The obligations mature at various times through 2019.
 
Our cash requirements for the next twelve months consist primarily of: (i) capital expenditures associated with dispensing equipment, dish machines and other items in service at customer locations and equipment and software; (ii) financing for acquisitions; (iii) working capital; and (iv) payment of principal and interest on borrowings under our credit facility, debt obligations incurred in connection with acquisitions, and other notes payable for equipment and software.
 
As a result of the Merger, our cash and cash equivalents are expected to increase by approximately $61 million. We do not expect to assume additional debt or incur any additional cash requirements relating to our operations as a result of the Merger. We expect that our cash on hand and the cash flow provided by operating activities will be sufficient to fund working capital, general corporate needs and planned capital expenditure for the next 12 months. However, there is no assurance that these sources of liquidity will be sufficient to fund our internal growth initiatives or the investments and acquisition activities that we may wish to pursue. If we pursue significant internal growth initiatives or if we wish to acquire additional businesses in transactions that include cash payments as part of the purchase price, we may pursue additional debt or equity sources to finance such transactions and activities, depending on market conditions.
 
Contractual Obligations:
 
Long-term contractual obligations at September 30, 2010 are as follows:
 
                                         
          Less than
                5 or More
 
    Total     1 Year     1-2 Years     3-4 Years     Years  
 
Long-term debt
  $ 34,548,683     $ 27,711,526     $ 3,249,324     $ 2,097,201     $ 1,490,632  
Shareholder Loans
  $ 24,395,000       24,395,000                    
Operating leases
  $ 6,683,753       587,929       3,140,500       1,763,196       1,192,128  
Interest payments
  $ 1,010,625       224,298       507,241       175,212       103,874  
                                         
Total long-term contractual
cash obligations
  $ 66,638,061     $ 52,918,753     $ 6,897,065     $ 4,035,609     $ 2,786,634  
                                         
 
Note 1 — Shareholder loans of $24,395,000 mature in September 2016 and will be converted to equity as a result of the Merger. See Note 6 “Long Term Debt” of the “Notes to Consolidated Financial Statements” for a detailed discussion of long-term debt.
 
Note 2 — The Less than 1 Year column includes $24,946,932 due under the company’s bank lines of credit. These lines of credit mature in January 2011. While management intends to renew these lines of credit, there is no certainty that the lender will agree to renew these loans on terms that are mutually acceptable. See Note 6 “Long Term Debt” of the “Notes to Consolidated Financial Statements” for a detailed discussion of long-term debt.
 
Note 3 — Operating leases consist primarily of facility and vehicle leases.
 
Note 4 — Interest payments include interest on both fixed and variable rate debt. Rates have been assumed to increase 75 basis points in fiscal 2011, increase 75 basis points in fiscal 2012, increase 100 basis points in fiscal 2013, increase 100 basis points in both fiscal 2014 and 2015 and increase additional 100 basis points in each year thereafter.


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Inflation and Changing Prices
 
Changes in wages, benefits and energy costs have the potential to materially impact the company’s financial results. We believe that we are able to increase prices to counteract the majority of the inflationary effects of increasing costs and to generate sufficient cash flows to maintain our productive capability. During the nine-months ended September 30, 2010 and 2009, we do not believe that inflation has had a material impact on our financial position or results of operations. However, we cannot predict what effect inflation may have on our operations in the future.
 
Litigation and Other Contingencies
 
The company is subject to legal proceedings and claims which arise in the ordinary course of our business. Although occasional adverse decisions (or settlements) may occur, the company believes that the final disposition of such matters will not have a material adverse effect on the company’s financial position, results of operations or cash flows.
 
Off-Balance Sheet Arrangements
 
Other than operating leases, there are no off-balance sheet financing arrangements or relationships with unconsolidated entities or financial partnerships, which are often referred to as “special purpose entities.” Therefore, there is no exposure to any financing, liquidity, market or credit risk that could arise, had the company engaged in such relationships.
 
Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to market risks, including changes in interest rates and fuel prices. We do not use financial instruments for speculative trading purposes and we do not hold derivative financial instruments that could expose us to significant market risk. We do not currently have any contract with vendors where we have exposure to the underlying commodity prices. In such event, we would consider implementing price increases and pursue cost reduction initiatives; however, we may not be able to pass on these increase in whole or in part to our customers or realize costs savings needed to offset these increases. The following discussion does not consider the effects that an adverse change may have on the overall economy, and it also does not consider actions we may take to mitigate our expose to these changes. We cannot guarantee that the action we take to mitigate these exposures will be successful.
 
