TOMI Environmental Solutions, Inc. - FORM 10-K

Attached files

file	filename
EX-10 - SHANE EMPLOYMENT CONTRACT - TOMI Environmental Solutions, Inc.	tomi-10k_12312010emp.txt
EX-10 - JOINT VENTURE AGREEMENT WITH ZERA INVESTMENTS - TOMI Environmental Solutions, Inc.	tomi-10k_12312010zera.txt
EX-31 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER - TOMI Environmental Solutions, Inc.	tomi-10k_12312010ex311.txt
EX-32 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER - TOMI Environmental Solutions, Inc.	tomi-10k_12312010ex322.txt
EX-31 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER - TOMI Environmental Solutions, Inc.	tomi-10k_12312010ex312.txt
EX-32 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER - TOMI Environmental Solutions, Inc.	tomi-10k_12312010ex321.txt

________________________________________________________________________________
________________________________________________________________________________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)

9454 Wilshire Blvd., R-1,
Beverly Hills, CA 90212
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (800) 525-1698

Name of Each Exchange
Title of Each Class on Which Registered
---------------------------------------------------- -------------------------
Common Stock, $0.01Par Value OTC Bulletin Board

Cumulative Series A Preferred Stock, $0.01 Par Value

Cumulative Convertible Series B Preferred Stock,
$1,000 Stated Value

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ]

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [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 definitions of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Small 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]

The aggregate market value of the common stock held by non-affiliates of the
registrant as of the last business day of the Registrant's most recently
completed second fiscal quarter was approximately $3,805,187 based upon the
closing price of registrant's common stock on that date.

As of March 20, 2011 the registrant had 63,681,909 shares of common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None.
________________________________________________________________________________
________________________________________________________________________________

TOMI ENVIRONMENTAL SOLUTIONS, INC.
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2010
TABLE OF CONTENTS

Item Page
==== ====
PART I

1. Business............................................................ 1
1A. Risk Factors........................................................ 2
1B. Unresolved Staff Comments........................................... 5
2. Properties.......................................................... 5
3. Legal Proceedings................................................... 5
4. Removed and Reserved................................................ 5

PART II

5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities................. 6
6. Selected Financial Data............................................. 6
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 6
7A. Quantitative and Qualitative Disclosures About Market Risk.......... 11
8. Financial Statements and Supplementary Data......................... 11
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure............................... 11
9A. Controls and Procedures............................................. 11
9B. Other Information................................................... 12

PART III

10. Directors, Executive Officers and Corporate Governance.............. 13
11. Executive Compensation.............................................. 14
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters........................ 15
13. Certain Relationships and Related Transactions, and
Director Independence............................................. 16
14. Principal Accountant Fees and Services.............................. 16

PART IV

15. Exhibits and Financial Statement Schedules.......................... 17
Signatures............................................................... 18
Exhibit Index............................................................ 19
Financial Statements..................................................... F-3

CAUTIONARY STATEMENT

This Annual Report on Form 10-K contains or incorporates by reference
certain forward-looking statements within the meaning of Section 27A of the 1933
Act and Section 21E of the Securities Exchange Act of 1934, as amended, and, as
such, may involve known and unknown risks, uncertainties and assumptions.
Forward-looking statements are those that predict or describe future events or
trends and that do not relate solely to historical matters. You can generally
identify forward-looking statements as statements containing the words "will,"
"believe," "expect," "anticipate," "intend," "estimate," "assume" or other
similar expressions. You should not rely on our forward-looking statements
because the matters they describe are subject to assumptions, known and unknown
risks, uncertainties and other unpredictable factors, many of which are beyond
our control. Therefore, our actual results could differ materially and adversely
from those expressed in any forward-looking statements as a result of various
factors, some of which are listed under the section "Risk Factors," Item 1A of
this Annual Report on Form 10-K.

As used in this Annual Report on Form 10-K, "company," "we," "us," "our"
and "TOMI" refer to TOMI Environmental Solutions, Inc.

PART I

Item 1. BUSINESS

Overview

TOMI Environmental Solutions, Inc., a global surface and air
decontamination and infectious disease control company, providing green energy-
efficient environmental solutions for indoor air remediation and surface
decontamination through sales and licensing of our premier platform of Hydrogen
Peroxide misters, Ultra-Violet Ozone Generators and Ultra-Violet Germicidal
Irradiation ("UVGI") products and technologies.

Our effort to combat bacterial and viral outbreaks along with hospital
infection control was recently enhanced with the addition of a newly developed
line of fixed and portable units that utilize hydrogen peroxide misting for a
cost-effective method to control the spread of infectious diseases including
neutralizing pathogens from bio-terrorism attacks.

Our products are designed to service a broad spectrum of commercial
structures including office buildings, medical facilities, hotel and motel
rooms, restaurants, meat and produce processing facilities, military barracks,
athletic facilities and schools. Our products and services have also been used
in single-family homes and multi-unit residences.

