Attached files
file | filename |
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EX-32.1 - EX-32.1 - Environmental Infrastructure Holdings Corp | v203682_ex32-1.htm |
EX-31.1 - EX-31.1 - Environmental Infrastructure Holdings Corp | v203682_ex31-1.htm |
EX-31.2 - EX-31.2 - Environmental Infrastructure Holdings Corp | v203682_ex31-2.htm |
EX-32.2 - EX-32.2 - Environmental Infrastructure Holdings Corp | v203682_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended September 30,
2010
|
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from to ______
Commission
file number: 333-124704
ENVIRONMENTAL
INFRASTRUCTURE HOLDINGS CORP.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
32-0294481
|
(State or other jurisdiction of incorporation
|
|
(I.R.S. Employer
|
or organization)
|
|
Identification No.)
|
Four
Tower Bridge
200 Barr
Harbor Drive, Ste. 400
West
Conshohocken, PA 19428
(Address
of Principal executive offices)
Issuer’s
telephone number: (866) 629-7646
Securities
registered under Section 12(b) of the “Exchange Act”
Common
Share, Par Value, $.0001
(Title of
each Class)
Indicate
by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES x NO
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every interactive data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files). Yes
¨ No ¨
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.
Large
accelerated filer ¨
|
Accelerated filer ¨
|
Non-accelerated
filer ¨
(Do not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO
x
Number of shares of Environmental
Infrastructure Holdings Corp.. Common Stock, $.001 par value, outstanding as of
November 22, 2010: 47,006,195
ENVIRONMENTAL INFRASTRUCTURE
HOLDINGS CORP.
Form
10-Q
Table of
Contents
Page
|
|||
PART
I.
|
FINANCIAL
INFORMATION
|
||
Item
1
|
Financial
Statements:
|
||
Consolidated
Balance Sheets
|
3
|
||
Consolidated
Statements of Operations
|
4
|
||
Consolidated
Statements to Stockholders Deficit
|
5
|
||
Consolidated
Statements of Cash Flows
|
6
|
||
Notes
to Consolidated Financial Statements
|
7
|
||
Item
2
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
22
|
|
Item
4
|
Controls
and Procedures
|
25
|
|
Item 4T
|
Controls
and Procedures
|
25
|
|
PART
II.
|
OTHER
INFORMATION
|
||
Item
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
27
|
|
Item
3
|
Defaults
|
27
|
|
Item
6
|
Exhibits
|
27
|
|
SIGNATURES
|
28
|
2
Part
I – FINANCIAL INFORMATION
Item
1. – Financial Statements
Environmental
Infrastructure Holdings Corp
Consolidated
Balance Sheets
September
30, 2010
|
December
31, 2009
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 20,879 | $ | 246,725 | ||||
Accounts
Receivable, net of allowance for doubtful accounts of $297,575 and
$245,000 respectively
|
449,708 | 486,860 | ||||||
Inventory
|
273,855 | 351,488 | ||||||
Prepaid
expenses and other current assets
|
13,620 | 32,728 | ||||||
Total
Current Assets
|
758,062 | 1,117,801 | ||||||
Fixed
Assets, net of accumulated depreciation
|
143,556 | 174,739 | ||||||
Other
Assets
|
||||||||
Intangible
assets, net of accumulated amortization and impairment
allowance
|
288,815 | 289,315 | ||||||
Investment
in and advances to publicly traded investee, net
|
50,000 | 50,000 | ||||||
Retainage
receivable
|
51,851 | 51,851 | ||||||
Security
deposits
|
11,445 | 11,445 | ||||||
Total
Other Assets
|
402,111 | 402,611 | ||||||
Total
Assets
|
$ | 1,303,729 | $ | 1,695,151 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
Current
Liabilities
|
||||||||
Current
portion of debt
|
$ | 2,536,993 | $ | 2,830,789 | ||||
Accounts
payable
|
956,153 | 873,883 | ||||||
Accrued
expenses
|
439,674 | 351,710 | ||||||
Accrued
compensation
|
150,000 | 150,000 | ||||||
Accrued
interest
|
904,623 | 495,352 | ||||||
Total
Current Liabilities
|
4,987,443 | 4,701,734 | ||||||
Long
Term Portion of Debt
|
335,260 | 245,621 | ||||||
Total
Liabilities
|
5,322,703 | 4,947,355 | ||||||
STOCKHOLDERS'
DEFICIT
|
||||||||
Common
stock, $.0001 par value; authorized 50,000,000 shares:
|
||||||||
Issued
and outstanding, 46,946,195 and 41,811,100 shares,
respectively
|
4,695 | 4,181 | ||||||
Committed
to be issued 8,834,038 and 9,609,942 shares, respectively
|
883 | 961 | ||||||
Additional
paid in capital
|
5,683,122 | 5,345,807 | ||||||
Accumulated
deficit
|
(9,707,674 | ) | (8,603,153 | ) | ||||
Total
Stockholders' Deficit
|
(4,018,974 | ) | (3,252,204 | ) | ||||
Total
Liabilities and Stockholder's Deficit
|
$ | 1,303,729 | $ | 1,695,151 |
See
accompanying notes to consolidated financial statements.
3
Environmental
Infrastructure Holdings Corp
Consolidated
Statements of Operations
Three Months ended
|
Nine Months ended
|
|||||||||||||||
September 30, 2010
|
September 30, 2009
|
September 30, 2010
|
September 30, 2009
|
|||||||||||||
Revenues
|
$ | 904,323 | $ | 1,287,549 | $ | 2,741,618 | $ | 3,814,068 | ||||||||
Cost
of Revenues
|
491,957 | 984,656 | 1,414,994 | 2,627,193 | ||||||||||||
Gross
Profit
|
412,366 | 302,893 | 1,326,624 | 1,186,875 | ||||||||||||
Operating
Expenses
|
||||||||||||||||
Selling,
General & Administrative Expenses
|
509,401 | 426,442 | 1,994,170 | 1,523,006 | ||||||||||||
Operating
Loss
|
(97,035 | ) | (123,549 | ) | (667,546 | ) | (343,121 | ) | ||||||||
Other
Income (Expense)
|
||||||||||||||||
Interest
Expense
|
(151,270 | ) | (17,944 | ) | (437,129 | ) | (61,022 | ) | ||||||||
Interest
Income
|
2 | 4 | 154 | 39 | ||||||||||||
Total
Other (Expense) Income
|
(151,268 | ) | (17,940 | ) | (436,975 | ) | (60,983 | ) | ||||||||
Loss
from Coninuing Operations before Income Tax Provision
|
(248,303 | ) | (141,489 | ) | (1,104,521 | ) | (404,104 | ) | ||||||||
Income
tax provision
|
- | - | - | 6,990 | ||||||||||||
Loss
from Continuing Operations
|
(248,303 | ) | (141,489 | ) | (1,104,521 | ) | (404,104 | ) | ||||||||
Income
from Discontinued Operations, net of tax
|
- | 19,730 | - | 7,086 | ||||||||||||
Net
Loss
|
(248,303 | ) | (121,759 | ) | (1,104,521 | ) | (397,018 | ) | ||||||||
Loss
per Common Share, basic and diluted
|
||||||||||||||||
Loss
from Continuing Operations
|
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
Gain
from Discontinued Operation
|
- | 0.00 | - | 0.00 | ||||||||||||
Net
Loss
|
$ | (0.01 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
Weighted
average number of shares outstanding, basic and diluted
|
46,946,195 | 26,164,947 | 44,635,673 | 26,164,947 |
See
accompanying notes to consolidated financial statements.
4
Environmental
Infrastructure Holdings Corp
Statements
of Stockholders' Deficit
For the
Year Ended December 31, 2009 and for the Six Months Ended September 30, 2010
(Unaudited)
Common Stock, $.0001 Par Value
|
||||||||||||||||||||||||||||
Issued Shares
|
Shares Committed to be Issued
|
|||||||||||||||||||||||||||
Shares
|
Par Value
|
Shares
|
Par Value
|
Additional Paid
In Capital
|
Accumulated
Deficit
|
Total
Stockholders'
Deficit
|
||||||||||||||||||||||
Balance,
December 31, 2008
|
18,080,005 | $ | 1,808 | 8,084,942 | $ | 808 | $ | 144,590 | $ | (587,320 | ) | $ | (440,114 | ) | ||||||||||||||
Conversion
of convertible note to common stock on December 7, 2009
|
483,688 | 48 | - | - | 149,952 | - | 150,000 | |||||||||||||||||||||
Spinoff
of subsidiary to members of Equisol on December 7, 2009
|
- | - | - | - | (144,477 | ) | (181,061 | ) | (325,538 | ) | ||||||||||||||||||
18,563,693 | 1,856 | 8,084,942 | 808 | |||||||||||||||||||||||||
Shares
retained by EIHC (formerly XIOM Corp) shareholders in reverse
merger
|
||||||||||||||||||||||||||||
with
Equisol, LLC on December 7, 2009
|
23,247,407 | 2,325 | 1,125,000 | 113 | 5,135,432 | - | 5,137,870 | |||||||||||||||||||||
Sales
of additional shares from December 7, 2009 to December 31, 2009 under
private placement which commenced prior to the reverse merger with
Equisol on December 7, 2009, net of offering costs of
$39,650
|
- | - | 400,000 | 40 | 60,310 | - | 60,350 | |||||||||||||||||||||
Net
loss for year ended December 31, 2009
|
- | - | - | - | - | (7,834,772 | ) | (7,834,772 | ) | |||||||||||||||||||
Balance,
December 31, 2009
|
41,811,100 | 4,181 | 9,609,942 | 961 | 5,345,807 | (8,603,153 | ) | (3,252,204 | ) | |||||||||||||||||||
Issuance
of shares committed to be issued to parties at December 31,
2009
|
1,525,000 | 153 | (1,525,000 | ) | (153 | ) | - | - | - | |||||||||||||||||||
Sales
of shares under private placement, net of offering costs of
$10
|
380,000 | 38 | 60,000 | 6 | 109,946 | - | 109,990 | |||||||||||||||||||||
Exercise
of stock options pursuant to cashless exercise provisions
|
456,209 | 46 | - | - | (46 | ) | - | - | ||||||||||||||||||||
Issuance
of shares for consulting services
|
650,000 | 65 | - | - | 92,935 | - | 93,000 | |||||||||||||||||||||
Issuance
of shares and shares committed to be issued pursuant to employment
agreements
|
2,123,886 | 212 | 689,096 | 69 | 134,480 | - | 134,761 | |||||||||||||||||||||
Net
loss for nine months ended September 30, 2010
|
- | - | - | - | - | (1,104,521 | ) | (1,104,521 | ) | |||||||||||||||||||
Balance,
September 30, 2010
|
46,946,195 | $ | 4,695 | 8,834,038 | $ | 883 | $ | 5,683,122 | $ | (9,707,674 | ) | $ | (4,018,974 | ) |
See
accompanying notes to consolidated financial statements.