Interest Rate Risk
 
Excluding shareholder advances repaid at the Merger, at September 30, 2010, we had variable rate debt of $34,341,932 under two lines of credit with an average periodic interest rate on outstanding balances that fluctuates based on LIBOR plus 2.503%. At the above level of borrowings, for every 50 basis point change in LIBOR, interest expense associated with such borrowings would correspondingly increase or decrease by approximately $43,000 for each three-month period. This analysis does not consider the effects of any other changes to company’s capital structure. A 10% change in interest rates would have an immaterial effect on the fair value of our final rate debt.
 
Fuel
 
Fuel costs represent a significant operating expense. To date, we have not entered into any contracts or employed any strategies to mitigate our exposure to fuel costs. Historically, we have made limited use of fuel surcharges or delivery fees to help offset rises in fuel costs. Such charges have not been in the past, and we believe will not be going forward, applicable to all customers. Consequently, an increase in fuel costs results in a decrease in our operating margin percentage. At current consumption level, a $0.50 change in the price of fuel changes our fuel costs by approximately $266,000 on an annual basis.


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Effects of the Merger with CoolBrands International
 
The following unaudited selected pro forma financial data gives effect to the merger between Swisher International, Inc. and CoolBrands International Inc. These statements should be read in conjunction with the Pro Forma Financial Statements and Notes beginning on page PF-1.
 
Selected Unaudited Pro Forma Financial Data for the nine-months ended September 30, 2010 and the year ended December 31, 2009 is as follows:
 
                                 
    2010     2009  
$ in thousands
  As Reported     Pro Forma     As Reported     Pro Forma  
 
Revenue
  $ 45,954     $ 45,954     $ 56,815     $ 56,815  
                                 
Operating loss
  $ (6,497 )   $ (6,229 )   $ (6,814 )   $ (8,069 )
                                 
Net loss
  $ (7,500 )   $ (4,827 )   $ (7,259 )   $ (8,155 )
                                 
Basic EPS
    (0.13 )     (0.04 )     (0.13 )   $ (0.07 )
Diluted EPS
    (0.13 )   $ (0.04 )     (0.13 )   $ (0.07 )
Dividends per share
                       
Total Assets
  $ 44,038     $ 105,500       N/R       N/R  
                                 
Shareholders’ equity (deficit)
  $ (26,853 )   $ 51,447       N/R       N/R  
                                 
Long-term debt
  $ 8,837     $ 11,584       N/R       N/R  
                                 
 
 
N/R = not reported
 
FORWARD-LOOKING STATEMENTS
 
Our business, financial condition, results of operations, cash flows and prospects, and the prevailing market price and performance of our common stock, may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this registration statement, as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf, constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this statement and these risk factors in order to comply with such safe harbor provisions. You should note that our forward-looking statements speak only as of the date of this registration statement or when made and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations, plans, intentions and projections reflected in our forward-looking statements are reasonable, such statements are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that our shareholders and prospective investors should consider include the following:
 
  •  We have a history of significant operating losses and as such our future revenue and operating profitability are uncertain;
 
  •  We may be harmed if we do not penetrate markets and grow our current business operations;
 
  •  We may require additional capital in the future and no assurance can be given that such capital will be available on terms acceptable to us, or at all;
 
  •  Failure to attract, train and retain personnel to manage our growth could adversely impact our operating results;


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  •  We may not be able to properly integrate the operations of acquired businesses and achieve anticipated benefits of cost savings or revenue enhancements;
 
  •  We may incur unexpected costs, expenses, or liabilities relating to undisclosed liabilities of acquired businesses;
 
  •  We may recognize impairment charges which could adversely affect our results of operations and financial condition;
 
  •  Goodwill resulting from acquisitions may adversely affect our results of operations;
 
  •  Future issuances of shares of our common stock could have a dilutive effect on your investment;
 
  •  Our business and growth strategy depends in large part on the success of our franchisees and international licensees, and our brand reputation may be harmed by actions out of our control that are taken by franchisees and international licensees;
 
  •  Failure to retain our current clients and renew existing client contracts could adversely affect our business;
 
  •  The pricing, terms, and length of customer service agreements may constrain our ability to recover costs and to make a profit on our contracts;
 
  •  Changes in economic conditions that impact the industries in which our end-users primarily operate could adversely affect our business;
 
  •  If we are required to change our pricing models to compete successfully, our margins and operating results may be adversely affected;
 
  •  Several members of our senior management team are critical to our business and if these individuals do not remain with us in the future, it may have an adverse impact on our financial condition and results of operations;
 
  •  The financial condition and operating ability of third parties may adversely affect our business;
 
  •  Increases in fuel and energy costs could adversely affect our results of operations and financial condition;
 
  •  We may be subject to legal proceedings and disputes;
 