We also intend to generate and support research on other air remediation
solutions including hydroxyl radicals and other Reactive Oxygen Species ("ROS")
and to form business alliances with major remediation companies, construction
companies and corporations specializing in disaster relief along with expanding
our sales in North America, Europe, the Middle East and the Far East.

We continue to pursue complementary businesses in manufacturing ROS related
products, testing labs and other indoor air treatment and maintenance products.

We commenced our planned principal operations in the second quarter of 2009
as we commenced the implementation of our business plan by acquiring the related
intellectual property and/or the distribution rights for our Hydrogen Peroxide
Mister, Ultra-Violet Ozone Generators and our UVGI system that is at the core of
our plan.

During the first quarter of 2010, the Company completed the sale of its
equipment to its licensee partner in New York City and its alliance partner,
Rolyn, in Rockville, Maryland. The Company also successfully trained
approximately 43 technicians for those respective companies.

The Company began sales to international locations during the third quarter
of 2010. During the three months ended September 30, 2010, the Company had net
revenue totaling $7,708. In October 2010, the Company expanded its sales
operations to the United Arab Emirates with sales totaling $54,000.

We operate two service hubs in Southern California and New York/New Jersey.

Competition

The infectious disease and air remediation industry is extremely
competitive. The Company's principal competitors for its Steramist Mister are
BioQuell, Steris and Sterinis; for its UV Ozone generators are Air-Zone,
BI-Ozone and Crystal Air; and for its UVGI products are Honeywell, Sannavox and
Steril-Air. From a service end the competition are other remediators and
abatement companies. These competitors may have longer operating histories,
greater name recognition, larger installed customer bases and substantially
greater financial and marketing resources than the Company. The Company
believes that the principal factors affecting competition in this proposed
market include name recognition and the ability to receive referrals based on
client confidence in the Company's service. There are no significant barriers
of entry that could keep potential competitors from opening similar facilities.
The Company's ability to compete successfully in the industry will depend in
large part upon its ability to market and sell its indoor air remediation and
infectious disease control products and services and be able to respond
effectively to changing insurance industry standards and methodology. There can
be no assurance that the Company will be able to compete successfully in the
remediation industry or that future competition will not have a material
adverse effect on the business, operating results and financial condition of
the Company.

Employees

At December 31, 2010, we had five full-time employees.

Company Information

We were incorporated in Florida on September 18, 1979 and commenced our
current principal operations on February 8, 2008. Our principal executive
offices are located at 9454 Wilshire Blvd., R-1, Beverly Hills, California
90212.

Information on our Company Website

The Company maintains a website, http://www.tomiesinc.com. We make our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act,
available, free of charge, on our website as soon as reasonably practicable
after we file or furnish these reports with the United States Securities and
Exchange Commission, or the SEC. In addition, we post the following information
on our website (the Company does not intend to and does not hereby incorporate
by reference the information on our website as a part of this Annual Report on
Form 10-K):

. our corporate code of conduct, which qualifies as a "code of ethics" as
defined by Item 406 of Regulation S-K of the Exchange Act; and

. charters for our Audit Committee and Compensation Committee.

All of the above information is also available in print upon request to our
secretary at the address listed under the heading "Company Information" above.

Item 1A. RISK FACTORS.

Our business routinely encounters and attempts to address risks, some of
which will cause our future results to differ, sometimes materially, from those
originally anticipated. Below, we have described our present view of certain
important risks. The risk factors set forth below are not the only risks that we
may face or that could adversely affect us. If any of the risks discussed in
this Annual Report on Form 10-K actually occur, our business, financial
condition and results of operations could be materially adversely affected. If
this were to occur, the trading price of our securities could decline
significantly and you may lose all or part of your investment.

The following discussion of risk factors contains "forward-looking
statements," which may be important to understanding any statement in this
Annual Report on Form 10-K or elsewhere. The following information should be
read in conjunction with Item 7- Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) and Item 8- Financial
Statements and Supplementary Data of this Annual Report on Form 10-K.

Risks Related to Our Business

Our independent registered public accounting firm has issued a "going concern"
opinion.

Our ability to continue as a going concern is dependent upon our ability to
generate profitable operations in the future and/or to obtain the necessary
financing to meet our obligations and repay our liabilities arising from normal
business operations when they come due. We plan to continue to provide for our
capital requirements by issuing additional equity. No assurance can be given
that additional capital will be available when required or on terms acceptable
to us. We also cannot give assurance that we will achieve sufficient revenues in
the future to achieve profitability and cash flow positive operations. The
outcome of these matters cannot be predicted at this time and there are no
assurances that, if achieved, we will have sufficient funds to execute our
business plan or to generate positive operating results. Our independent
registered public accounting firm has indicated that these matters, among
others, raise substantial doubt about our ability to continue as a going
concern.

