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.

 

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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.

 

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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.

 

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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.

 

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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).

 

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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

 

 

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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.

 

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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.

 

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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.

 

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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

 

 

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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

 

 

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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.

 

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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

 

 

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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.

 

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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

 

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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		$	-			$	-

 

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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.

 

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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

 

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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

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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)

 

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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)

 

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INDEX TO EXHIBITS

 

Exhibit Number		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)
32.1		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)

 

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