FORWARD LOOKING STATEMENTS

 

The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward-looking statements.

ABOUT OUR COMPANY

 

How our company is organized

XIOM Corp, formerly Panama Industries, Ltd., (“XIOM”), was incorporated in Delaware on March 2, 1998. The company formally changed its name to XIOM in August 2004.

 

Spin-off from the former parent company

 

The former parent of XIOM, ThermalTec International, Corp. (“TTI”), now Accountabilities, Inc. and publicly traded under the symbol “ACTB”, was incorporated in 1994 under the laws of the State of Delaware. XIOM was spun-out of TTI in July of 2001 to its shareholders of record as of June 22, 2001, upon which each shareholder of TTI received one (1) share of XIOM common stock for every three (3) shares of TTI common stock. XIOM was spun-off because it had a specific technical focus that needed further development and TTI had intended to focus on specific target merger candidates involved in a totally unrelated business. In May and June of 2001, TTI was seeking to enter into a series of transactions to acquire up to eleven separately owned Comprehensive Outpatient Rehabilitation Facilities (“CORF”) that were managed by a Florida based company named Total Health Care Consulting, Inc. At that time, TTI management decided that the combination of XIOM and these businesses would have been difficult to integrate, cause numerous management problems as well as accounting and financial reporting issues. As such, it was decided by the management of TTI that XIOM, as a wholly-owned subsidiary, would be better off as a separate stand alone company, able to focus on its own specific operations and business plan objectives. XIOM has been, since inception, engaged in the thermal spray coating industry. Its primary business objective is to continually refine and market their polymer based thermal spraying coating technology.

 

Where you can find us

 

Our corporate offices and manufacturing facility are located at 68A Lamar Street, West Babylon, New York. The main telephone number is (631) 643- 4400. Our website is http://www.xiom-corp.com . Any information contained on our website should not be considered as part of this prospectus. The information contained on our website is used for disseminating sales and marketing purposes.

 

BUSINESS OF THE COMPANY - PRINCIPAL PRODUCTS AND SERVICES

 

Materials used with XIOM 1000 System are produced from various formulas of plastic powders. The powder mixture is melted and projected onto a substrate via a mixture of air and flammable gases that produce the actual coating. The air, flammable gases and powder mixture are brought together through a specialized and patented gun with a flame nozzle where the powder material is melted and sprayed forward onto the surface to be coated. The gases and heated coating are cooled by the surface that it adheres to.

The company is a technology business offering delivery of plastic powder coatings at on-site locations utilizing the XIOM 1000 System. Powder coating currently is a process in which metal parts are brought into a factory environment where they are cleaned and prepared to receive a powder coating. Plastic in powder form is then applied to the various metal parts by means of an electrostatic charge that causes the powder to adhere to the surface. The coated part is then heated in an oven for a period of time to cause the plastic to melt and adhere to the substrate. Our process operates differently. Although we use plastic powder, we do not electrostatically charge that powder in order for it to adhere to a substrate. We use a different mechanism which simultaneously applies and fuses the powder to a substrate. The advantage of this process is that the coating process is totally portable and can be applied anywhere, not necessarily in a factory setting, and can be applied without use of an oven to cure the coating., and can be applied to most substrates in addition to the metal substrate to which powder coatings are traditionally applied in a factory, using an oven.

The company’s plastic spray technology is unique and has patents pending. The patents cover technology and processes to apply and deliver powder coatings through a specialized spray system that allows those coatings to be applied both on site and in a factory. The patents will last, upon issuance for a period of 17 years, unless other patents are applied for. With our process, the on-site plastic powder coating process, you can deposit coatings on wood, steal, fiberglass, concrete and plastic - a variety of substrates not all available to traditional powder coating. Our process is quick, does not use an expensive oven for curing and can be used both outside and inside a building.