  •  Our products contain hazardous materials and chemicals, which could result in claims against us;
 
  •  We are subject to environmental, health and safety regulations, and may be adversely affected by new and changing laws and regulations, that generate ongoing environmental costs and could subject us to liability;
 
  •  If our products are improperly manufactured, packaged, or labelled or become adulterated, those items may need to be recalled;
 
  •  Changes in the types or variety of our service offerings could affect our financial performance;
 
  •  We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business;
 
  •  If we are unable to protect our information and telecommunication systems against disruptions or failures, our operations could be disrupted;
 
  •  Our business could suffer in the event of a work stoppage or increased organized labor activity;
 
  •  Insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could adversely impact our business;
 
  •  Our current size and growth strategy could cause our revenues and operating results to fluctuate more than some of our larger, more established competitors or other public companies.


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  •  The former stockholders of Swisher International will be able to exert control over the corporate actions of Swisher Hygiene;
 
  •  Future sales of Swisher Hygiene shares by former Swisher International or CoolBrands stockholders could affect the market price of our shares; and
 
  •  Provisions of Delaware law and our organizational documents may delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders.
 
DIRECTORS AND EXECUTIVE OFFICERS
 
Our directors and executive officers and additional information concerning them are as follows:
 
                     
            Director/Officer
Name
 
Position
 
Age
 
Since
 
H. Wayne Huizenga
  Chairman     73       2010  
Steven R. Berrard
  President, Chief Executive Officer and Director     56       2004 (1)
Thomas Aucamp
  Executive Vice President and Secretary     44       2006 (2)
Thomas Byrne
  Executive Vice President     48       2004 (2)
Hugh H. Cooper
  Chief Financial Officer and Treasurer     61       2005 (2)
David Braley
  Director     69       2010  
John Ellis Bush
  Director     57       2010  
James E. O’Connor
  Director     61       2010  
David Prussky
  Director     53       2010 (3)
Ramon A. Rodriguez
  Director     65       2010  
Michael Serruya
  Director     46       1994 (4)
 
 
(1) This director has served as a director of Swisher International since the date indicated.
 
(2) This executive officer has served as an officer of Swisher International in the position above since the date indicated.
 
(3) Mr. Prussky served an initial term as a director of CoolBrands from 1994 to 1998. He rejoined the CoolBrands board of directors in February 2010. Mr. Prussky was appointed a director of Swisher Hygiene in 2010.
 
(4) Mr. Serruya previously served as a director of CoolBrands since 1994, as Co-President and Co-Chief Executive Officer of CoolBrands from 1994 to 2000, and as President and Chief Executive Officer of CoolBrands from 2006 to 2010. Mr. Serruya was appointed a director of Swisher Hygiene in 2010.
 
The term of each of the directors will expire at the close of our next annual meeting of stockholders, or until his successor is duly elected or appointed, unless his office is earlier vacated.
 
Directors
 
H. Wayne Huizenga
Chairman
 
Mr. Huizenga has been an investor in and stockholder of Swisher International since 2004. Over his 39 year career, he has also served as an executive officer and director of several public and private companies. Mr. Huizenga co-founded Waste Management, Inc. in 1971, which he helped build into the world’s largest integrated solid waste services company. Mr. Huizenga has served as Vice Chairman of Viacom Inc. and also served as Chairman and Chief Executive Officer of Blockbuster Entertainment Group, a division of Viacom, which he helped to grow from a small retail chain into the world’s largest video store operator. Mr. Huizenga


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has served as Chairman and Chief Executive Officer of Boca Resorts, Inc. until its acquisition by The Blackstone Group, as well as AutoNation, Inc., a leading North American automotive retail company. He has also served as Chairman or Vice-Chairman of Republic Services, Inc. and Extended Stay America, Inc.
 
Mr. Huizenga is an experienced former executive officer and director of public companies with the skills necessary to serve as Chairman of the Board. Over his 39-year career, Mr. Huizenga has founded and developed multiple companies into industry leaders. As a member of the board of directors of several public companies, Mr. Huizenga has developed knowledge and experience leading public companies from the early stages of development to industry leaders in various service industries. Mr. Huizenga also provides substantial management experience gained from his years as an executive officer of Waste Management, Inc., Blockbuster Entertainment Group, AutoNation, Inc., and Boca Resorts, Inc.
 
