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 June 30, 2010
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-09908
TOMI Environmental Solutions, 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 August 1, 2010 had 35,053,480 shares of common stock outstanding.
FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED June 30, 2010
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 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
ITEM 4. CONTROLS AND PROCEDURES 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 1A. RISK FACTORS 15
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS 16
1
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOMI Environmental Solutions, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2010 December 31, 2009
------------------ -----------------
(Unaudited)
ASSETS
------
Current Assets:
---------------
Cash and Cash Equivalents $ 2,883 $ 13,126
Investments - Restricted - 3,563,062
Accounts Receivable 8,020 11,660
Notes Receivable - net of reserve of $95,000 at June 30, 2010 - 75,000
Deferred Cost - 122,576
Prepaid & Other Current Assets 43,363 2,751
------------------ -----------------
Total Current Assets 54,266 3,788,175
------------------ -----------------
Property and Equipment - net 145,804 306,633
------------------ -----------------
Other Assets:
-------------
Intangible Assets, net 97,212 102,767
Security Deposits 5,416 5,416
------------------ -----------------
Total Other Assets 102,628 108,183
------------------ -----------------
TOTAL ASSETS $ 302,698 $ 4,202,991
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
--------------------
Accounts Payable and Accrued Expenses $ 210,701 $ 118,124
Accrued Officers Compensation 988,209 827,868
Loans Payable 17,500 -
Notes Payable - Current Portion 23,727 45,896
Convertible Notes Payable, net of discounts of
$57,364 and $-0-, respectively 37,636 -
Derivative Liability Related to Convertible Notes 112,483 -
Obligations to be Settled through Issuance of Common Stock 250,000 268,500
Deferred Revenue - 199,022
Dividends Payable on Preferred Convertible Stock - 205,685
------------------ -----------------
Total Current Liabilities 1,640,256 1,665,095
Long-term Liabilities:
----------------------
Non-Current Portion of Notes Payable - Other 6,303 20,468
------------------ -----------------
Total Liabilities 1,646,559 1,685,563
------------------ -----------------
COMMITMENTS AND CONTINGENCIES - -
Stockholders' Equity (Deficiency):
----------------------------------
Cumulative Convertible Series A Preferred Stock,
$0.01 par value, 1,000,000 shares authorized,
510,000 shares issued and outstanding at
June 30, 2010 and December 31, 2009. 5,100 5,100
Cumulative Convertible Series B Preferred Stock,
$1,000 stated value, 7.5% cumulative dividend,
4,000 shares authorized, none issued and outstanding
at June 30, 2010 and 3,250 shares issued and
outstanding at December 31, 2009. - 3,250,000
Common Stock, $.01 par value, 75,000,000 shares
authorized; 35,045,480 and 35,277,480 shares
issued and outstanding at June 30, 2010 and
December 31, 2009, respectively. 350,454 352,774
Additional Paid-in Capital 9,653,844 9,683,721
Accumulated Deficit (10,694,607) (9,489,312)
Deferred compensation (658,652) (1,284,855)
------------------ -----------------
Total Stockholders' Equity (Deficiency) (1,343,861) 2,517,428
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 302,698 $ 4,202,991
================== =================
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 Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009
-------------- -------------- -------------- --------------
Net Revenues $ 17,978 $ 212,697 $ 289,023 $ 218,587
Cost of Sales 535 40,696 128,421 40,696
-------------- -------------- -------------- --------------
Gross Profit 17,443 172,001 160,602 177,891
-------------- -------------- -------------- --------------
Costs and Expenses:
-------------------
Professional Fees 101,662 57,532 141,678 536,207
Other General and Administrative Expenses 328,877 384,929 601,236 684,276
Management and Consulting Fees 302,932 284,651 569,302 (18,027,907)
-------------- -------------- -------------- --------------
Total Costs and Expenses 733,471 727,112 1,312,216 (16,807,424)
-------------- -------------- -------------- --------------
Income (Loss) from Operations (716,028) 555,111 (1,151,614) 16,985,315
-------------- -------------- -------------- --------------
Other Income (Expenses):
------------------------
Other Income (expense) (61,457) - 5,909 -
Change in fair market value of derivative liability (55,120) - (55,120) -
Interest income - 980 - 1,516
Interest expense (2,096) (2,516) (4,470) (5,251)
-------------- -------------- -------------- --------------
Total Other Income (Expense) (118,673) (1,536) (53,681) (3,735)
-------------- -------------- -------------- --------------