5
Environmental
Infrastructure Holdings Corp.
Consolidated
Statements of Cash Flows
For the
Nine Months Ended September 30,
(Unaudited)
2010
|
2009
|
|||||||
Cash
Flow from Operating Activities
|
||||||||
Net
Loss
|
$ | (1,104,521 | ) | $ | (397,018 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
Provision
for doubtful accounts
|
52,575 | 0 | ||||||
Depreciation
and amortization
|
32,683 | 8,484 | ||||||
Issuance
of shares and shares committed to be issued for services
rendered
|
227,761 | - | ||||||
Amortization
of debt discount
|
4,783 | - | ||||||
Net
change in operating assets and liabilities
|
||||||||
Accounts
receivable
|
37,152 | 81,628 | ||||||
Inventory
|
77,633 | 19,950 | ||||||
Prepaid
expenses and other current assets
|
19,108 | (187,915 | ) | |||||
Assets
and liabilities of subsidiary spinoff on December 7, 2009
|
- | (19,385 | ) | |||||
Accounts
payable
|
92,208 | 342,685 | ||||||
Accrued
expenses
|
497,235 | 403,041 | ||||||
Accrued
interest
|
409,271 | 0 | ||||||
Net
cash provided by (used in) operating activities
|
(115,958 | ) | 251,470 | |||||
Cash
Flow from Investing Activities
|
||||||||
Proceeds
from disposal of property and equipment
|
- | 8,136 | ||||||
Intangible
asset additions
|
1,000 | - | ||||||
Net
cash provided by investing activities
|
1,000 | 8,136 | ||||||
Cash
Flow from Financing Activities
|
||||||||
(Decrease)
increase in debt, net
|
(209,157 | ) | (214,127 | ) | ||||
Proceeds
from private offering of stock, net of offering costs
|
109,990 | - | ||||||
Net
cash provided by (used in) financing activities
|
(99,167 | ) | (214,127 | ) | ||||
Increase
(decrease) in cash and cash equivalents
|
(225,846 | ) | 45,479 | |||||
Cash
and cash equivalents, beginning of period
|
246,725 | 19,612 | ||||||
Cash
and cash equivalents, end of period
|
$ | 20,879 | $ | 65,091 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Interest
paid
|
$ | 13,044 | $ | 43,078 | ||||
Income
taxes paid
|
$ | - | $ | - |
See
accompanying notes to consolidated financial statements.
6
ENVIRONMENTAL INFRASTRUCTURE
HOLDINGS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30,
2010
(Unaudited)
1. ENTITY AND
ORGANIZATION
Environmental
Infrastructure Holdings Corp. (“EIHC”, or the “Company”), was incorporated in
Delaware on November 5, 2009. The Company was formed to be the holding company
of XIOM Corp. (“XIOM”). See “Reorganization” below. The
Company is the successor issuer of XIOM for purposes of the Securities Act of
1933, as amended, and the filings made by XIOM thereunder. Pursuant to Rule
12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the
“Act”), the Company is the successor issuer of XIOM with respect to XIOM Common
Shares, which were registered pursuant to Section 12(g) of the Act. Pursuant to
such rule, the Company Common Shares may be deemed to be registered pursuant to
Section 12(g) of the Act.
Reorganization
On
December 7, 2009, XIOM reorganized into a holding company structure (the
“Reorganization”) whereby XIOM became a direct wholly owned subsidiary of the
Company pursuant to an Agreement and Plan of Merger pursuant to Section 251(g)
of the Delaware General Corporation Law (the “Merger Agreement”) dated as of
December 7, 2009, by and among the Company, XIOM and EIHC Merger Co. (“Merger
Sub”).
On
December 7, 2009, EIHC acquired Equisol, LLC (“Equisol”), a Pennsylvania limited
liability company established on April 25, 2003. EIHC is the product of a
reorganization as a holding company structure whereby the operating company XIOM
became a direct wholly owned subsidiary of the Company. EIHC issued 18,563,693
shares to the owners of Equisol and committed to issue 8,084,942 additional
shares so that the former owners of Equisol would own 40% of the fully diluted
shares of EIHC. Because outstanding shares were 24,372,407 at the time of the
acquisition, the sellers received the equivalent of 52% of the outstanding
shares of EIHC. In addition, most of the board members and management of EIHC
resigned at the time of the acquisition. Accordingly, the acquisition was
accounted for as a reverse merger of EIHC into Equisol. Results of operations
prior to the merger presented in these financial statements are those of
Equisol. Equisol’s equity prior to the merger has been retroactively restated
for the equivalent number of shares received in the merger. As part of the
merger agreement, Equisol spun off to its members its wholly-owned PDIR
subsidiary as of December 7, 2009. As a result, this subsidiary has been
accounted for as a discontinued operation in the comparative financial
statements. Also, in connection with the merger, the Company’s fiscal year end
was changed from September 30 to December 31.
Operations
From
offices located in Pennsylvania and Louisiana, Equisol and its subsidiaries
operate as an equipment solutions provider, delivering environmentally friendly
products, services, and engineering solutions to customers.
XIOM
sells thermal spray system equipment and related powder and other supplies to
customers from its New York location.
On July
16, 2004, Equisol’s subsidiary PD Acquisition, LLC (“PDIR”) acquired
the business and certain assets of an engineering company, Penn-Del,
Inc., for a total of approximately $477,790 in cash and 25,000 Class
A units of membership interest of Equisol (now 34,261 shares of EIHC Common
Stock).
On March
1, 2006, Equisol’s subsidiary Gulf States Acquisition, LLC (“Gulf States”),
acquired a 100% stock ownership interest in an engineering company, Gulf States
Chlorinator & Pump Inc. (“GSCP”) for $350,000 in cash.
On August
29, 2007, Equisol’s subsidiary Gulf State Acquisition, LLC acquired a
100% stock ownership in an engineering company, Electrical &
Instrumentation, Inc. (“E&I”), for 104,607 Class A Units of membership
interest of Equisol (now 143,359 shares of EIHC common stock). Thereafter, the
acquired company’s operations were included with Equisol’s operations and the
acquiree filed a final income tax return for the period January 1, 2007 to
August 29, 2007. In February 2010, the E&I division of Equisol ceased
operations (see Note 9).
7
Interim
Financial Statements
The
unaudited consolidated financial statements and notes are presented as permitted
by Form 10-Q. These consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Certain information and footnote
disclosures, normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles, have been omitted
pursuant to such SEC rules and regulations. The accompanying
consolidated financial statements at September 30, 2010 and for the three and
nine month periods ended September 30, 2010 and 2009 are unaudited, but include
all adjustments, consisting of normal recurring entries, which the Company’s
management believes to be necessary for a fair presentation of the periods
presented. Interim results are not necessarily indicative of results for a full
year. The consolidated balance sheet as of December 31, 2009, is derived from
statements included in the Company’s Form 10-K filed with the SEC on September
24, 2010. The consolidated financial statements should be read in conjunction
with the Company’s consolidated financial statements in that Form 10-K. The
Company’s operating results will fluctuate for the foreseeable future.
Therefore, period-to-period comparisons should not be relied upon as predictive
of the results in future periods.
2. ACCOUNTING
POLICIES
Principles
of Consolidation
The
consolidated balance sheets at September 30, 2010 include the accounts of EIHC
and its wholly-owned subsidiaries Equisol (including Equisol’s Gulf States
subsidiary) and XIOM Corp.. The consolidated statements of operations and cash
flows for the nine months ended September 30, 2010 include the accounts of EIHC,
Equisol, and XIOM. The consolidated statements of operations and cash
flows for the nine months ended September 30, 2009 include the accounts of
Equisol and the discontinued operation. All significant intercompany balances
and transactions have been eliminated in consolidation.
New
Accounting Pronouncements
As of
September 30, 2010, the FASB has issued Accounting Standards Updates (ASU)
through No. 2010-26. None of the ASUs have had a material impact on the
Company’s financial statements.