Steven R. Berrard
Director, President and Chief Executive Officer
 
Mr. Berrard has served as Chief Executive Officer and a director of Swisher International since 2004. He is currently also Managing Partner of private equity fund New River Capital Partners, which he co-founded in 1997, director and Audit Committee member of Walter Investment Management Corp., and director of Pivotal Fitness. Throughout most of the 1980’s, Mr. Berrard served as President of Huizenga Holdings, Inc. as well as in various positions with subsidiaries of Huizenga Holdings. He has served as Chief Executive Officer of both Blockbuster Entertainment Group (a division of Viacom, Inc.) and Jamba, Inc. (parent company of Jamba Juice Company), and co-founded and served as co-Chief Executive Officer of retail automotive industry leader AutoNation, Inc. Mr. Berrard has served as director of numerous public and private companies including Viacom, Inc., Boca Resorts, Inc., Birmingham Steel Inc. and HealthSouth Corp.
 
Mr. Berrard is an experienced executive officer and director of public companies with relevant industry knowledge and skills necessary to serve as a director. Mr. Berrard developed the relevant industry experience and expertise while serving as the Chief Executive Officer and director of the company over the last five years. He combines this experience and expertise with experience as a public company director through his board memberships at Jamba, Inc., Walter Investment Management Corp., HealthSouth Corp., Birmingham Steel Inc., Boca Resorts, Inc. and Viacom, Inc. Mr. Berrard also has experience and knowledge leading public companies from the early stages of development to the position of an industry leader based on his work with AutoNation, Inc. and Blockbuster Entertainment Group.
 
Senator David Braley
Director
 
Senator Braley was appointed to the Canadian Senate in May 2010. He is a highly respected Canadian entrepreneur with numerous business interests including real estate development, and has extensive experience leading both private operations and sports franchises. Senator Braley has been the owner and president of Orlick Industries Limited, an automotive die cast and machining organization, since 1969 and is the owner of the B.C. Lions and the Toronto Argonauts of the Canadian Football League (CFL). Senator Braley was formerly Chairman of the Board of Governors and Interim Commissioner of the CFL and was founding Chairman of the Hamilton Entertainment and Convention Facilities Inc., operator of several venues in the city of Hamilton, Ontario.
 
Senator Braley brings to the board of directors his experience leading a private machining organization and multiple sports franchises. As the owner and President of Orlick Industries Limited, Senator Braley has experience and knowledge of financial, operational, and managerial issues faced by private companies. As an owner of two franchises of the Canadian Football League and as a member of the Board of Governors, Senator Braley has knowledge and skills regarding franchise matters.


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John Ellis (Jeb) Bush
Director
 
Mr. Bush is currently President and Chief Executive Officer of the consulting firm Jeb Bush and Associates. Mr. Bush served in that role since June 2007. Mr. Bush served as the Governor and Secretary of Commerce of the State of Florida from January 2000 to January 2007. He is an experienced director of public companies, currently serving as a director of Rayonier Inc. and Tenet Healthcare Corporation. Mr. Bush also established and serves as Chairman of both the Foundation for Excellence in Education, a not-for-profit charitable organization, and The Foundation for Florida’s Future, a not-for-profit public policy organization.
 
Mr. Bush is an experienced director of public companies with the skills necessary to serve as a director. As a member of the board of directors of public companies and Governor of the State of Florida, Mr. Bush has developed knowledge and experience of financial, operational and managerial matters.
 
James E. O’Connor
Director
 
Mr. O’Connor is an experienced director and executive officer of public companies, having served in various capacities with two Fortune 500 companies. He has been Chief Executive Officer and Chairman of Republic Services, Inc. since January 2003. From the 1980’s through 1998, Mr. O’Connor also acted as a senior officer for various divisions of Waste Management Inc., including as Senior Vice President of both Waste Management of Florida, Inc. and Waste Management — North America.
 
Mr. O’Connor is an experienced executive officer and director of a Fortune 500 company with the skills necessary to serve as a director. As a result of this experience, Mr. O’Connor has a thorough knowledge and understanding of financial, operational, compensatory and other issues faced by large public companies.
 
David Prussky
Director
 
Mr. Prussky was a director and Chair of the Audit Committee of CoolBrands. He was an original director of the predecessor to CoolBrands, Yogen Früz World-Wide Inc., Mr. Prussky has served as an investment banker for Patica Securities Limited since August 2002. Mr. Prussky has served as director of numerous public and private companies over the past 16 years, including Carfinco Income Fund, Canada’s largest public specialty auto finance business, and Lonestar West Inc. Mr. Prussky is also a director of exempt market dealer Patica Securities Limited which specializes in financing junior growth and mid-market businesses, and acts as a director or adviser to several private companies, having helped many grow from early-stage to significant operating entities.
 
Mr. Prussky is an experienced director of public companies with the skills necessary to serve as a director. He has helped build numerous public and private entities from the early stages to significant operating entities.
 
Ramon A. Rodriguez
Director