Net Income (Loss) $ (834,701) $ (556,647) $ (1,205,295) $ 16,981,580
============== ============== ============== ==============
Income (Loss) attributable to common stockholders
Net Income (Loss) $ (834,701) $ (556,647) $ (1,205,295) $ 16,981,580
Preferred stock dividend - 60,770 - 82,808
-------------- -------------- -------------- --------------
Income (Loss) atributable to common stockholders $ (834,701) $ (617,417) $ (1,205,295) $ 16,898,772
============== ============== ============== ==============
Net Income (Loss) per Common Share - Basic $ (0.02) $ (0.02) $ (0.03) $ 0.49
============== ============== ============== ==============
Net Income (Loss) per Common Share - Diluted $ - $ - $ - $ 0.47
============== ============== ============== ==============
Weighted Average Common Shares Outstanding - Basic 34,915,865 34,870,268 35,058,381 34,699,667
============== ============== ============== ==============
Weighted Average Common Shares Outstanding - Diluted - - - 35,859,667
============== ============== ============== ==============
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 Six For the Six
Months Ended Months Ended
June 30, 2010 June 30, 2009
-------------- --------------
OPERATING ACTIVITIES
--------------------
Net Income (Loss) $ (1,205,295) $ 16,981,580
Adjustments to reconcile net income (loss) to net
cash (used) by operating activities:
Depreciation and Amortization 52,333 44,576
Bad Debt Expense 100,870 -
Common and Preferred Stock Issued for Services 34,245 300,745
Amortization of Deferred Compensation 626,203 284,651
Change in Fair Value of Derivative Liability 55,120 -
Management and Consulting Fees - (18,312,558)
Gain on Sale of Property and Equipment (5,919) -
Changes in Operating Assets and Liabilities:
(Increase) in Security Deposits - (10)
(Increase) Decrease in Accounts Receivable (2,230) (44,738)
Decrease in Prepaids and Other Current Assets 122,899 5,036
(Decrease) in Obligations to Issue Common Stock (18,500) -
Increase in Accounts Payable and Accrued Liabilities 252,918 439,080
(Decrease) in Deferred Revenue (199,022) -
-------------- --------------
Net Cash (Used) in Operating Activities (186,378) (301,638)
-------------- --------------
INVESTING ACTIVITIES
--------------------
Purchase of Investments - (3,250,000)
Proceeds from Liquidatiion of Investments 3,563,062 -
Capital Expenditures (2,060) (11,339)
Proceeds from Sale of Property and Equipment 122,030 -
-------------- --------------
Net Cash Provided by (Used) in Investing Activities 3,683,032 (3,261,339)
-------------- --------------
FINANCING ACTIVITIES
--------------------
Proceeds from the Sale of Common Stock - 1,750,000
Proceeds from the Sale of Series B Preferred Stock - 3,250,000
Expense of Private Placement - (200,000)
Redemption of Series B Preferred Stock (3,250,000) -
Redemption of Common Stock (313,063) -
Payment for Notes Receivable (20,000) -
Proceeds from Loan Payables 17,500 -
Proceeds from Convertible Notes Payable 95,000 -
Payments of Notes Payable (36,334) (21,438)
-------------- --------------
Net Cash Provided by Financing Activities (3,506,897) 4,778,562
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (10,243) 1,215,585
-------------- --------------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 13,126 367,697
-------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,883 $ 1,583,282
============== ==============
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 Six For the Six
Months Ended Months Ended
June 30, 2010 June 30, 2009
------------------- -------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $ 2,097 $ 5,251
=================== ===================
Income taxes $ - $ -
=================== ===================
Supplemental Disclosures of Cash Flow Information:
--------------------------------------------------
Non Cash Financing Activities:
Issuance of Common Stock for payment of accounts payable $ - $ 46,670
=================== ===================
Dividends payable on preferred stock - Series B $ 60,102 $ 82,808
=================== ===================
Discount on Convertible Debt $ 57,364 $ -
=================== ===================
Common Stock issued for prepaid consulting fees $ 40,935 $ -
=================== ===================
Reversal of dividends payable on preferred stock - Series B $ 265,787 $ -
=================== ===================
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS
TOMI Environmental Solutions, Inc. (formerly "The Ozone Man, Inc.") (the
"Company" or "TOMI ") A Global Green Infectious Disease Control and Air
Remediation Company providing energy-efficient environmental solutions for
indoor air remediation through training, licensing, certification and sales
of our premier platform of UV Ozone generation, Hydrogen peroxide misters
and UVGI ,products and technologies.