The technology associated with the XIOM 1000 Thermal Spray system was developed personally by the two operating officers of the Company, who, in August 2004, irrevocably transferred all rights title and interest in all current patents, patents pending and any future intellectual property rights that may be derived from this technology in exchange for restricted common shares on the Company. This technology was developed and enhanced over time with funding from contacts with the New York State Energy Research & Development Authority (“NYSERDA”). The refinements made to the technology pursuant to these contracts have resulted in the XIOM 1000 Thermal Spray system that is currently marketed for commercial sale.

HISTORY OF THE TECHNOLOGY

 

The history of applying polymer coatings dates back to the early 1950’s starting with the fluidized bed process and then in the 1960’s to the Electrostatic Powder Sprayer (EPS). Today EPS is the standard for applying organic polymer coatings. It is commonly referred to as “Powder Coating” which to this familiar with the process means EPS applied plastic powder coatings followed by oven curing at approximately 400 F, where melting and film formation takes place.

EPS is a large business today as polymer coatings, thermoplastic and thermoses are applied to a variety of substrates. They can be applied to cold surfaces before being cured to film thickness typically between 1 to 4 mils (50-200 microns). There are little Volatile Organic Compounds (VOC) and reduced Hazardous Air Pollutants (HAP). For these reasons EPS has captured substantial business form the established liquid coating processes (Painting).

The company’s products contain no VOCs (volatile organic compounds). There is a current trend by the EPA to ban VOCs for products sold to the public for safety and health purposes, but there is no guarantee that our VOC-less products, although safer, will prove to be any more functionally effective than those alternative coating products such as paints that do have VOCs.

The traditional powder coating industry, directly competitive to the company’s products, usually requires a large investment in ovens and production lines, sophisticated preparation and cleaning equipment, and in many cases operates with sophisticated in-line computerized production control systems to manage the powder coating process. The XIOM system is designed to do powder coating outside a traditional factory setting. The company’s system enables a plastic coating to be directly sprayed onto a surface, contains no preparation equipment and requires no oven with which to cure powder coatings. The company’s system has no computerized control whatsoever and, in fact, does not even use electricity but relies on air, propane and oxygen to achieve a coating result.

Traditional powder coaters who do coating inside a factory environment could possibly try to re-engineer their systems to prevent the company from selling its systems. But it would require them to manufacture smaller, more portable ovens as well as develop more portable production and control systems in order to compete with the company’s on-site coating capability. The company acknowledges that in the event that enough traditional powder coaters alter their existing operations and create portable systems and ovens that could be mounted on mobile units equipped with power systems for operation, might compromise our ability to sell our $8,000 systems.

 

There can be no assurance that the company’s technology will ever supplant traditional powder coating technology and become commercially successful. However, our technical data on our coatings gives us grounds to be optimistic (see attached test results from an independent laboratory). Because Xiom coatings are actually solid plastic coatings, they have the possibilities of being more durable and weather-resistant than conventional painting systems which are another large alternative to the company’s powder coating systems.

The company, believes, but cannot prove that its coatings are superior to paint. The company would have to conduct long term tests of its solid plastic coatings versus liquid paints in many environments over a period of many years using an independent agency to monitor such tests to prove its belief/. The expense to do so would be extremely high since some plastic coatings are reputed to last many years. The company would have to continue to pay its overhead during such tests and possibly not sell anything because customers may want such proof and might not want to rely on our assertions, or the assertions of other plastic feed stock manufacturer’s as to the efficacy of plastic after it passes through our system. In that case the company would run out of funds long before such tests were completed. Investors would be well advised not to invest in the company if they need the assurance of long term testing on coatings from our process being able to outlast paint coatings. In this case the company would strongly advise such investors not to invest in the company.

Unlike most painting systems, Xiom’s coatings have no dripping and overspray problems and absolutely no VOCs. Xiom materials cure instantly after being applied and no curing ovens are needed.

Due to the fact that the entire Xiom system weighs just 70 pounds, the entire system can be easily used onsite. The company is acting on its belief that there is a demand for plastic coatings applied outside a factory setting; the company cannot prove that its belief is accurate.

Xiom coatings can be applied at thicknesses from 3 mls up to 1 inch as compared to traditional powder coatings which usually vary from 1 to 4 mls thick. The company believes that thicker coatings generally give greater protection against corrosion than thin coatings. The company does not have definitive data to conclusively prove this assertion.

