Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-09908
TOMI Environmental Solutions, Inc.
(Formerly The Ozone Man, Inc.)
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Florida 59-1947988
________________________________________________________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9454 Wilshire Blvd., Penthouse, Beverly Hills, CA 90212
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(800) 525-1698
________________________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or such shorter period that the registrant was required to
submit and post such files). Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 16, 2009 had 35,189,480 shares of common stock outstanding.
FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 2009
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
ITEM 4. CONTROLS AND PROCEDURES 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 1A. RISK FACTORS 15
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS 15
1
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOMI Environmental Solutions, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Sept 30, 2009 December 31, 2008
------------------ -----------------
(Unaudited)
ASSETS
------
Current Assets:
---------------
Cash and Cash Equivalents $ 1,548,433 $ 367,697
Investments - Restricted, at cost 3,250,000 -
Accounts Receivable 155,882 4,590
Prepaids & Other Current Assets 8,547 18,710
------------------ -----------------
Total Current Assets 4,962,862 390,997
------------------ -----------------
Property and Equipment - net 329,810 372,990
------------------ -----------------
Other Assets:
-------------
Intangible Assets, net 105,545 111,100
Security Deposits 7,497 6,620
------------------ -----------------
Total Other Assets 113,042 117,720
------------------ -----------------
TOTAL ASSETS $ 5,405,714 $ 881,707
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
--------------------
Accounts Payable and Accrued Expenses $ 161,598 $ 175,327
Accrued Officers Compensation 708,004 546,536
Notes Payable - Current Portion 47,485 43,976
Obligations to be settled through issuance of common stock 268,500 -
Dividends Payable on Preferred Convertible Stock 144,247 90,667
------------------ -----------------
Total Current Liabilities 1,329,834 856,506
Long-term Liabilities:
----------------------
Non-Current Portion of Notes Payable - Other 30,303 66,365
------------------ -----------------
Total Liabilities 1,360,137 922,871
------------------ -----------------
COMMITMENTS AND CONTINGENCIES - -
Stockholders' Equity (Deficit):
----------------------------------
Cumulative Convertible Series A Preferred Stock,
$0.01 par value, 1,000,000 shares authorized,
510,000 shares issued and outstanding at September
30, 2009 and December 31, 2008. 5,100 5,100
Cumulative Convertible Series B Preferred Stock,
$1,000 stated value, 7.5% cumulative dividend,
4,000 shares authorized, 3,250 shares issued and
outstanding at September 30, 2009 and none at
December 31, 2008. 3,250,000 -
Common Stock, $.01 par value, 75,000,000 shares
authorized; 34,893,980 and 34,474,515 shares
issued and outstanding at September 30, 2009 and
December 31, 2008, respectively. 348,939 344,744
Additional Paid-in Capital 8,573,994 22,758,193
Accumulated Deficit (6,562,950) (23,149,201)
Deferred compensation (1,569,506) -
------------------ -----------------
Total Stockholders' Equity (Deficit) 4,045,577 (41,164)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 5,405,714 $ 881,707
================== =================
The accompanying notes are an integral part of these consolidated financial statements.