Loss Per Share
The
Company follows Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) topic 260, “Earnings per Share”, which requires
presentation of basic earnings per share (“Basic EPS”) and diluted earnings per
share (“Diluted EPS”) by all publicly traded entities, as well as entities that
have made a filing or are in the process of filing with a regulatory agency in
preparation for the sale of securities in a public market.
Basic EPS
is computed by dividing net income or loss available to common shareholders by
the weighted average number of common shares outstanding during the period. The
computation of Diluted EPS gives effect to all potentially dilutive common
shares during the period. The computation of Diluted EPS does not assume
conversion, exercise or contingent exercise of securities that would have an
antidilutive effect on earnings. For the nine months ended September 30, 2010
and 2009, the diluted loss per common share calculation excluded the following
potentially dilutive securities:
Common Shares Equivalent
|
||||||||
Nine months ended September 30,
|
||||||||
2010
|
2009
|
|||||||
Convertible
notes payable (see Note 9)
|
4,499,036 | 483,688 | ||||||
Stock
options (see Note 11)
|
5,586,500 | - | ||||||
Common
stock purchase warrants (see Note 11)
|
3,653,916 | - | ||||||
Total
|
13,739,452 | 483,688 |
8
Reclassifications
Certain
prior period amounts have been reclassified to conform with current period
presentation.
3. ACQUISITION
OF EIHC
As noted
above, on December 7, 2009, EIHC (legal acquirer) acquired Equisol and its
subsidiaries (legal acquiree) in a transaction which has been accounted for in
the accompanying financial statements as a reverse merger. As a result, the
financial position and results of operations of EIHC and its subsidiary XIOM
prior to the date of the acquisition have been excluded from the accompanying
financial statements, and the results of operations presented for the three and
six months ended June 30, 2009 are for Equisol and its
subsidiaries.
In
connection with the merger, Equisol members received 18,563,693 shares and are
entitled to receive an additional 8,084,942 shares. At the closing price on the
date of acquisition, this represented consideration of $7,728,104.
The
estimated fair values of the identifiable net assets of EIHC (and XIOM) at
December 7, 2009 (date of acquisition) consisted of:
Cash
and cash equivalents, including $268,975 held in escrow from XIOM private
placement offering
|
$ | 348,028 | ||
Accounts
receivable (net of allowance for doubtful accounts of
$85,000)
|
17,614 | |||
Stock
subscription receivable (collected December 8, 2009)
|
204,975 | |||
Inventory
|
178,584 | |||
Prepaid
expenses and other current assets
|
22,562 | |||
Property
and equipment, net
|
167,263 | |||
Patents
|
2,400 | |||
Retainage
receivable
|
51,851 | |||
Investment
in and advances to investee
|
50,000 | |||
Security
deposits
|
11,445 | |||
Total
assets
|
1,054,722 | |||
Current
portion of debt
|
1,819,311 | |||
Accounts
payable
|
416,783 | |||
Accrued
expenses
|
276,107 | |||
Accrued
compensation
|
150,000 | |||
Accrued
interest
|
373,426 | |||
Total
liabilities
|
3,035,627 | |||
Identifiable
net assets
|
$ | (1,980,905 | ) |
Goodwill
of $7,099,110 (excess of the $5,118,205 estimated fair value, based on the stock
trading price on the date of the acquisition, of the 24,372,407 shares retained
by EIHC (formerly XIOM) shareholders over the $1,980,905 negative identifiable
net assets of XIOM) was recorded at the December 7, 2009 acquisition date. As
the Company believed that the estimated fair value of the goodwill recorded by
EIHC was $0, the entire $7,099,110 goodwill was written off as an impairment
loss on the December 7, 2009 acquisition date.
The
following pro forma information summarizes the results of operations for the
nine months ended September 30, 2009 as if the acquisition occurred at December
31, 2008. The pro forma information is not necessarily indicative of the results
that would have been reported had the transaction actually occurred on December
31, 2008, nor is it intended to project results of operations for any future
period.
9
Pro
Forma
|
||||
Revenues
|
$ | 4,423,566 | ||
Cost
of Revenues
|
3,037,664 | |||
Gross
profit
|
1,385902 | |||
Selling,
general and administrative expenses
|
4,465,273 | |||
Operating loss
|
(3,079,371 | ) | ||
Interest
expense, net
|
(811,098 | ) | ||
Loss
from continuing operations before income tax provision
|
(3,890,469 | ) | ||
Income
tax provision
|
- | |||
Loss
from continuing operations
|
(3,890,469 | ) | ||
Income
from discontinued operations, net of income tax
|
(7,086 | ) | ||
Net
loss
|
$ | (3,883,383 | ) | |
Diluted
loss per common share
|
$ | (0.10 | ) |
4. INVENTORY
Inventory
consisted of the following as of September 30, 2010 and December 31,
2009:
2010
|
2009
|
|||||||
Parts
and supplies
|
109,128 | 267,775 | ||||||
Coating
powders
|
57,893 | 77,204 | ||||||
Finished
goods
|
106,834 | 6,509 | ||||||
Total
Inventory
|
273,855 | 351,488 |
5. PROPERTY
AND EQUIPMENT
Property
and equipment, net, consisted of the following as of September 30, 2010 and
December 31, 2009:
2010
|
2009
|
||||||||||
Useful
|
|||||||||||
Life
-
|
|||||||||||
Years
|
|||||||||||
Machinery
and equipment
|
5-10
|
163,219 | 181,596 | ||||||||
Vehicles
|
3-5
|
28,411 | 56,998 | ||||||||
Office
equipment
|
3-5
|
27,926 | 24,642 | ||||||||
Furniture
and fixtures
|
5-7
|
12,430 | 17,952 | ||||||||
Computer
software
|
5-7
|
27,861 | 27,861 | ||||||||
Leasehold
improvements
|
5-31.5
|
112,455 | 112,455 | ||||||||
372,302 | 421,504 | ||||||||||
Less
accumulated depreciation and amortization
|
(228,746 | ) | (246,765 | ) | |||||||
Net
property and equipment
|
143,556 | 174,739 |
Depreciation
and amortization of property and equipment for the nine months ended September
30, 2010 and 2009 was $31,183
and $8,484 respectively.
10
6. GOODWILL
AND OTHER INTANGIBLE ASSETS
Intangible
assets, net, consisted of the following as of September 30, 2010 and December
31, 2009:
2010
|
2009
|
|||||||
Goodwill:
|
||||||||
Acquisition
of EIHC (formerly XIOM) on December 7, 2009
|
$ | 7,099,110 | $ | 7,099,110 | ||||
Impairment
recognized on acquisition of EIHC
(formerly XIOM)
|
$ | (7,099,110 | ) | $ | (7,099,110 | ) | ||
Net
|
- | - | ||||||
Acquisition
of Gulf States Chlorinator & Pump Inc. on March 1,
2006
|
237,464 | 237,464 | ||||||
Other
Intangible Assets:
|
||||||||
Trade
name and customer accounts:
|
||||||||
Acquisition
of intangible assets of Kerrigan
|
||||||||
Dupree,
Inc. on April 17, 2007
|
60,000 | 60,000 | ||||||
Accumulated
amortization
|
(20,500 | ) | (16,000 | ) | ||||
Net
|
39,500 | 44,000 | ||||||
Patent
costs:
|
||||||||
XIOM
Corp. thermal spray technology
|
11,851 | 7,851 | ||||||
Accumulated
amortization
|
- | - | ||||||
Net
|
11,851 | 7,851 | ||||||
Intangible
assets, net
|
$ | 288,815 | $ | 289,315 |
Goodwill
is not amortized but is reviewed for impairment at least annually. The trade
name and customer accounts and the patent costs are amortized over their
estimated economic lives of 10 years. Expected future amortization of intangible
assets for the years ending September 30, 2011, 2012, 2013, 2014, and 2015 is
$7,185.
7. RETAINAGE
RECEIVABLE
Retainage
receivable represents the cumulative amount held-back by the customer from each
percentage-of-completion billing pursuant to long-term contracts. Such amounts
are payable to the Company upon the completion of each contract and final
customer approval.
8. INVESTMENT
IN AND ADVANCES TO PUBLICLY TRADED INVESTEE
Investment
in and advances to publicly traded investee, net, consisted of the following as
of September 30, 2010 and December 31, 2009:
Advances
to Structural Enhancement Technologies Corp., formerly Extreme Mobile
Coatings Worldwide Corp. (“EMWW”), under a delinquent 5% promissory note
that was due April 10, 2010 as extended
|
$ | 158,500 | ||
Investment
in EMWW (21% of issued and outstanding shares of EMWW at December 31,
2009)
|
- | |||
Allowance
for recoverability provided for by XIOM Corp prior to its acquisition by
the Company
|
(108,500 | ) | ||
Net
|
$ | 50,000 |
EMWW is a
publicly traded development stage company whose business plan was to establish
franchises to market, use, and sell coating products and equipment licensed from
XIOM. The chairman of the board of directors of EMWW was the chief executive
officer of XIOM to October 30, 2009. The executive vice president (and also a
director and significant stockholder) of EMWW was a director of EIHC from
December 7, 2009 to June 17, 2010 and a corporation controlled by him was a
consultant to XIOM prior to December 7, 2009.