EPS applied plastic coatings are further characterized by their wide use in OEM and production applications for decorative purposes where appearance and durability are required. While there is some use of functional EPS coatings, by and large the vast majority of use for decorative applications. Large numbers of relatively small components can best take advantage of the economic benefits from EPS powder processing thus conforming to the limits of batch processing and over size restrictions.

 

UNIQUE THERMAL SPRAY TECHNOLOGY

 

The XIOM powder spray process uses the rich history of EPS Powder Coatings but takes the technology a step further to meet the field requirements of on-site liquid painting, thus bridging the gap between “in house” EPS and “on-site” liquid painting developing a true portable on-site polymer coating system.

 

Two major advances account for XIOM’s coating technology;

First, The XIOM 1000 Thermal Spray system is currently the Company’s only equipment product for on-site portability. It permits spraying of relatively low melting point polymer powder without over heating and generation of combustion (with no VOC’s). High deposit rate and efficiency further characterize the XIOM 1000 system.

Second, XIOM plastic powders are designed specifically for Thermal Spraying. New materials technology utilizing multiplex combinations, blends, additives and composites, this taking advantage of synergy and covalent bonding to produce exceptionally high adhesion to most substrates and functional properties heretofore not possible with polymers (plastic coatings). For instance XIOM is the first to produce thermal sprayed polymer/zinc primer coats, which deliver very high quantities of zinc to the substrate for corrosion control. These polymer/zinc primer coatings not only bond securely to steel substrate, but they facilitate bonding of sprayed top coatings as well.

Many XIOM powders are unique and therefore patentable, with patents pending. Substrates such as wood, plastic, masonry and fiberglass - not processable via EPS - are now readily sprayable with the XIOM 1000 system, along with steel, aluminum and non-ferrous substrates.

The new powder coatings properties produced with the XIOM 1000 system are manifested in the wide variety of applications both functional and decorative now solvable.

The Company currently has 15 varied material formulations to create spray coatings. The Coating functionality includes any-corrosions; wear resistance, architectural, anti-foul, anti-microbial, anti-graffiti, glow-in-the-dark, and grip and release. The Company’s materials come in over 100 different colors. The completely portable delivery system consists of a 70 pound combination of a patent pending spray gun, patent pending powder feeder and control console retailing for a total of $7,900. Material costs for the powder range from anywhere from $4 to $18 a pound, depending on their functionality. The Company can mix ceramics and metals, if desired, for added wear, into its plastic coatings and can add anti-microbial formulations into the coatings. The system sprays eight pounds of plastic material an hour using different spray nozzles, allowing for both round patters and a 4-inch fan spray pattern. The system is electrically controlled. The fuel system is oxygen and propane with air as a cooling gas. Preparation of surfaces is the same as for painting. Since these are plastic coatings, all solids with no hollows and voids, they will last longer than paint-based coating systems. They can be applied thick or thin and have no volatile organic compounds as part of their makeup.

 

PLAN OF OPERATIONS

 

Liquidity, Capital Resources and Operations:

 

During the fiscal years ended September 30, 2006 and 2004, net cash used by operating activities was $513,035 and $146,657, respectively. The Company incurred net losses of $801,321 and $413,802 for the fiscal years ended September 30, 2006 and 2005, respectively. Additionally, at September 30, 2006, the Company had a Stockholders’ (Deficit) of approximately $245,000.

 These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company anticipates that in order to fulfill its plan of operations, it will need to seek financing from outside sources.  To this end, the Company is constantly pursuing private debt and equity sources.  It is also the intention of the Company’s management to improve profitability by significantly increasing sales of its patented thermal spray process in fiscal 2007 while maintaining reasonable levels general and administrative expenses as the company grows.

 

As disclosed elsewhere in this filing, the Company completed a private placement of equity in March 2006 whereby it raised $342,000 of additional financing. The Company closed another private placement offering in September where it raised $302,000 of additional financing. However, there is no assurance that these financings, nor any future financing, if successful, will be sufficient to allow the Company to operate profitably or successfully. Furthermore, the Company eliminated $280,000 of current liabilities and $155,000 of shareholder loan by exchanging these obligations in lieu of payment for the exercise of certain stock options in March and September of 2006.