2
TOMI Environmental Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the For the
For the For the Nine Months Nine Months
Quarter Ended Quarter Ended Ended Ended
Sept 30, 2009 Sept 30, 2008 Sept 30, 2009 Sept 30, 2008
-------------- -------------- -------------- --------------
Net Revenues $ 218,176 $ 3,086 $ 427,562 $ 3,086
Cost of Sales 54,586 - 113,689 -
-------------- -------------- -------------- --------------
Gross Profit 163,590 3,086 313,873 3,086
-------------- -------------- -------------- --------------
Costs and Expenses:
-------------------
Professional Fees 46,984 886,489 583,099 1,047,065
Other General and Administrative Expenses 225,568 172,993 882,326 461,803
Management and Consulting Fees 284,651 - (17,743,256) -
-------------- -------------- -------------- --------------
Total Costs and Expenses 557,203 1,059,482 (16,277,831) 1,508,868
-------------- -------------- -------------- --------------
Income (Loss) from Operations (393,613) (1,056,396) 16,591,704 (1,505,782)
-------------- -------------- -------------- --------------
Other Income (Expenses):
------------------------
Financing Costs - - - (14,444)
Interest income 593 - 2,109 -
Interest expense (2,310) (1,109) (7,561) (1,109)
-------------- -------------- -------------- --------------
Total Other Expense (1,717) (1,109) (5,452) (15,553)
-------------- -------------- -------------- --------------
Net Income (Loss) $ (395,330) $ (1,057,505) $ 16,586,252 $ (1,521,335)
============== ============== ============== ==============
Income (Loss) attributable to common stockholders
Net Income (Loss) $ (395,330) $ (1,057,505) $ 16,586,252 $ (1,521,335)
Preferred stock dividend 61,483 - 144,247 -
-------------- -------------- -------------- --------------
Income (Loss) atributable to common stockholders $ (456,768) $ (1,057,505) $ 16,442,005 $ (1,521,335)
============== ============== ============== ==============
Net Income (Loss) per Common Share - Basic $ (0.01) $ (0.03) $ 0.47 $ (0.05)
============== ============== ============== ==============
Net Income (Loss) per Common Share - Diluted $ (0.01) $ (0.03) $ 0.46 $ (0.05)
============== ============== ============== ==============
Weighted Average Common Shares Outstanding - Basic 34,870,268 31,509,607 34,765,150 32,462,702
============== ============== ============== ==============
Weighted Average Common Shares Outstanding - Diluted 34,870,268 31,509,607 35,925,150 32,462,702
============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
3
TOMI Environmental Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine For the Nine
Months Ended Months Ended
Sept 30, 2009 Sept 30, 2008
-------------- --------------
OPERATING ACTIVITIES
--------------------
Net Income (Loss) $ 16,586,252 $ (1,521,335)
Adjustments to reconcile net income (loss) to net
cash (used) by operating activities:
Depreciation and amortization 69,176 22,272
Amortization of Debt Discount - 14,444
Common and Preferred Stock Issued for Services 300,655 902,000
Amortization of Deferred Compensation 569,302 -
Management and Consulting Fees (18,312,558) -
Changes in Operating Assets and Liabilities:
(Increase) in Security deposits (876) (4,540)
(Increase) in Accounts Receivable (151,292) (884)
Increase (Decrease) in Prepaids and other current assets 10,163 (3,284)
Increase in Accounts Payable and Accrued Liabilities 612,908 146,124
-------------- --------------
Net Cash (Used) in Operating Activities (316,270) (445,203)
-------------- --------------
INVESTING ACTIVITIES
--------------------
Purchase of investments (3,250,000) -
Capital Expenditures (20,442) (245,540)
Purchase of Intangible Assets - (111,100)
-------------- --------------
Net Cash (Used) in Investing activities (3,270,442) (356,640)
-------------- --------------
FINANCING ACTIVITIES
--------------------
Proceeds from the Sale of Common Stock 1,750,000 1,299,401
Expense of private placement (200,000) -
Purchase of cancelled Common Stock - (7,000)
Proceeds from sale of Cumulative Convertible Series B Preferred Stock 3,250,000 -
(Payments) Proceeds of Note Payable - Other (Net) (32,553) 41,080
-------------- --------------
Net Cash Provided by Financing Activities 4,767,447 1,333,481
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,180,736 531,638
-------------- --------------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 367,697 3,095
-------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,548,433 $ 534,733
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
4
TOMI Environmental Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months For the Nine Months
Ended Sept 30, 2009 Ended Sept 30, 2008
------------------- -------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $ 7,561 $ 1,109
=================== ===================
Income taxes $ - $ -
=================== ===================
Supplemental Disclosures of Cash Flow Information:
--------------------------------------------------
Non Cash Financing Activities:
Issuance of Common Stock for payment of accounts payable $ 46,670 $ -
=================== ===================
Forgiveness of Accrued Compensation to Related Party $ 150,000 $ -
=================== ===================
Dividends payable on preferred stock - Series B $ 144,247 $ -
=================== ===================
Return of Overissuance of Shares Related to Recapitalization $ - $ 425
=================== ===================
Reversal of dividends payable on preferred stock - Series A $ (90,667) $ -
=================== ===================
Change in stated value on preferred stock - Series A $ (12,744,900) $ -
=================== ===================
The accompanying notes are an integral part of these consolidated financial statements.
5
TOMI Environmental Solutions, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS
TOMI Environmental Solutions, Inc. (formerly "The Ozone Man, Inc.") (The
"Company" or "TOMI") provides green, energy-efficient environmental solutions
for infectious disease control and air remediation through inspection, air
quality testing, training and treatment using our premier platform of UV Ozone
generation services, products and technologies. Our focus to combat Hospital
infection control was recently enhanced with the addition of (MRA) TM - Magnetic
Resolution Activation product line as an additional cost effective method to
control the spread of infectious disease and can also be used after a biological
attack of our homeland security.