We operate in a rapidly changing environment that involves a number of risks,
some of which are beyond our control.

A number of these risks are listed below. These risks could affect actual
future results and could cause them to differ materially from any forward-
looking statements we have made in this Annual Report. You should carefully
consider the risks described below, as well as the other information set forth
in this Form 10-K. Should they materialize, any of the risks described below
could significantly and adversely affect our business, prospects, financial
condition or results of operations. In that case, the trading price of our
common stock could fall and you may lose all or part of the money you paid to
buy our securities.

No assurance of sales or profitability.

The Company's business is dependent upon the acceptance of its products,
licenses and services as an effective and reliable method to perform indoor air
remediation and infectious disease control. The Company's business is also
dependent on the effectiveness of its marketing program to convince potential
clients, potential independent contractors and remediators to utilize its
products and services so that the Company will become profitable. There can be
no assurance that the public or industry participants will accept the Company's
services, or that the Company will be successful or that its business will earn
any profit. There can be no assurance that the Company will earn material
revenues or that investors will not lose their entire investment. There is no
assurance that the Company will operate its business successfully or that its
common stock will have value. A failure of the Company's marketing campaign
would have a material adverse impact on its operating results, financial
condition and business performance.

Competition.

The infectious disease and air remediation industry is extremely
competitive. The Company's principal competitors for its Steramist Mister are
BioQuell, Steris and Sterinis; for its UV Ozone generators are Air-Zone,
BI-Ozone and Crystal Air; and for its UVGI products are Honeywell, Sannavox and
Steril-Air. From a service end the competition are other remediators and
abatement companies. These competitors may have longer operating histories,
greater name recognition, larger installed customer bases, and substantially
greater financial and marketing resources than the Company. The Company believes
that the principal factors affecting competition in this proposed market include
name recognition, and the ability to receive referrals based on client
confidence in the Company's service. There are no significant barriers of entry
that could keep potential competitors from opening similar facilities. The
Company's ability to compete successfully in the industry will depend in large
part upon its ability to market and sell its indoor air remediation and
infectious disease control products and services. Be able to respond effectively
to changing insurance industry standards and methodology. There can be no
assurance that the Company will be able to compete successfully in the
remediation industry, or that future competition will not have a material
adverse effect on the business, operating results, and financial condition of
the Company.

Dependence on key personnel.

The Company's success is substantially dependent on the performance of its
executive officers and key employees. Given the Company's early stage of
operation, the Company is dependent on its ability to retain and motivate high
quality personnel. Although the Company believes it will be able to engage
qualified personnel for such purposes, an inability to do so could materially
adversely affect the Company's ability to market and perform its services. The
loss of one or more of its key employees or the Company's inability to hire and
retain other qualified employees could have a material adverse effect on the
Company's business.

Inability to sell its license and equipment packages.

In the short-term, the success of the Company's business plan depends
heavily on its ability to sell its certification, license and equipment
packages, and in the longer term, on its ability to profitably integrate and
operate those businesses. There is no assurance that the Company will be able to
find and license the new businesses that it needs to successfully implement its
business plan. The Company needs to sell its packages in order to grow at an
attractive pace. A failure of the Company to sell its licenses and equipment
packages will likely have an adverse impact on its operating results, financial
condition and business performance.

We may not be able to manage our growth effectively, create operating
efficiencies or achieve or sustain profitability.

The ability to manage and operate our business as we execute our growth
strategy will require effective planning. Rapid growth could strain our internal
resources, leading to a lower quality of customer service, reporting problems
and delays in meeting important deadlines, resulting in loss of market share and
other problems that could adversely affect our reputation and financial
performance. Our efforts to grow have placed, and we expect will continue to
place, a significant strain on our personnel, management systems, infrastructure
and other resources. Our ability to manage future growth effectively will also
require us to continue to update and improve our operational, financial and
management controls and procedures. If we do not manage our growth effectively,
we could be faced with slower growth and a failure to achieve or sustain
profitability.

We may incur significant costs as a result of operating as a public company, and
our management devotes substantial time to new compliance initiatives.

We may incur significant legal, accounting and other expenses as a public
company, including costs resulting from regulations regarding corporate
governance practices. Our management and other personnel devote a substantial
amount of time to these compliance initiatives. Moreover, these rules and
regulations have increased our legal and financial compliance costs and will
make some activities more time-consuming and costly. For example, these rules
and regulations could make it more difficult for us to attract and retain
qualified persons to serve on our board of directors or as executive officers.