Our focus to combat Hospital infection control was recently enhanced with the
addition of a newly developed line of fixed or built in, portable and back-pack
units of technology utilizing hydrogen peroxide misting for the cost effective
method to control the spread of disease and the protection against bio-terrorism
of our and other countries borders.
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 and motel rooms single
homes, multi-unit residences and schools.
Our products and services have also been used in restaurant and laundry
applications and can also be used for water treatment in agriculture, meat
processing plants and dairies.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
-------------
The Company had limited revenues during the year ended December 31, 2009 and
during the six months ended June 30, 2010. The Company has not been able to
generate positive cash from operations for the years ended December 31, 2009 and
2008 and six months ended June 30, 2010. In addition, at June 30, 2010 the
Company has a negative working capital of $1,585,990 and stockholder deficiency
of $1,343,861. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
The Company plans on funding operations and liquidity needs from licensing
arrangements, debt financing and continuing to raise funds through the sale of
its common stock. There can be no assurance that additional funds required
during the next year or thereafter will be generated from operations. Should
the Company seek additional funds from external sources such as debt or
additional equity financings or other potential sources there can be no
assurance that such funds will available or available on terms acceptable to
the Company or that they will not have a significant dilutive effect on the
Company's existing stockholders. The lack of additional capital resulting from
the inability to generate cash flow from operations or to raise capital from
external sources would force the Company to substantially curtail or cease
operations and would, therefore, have a material adverse effect on its business.
Accordingly, the Company's existence is dependent on management's ability to
develop profitable operations and resolve its liquidity problems. The
accompanying financial statements do not include any adjustments related to the
recoverability or classification of asset-carrying amounts or the amounts and
classification of liabilities that may result should the Company be unable to
continue as a going concern.
6
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, 2009 and notes thereto which are
included in the Form 10-K previously filed with the SEC on April 15, 2010. 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 presentation. These reclassifications
had no effect on previously reported results of operations or financial
position.
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 and six months ended June 30, 2010 and three months ended June 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 and convertible debt) would
be anti-dilutive and has therefore, been excluded from the computation. For the
six months ended June 30, 2009, diluted earnings per common stock was calculated
after consideration of common stock equivalents. For the three and six months
ended June 30, 2010, there were common stock equivalents of 510,000 shares of
Convertible Series A Preferred Stock outstanding at a conversion rate of one
common share for every preferred share (510,000 common shares). For the six
months ended June 30, 2010 there were common stock equivalent of 1,585,094
shares related to the convertible debt. For the three and six months ended
June 30, 2009, there were common stock equivalents of 510,000 shares of
Convertible Series A Preferred Stock outstanding at a conversion rate of one
common share 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). The common stock issued
and outstanding has been included for all presented periods with respect to the
effect of the recapitalization.
7
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.
New Accounting Pronouncements
-----------------------------
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This guidance amends the disclosure requirements related to
recurring and nonrecurring fair value measurements and requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance became effective for the reporting
period beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
the reporting period beginning January 1, 2011. The Company's adoption of this
updated guidance was not significant to our consolidated financial statements.
In February 2010, the FASB issued updated guidance related to subsequent events.
As a result of this updated guidance, public filers must still evaluate
subsequent events through the issuance date of their financial statements;
however, they are not required to disclose the date in which subsequent events
were evaluated in their financial statements disclosures. This amended guidance
became effective upon its issuance on February 24, 2010 at which time the
Company adopted this updated guidance.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
June 30, 2010 December 31, 2009
------------------ -----------------
(Unaudited)
Furniture and fixture $ 18,937 $ 16,877
Equipment 102,868 188,734
Vehicles 132,055 219,766
------------------ -----------------
253,860 425,377
Less: Accumulated depreciation 108,056 118,744
------------------ -----------------
$ 145,804 $ 306,633
================== =================
Depreciation was $20,403 and $46,778 for the three and six months ended June 30,
2010, respectively, and $23,589 and $44,576 for the three and six months ended
June 30, 2009, respectively.