At
December 31, 2009, XIOM owned 451,193 (as adjusted for the 1 for 100 reverse
stock split on 19 May 2010) shares of common stock of EMWW, or 21% of the
2,145,094 post reverse stock split shares of EMWW common stock issued and
outstanding. At December 31, 2009, EMWW had a stockholders’ deficit
of $1,326,930 and a closing stock price of $1.80 per share (as adjusted for the
1 for 100 reverse stock split on May 19, 2010). It incurred a net loss for the
year ended December 31, 2009 of $966,788, and had cumulative losses of
$1,817,353 at that date. At December 31, 2009, accounts receivable includes
$19,501 due from EMWW.
11
In its
filings with the Securities and Exchange Commission, EMWW reported that on
February 12, 2010, EMWW issued 110,000 shares of common stock (post reverse
stock split) to EIHC as a principal payment of $55,000 on the Note, and on March
4, 2010, EMWW issued 107,000 shares of common stock (post reverse stock split)
to EIHC as a principal payment of $53,500 on the Note payable to XIOM; however,
neither XIOM nor EIHC has any knowledge of this, has not received any additional
shares from EMWW, nor has released or acknowledged any satisfaction of $108,500
of the principal on the note. Based upon the most recently available public
information, the Executive Vice President of EMWW, who was also a director of
EIHC held approximately 15% of the common stock of EMWW at June 30, 2010. At
June 30, 2010, EMWW had a stockholders’ deficit of $543,154 and a closing stock
price of $0.33 per share. It incurred a loss from operations of $1,460,076 for
the six months ended June 30, 2010. Revenues of EMWW from its inception have
been nominal.
9. DEBT
Debt
consisted of the following at September 30, 2010 and December 31,
2009:
2010
|
2009
|
|||||||
Equisol:
|
||||||||
Due bank under
revolving line of credit, interest at prime rate plus 1%,
due in May, 2010 pursuant to annual ‘clean-up” provision,
secured by Equisol assets, right of offset and
personal guaranties of two officers of the Company
and their spouses. The balance owing of $400,000 under this line of credit
was substantially satisfied by cash advances received by it in August 2010
from the Company’s spun-off PDIR/ Penn-Del subsidiary for which Equisol
executed a $400,000 promissory note in favor of PDIR LLC due in 4 equal
annual installments of $100,000 plus accrued interest thereon at a rate of
8% per annum (overdue principal at 12% per annum). The Equisol promissory
note executed in favor of PDIR is secured by all the assets of Equisol,
which total $259,414 at September 30, 2010 (the most recent date for which
such information is available at the date of issuance of these financial
statements).
|
$ | 79,020 | $ | 400,000 | ||||
Due
another bank under E&I revolving line of credit, interest
at 6.05% (default rate of 18%) due June 29, 2010, secured by accounts
receivable of E&I ($0 at June 30, 2010 ) and by a right of setoff
related to cash held at this bank. At September 30, 2010, this bank held
personal guaranties of the former owners of E&I; On
February 25, 2010, the remaining balance due under this line of credit was
paid down to $0 by the Company. However, the former owners of
E&I have retained borrowing authority under the line of credit and new
borrowings have continued to occur since that date. To the date of the
financial statements, known borrowings under the line of credit in
E&I’s name have been $29,000 was borrowed, the proceeds of which were
used to satisfy the $46,852 listed below in this table as due to the
former owners at December 31, 2009, in a similar self-reimbursement to
that of approximately $70,000 made by them from the line in
2008. In March 2010, the former owners also reimbursed
themselves $8,200, of which $3,496 was applied to reduce the amount due
them by the Company and $4,704 represented expenses paid claimed by them
as reimburseable Company expense. Legal counsel to the Company
is not aware of, nor has Company management advised them of any formal
litigation that has been commenced by the former owners or of claims made
against the Company, if any, by the former owners or related matters of
financial consequence arising out of day to day operations of
E&I prior to its cessation in 2010. The Company
believes its financial exposures concerning the former owners is likely
limited to the extent of the remainder due of the $46,852. Management of
the Company has indicated it is legally dissolving E&I which has
already merged out of existence for income tax purposes.
|
22,749 | 150,000 |
12
Convertible
debt due related parties and others, interest at 8%, due January 2007
through October 2010, secured by all Equisol assets under a lien junior to
that of the $400,000 bank line of credit loan, convertible into Equisol
membership units (net of unamortized discounts of $2,282 and
$3,769, respectively).
|
515,010 | 214,254 | ||||||
Loan
payable to chief executive officer of the Company, interest at
8%, due on demand.
|
145,581 | 145,581 | ||||||
Loan
payable to former owners of E & I, interest at 0%, due on demand.
(see the related discussion above in this table related to the
balance due of $150,000 at December 31, 2009 under the revolving line of
credit with another
bank).
|
14,357 | 46,852 | ||||||
Gulf
States:
|
||||||||
SBA
guaranteed loan payable to financial institution, interest at prime rate
plus 2.75%, due in monthly installments of principal and interest of
$5,000 with balance due on May 31, 2016, secured by guaranties of Equisol,
and two officers of the Company, certain personal property, and
certain real property owned by two officers of the Company. The loan
requires, among other things, prior lender written consent concerning
transfer or disposal of Company assets, payment of distributions, or
changes in ownership structure during the period the loan is
outstanding
|
252,637 | 289,446 | ||||||
Vehicle
loans
|
1,105 | 2,259 | ||||||
EIHC:
|
||||||||
Loan
payable to financial institution for insurance premium financing, interest
at 10.6%, due in 7 monthly installments of principal and interest of
$1,311 from March 2010 to September 2010
|
8,707 | 8,707 | ||||||
XIOM:
|
||||||||
Convertible
notes sold to investors in 2007, interest at 7% (default rate of 15%),
originally due April 2012 (but acceleratable since required Registration
Statement was not declared effective by June 2008, one year from the final
closing date of the related private offering), convertible at a conversion
price of $1.50 per share (a)
|
940,000 | 940,000 |
13
Convertible
note sold to investor in April 2008, interest at 7%, due March 2010,
convertible at a conversion price of $1.50 per share – in technical
default
|
500,000 | 500,000 | ||||||
Convertible
notes sold to investors from June 2009 to August 2009, interest at 100%,
due from December 2009 to February 2010, convertible at a conversion price
equal to 75% of the 30 day moving average of the closing price
of the Company’s common stock immediately prior to such conversion – in
technical default
|
350,000 | 350,000 | ||||||
Loan
payable to former Chief Executive Officer of XIOM, interest at 0%, due on
demand
|
43,088 | 29,310 | ||||||
Total
|
2,872,253 | 3,076,410 | ||||||
Less
current portion of debt
|
(2,536,993 | ) | (2,830,789 | ) | ||||
Long
term portion of debt
|
$ | 335,260 | $ | 245,621 |
(a) In
December 2009, XIOM received a notice from holders of $820,000 of the
convertible notes sold to investors in 2007 indicating that XIOM was in default
and demanding payment of the face amount and all accrued and unpaid
interest.
Maturities
of the debt as of September 30, 2010 for the next five years and thereafter are
as follows:
Year ending
September 30,
|
||||
2011
|
$ | 2,623,942 | ||
2012
|
46,537 | |||
2013
|
49,398 | |||
2014
|
52,445 | |||
2015
|
55,680 | |||
Thereafter
|
20,078 | |||
Total
|
$ | 2,848,080 |
Accrued
interest on debt consisted of the following at September 30, 2010 and December
31, 2009:
2010
|
2009
|
|||||||
XIOM
convertible notes
|
$ | 803,296 | $ | 407,013 | ||||
Equisol
loan payable to chief executive officer of the Company
|
75,005 | 66,269 | ||||||
Equisol
convertible debt
|
26,322 | 22,070 | ||||||
Total
|
$ | 904,623 | $ | 495,352 |
Interest
expense incurred for the nine months ended September 30, 2010 and 2009 is
summarized as follows:
2010
|
2009
|
|||||||
Equisol
|
$ | 30,968 | $ | 45,288 | ||||
Gulf
States
|
13,393 | 15,734 | ||||||
XIOM
convertible notes
|
396694 | - | ||||||
Total
|
$ | 437,129 | $ | 61,022 |
As
previously disclosed, the Company’s XIOM
subsidiary received a letter on December 22, 2009 from certain of its
noteholders notifying of an Event of Default and demanding repayment in full,
along with accrued and unpaid interest. XIOM does not have sufficient funds to
repay the notes, and it is the position of management that EIHC is not
responsible for the debt. Discussions with the noteholders for a resolution are
continuing.
14
10. COMMON
STOCK
As
described in Note 1, the acquisition of Equisol on December 7, 2009 was
accounted for as a reverse merger of EIHC into Equisol. Accordingly, the
accompanying financial statements reflect issued shares and shares committed to
be issued at December 31, 2009 and prior to the reverse merger based on the
number of shares issued (18,563,693 shares) and committed to be issued
(8,084,942 shares), or 26,648,635 shares total, to Equisol members on December
7, 2009 pursuant to the reverse merger and exclude EIHC (formerly XIOM Corp.)
equity transactions prior to the reverse merger on December 7, 2009. The fair
value of the issued shares (23,247,407 shares) and shares committed to be issued
(1,125,000 shares), or 24,372,407 shares total, relating to the shares retained
by EIHC (formerly XIOM Corp.) shareholders pursuant to the reverse merger on
December 7, 2009 has been reflected as consideration for the reverse purchase of
XIOM at December 7, 2009 (see Note 3).