Our products and services cover a broad spectrum of commercial structures
including office buildings, medical facilities, hotels, single homes, multi-unit
residences and schools. Our products and services have also been used in
restaurants and dairies.
During the second quarter of 2009, the Company exited the status of development
stage enterprise. The Company commenced its planned principal operations and
earned revenues during the quarter ended June 30, 2009. The Company changed its
name to TOMI Environmental Solutions, Inc.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim consolidated financial statements included herein, presented in
accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by the Company, without an audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. These consolidated interim
financial statements should be read in conjunction with the financial statements
of the Company for the year ended December 31, 2008 and notes thereto which are
included in the Form 10-K previously filed with the SEC on March 31, 2009. The
Company follows the same accounting policies in the preparation of interim
reports.
Principles of Consolidation
The accompanying financial statements include the accounts of TOMI (a Florida
Corporation) (Parent) and its wholly owned subsidiary, The Ozone Man, Inc. (a
Nevada Corporation). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Reclassification of Accounts
Certain reclassifications have been made to prior-year comparative financial
statements to conform to the current year and prior period presentation. These
reclassifications had no effect on previously reported results of operations
or financial position.
6
Concentration of Credit Risk
The Company maintains cash balances at several financial institutions. Accounts
at institutions are insured by the Federal Deposit Insurance Corporation (FDIC)
up to $250,000. Account balances that exceed this limit are not insured. The
restricted investment, at cost, is subject to market fluctuations. The non-
restricted cash in the amount of $1,551,562 and restricted investment are held
in an investment fund and are not insured.
Income (Loss) Per Share
The computation of income (loss) per share is based on the weighted average
number of common shares outstanding during the periods presented. Diluted income
(loss) per common share is computed based on the weighted average number of
common shares outstanding plus the dilutive effect of common stock equivalents.
For the three months ended September 30, 2009, diluted loss per common share is
the same as basic loss per common share because the effect of any potentially
dilutive securities outstanding (convertible Series of stock, options and
warrants) would be anti-dilutive and has therefore, been excluded from the
computation. For the nine months ended September 30, 2009, there were 510,000
shares of Convertible Series A Preferred Stock outstanding at a conversion rate
of one common shares for every preferred share (510,000 common shares) and 3,250
Series B Convertible Preferred Stock at a conversion rate of two hundred common
shares for every preferred share (650,000 common shares). There were no common
stock equivalents outstanding during the three and nine months ended September
30, 2008. The common stock issued and outstanding has been included for all
presented periods with respect to the effect of the recapitalization.
Revenue Recognition
For revenue from services and product sales, the Company recognized revenue in
accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition" (SAB
No. 104), which superseded Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB No. 101). SAB No. 104 requires that
four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) service has been rendered or delivery has
occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured. Determination of criteria (3) and (4) are
based on management's judgment regarding the fixed nature of the selling prices
of the services rendered or products delivered and the collectibility of those
amounts. Provisions for discounts and rebates to customers, estimated returns
and allowance, and other adjustments will be provided for in the same period the
related sales are recorded.
7
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30, 2009 December 31, 2008
------------------ -----------------
(Unaudited)
------------------
Furniture and fixture $ 15,557 $ 13,339
Equipment 191,096 172,872
Vehicles 219,766 219,766
------------------ -----------------
426,419 405,977
Less: Accumulated depreciation 96,609 32,987
------------------ -----------------
$ 329,810 $ 372,990
================== =================
Depreciation was $21,823 and $63,622 for the three months and nine months ended
September 30, 2009, respectively. Depreciation expense was $10,085 and $22,272
for the three and nine months ended September 30, 2008, respectively.
NOTE 4: INTANGIBLE ASSETS
On February 23, 2008 the Company purchased from S.C.O. Medallion Healthy Homes
LTD all intellectual property for the Medallion methodology system for $60,000.
On April 18, 2008 the Company purchased intellectual property from Air Testing
and Design, Inc. for $50,000. The property purchased includes patents,
trademarks, literature, drawings, schematics, vendor lists and rights to
purchase and resell equipment and other proprietary and intellectual property
associated with the ozone generators manufactured by the seller.