8
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 $2,778 and $5,556 during the three and six months ended
June 30, 2010. These assets are tested for impairment annually or if certain
circumstances indicate a possible impairment may exist in accordance with ASC
350, Intangibles - Goodwill and Other. The carrying value of these assets is
assessed at least annually and an impairment charge is recorded if appropriate.
As of June 30, 2010 there was no impairment.
NOTE 5: DEBT
Notes Payables
--------------
The Company finances three 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: 2010 - $15,176, 2011 - $12,696, 2012 - $2,158. Each
note is secured by the vehicle acquired.
June 30, 2010 December 31, 2009
------------------ -----------------
(Unaudited)
Total Vehicle Notes $ 30,030 $ 66,364
Less: Current Portion 23,727 45,896
------------------ -----------------
Long term Portion $ 6,303 $ 20,468
================== =================
Convertible Notes Payable
-------------------------
On April 26, 2010, the Company issued a convertible note payable in the amount
of $60,000 due nine months after issuance and bearing an interest rate of 8% per
annum. The note is convertible to common stock at the option of the holder
based on a variable conversion price specified as the 42% discount of the
average three lowest trading price of the Company's stock during the prior ten
trading days ending prior to the day of conversion notice. In the event of
default, interest becomes 22% annum and the note is immediately due at an amount
of 150% of outstanding principal and unpaid interest. A discount of $32,832 and
a derivative liability of $71,042 have been recorded at June 30, 2010 pertaining
to this note payable. The Company has reserved 2,803,738 common shares under the
promissory note pursuant to the terms of the agreement as of June 30, 2010.
9
On May 17, 2010, the Company negotiated a convertible note payable in the amount
of $35,000 due nine months after issuance and bearing an interest rate of 8% per
annum. The note is convertible to common stock at the option of the holder
based on a variable conversion price specified as the 42% discount of the
average three lowest trading price of the Company's stock during the prior ten
trading days ending prior to the day of conversion notice. In the event of
default, interest becomes 22% annum and the note is immediately due at an amount
of 150% of outstanding principal and unpaid interest. A discount of $24,532 and
a derivative liability of $41,141 have been recorded at June 30, 2010 pertaining
to this note payable. The Company has reserved 1,635,514 common shares under the
promissory notes pursuant to the terms of the agreement as of June 30, 2010.
The Company paid expenses totalling $5,500 in connection with the two notes. The
notes also have provisions relating to conversion price adjustments relating to
the happening of certain events.
Loans Payable
-------------
Loans totaling $17,500 (which includes a loan in the amount of $9,000 from the
Company's CEO) with an imputed interest rate of 8% were advanced to the Company
as of June 30, 2010 and are payable on demand.
NOTE 6: SHAREHOLDERS' EQUITY
On April 13, 2010, the Company's Board of Directors rescinded the transaction
entered into in February 2009 with Taurus Global Opportunity Fund, canceled
3,250 shares of the Series B stock and 350,000 common shares and paid the
holders $3,563,062 from the proceeds of the restricted investment. The accrued
dividends on the Series B stopped upon the effective date of the cancellation of
the agreement on April 13, 2010 and the accrued dividend of $265,787 was
reversed into additional paid in capital.
The Company issued a total of 318,000 common shares valued at $115,180 for
consulting services during the three months ended June 30, 2010. Deferred
compensation of $40,935 has been recorded for these common shares as of June
30, 2010.
On May 13, 2010, shares totaling 200,000 valued at $40,000 originally issued
during the year 2008 for consulting services was rescinded and cancelled. The
value of the common shares was recorded as an offset to consulting expenses
during the quarter ended June 30, 2010.