 

Under the federal securities laws, any offering of securities must be registered unless an exemption from registration is available, and, with limited exceptions, no exemption from registration is generally available for a private placement transaction which is made concurrently with a public offering.  We may be considered to have commenced a public offering of securities on May 6, 2005, when we first filed the registration statement on Form SB-2.

In private placement transactions completed subsequent to the filing of our initial registration statement, from January 1, 2006 through October 20, 2006 (the effective date of the registration statement) we sold a total of 563,718 shares of restricted common stock from which we received gross offering proceeds of $670,399. These securities were offered and sold in reliance upon claimed private placement exemptions from registration. As a result, the purchasers of the shares may have the right to claim that the purchase transactions violated the federal securities laws. If any of these transactions did violate federal securities laws, the purchasers in those transactions may have claims against us for damages or for rescission and recovery of their full subscription price, plus interest. Although none of the purchasers of these shares has made or threatened any claim against us alleging violation of federal securities laws, in the event the purchasers of these securities successfully asserted claims for rescission it would have a substantial adverse effect on our business and on our ability to continue to operate. We may not have sufficient funds available to pay such claims, and there is no assurance that we would be able to obtain funds from other sources.  In that event, we may be forced to cease operations and liquidate our available assets to pay our liabilities, including, but not limited to, the rescission claims.

 

Results of Operations:

For the Fiscal Years Ended September 30, 2005 vs. September 30, 2004

 

For the fiscal year ended September 30, 2006, the Company had $629,336 in sales and cost of sales of $423,415. This is in comparison to total sales of $184,445 and cost of sales of $145,601 for fiscal year ended September 30, 2005. The increase in sales and cost of sales in fiscal 2006 results primarily from a significant increase in system and powder sales compared to fiscal 2005. Sales and cost of sales for fiscal 2005 resulted primarily from the Company’s development contract with NYSERDA. Sales related to the patented thermal spray technology only began to ramp up in the second half of fiscal 2005. Gross profit for fiscal 2006 was $205,921, an increase of $167,077, or 430%, compared to the gross profit in fiscal 2005 of $38,844.

 

General and administrative expenses increased by approximately $ 555,000 from fiscal 2005 to fiscal 2006.  This increase was due to additional consulting engineering expense to refine the thermal spray process as well as sales consulting, marketing expenses and general overhead increases necessary to accommodate the anticipated customer demand from the formal product roll-out that commenced at the end of the third quarter of fiscal 2005. The Company also expanded into an additional 7,000 square foot facility that is better equipped to handle the increased volume of spray system assemblies and powder formula mixing. This also required that additional employees be hired for the manufacturing and warehouse operations.

 

The net loss increased from $413,805 ($.07 per share) to $805,821($.13 per share) from 2005 to 2006, respectively. This increase of approximately $392,000 was directly related to the increase in general and administrative expenses described above. 

We have, in our history, generated limited income from operations, have incurred substantial expenses and have sustained losses. In addition, we expect to continue to incur significant operating expenses. As a result, we will need to generate significant revenues to achieve profitability, which may not occur. We expect our operating expenses to increase as a result of our planned expansion. Even if we do achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis in the future. We expect to have quarter-to-quarter fluctuations in revenues, expenses, losses and cash flow, some of which could be significant. Results of operations will depend upon numerous factors, some beyond our control, including regulatory actions, market acceptance of our products and services, new products and service introductions, and competition.

Inflation:

 

The amounts presented in the financial statements do not provide for the effect of inflation on the Company’s operations or its financial position. Amounts shown for machinery, equipment and leasehold improvements and for costs and expenses reflect historical cost and do not necessarily represent replacement cost. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

 

Employees:

 

As of December 31, 2006, we employed approximately 10 persons. None of our employees are covered by collective bargaining agreements. We believe that our relations with or employees are good.