The Company began amortizing the intangible assets during the second quarter of
2009 over the estimated useful life of ten years. The Company recorded
amortization expense of $2,775 and $5,555 during the three and nine months ended
September 30, 2009, respectively. These assets are tested for impairment
annually or if certain circumstances indicate a possible impairment may exist in
accordance with SFAS 142, Goodwill and Other Intangible Assets. The carrying
value of these assets is assessed at least annually and an impairment charge is
recorded if appropriate. As of September 30, 2009 there was no impairment.
NOTE 5: LONG TERM DEBT
The Company finances five field service vehicles using notes with various terms
that are recorded in the financial statements as notes payable. The notes expire
at various times through March 2012 and have interest rates from 8.8% to 10.1%
per annum and payable in monthly installments of $4,448 including principal and
interest and due by March, 2012. The remaining notes payable amount will mature
through 2012 as follows: 2009 - $11,423, 2010 - $45,896, 2011 - $16,153, 2012 -
$4,316. Each note is secured by the vehicle acquired.
September 30, 2009 December 31, 2008
------------------ -----------------
(Unaudited)
------------------
Total Vehicle Notes $ 77,788 $ 110,341
Less: Current Portion 47,486 43,996
------------------ -----------------
Long term Portion $ 30,302 $ 66,345
================== =================
8
NOTE 6: SHAREHOLDERS' EQUITY
On February 27, 2009 the Company completed the sale of 350,000 shares of its
common stock and 3,250 shares of Series B Convertible Preferred Stock for per
share purchase prices of $5.00 and $1,000, respectively. Gross proceeds from
the sale were $5,000,000. The Company incurred costs of $200,000 in connection
with the sale.
Under the terms of the Subscription Agreement, the Company created a new class
of preferred stock as Series B Convertible Preferred Stock ("Series B"). The
Company is authorized to issue 4,000 shares of its new Series B preferred stock.
The Series B stock is convertible into 200 shares of the Company's common stock
for every share of Series B stock. The Series B preferred has a stated value of
$1,000 per share, carries an annual cumulative dividend of 7.5% and is senior
in liquidation preference to all other classes of stock. As of September 30,
2009, the Company accrued $144,247 for these dividends.
The Company Board of Directors' amended the Company's articles of incorporation
on March 31, 2009 to reduce the par value per share for its Cumulative
Convertible Series A Preferred Stock ("Series A Preferred Stock") to $0.01 from
$25 and to reduce the conversion rate to common stock to one from five. The
effect of the change in par value has been reflected in the consolidated
financial statements. All share and per share data have been retroactively
adjusted to reflect the recapitalization.
On August 15, 2009, the Company canceled the agreement dated July 6, 2009
between TOMI and industry third parties.
In November 2008 the Company's Board of Directors approved the 2008
Stock Option and Restricted Stock Plan (the "Plan"). The Stockholders of
the Company approved the Plan in May 2009. The Plan's purpose is to
provide an incentive to key Employees, Directors and Consultants of
the Company and to increase their interest in the Company's welfare and to
aid in attracting and retaining Employees, Directors and Consultants of
outstanding ability. The aggregate number of shares that may be issued
under the Plan is 2,500,000 shares.
NOTE 7: RELATED PARTY
On November 16, 2008, the Company entered into an employment agreement with its
President and CEO, Dr. Halden Shane, ("Employment Agreement"). As of September
30, 2009, the Company has accrued $708,004 for unpaid wages under the employment
agreement. On September 18, 2009, the Board of Directors accepted an offer by
Dr. Halden Shane to forego $150,000 in unpaid wages. The foregone compensation
has been recorded as an increase to additional paid-in capital.
On September 18, 2009, the Board of Directors granted 75,000 Shares of the
Company's common stock, valued at $146,250, to Dr. Halden Shane. The common
shares were valued based on the closing price per common share at the date of
grant. The common shares vest after two years of employment from the date of
grant. The fair market value of the unvested shares has been recorded as
deferred compensation at September 30, 2009.
On December 15, 2008 the Board of Directors approved the issuance of 510,000
shares of the Company's Series A Preferred Stock to Tiger Management, LLC, a
limited liability company wholly owned by the Company's CEO. The shares were
issued for management services performed by Tiger Management, LLC in 2007 and
2008 and were convertible into five shares of the Company's common stock at the
holder's option. The Company recorded a non-cash expense of $20,400,000 in
management and consulting fees during the year ended December 31, 2008, for
services rendered based on the fair value of the underlying common stock. The
fair value was determined using the price of the stock on the date the board
approved the issuance.