On November 16, 2008, the Company entered into an employment agreement with its
President and CEO, Dr. Halden Shane, ("Employment Agreement"). As of June 30,
2010, the Company has accrued $988,209 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. During the three and six months ended June 30, 2010,
$18,281 and $56,901 of the deferred compensation had been amortized and
deferred compensation is $89,349 at June 30, 2010.
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.
10
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.
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
June 30, 2010, the Company has deferred compensation of $658,652
related to the vesting feature and this deferred amount will be amortized over
the remaining periods. Amortization of deferred compensation was $302,932 and
$626,303 for the three and six months ended June 30, 2010. 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 7: 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 8: NOTES RECEIVABLES
The Company is the holder of two promissory notes with Advanced Disinfectant
Technologies ("Adtec") in the amount of $75,000 and $20,000 on November 23,
2009 and February 2010. The first note is due on or before November 30, 2010 and
the second note is due on or before February 2011. The notes bear interest of 8%
per annum. In the event of default, the Company is entitled to receive seven
foggers at no charge or to deduct any unpaid amounts from the acquisition of the
remaining 81% of Adtec. During the second quarter of 2010, the Company fully
reserved these notes receivable and recorded bad debts expense of $95,000.
NOTE 9: SUBSEQUENT EVENTS
The Company cancelled its agreement with Adtec in July 2010. On October 12,
2009, the Company had purchased 19% of the issued and outstanding member
interests of Adtec for 190,000 shares of the Company's common stock. In August
2010, the related common shares were returned to the Company and the Company
relinquished its interest in Adtec.
In July 2010, the Company established a Singapore subsidiary with an ownership
interest of 55% and began operations in Singapore.
In August 2010, the Company issued 2,500,000 shares of it's common stock to the
CEO, Dr. Halden Shane as consideration for $150,000 in accrued compensation.
11
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 ") A Global Green Infectious Disease Control and Air
Remediation Company providing state of the art technology and energy-efficient
environmental solutions for indoor air remediation through training , licensing,
certification and sales of our premier platform of UV Ozone generation, Hydrogen
peroxide misters and UVGI products and technologies. Our focus to combat
hospital infection control was recently enhanced with the addition of a newly
developed line of fixed or built in, portable and back-pack units of technology
utilizing hydrogen peroxide misting for the cost effective method to control the
spread of disease and the protection against bio-terrorism of our and other
countries borders.
Our products and services cover a broad spectrum of commercial structures
including office buildings, medical facilities, hotel and motel rooms single
homes, multi-unit residences and schools. Our products and services have also
been used in restaurant and laundry applications and can also be used for water
treatment in agriculture, meat processing plants and dairies.
We commenced our planned principal operations in the second quarter of 2009 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 UV ozone,
Hydrogen Peroxide Mister and our UVGI treatment system that is at the core of
our plan. We have also opened three service hubs around the country in
California, New York/New Jersey, and with service vans and certified, trained
personnel and we expect to continue the expansion of our facilities.
During the first quarter of 2010 the company completed the sale of its equipment
to its licensee partner in New Your City and its alliance partner Rolyn in
Rockville, Maryland. The company also successfully trained approximately 43
technicians for those respective companies.
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.
12
Business Outlook
----------------
TOMI's business growth strategy is to be " The Global Green Leader in Infectious
Disease Control and Air Remediation" by developing and acquiring a premier
platform of UV Ozone generation services, Hydrogen Peroxide Misters and UVGI
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 remediation companies, 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 2nd quarter of 2009, TOMI started recognizing revenue related to a
commercial project that was completed during the 3rd quarter of 2009. This
revenue relates to our commercial division and is a highly attractive business
for the Company. TOMI continues to pursue revenue from multiple sources and
anticipates that our revenue stream will grow more diverse in the future.
During the 3rd quarter of 2010, TOMI formed its first foreign subsidiary in
Singapore. TOMI Environmental Solutions-Singapore and has received its first
order recently from COSEM which is a Safety & Security Services Pte. Ltd and a
wholly owned subsidiary company of the Co-operative of SCDF Employees Ltd. It is
managed and staffed by experienced ex-employees of the Singapore Civil Defense
Force (SCDF) . The new Singapore subsidiary, which is majority owned by the
Company, will feature an array of experienced individuals with specific
knowledge of the customers, business climate, and state-owned industries that
understand the urgent need to have clean air and control any outbreaks of
infectious disease. Management believes that these contacts will foster
critical relationships and convince more customers that TOMI Environmental
Solutions will improve homeland security and infectious disease control within
any indoor environment.