The
24,372,407 shares retained by EIHC (formerly XIOM Corp.) shareholders at
December 7, 2009 increased from 18,722,357 shares issued and committed to be
issued at September 30, 2009, as follows:
Issued
and committed to be issued shares at September 30, 2009
|
18,722,357 | |||
Shares
issued for services by XIOM former chief executive officer and consultants
coincident to completing reverse merger with an estimated value of
$748,516 based on the stock trading price
|
2,250,050 | |||
Shares
sold at $0.20 per share to a convertible note holder of XIOM
(a)
|
2,300,000 | |||
Shares
sold at $0.25 per share (b)
|
1,100,000 | |||
Issued
and committed to be issued shares at December 7, 2009
|
24,372,407 |
(a) $250,000
of the proceeds from the sale of the 2,300,000 shares of $460,000 were received
by XIOM prior to December 7, 2009, while $204,975, net of offering costs of
$5,025, was received by the Company on December 8, 2009.
At
December 31, 2009, the XIOM convertible note holder holding the 2,300,000 shares
also holds $125,000 of notes sold to investors from June 2009 to August 2009
that were due between December 2009 and February 2010, with a conversion price
equal to 75% of the 30 day moving average of the closing price of the Company’s
common stock prior to such conversion. These convertible notes entitled him to
receive 457,038 shares of common stock if the conversion had taken place at
December 31, 2009.
(b) On
October 15, 2009, XIOM commenced a private placement whereby it planned to sell
a minimum of $250,000 and a maximum of $2,000,000 of its $.0001 Par Value Common
Stock to accredited investors at a subscription price of $0.25 per unit, which
unit included one share of common stock and one warrant to purchase its common
stock at $.75 per share. Under the offering, the warrants to purchase common
stock are callable if the trading price of the shares close at a price of $1.50
per share for 30 consecutive days. Prior to December 7, 2009, proceeds of
$275,000 from subscribers were deposited into escrow, representing 1,100,000
shares issuable under the offering. From December 7, 2009 to December 31, 2009,
another $100,000 was deposited into escrow, representing 400,000 shares issuable
under the offering. Subsequent to December 31, 2009, $110,000 was deposited into
escrow from subscribers, representing 440,000 shares issuable under the
offering.
Below is
a summary of the private placement made by XIOM coincident to the reverse
merger:
Date deposited into
Escrow
|
Shares of
Common
Stock Sold at
$0.25 per
share
|
Gross
Proceeds
of the
Offering
|
Offering
Costs
|
Net
Proceeds
|
||||||||||||
Prior
to December 7, 2009
|
1,100,000 | $ | 275,000 | $ | 6,025 | $ | 268,975 | |||||||||
From
December 7, 2009 to December 31, 2009
|
400,000 | 100,000 | 39,650 | 60,350 | ||||||||||||
Through
December 31, 2009
|
1,500,000 | 375,000 | 45,675 | 329,325 | ||||||||||||
January
1, 2010 to February 18, 2010
|
440,000 | 110,000 | 10 | 109,990 | ||||||||||||
Total
|
1,940,000 | $ | 485,000 | $ | 45,685 | $ | 439,315 |
15
For the
period December 7, 2009 to December 31, 2009, proceeds from XIOM private
placement offerings, net of offering costs, consisted of:
Shares
sold at $0.20 per shares to a convertible note holder of
XIOM
|
$ | 204,975 | ||
Shares
sold at $0.25 per share in private placement
|
60,350 | |||
Total
|
$ | 265,325 |
Coincident
to the reverse merger on December 7, 2009, one of Equisol’s convertible debt
holders (the father of the Chief Executive Officer of Equisol – see Note 13 -
Employment Agreements) converted $150,000 of Debt into 483,688 shares of EIHC
common stock (equivalent to 352,941 membership units of Equisol).
From
December 7, 2009 (after the reverse merger) to December 31, 2009, the Company
sold a total of 400,000 shares of EIHC common stock to investors at a price of
$0.25 per share for gross proceeds of $100,000. After deducting costs of $39,650
relating to the related private placement, net proceeds to the Company were
$60,350. In connection with these sales, the investors received a total of
400,000 warrants exercisable into up to 400,000 shares of common stock at an
exercise price of $0.75 per share to December 31, 2012.
Effective
January 15, 2010, the Company issued 244,444 shares of its common stock to the
daughter of the former chief executive officer of XIOM (to October 31, 2009)
pursuant to a cashless exercise of 300,000 stock options which had been granted
to her in May 2009.
Effective
January 15, 2010, the Company committed to issue 150,000 shares of its common
stock (issued September 15, 2010) to a consultant for services
rendered. The $40,500 fair value of the shares was included in
selling, general and administrative expenses in the three months ended March 31,
2010.
Effective
February 17, 2010, the Company issued 211,765 shares of its common stock to a
former consultant to XIOM pursuant to a cashless exercise of 300,000 stock
options which had been granted to him in May 2009.
On March
30, 2010, the Company issued 250,000 shares of its common stock to the former
chief executive of XIOM (to October 31, 2009) for services
rendered. The $42,500 fair value of the shares was included in
selling, general and administrative expenses in the three months ended March 31,
2010.
Effective
January 31, 2010, February 28, 2010, and June 30, 2010, the Company committed to
issue a total of 253,382 shares of its common stock (issued September 15, 2010)
pursuant to the three employment agreements discussed in Note 13. The
$54,838 fair value of the shares was included in selling, general and
administrative expenses in the three months ended March 31, 2010.
Effective
September 20, 2010, the Company issued 250,000 shares of its common stock for
consulting services rendered. The $10,000 fair value of the shares
was included in Selling, General, and Administrative expenses in the three
months ended September 30, 2010.
Of the
9,268,797 shares committed to be issued at June 30, 2010, 1,123,855 shares were
issued in September 2010. The remaining 8,144,942 shares committed to be issued
will be issued once the Company increases its authorized number of shares of
common stock.
16
11. STOCK
OPTIONS AND COMMON STOCK PURCHASE WARRANTS
A summary
of stock option and warrant activity for the year ended December 31, 2009 and
for the nine months ended September 30, 2010 follows:
Common Shares Equivalent
|
||||||||
Stock Options
|
Warrants
|
|||||||
Outstanding
at December 31, 2008
|
- | - | ||||||
Prior
XIOM grants honored in connection with reverse
|
||||||||
Merger
with Equisol on December 7, 2009
|
6,186,500 | 3,253,916 | ||||||
Granted
and issued (see Note 10)
|
- | 400,000 | ||||||
Exercised
|
- | - | ||||||
Forfeited/
expired/ cancelled
|
- | - | ||||||
Outstanding
at December 3, 2009
|
6,186,500 | 3,653,916 | ||||||
Granted
and issued (see Note 10)
|
- | - | ||||||
Exercised
|
(456,209 | ) | - | |||||
Forfeited/
expired/ cancelled
|
(143,791 | ) | - | |||||
Outstanding
at September 30, 2010
|
5,586,500 | 3,653,916 |
Stock
options outstanding at September 30, 2010 follow:
Granted in
Year Ended
|
Number
Outstanding
|
Exercise
|
Expiration
|
||||||
December 31,
|
and Exercisable
|
Price
|
Date
|
||||||
2005
|
67,500
|
$
|
0.25
|
September
30, 2010
|
|||||
2006
|
214,000
|
$
|
0.50
|
February
28. 2011
|
|||||
2006
|
350,000
|
$
|
0.58
|
October
14, 2011
|
|||||
2007
|
250,000
|
$
|
0.42
|
July
5, 2012
|
|||||
2007
|
300,000
|
$
|
0.42
|
August
14, 2012
|
|||||
2007
|
30,000
|
$
|
1.25
|
August
30, 2012
|
|||||
2007
|
525,000
|
$
|
0.50
|
October
15, 2012
|
|||||
2008
|
300,000
|
$
|
1.05
|
February
19, 2013
|
|||||
2008
|
500,000
|
$
|
0.42
|
February
29, 2013
|
|||||
2009
|
1,500,000
|
$
|
0.25
|
February
27, 2014
|
|||||
2009
|
750,000
|
$
|
0.50
|
March
23, 2014
|
|||||
2009
|
500,000
|
$
|
0.75
|
March
23, 2014
|
|||||
2009
|
300,000
|
$
|
0.05
|
May
26, 2014
|
|||||
Total
|
5,586,500
|
Warrants
outstanding at September 30, 2010 follow:
Issued in Year Ended
|
Number Outstanding
|
Exercise
|
Expiration
|
||||||
December 31,
|
and Exercisable
|
Price
|
Date
|
||||||
2007
|
666,666 | $ | 2.00 |
June
2012
|
|||||
2007
|
666,666 | $ | 2.50 |
June
2012
|
|||||
2007
|
154,667 | $ | 1.00 |
June
2012
|
|||||
2007
|
154,667 | $ | 1.25 |
June
2012
|
|||||
2008
|
250,000 | $ | 1.50 |
March
2013
|
|||||
2008
|
250,000 | $ | 1.80 |
March
2013
|
|||||
2008
|
6,250 | $ | 2.00 |
March
2013
|
|||||
2008
|
5,000 | $ | 2.50 |
March
2013
|
|||||
2009
|
1,100,000 | $ | 0.75 |
December
31, 2012
|
|||||
2009
|
400,000 | $ | 0.75 |
December
31, 2012
|
|||||
Total
|
3,653,916 |
17
12. INCOME
TAXES
For 2008
and prior years, Equisol, GSCP, XIOM, and PDIR have filed separate federal and
state income tax returns; returns for 2009 have not yet been filed. Equisol and
PDIR have filed their returns as partnerships and as such their federal taxable
income (loss) has been allocated and taxed to their members and were not taxable
to Equisol and PDIR. For income taxes, GSCP has used February 28 as its yearend
and XIOM has used September 30 as its yearend.