On March 31, 2009, the Company and Tiger Management, LLC amended the management
service agreement to include the vesting period for the Series A Preferred Stock
issued. The vesting period was established as June 2007 through December 31,
2010 and until the Company had reached at least one million dollars in annual
gross revenue. The Series A Preferred Stock issued to the CEO was also amended
to remove dividends; therefore, dividends accrued of $90,667 at December 31,
2008 were reversed during the three months ended March 31, 2009.
9
The Company's Board of Directors' amended its articles of incorporation on March
31, 2009 to reduce the conversion rate to common stock for its Series A
Preferred Stock from five shares to one and to reduce the par value per share of
Series A Preferred Stock to $0.01 from $25. As a result, of both the
establishment of a vesting period and the change in conversion rate, the
Company has recorded $18,312,558 in compensation credit for equity issuance
during the first quarter of 2009. The Company had previously recorded
$20,400,000 in other general and administrative expenses during the year ended
December 31, 2008. At September 30, 2009, the Company has recorded $1,423,256
in deferred compensation related to the vesting feature and this deferred amount
will be amortized over the remaining 15 month period. Amortization of deferred
compensation was $284,651 and $569,302 for the three and nine months ended
September 30, 2009, respectively. The fair value was determined using the price
of the stock on the date the board approved the amendment to the agreement. All
share and per share data have been retroactively adjusted to reflect the
recapitalization.
NOTE 8: COMMITMENTS AND CONTINGENCIES
The Company is subject to a legal proceeding and claim which has arisen in the
ordinary course of its business. This action, when finally concluded and
determined, will not in the opinion of management, have a material adverse
effect upon the financial position, liquidity and results of operations of the
Company.
NOTE 9: SUBSEQUENT EVENTS
The Company has evaluated subsequent events through November 14, 2009. On
October 16, 2009, the Company entered into a material definitive agreement to
purchase nineteen (19%) percent of the issued and outstanding member interests
of Advanced Disinfectant Technologies LLC ("Adtec"). Pursuant to the agreement
the Company purchased the stated interest in Adetec for consideration of 190,000
shares of its common stock valued at $807,500 based on the closing price of the
Company's common stock of $4.25 on October 16, 2009. The agreement provides a
stipulation that the Company intends to purchase the remaining member interests
or Adtec's assets subject to an appraisal to determine the final purchase price.
No closing date has been set for the intended transaction.
On November 9, 2009, the company obtained an executed proposal from Degmor
Industries, a environmental remediation firm based in New York City with
expertise in facility restoration after disaster related and environmental
contamination. The proposal grants Degmor licensing rights for New York and the
purchase of two commercial scale equipment packages designed to treat infectious
disease and air contaminants for large and small spaces. TOMI will issue
100,000 common shares priced at $200,000 to Degmor and will also receive a down
payment of $250,000, for a total of $450,000. TOMI will be entitled to revenue
sharing on future projects using this equipment.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In this report references to "TOMI" "we," "us," and "our" refer to TOMI
Environmental Solutions, Inc.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission ("SEC") encourages companies to disclose
forward-looking information so that investors can better understand future
prospects and make informed investment decisions. This report contains these
types of statements. Words such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "project," or "continue" or comparable terminology
used in connection with any discussion of future operating results or financial
performance identify forward-looking statements. You are cautioned not to place
undue reliance on the forward-looking statements, which speak only as of the
date of this report. All forward-looking statements reflect our present
expectation of future events and are subject to a number of important factors
and uncertainties that could cause actual results to differ materially from
those described in the forward-looking statements.
Overview of the Business
TOMI Environmental Solutions, Inc. (formerly "The Ozone Man, Inc.") (The
"Company" or "TOMI") provides green, energy-efficient environmental solutions
for infectious disease control and air remediation through inspection, air
quality testing, training and treatment using our premier platform of UV Ozone
generation services, products and technologies. Our focus to combat Hospital
infection control was recently enhanced with the addition of (MRA) TM -
Magnetic Resolution Activation product line as an additional cost effective
method to control the spread of infectious disease and can also be used after a
biological attack of our homeland security. Our Board of Directors' amended our
articles of incorporation and changed our corporate name to TOMI Environmental
Solutions from "The Ozone Man, Inc" on March 31, 2009.