Also during the 3rd quarter of 2010 ,TOMI rescinded its stock purchase agreement
with Adtec and reversed its 19 percent holding in AdTec due to a patient
infringement law suit from a major U.S. defense contractor that raised serious
legal issues as the ownership of the intellectual property upon which Adtec's
product was based. TOMI has received its stock back.
Critical Accounting Policies and Estimates
------------------------------------------
Refer to our Form 10-K filed with SEC on April 15, 2010.
New Accounting Pronouncements
-----------------------------
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This guidance amends the disclosure requirements related to
recurring and nonrecurring fair value measurements and requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance became effective for the reporting period
beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
the reporting period beginning January 1, 2011. The Company's adoption of this
updated guidance was not significant to our consolidated financial statements.
13
In February 2010, the FASB issued updated guidance related to subsequent events.
As a result of this updated guidance, public filers must still evaluate
subsequent events through the issuance date of their financial statements;
however, they are not required to disclose the date in which subsequent events
were evaluated in their financial statements disclosures. This amended guidance
became effective upon its issuance on February 24, 2010 at which time the
Company adopted this updated guidance.
Results of Operations for the Three and Six Months June 30, 2010 Compared to the
--------------------------------------------------------------------------------
Three and Six Months Ended June 30, 2009:
-----------------------------------------
We began our planned principal operations during the second quarter of 2009.
Revenue for the three and six months ended June 30, 2010 totaled $17,978 and
$289,023, respectively. Revenue for the three and six months ended June 30,
2009 totaled $212,697 and $218,587. The decrease in revenue for the three and
six months ended June 30, 2010 when compared to the prior comparable period is
due to a change in the company's business strategy to licensing its products to
third parties and receiving royalty income rather than providing direct service.
Net loss for the three and six months ended June 30, 2010 totaled $834,701 and
$1,205,275, respectively. Net loss (income) for the three and six months ended
June 30, 2009 totaled $556,647 and ($16,981,580), respectively. The net income
for the six months ended June 30, 2009 is primarily attributed to a non-cash
compensatory credit element from equity issuances of approximately $18,000,000.
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
-------------------------------
The unaudited condensed consolidated financial statements contained in this
Quarterly Report have been prepared on a "going concern" basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. We have an immediate and urgent need for
additional capital. For the reasons discussed herein, there is a significant
risk that we will be unable to continue as a going concern, in which case, you
would suffer a total loss of your investment in our company.
We plan on funding operations and our liquidity needs from licensing
arrangements, structured similarly to the Degmor Licensing Agreement that have
profit margins from sale of equipment, licensing of equipment, recurring income
from solution sales, along with a 12% income from annual gross sales for the
utilization of the equipment licensed. We also intend to continue to raise
equity capital through the sale of restricted stock. Furthermore, we are
currently negotiating equity and/or debt financing in the amount of up to $5
million dollars.
Off-Balance Sheet Arrangements
------------------------------
None.
14
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 June
30, 2010.
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 months ended June 30, 2010.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not a party to any proceedings or threatened proceedings as of the date
of this filing.
In August, 2010 the Company settled a lawsuit with a former consultant seeking
$60,000 and 200,000 common shares for an aggregate of 400,000 shares subject to
certain restrictions and lockup provisions and no cash consideration. The
Company has recorded the settlement at a value of $24,000.
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.
On April 26, 2010, the Company executed a Secured Convertible Notes Payable in
the amount of $60,000. The note bears interest of 8% and is convertible to
common shares. The Company has reserved 2,803,738 common shares under the
promissory note pursuant to the terms of the agreement.
On May 17, 2010, the Company executed a Secured Convertible Notes Payable in the
amount of $35,000. The note bears interest of 8% and is convertible to common
shares. The Company has reserved 1,635,514 common shares under the promissory
note pursuant to the terms of the agreement.
15
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: August 23, 2010
By: /s/ Halden Shane
------------------------------------------------
Halden Shane
Principal Executive Officer
Principal Financial and Accounting Officer
1