For nine
months ended September 30, 2010 and 2009, the income tax provision consisted
of:
2010
|
2009
|
|||||||
GSCP
- Federal income tax
|
$ | - | $ | 5,524 | ||||
GSCP
– State income tax
|
- | 1,466 | ||||||
Equisol
– State income tax
|
- | - | ||||||
Total
|
$ | - | $ | 6,990 |
For the
nine months ended September 30, 2010 and 2009, the income tax provision differed
from the amount computed by applying the statutory United States federal income
tax rate of 35% to income (loss) from continuing operations before income tax
provision. The sources of the difference follow:
2010
|
2009
|
|||||||
Expected
tax at 35%
|
$ | (299,676 | ) | $ | (91,915 | ) | ||
Nondeductible
impairment of stock-based compensation
|
67,493 | - | ||||||
Tax
effect of Equisol taxation as a
|
||||||||
partnership
|
32,215 | 87,307 | ||||||
Change
in EIHC and XIOM valuation
|
||||||||
allowance
|
217,518 | - | ||||||
Other
|
(17,550 | ) | 4,608 | |||||
State
income tax
|
- | - | ||||||
Actual
income tax provision
|
$ | - | $ | - |
As of
September 30, 2010 and December 31, 2009, EIHC and XIOM had net operating loss
carryforwards of approximately $6,621,000
and $6,000,000, respectively, which expire at various dates through
2030.
Changes
in the ownership of EIHC and XIOM that have occurred in the past or that could
occur in the future may limit the future utilization of these net operating loss
carryforwards pursuant to federal and state tax statutes and
regulations. The amount of such limitations, if any, have not been
quantified by the Company.
At
September 30, 2010 and December 31, 2009, the Company maintained a full
valuation allowance against the gross deferred tax asset arising from the net
operating and capital loss carry forwards because, in management’s opinion at
this time, it is more likely than not, such benefits will not be realized during
the respective carryforward periods.
At
September 30, 2010 and December 31, 2009, the net deferred tax asset consists
of:
2010
|
2009
|
|||||||
Deferred
tax asset relating to net operating loss carry forwards of EIHC and
Xiom
|
$ | 2,317,350 | $ | 2,100,000 | ||||
Valuation
Allowance
|
(2,317,350 | ) | (2,100,000 | ) | ||||
Deferred
tax asset, net
|
$ | - | $ | - |
18
13. COMMITMENTS
AND CONTINGENCIES
LEASES
The
Company’s subsidiaries lease office, manufacturing and warehouse space pursuant
to various leases. Rent expense for the nine months ended September 30, 2010 and
2009 was approximately $95,227
and $47,082, respectively.
On
January 13, 2010, GSCP executed a lease agreement for office and warehouse space
in Baton Rouge, Louisiana for a term of five years from February 1, 2010 to
January 31, 2015 at a base rent of $1,950 per month. Under the lease agreement,
GSCP has an option to renew the lease for two additional terms of three years
each at base rent plus 4% increases per year.
At
September 30, 2010, the minimum payments under operating leases for the next
five years and thereafter are as follows:
Year ending September 30,
|
||||
2011
|
$ | 23,400 | ||
2012
|
23,400 | |||
2013
|
23,400 | |||
2014
|
23,400 | |||
2015
|
13,650 | |||
Thereafter
|
- | |||
TOTAL
|
$ | 107,250 |
EMPLOYMENT
AGREEMENTS
Coincident
with the acquisition of an engineering company on March 1, 2006, Equisol
executed two employment agreements with the seller and his brother (the
“Executives”) to serve as officers of the acquired company for initial terms of
five years. The agreements automatically renew for one year terms unless either
party provides 60 days prior written notice not to renew. Each of the two
agreements provides for a base salary of at least $60,000 per year and annual
payments equal to 25% of Net Income of the acquired company, as defined. Under
the agreements, the Executives have agreed during the term of the agreements and
for a period of two years following the Date of Termination not to compete or
interfere with the Company’s business.
In
December 2009 and January 2010, the Company, Equisol, and XIOM executed three
employment agreements with the three chief executive officers of EIHC, Equisol,
and XIOM, respectively.
The
agreement with EIHC’s chief executive officer has a term of two years and
provides for a base salary of $175,000 per year, annual stock grants equal to
$100,000, a fixed bonus of no less than $175,000 per year, and two fully vested
exercisable stock options to purchase 10% of the then issued and outstanding
common stock of the Company on each of the two dates that the Company attains
annual revenues of $20,000,000 and $30,000,000 (at an exercise price equal to
the market price on the date of the grant). The agreement provides for fringe
benefits such as Company paid life insurance and 401(K) plan participation. It
also contains provisions related to termination of the executive, whom may be
entitled to a cash payment over 24 months equal to twice his base pay under
certain circumstances.
The
agreement with Equisol’s chief executive officer has a term of three years and
provides for a base salary of $100,000 per year and annual stock grants equal to
$50,000. The agreement also provides for certain fringe benefits.
The
agreement with XIOM’s chief executive officer has a term of three years and
provides for a base salary of $120,000 per year, annual stock grants equal to
$30,000, a bonus of no less than 1% of XIOM’s net income per year, and signing
grants of 250,000 stock options (to vest 20% per year of service), and 500,000
additional stock options (to vest 20% each year that XIOM gross revenues exceed
$10,000,000). The agreement also provides for certain fringe benefits. It also
contains provisions related to termination of the executive, whom may be
entitled to receive a quarter of his base compensation under certain
circumstances.
LEGAL
PROCEEDINGS
From time
to time, the Company and its subsidiaries are parties to legal proceedings that
arise in the normal course of business. We accrue for these items as losses
because probable and can be reasonably estimated. While the outcome of these
proceedings cannot be predicted with certainty, management believes that the
outcome will not have a material adverse effect on the Company’s consolidated
financial position or results of operations.
19
On August
4, 2010, two former officers of Equisol’s Gulf States Chlorinator & Pump
subsidiary, filed a complaint seeking to terminate their employment
agreement for good cause and unspecified damages. On October 5th, 2010,
Equisol filed a Reconventional Demand against the former officers alleging,
among other things, breach of contract and amended the same on October 27th,
2010. Discovery has been initiated and depositions are scheduled for
December 2010.
14. GOING
CONCERN
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal course of
business. As shown in the financial statements as of September 30, 2010, the
Company has a total Stockholders’ Deficit of $4,018,974 and negative working
capital of $4,219,443. Additionally, the Company incurred a Net Loss of
$1,104,521 for the nine months ended September 30, 2010. These
factors raise substantial doubt about the Company’s ability to continue as a
going concern.
Management
will not be able to meet its operating cash flow requirements using cash on hand
or existing debt facilities. The Company’s XIOM subsidiary is experiencing
losses, and has not been able to pay its notes payable as they became due. The
Company needs to raise additional funds to complete the commercialization of
XIOM’s product line, and to restructure XIOM’s debt.
The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence. The Company will continue seeking to raise money
through a series of equity and debt transactions in 2010.
15. DISCONTINUED
OPERATION
As
described in Note 1, Equisol spun off its PDIR subsidiaries to Equisol’s members
prior to the merger with EIHC on December 7, 2009. Accordingly, this operation
has been presented as a discontinued operation in the accompanying consolidated
financial statements for the nine months ended September 30, 2009.
For the
nine months ended September 30, 2009, income (loss) from discontinued operation
consisted of:
2009
|
||||
Revenues
|
$ | 1,316,484 | ||
Cost
of revenues
|
(677,147 | ) | ||
Gross
profit
|
639,337 | |||
Selling,
general and administrative expenses
|
(623,251 | ) | ||
Operating
income
|
16,086 | |||
Interest
expense
|
(9,000 | ) | ||
Income
(loss) before income tax provision
|
7,086 | |||
Income
tax benefit (provision)
|
-
|
|||
Income
(loss) from discontinued operation
|
$ | 7,086 |
20
The
assets and liabilities of the company spun off at December 7, 2009 (date of
spinoff) and December 31, 2008 consisted of:
December 7,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 18,947 | $ | 16,541 | ||||
Accounts
receivable, net
|
538,358 | 422,717 | ||||||
Inventory
|
15,972 | 15,972 | ||||||
Prepaid
expenses and other current assets
|
5,098 | 15,199 | ||||||
Total
current assets
|
578,375 | 470,429 | ||||||
Property
and equipment, net
|
3,259 | 4,711 | ||||||
Intangible
assets, net
|
32,666 | 35,333 | ||||||
Total
assets
|
$ | 614,300 | $ | 510,473 | ||||
Liabilities
|
||||||||
Current
portion of debt
|
$ | 7,500 | $ | 156,667 | ||||
Accounts
payable
|
257,855 | 134,722 | ||||||
Accrued
expenses
|
23,407 | 38,290 | ||||||
Total
liabilities
|
$ | 288,762 | $ | 329,679 | ||||
Net
Assets
|
$ | 325,538 | $ | 180,794 |
Net
assets of the company spun off changed from December 31, 2008 to December 7,
2009 as follows:
Net
assets, December 31, 2008
|
$ | 180,794 | ||
Transfer
of debt to Equisol simultaneous with conversion of debt into 483,688
shares of EIHC common stock on December 7, 2009 (note
10)
|
150,000 | |||
Net
loss
|
(5,256 | ) | ||
Net
assets, December 7, 2009
|
$ | 325,538 |
16. Business
Segments and Major Customers
EIHC is a
holding company that operates through its wholly owned subsidiaries. The Company
operates in two business segments: (1) water treatment systems equipment sales
and services (conducted through Equisol) and (2) thermal spray coating systems
equipment (conducted through XIOM since December 7, 2009).