Our products and services cover a broad spectrum of commercial structures
including office buildings, medical facilities, hotel , single homes, multi-unit
residences and schools. Our products and services have also been used in
restaurants and dairies.
We commenced our operations in the fourth quarter of 2007 and since 2008 we
began to implement our business plan by acquiring for cash both the intellectual
property and methodology that forms the basis of our ozone treatment system that
is at the core of our plan. We have also opened five service hubs around the
country in California, New York/New Jersey, Florida and North Carolina with
service vans and certified, trained personnel and we expect to continue the
expansion of our facilities.
During the second quarter of 2009, the Company exited the status of development
stage enterprise because the Company commenced its planned principal operations
and because the Company earned revenues during the quarter ended June 30, 2009.
On October 16, 2009, the Company entered into a material definitive agreement to
purchase nineteen (19%) percent of the issued and outstanding member interests
of Advanced Disinfectant Technologies LLC ("Adtec"). Pursuant to the agreement
the Company purchased the stated interest in Adetec for consideration of 190,000
shares of its common stock valued at $807,500 based on the closing price of the
Company's common stock of $4.25 on October 16, 2009. The agreement provides a
stipulation that the Company intends to purchase the remaining member interests
or Adtec's assets subject to an appraisal to determine the final purchase price.
No closing date has been set for the intended transaction.
On November 9, 2009, the company obtained an executed proposal from Degmor
Industries, a leading environmental remediation firm based in New York City with
expertise in facility restoration after disaster related and environmental
contamination. Degmor has been servicing a broad array of clients in the New
York metro area for more than twenty years. The proposal grants Degmor licensing
rights for New York and the purchase of two commercial scale equipment packages
designed to treat infectious disease and air contaminants for large and small
spaces. TOMI has received $200,000.00 as an investment from Degmor and will
receive a down payment of $250,000.00, for a total of $450,000.00. TOMI will be
entitled to revenue sharing on future projects using this equipment. Further,
the company and Degmor are negotiating a license agreement in addition to the
proposal.
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Business Outlook
TOMI's business growth strategy is to be "Your Professional Infectious Disease
Control & Air Remediation Company" by developing and acquiring a premier
platform of UV Ozone generation services, products and technologies. We also
strive to generate top-notch research on other air remediation solutions
including hydroxyl radicals and to form business alliances with major
construction companies and corporations specializing in disaster relief. We
continue to pursue complementary businesses in manufacturing ozone-related
products, testing labs and other indoor air treatment and maintenance products.
During the second quarter of 2009, the Company began generating revenue related
to commercial projects. TOMI continues to pursue revenue from multiple sources
and anticipates that our revenue stream will grow more diverse in the coming
quarters.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these 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. The estimation process requires assumptions to be made about future
events and conditions, and as such, is inherently subjective and uncertain.
Actual results could differ materially from our estimates.
The SEC defines critical accounting policies as those that are, in management's
view, most important to the portrayal of our financial condition and results of
operations and most demanding of our judgment. We consider the following
policies to be critical to an understanding of our consolidated financial
statements and the uncertainties associated with the complex judgments made by
us that could impact our results of operations, financial position and cash
flows.
Income (Loss) Per Share
The computation of income (loss) per share is based on the weighted average
number of common shares outstanding during the periods presented. Diluted income
(loss) per common share is computed based on the weighted average number of
common shares outstanding plus the dilutive effect of common stock equivalents.
Revenue Recognition
For revenue from services and product sales, the Company recognized revenue in
accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition" (SAB
No. 104), which superseded Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB No. 101). SAB No. 104 requires that
four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) service has been rendered or delivery has
occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured. Determination of criteria (3) and (4) are
based on management's judgment regarding the fixed nature of the selling prices
of the services rendered or products delivered and the collectibility of those
amounts. Provisions for discounts and rebates to customers, estimated returns
and allowance, and other adjustments will be provided for in the same period the
related sales are recorded.
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Intangible Assets
We report intangible assets in accordance with FASB Statement No. 142, Goodwill
and Other Intangible Assets which requires than an intangible asset with
indefinite useful economic life not be amortized, but instead be separately
tested for impairment using a fair-value approach. The evaluation of possible
impairment of intangible assets is affected by factors such as changes in
economic conditions and changes in operating performance. These factors could
cause us to recognize a material impairment charge as we assess the ongoing
expected cash flows and carrying amounts of intangible assets.