Summarized
financial information by business segment for the nine months ended September
30, 2010 and 2009 is as follows:
2010
|
2009
|
|||||||
Revenues:
|
||||||||
Water
treatment systems equipment sales and services
|
$ | 2,366,360 | $ | 3,814,068 | ||||
Thermal
spray coating systems equipment
|
375,258 |
-
|
||||||
Total
|
$ | 2,741,618 | $ | 3,814,068 | ||||
Operating
Loss:
|
||||||||
Water
treatment systems equipment sales and services
|
$ | 55,987 | $ | (336,131 | ) | |||
Thermal
spray coating systems equipment
|
(404,300 | ) |
-
|
|||||
EIHC
|
(319,233 | ) | - | |||||
Total
|
$ | (667,546 | ) | $ | (336,131 | ) | ||
Identifiable
Assets:
|
||||||||
Water
treatment systems equipment sales and services
|
$ | 837,736 | $ | 911,686 | ||||
Thermal
spray coating systems equipment
|
449,717 | 549,227 | ||||||
EIHC
|
16,276 | 234,238 | ||||||
Total
|
$ | 1,303,729 | $ | 1,695,151 | ||||
Capital
Expenditures:
|
||||||||
Water
treatment systems equipment sales and services
|
$ | - | $ | - | ||||
Thermal
spray coating systems equipment
|
1,000 | - | ||||||
Total
|
$ | 1,000 | $ | - | ||||
Depreciation
and Amortization:
|
||||||||
Water
treatment systems equipment sales and services
|
$ | 20,170 | $ | 8,484 | ||||
Thermal
spray coatings systems equipment
|
12,513 | - | ||||||
Total
|
$ | 32,683 | $ | 8,484 |
21
The
thermal spray coatings systems equipment business segment represents the results
for XIOM since December 7, 2009 (date of the reverse merger).
Substantially
all revenues for the nine months ended September 30, 2010 and 2009 were derived
from customers located in the United States.
17 SUBSEQUENT
EVENTS
The
Company has evaluated subsequent events through the filing date of the Form 10-Q
and has determined that there were no subsequent events recognized or disclosed
in these financial statements.
Item
2. — Management’s Discussion and Analysis of Financial Condition And Results of
Operations
SAFE
HARBOR STATEMENT
The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward-looking statements. This document contains forward-looking
statements, which reflect the views of our management with respect to future
events and financial performance. These forward-looking statements
are subject to a number of uncertainties and other factors that could cause
actual results to differ materially from such
statements. Forward-looking statements are identified by words such
as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,”
“projects,” “targets” and similar expressions. Readers are cautioned
not to place undue reliance on these forward-looking statements, which are based
on the information available to management at this time and which speak only as
of this date. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. For a discussion of some of the factors that may
cause actual results to differ materially from those suggested by the
forward-looking statements, please read carefully the information under “Risk
Factors” beginning on page 19 and the Risk Factors set forth in our Annual
Report on Form 10-K for the year ended December 31, 2009.
The
identification in this document of factors that may affect future performance
and the accuracy of forward-looking statements is meant to be illustrative and
by no means exhaustive. All forward-looking statements should be evaluated with
the understanding of their inherent uncertainty.
Overview
Environmental
Infrastructure Holdings Corp. (“EIHC”, or the “Company”), was incorporated in
Delaware on November 5, 2009. The Company was formed to be the holding company
of XIOM Corp. (“XIOM”). See “Reorganization” below. The
Company is the successor issuer of XIOM for purposes of the Securities Act of
1933, as amended, and the filings made by XIOM thereunder. Pursuant to Rule
12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the
“Act”), the Company is the successor issuer of XIOM with respect to XIOM Common
Shares, which were registered pursuant to Section 12(g) of the Act. Pursuant to
such rule, the Company Common Shares may be deemed to be registered pursuant to
Section 12(g) of the Act.
22
Reorganization
On
December 7, 2009, XIOM reorganized into a holding company structure (the
“Reorganization”) whereby XIOM became a direct wholly owned subsidiary of the
Company pursuant to an Agreement and Plan of Merger pursuant to Section 251(g)
of the Delaware General Corporation Law (the “Merger Agreement”) dated as of
December 7, 2009, by and among the Company, XIOM and EIHC Merger Co. (“Merger
Sub”).
On
December 7, 2009, EIHC acquired Equisol, LLC (“Equisol”), a Pennsylvania limited
liability company established on April 25, 2003. EIHC is the product of a
reorganization as a holding company structure whereby the operating company XIOM
became a direct wholly owned subsidiary of the Company. EIHC issued 18,563,693
shares to the owners of Equisol and committed to issue 8,084,942 additional
shares so that the former owners of Equisol would own 40% of the fully diluted
shares of EIHC. Because outstanding shares were 24,372,407 at the time of the
acquisition, the sellers received the equivalent of 52% of the outstanding
shares of EIHC. In addition, most of the board members and management of EIHC
resigned at the time of the acquisition. Accordingly, the acquisition was
accounted for as a reverse merger of EIHC into Equisol. Results of operations
prior to the merger presented in these financial statements are those of
Equisol. Equisol’s equity prior to the merger has been retroactively restated
for the equivalent number of shares received in the merger. As part of the
merger agreement, Equisol spun off to its members a wholly-owned subsidiary as
of December 7, 2009. As a result, this subsidiary has been accounted for as a
discontinued operation in the comparative financial statements. Also, in
connection with the merger, the Company’s fiscal year end was changed from
September 30 to December 31.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates based upon
historical experience and various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Our actual results may differ
materially from these estimates.
We
believe our critical accounting policies affect our more significant estimates
and judgments used in the preparation of our consolidated financial
statements. Our Annual Report on Form 10-K for the year ended
December 31, 2009 contains a discussion of these critical accounting policies.
There have been no significant changes in our critical accounting policies since
December 31, 2009, except as noted below. See our Note 1 in our
unaudited consolidated financial statements for the nine months ended September
30, 2010, as set forth herein, and our Note 4 of those financial statements for
the summary of recently adopted accounting pronouncements and recently issued
accounting pronouncements not yet adopted.
Results
of Operations
We
recorded net losses of approximately $248,303 and 121,759 for the three month
periods ended September 30, 2010 and 2009. Our net loss in the first quarter
increased over last year as a result of the reverse acquisition. Corporate
expenses and the loss from XIOM in the third quarter of 2010 aggregated to
$305,746. The results of operations at Equisol swung from a loss of $48,201 in the third quarter of
2009 to gain of $57,443 in the third quarter of 2010. Operations at
XIOM in the third quarter of 2010 improved over the same quarter in 2009 from a
loss of $275,259 to a loss of $226,151. Before
interest expense, XIOM trimmed its losses from $498,000 in 2009 to $88,909 in
2010. For the third quarter 2010, the Company focused on completing the
integration of its two acquisitions and began to establish its corporate
infrastructure. Management intends to continue to consolidate and improve
the operational efficiency of its entities and hopes to begin its planned
acquisition strategy later in the year.
23
Revenues
decreased from $3,814,068 to $2,741,618 as a result of
the economic downturn, and the decision by Equisol to exit several low
profitability lines such as residential and commercial electrical and
instrumentation work. XIOM contributed $174,998 in revenues to the
third quarter of 2010. The cost reductions in costs of revenues, mainly in the
reduction of labor costs, were necessitated due to the economic downturn of its
customers and their anticipated reliance on stimulus money that have yet to
materialize in the industrial sector resulting in several large jobs for which
Equisol had contracts being either delayed or cancelled. For this
year, Equisol’s customers are re-engaging their delayed contracts and they are
seeing significantly increased quote and bid volume going into the second
quarter. Gross margins improved from 24% in last year’s first nine months to 48%
in the first nine months of 2010.
XIOM
management spent much of the third quarter 2010 focusing on productivity and
commercialization of its products. They continued to reduce costs and
focused the team to re-engineer XIOM’s products for improved technical
performance and user interface. Several new products are being tested
and marketed for future sales growth.
Selling,
general, and administrative expenses increased from $1,529,996 in 2009 to
$1,994,170 in 2010. XIOM accounted for $559,998 of the 2010 selling, general,
and administrative expenses. Equisol selling, general, and administrative
expenses were $1,369,953, a 11% decrease over last year, primarily as a result
of reductions in personnel-related costs. Additionally, XIOM began reducing its
selling, general, and administrative costs in the middle of the first quarter to
become more efficient in its sales and manufacturing processes, a 66%
improvement over the same quarter in the previous year.
Interest expense increased from $61,022 to $437,129 as a result of
including XIOM in the third quarter of 2010 results. XIOM interest on its
convertible notes amounted to $137,242 of the total interest
expense for the quarter.
Liquidity
and Capital Resources
At
September 30, 2010, we had cash and cash equivalents of $20,879, compared to
$246,000 at December 31, 2009. Working capital was a negative at
September 30, 2010 and at December 31, 2009. To date, we have funded our
operations, including our research and development activities, through funds
derived from several private placements of an aggregate of approximately $3.5
million of equity securities and convertible debt issues.
Based on
our current plan of operations and the cash on hand, we believe that our current
cash balances will not be sufficient to fund operations through December 31,
2010. Our subsidiary, XIOM does not have the cash to pay the convertible notes
which are currently in default.
As of
September 30, 2010, we had an accumulated deficit of approximately $9.5 million. Our ability to
continue our operations as a going concern is subject to our ability to obtain
required additional capital to fund our operations until our sales efforts
result in positive cash flow, and there can be no assurance that we will be able
to do so.
As of September 30, 2010, we had convertible debt
obligations of our XIOM subsidiary with a face value of $950,000 which
have matured and not been paid and an additional $820,000 have been declared in
default by the noteholders. We have no capital lease obligations, no operating
lease obligations other than the rent on the premises we occupy, and no material
purchase obligations.
We do not
believe that inflation has had a material impact on our business or
operations.
Off-Balance
Sheet Arrangements
We are
not a party to any off-balance sheet arrangements, and we do not engage in
trading activities involving non-exchange traded contracts. In
addition, we have no financial guarantees, debt or lease agreements or other
arrangements that could trigger a requirement for an early payment or that could
change the value of our assets, other than those disclosed above.
24
Item
4 - Controls and Procedures
Item
4T — Controls and Procedures
We
maintain disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act)
that are designed to ensure that information that would be required to be
disclosed in Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms,
and that such information is accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
Current
management and the officers of the Company concluded, based upon extensive
restatements of the consolidated financial statements for both the year ended
December 31, 2009 and 2008 upon completion of audits by PCAOB Registered
independent auditor, and restatements upon completion of their review for
the quarter ended June 30, 2010, that our disclosure controls and procedures
needed improvement and were ineffective to ensure that information required to
be disclosed by our company in reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Commission rules and forms.
Additionally, management and the chief executive officer/chief financial
officer concluded that our company's disclosure controls and procedures needed
improvement to ensure that the information required to be disclosed by our
company in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management and its chief executive officer/chief
financial officer to allow timely decisions about required
disclosure.
As a
result, during the quarter ended December 31, 2008, and subsequent to December
31, 2009, we instituted additional levels of review and have retained the
services of additional financial professionals with the requisite background and
experience that will coordinate and be responsible for our disclosure controls
and procedures.
Changes
in Internal Control Over Financial
Reporting
During
the quarter ended September 30, 2010, there were no changes in internal controls
over financial reporting which materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
PART
II— OTHER
INFORMATION
Item
1 – Legal Proceedings
Noteholders
of the Company’s XIOM subsidiary holding notes with a face value of $820,000
have issued a notice of default.
On August
4, 2010, two former officers of Equisol’s Gulf States Chlorinator & Pump
subsidiary, filed a complaint seeking to terminate their employment
agreement for good cause and unspecified damages. On October 5th, 2010,
Equisol filed a Reconventional Demand against the former officers alleging,
among other things, breach of contract and amended the same on October 27th,
2010. Discovery has been initiated and depositions are scheduled for
December 2010.
Item
1A – Risk Factors
In
addition to the other information set forth in this Form 10-Q, you should
carefully consider the factors discussed in Part I, Item 1A, subsection “Risk
Factors” of our Annual Report on Form 10-K for the fiscal year ended December
31, 2009 which could materially affect our business, financial condition, or
future results of operations. The risks described in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009 are not the only
risks that we face. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial may also materially adversely affect
our business, financial condition and future results of
operations. Other than as set forth below, there have been no
material changes from the risk factors previously disclosed in Item 1A,
subsection “Risk Factors” to Part I of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2009.
25
Risks
Related To Our Business
EIHC
has incurred losses since inception and expects to incur significant net losses
in the foreseeable future and may never become profitable.
Since our
inception, we have incurred significant losses and negative cash flows from
operations. As of September 30, 2010, we had an accumulated deficit
of $9.5 million, and may incur additional losses in the next several years. We
expect to spend significant resources over the next several years to enhance our
technologies and to fund research and development of our pipeline of potential
products. In order to achieve profitability, we must develop products
and technologies that can be commercialized by us or through future
collaborations. Our ability to generate revenues and become
profitable will depend on our ability, alone or with potential collaborators, to
timely, efficiently, and successfully complete the development of our products,
which may include manufacturing and marketing our products. There can
be no assurance that any such events will occur or that we will ever become
profitable. Even if we do achieve profitability, we cannot predict
the level of such profitability. If we sustain losses over an
extended period of time, we may be unable to continue our business.
Our
independent registered public auditors issued their report for the fiscal year
ended December 31, 2009, with a “going concern” explanatory paragraph.
The
independent registered public auditors report on their audit of our financial
statements as of and for the fiscal year ended December 31, 2009 contained an
explanatory paragraph indicating that the net losses we have incurred and our
working capital deficit raise substantial doubt about our ability to continue as
a going concern. Our going concern uncertainty may affect our ability to raise
additional capital, and may also affect our relationships with suppliers and
customers. Investors should carefully read the independent registered public
auditor’s report and examine our financial statements.
If
we obtain additional financing, you may suffer significant
dilution.
Because
we have generated only limited
revenues since commencing operations, we are dependent on raising additional
financing through private and public financing sources and strategic alliances
with larger companies to fund our short and long-term operations. As a result,
we have been and likely will be required to issue securities to obtain such
funds, which issuances have in the past and will in the future dilute the
percentage ownership of our stockholders. In an effort to preserve cash and to
better align the long term interests of our consultants and those with whom we
conduct business with our long term interests, we have been issuing securities
as payment in lieu of cash, which also has a dilutive effect on outstanding
securities. This dilution could also have an adverse impact on our earnings per
share and reduce the price of our common stock. In addition, the new securities
may have rights, preferences or privileges senior to those of our common stock.
In March 2010, we issued 1,880,000 shares to investors in a private placement of
our common stock.
Our
subsidiary, XIOM Corp., is unable to pay $950,000 of convertible notes which
have matured and has been declared in default by noteholders holding an
additional $820,000 of convertible notes.
As
previously disclosed, the company’s XIOM
subsidiary received a letter on December 22, 2009 from certain of its
noteholders notifying of an Event of Default and demanding repayment in full,
along with accrued and unpaid interest. XIOM does not have sufficient funds to
repay the notes. Discussions with the noteholders for a resolution are
continuing, but there is no assurance that a resolution can be reached. Failure
to successfully address ongoing liquidity requirements will have a material
adverse effect on our business. If we are unable to obtain additional
capital on acceptable terms when needed, we may be required to take actions that
harm our business and our ability to achieve cash flow in the future, including
possibly the surrender of our rights to some technologies or product
opportunities, curtailing or ceasing operations.
26
Risks
Related to Our Fluctuating Operating Results, Possible Acquisitions and
Management of Growth
We
expect that our results of operations will fluctuate from period to period, and
this fluctuation could cause our stock price to decline, causing investor
losses.
Our
operating results could vary significantly in the future based upon a number of
factors, including many factors over which we have little or no
control. We operate in a highly dynamic industry and future results
could be subject to significant fluctuations. These fluctuations
could cause us to fail to meet or exceed financial expectations of securities
analysts or investors, which could cause our stock price to decline rapidly and
significantly. Revenue and expenses in future periods may be greater
or less than revenue and expenses in the immediately preceding period or in the
comparable period of the prior year. Therefore, period-to-period
comparisons of our operating results are not necessarily a good indication of
our future performance. Some of the factors that could cause our
operating results to fluctuate include:
•our
ability to develop technology;
•our
ability or the ability of our product discovery and development collaborators to
incorporate our technology;
•our
receipt of milestone payments in any particular period;
•the
ability and willingness of collaborators to commercialize products incorporating
our technology on expected timelines, or at all;
•our
ability to enter into product discovery and development collaborations and
technology collaborations, or to extend the terms of any existing collaboration
agreements, and our payment obligations, expected revenue and other terms of any
other agreements of this type;
•the
demand for our future products and our collaborators’ products containing our
technology; and
•general
and industry specific economic conditions, which may affect our collaborators’
research and
development
expenditures.
Item
2 – Unregistered Sales
of Equity Securities and Use of Proceeds
On
February 18, 2010, we issued 456,309 shares in a cashless exercise of stock
options. On March 1, 2010, we issued 25,000 shares to a noteholder as part of
the terms of the note. On March 18, 2010, we issued 1,880,000 shares to a group
of investors in a private placement. On March 30, 2010, we issued 250,000 shares
in a cashless exercise of stock options.
Item
3. – Defaults
Our
subsidiary, XIOM Corp has been declared in default by noteholders of $820,000 of
its convertible debt.
Item
6. — Exhibits
(a) Exhibits
31.1
|
Certification
of President Pursuant to Section 302 of the Sarbanes-Oxley Act (filed
herewith)
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act (filed herewith)
|
|
32.1
|
Certification
of President Pursuant to Section 906 of the Sarbanes-Oxley Act (furnished
herewith)
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act (furnished herewith)
|
27
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ENVIRONMENTAL
INFRASTRUCTURE HOLDINGS CORP.
|
||
(Registrant)
|
||
Date: November
22, 2010
|
By:
|
/s/ Michael D. Parrish
|
Michael
D. Parrish
|
||
Chief
Executive Officer
|
||
(duly
authorized officer and principal
|
||
executive
officer)
|
28
INDEX TO
EXHIBITS
Description
|
||
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act (filed herewith)
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act (filed herewith)
|
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act (furnished herewith)
|
||
32.2
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act (furnished
herewith)
|
29