New Accounting Pronouncements
In May 2009, the Financial Accounting Standards Board ("FASB") issued Statement
of Accounting Standards No. 165 ("FASB 165"), Subsequent Events. This statement
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
available to be issued. This statement was adopted on June 30, 2009 and the
adoption of this statement did not have a significant impact on our financial
statements.
Results of Operations for the Three and Nine Months Ended September 30, 2009
Compared to the Three and Nine Months Ended September 30, 2008:
We began our planned principal operations during the second quarter of 2009.
Revenue for the three and nine months ended September 30, 2009 totaled $218,176
and $427,562, respectively. Revenue for the three and nine months ended
September 30, 2008 totaled $3,086 and $3,086, respectively. Revenue and
operating results for the two periods are not comparable because the Company
began its planned principal operations during the second quarter of 2009 and was
in its development stage prior to the second quarter of 2009.
Net (loss) income for the three and nine months ended September 30, 2009 was
($395,330) and $16,586,252. The net income for the nine months ended September
30, 2009 is primarily attributed to a non-cash compensatory credit element from
equity issuances of $18,312,558. On March 31, 2009, the Company and Tiger
Management, LLC amended the management service agreement to establish the
vesting period for the Series A Preferred Stock issued. The vesting period
was established to be the period June 2007 through December 31, 2010 and until
the Company had reached at least one million in annual gross revenue. Our
Board of Directors' amended the Company's articles of incorporation to reduce
the conversion rate to common stock for its Series A Preferred Stock from five
shares to one share and to reduce the par value per Series A Preferred Stock to
$0.01 from $25. As a result, the Company recorded $18,312,558 in compensation
credit for equity issuance during the first quarter of 2009. The Company had
previously recorded $20,400,000 in non-cash other general and administrative
expenses during the year ended December 31, 2008. The fair value was determined
using the price of the stock on the date the board approved the amendment to the
agreement. Professional and consulting fees include legal, accounting and
consulting expenses. General and administrative expenses primarily include
payroll and payroll related expenses, rent and depreciation.
Liquidity and Capital Resources
Operations and liquidity needs are funded through cash flows from equity
offerings and debt. On February 27, 2009 the Company completed the sale of
350,000 shares of its common stock and 3,250 shares of Series B Convertible
Preferred Stock for per share purchase prices of $5.00 and $1,000, respectively.
Gross proceeds from the sale were $5,000,000. At September 30, 2009, we have
an unrestricted cash balance of $1,548,433. We have a restricted investment
with an original cost of $3,250,000 pursuant to the terms of the Subscription
Agreement, which stipulated the use of the proceeds for merger and acquisition
reserves to be used to acquire established independent providers of heating,
ventilation and air conditioning ("HVAC") sales and services. No approval from
the investor is required to acquire these HVAC companies.
Off-Balance Sheet Arrangements
None.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 4. CONTROLS AND PROCEDURES
We have established a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by us in our reports filed
under the Securities Exchange Act, is recorded, processed, summarized and
reported within the time periods specified by the SEC's rules and forms.
Disclosure controls have also designed with the objective of ensuring that this
information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure. We believe our disclosure
controls and internal controls are effective for the three months ended
September 30, 2009.
We do not expect that our disclosure controls or internal controls over
financial reporting will prevent all errors or all instances of fraud. A
control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system's objectives will
be met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Because of the inherent limitation of a cost-effective control system,
misstatements due to error or fraud may occur and not be detected. We did not
implement any changes in controls during the three and nine months ended
September 30, 2009.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
At September 30, 2009, we were involved in a legal matter arising from the
ordinary course of business. Although the ultimate resolution of this matter
cannot be determined at this time, we do not believe that this matter will have
a material adverse effect on our future consolidated results of operations, cash
flows or financial condition.
ITEM 1A. RISK FACTORS.
See discussion contained in 10-K filed with the Commission on March 31, 2009.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In October 2009, the Company issued 5,500 common shares in lieu of cash
compensation and issued 190,000 common shares as consideration for an
acquisition. In November 2009, the Company sold 100,000 common shares at $2
per share.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
Part I Exhibits
31.1 Principal Executive Officer Certification
31.2 Principal Financial Officer Certification
32.1 Section 1350 Certification
Part II Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOMI ENVIRONMENTAL SOLUTIONS, INC.
Date: November 16, 2009
By: /s/ Halden Shane
------------------------------------------------
Halden Shane
Principal Executive Officer
Principal Financial and Accounting Officer
1