In addition, the Sarbanes-Oxley Act of 2002 ("SOX") requires, among other
things, that we maintain effective internal control over financial reporting and
disclosure controls and procedures. For the year ended December 31, 2009, we
performed system and process evaluation and testing of our internal control over
financial reporting to allow management to report on the effectiveness of our
internal control over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent
registered public accounting firm in the year ending December 31, 2011, may
reveal deficiencies in our internal control over financial reporting that are
deemed to be material weaknesses. Our compliance with Section 404 may require
that we incur substantial expense and expend significant management time on
compliance-related issues. Moreover, if our independent registered public
accounting firm identify deficiencies in our internal control over financial
reporting that are deemed to be material weaknesses, the market price of our
stock would likely decline and we could be subject to sanctions or
investigations by the SEC or other regulatory authorities, which would require
additional financial and management resources.

There are inherent limitations in all control systems, and misstatements due to
error or fraud may occur and may not be detected.

While we continue to take action to ensure compliance with the disclosure
controls and other requirements of SOX, there are inherent limitations in our
ability to control all circumstances. Our management, including our Chief
Executive Officer, does not expect that any company's controls, including our
own, will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. In addition, the design of a
control system must reflect the fact that there are resource constraints and the
benefit of controls must be evaluated in relation to their costs. 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, in 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 errors or mistakes. Further controls can be
circumvented by individual acts of some persons, by collusion of two or more
persons, or by management override of the controls. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time, a
control may be inadequate because of change in conditions or the degree of
compliance with the policies or procedures may deteriorate. Because of inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.

Risk Related To Our Securities

Our stock price is volatile and there is a limited market for our shares.

The stock markets generally have experienced, and will probably continue to
experience, extreme price and volume fluctuations that have affected the market
price of the shares of many small capital companies. These fluctuations have
often been unrelated to the operating results of such companies. Factors that
may affect the volatility of our stock price include the following:

. Our success or lack of success, in developing and marketing our products
and services;
. Our ability to maintain compliance with OTCBB listing requirements;
. Our ability to raise the required capital to fund our business;
. The announcement of new products, services, or technological innovations
by us or our competitors;
. Changes in the executive leadership of the company;
. Quarterly fluctuations of our operating results;
. Changes in revenue or earnings estimates; and
. Competition.

Based on the factors described above, recent trends should not be considered
reliable indicators of our future stock prices or financial results.

Our shares of common stock have been traded on the OTCBB. There has been
limited trading in our common stock and we cannot give assurances that such a
market will develop further or be maintained.

Investors should not expect the payment of dividends by us.

We do not expect to pay dividends on our common stock in the foreseeable
future. Investors who require cash dividends from their investments should not
purchase our common stock or warrants.

There is no assurance that we will on a permanent basis be able to continue to
distribute the hydrogen peroxide mister.

During the quarter ended September 30, 2010, we were chosen by the hydrogen
peroxide mister's manufacturer to facilitate the commercialization of this
hydrogen peroxide mister. However, this right to be the exclusive distributor or
the right to distribute the mister on a non-exclusive basis may be terminated by
the manufacturer after two years if certain sales milestones are not meet. Since
it is presently our intention that distribution of the mister will become a
materially important source of revenue for us, any termination of our ability to
distribute the mister will have a material adverse effect on our future revenue.

Item 1B. UNRESOLVED STAFF COMMENTS

Not Applicable

Item 2. PROPERTIES

The Company rents 1,300 square feet of office space at 9454 Wilshire
Blvd., Beverly Hills, CA 90212, at $72,000 annually on a month-to-month tenancy,
in a professional office building. We believe the current facilities are
adequate for the immediate future.

Item 3. LEGAL PROCEEDINGS

(a) We are not a party to any proceedings or threatened proceedings as of
the date of this filing.

(b) In December, 2010, the Company settled a lawsuit with a former
consultant seeking $60,000 and 200,000 common shares for an aggregate of 300,000
shares subject to certain restrictions and lockup provisions and no cash
consideration. The Company has recorded the settlement at a value of $18,000.

Item 4. REMOVED AND RESERVED

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company's common stock was approved for listing on the OTC Bulletin
Board, under the symbol "TOMZ," on June 23, 2008. The following table sets
forth, for the fiscal quarters indicated, high and low sale prices for the
common stock on the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. (NASD). The information below reflects
inter-dealer prices, without retail mark-up, markdown or commissions, and may
not necessarily represent actual transactions. There was little trading in our
common stock during the period(s) reflected. As of March 3, 2011, the Company
had 63,681,909 common shares outstanding, of which 11,902,399 was free trading.

2010 2009
----------------- -----------------
High Low High Low
-------- ------- -------- -------
First Quarter........................... $ 2.15 $ 0.24 $ 9.00 $ 6.50
Second Quarter.......................... $ 0.96 $ 0.10 $ 4.99 $ 2.25
Third Quarter........................... $ 0.11 $ 0.04 $ 8.75 $ 1.95
Fourth Quarter.......................... $ 0.10 $ 0.04 $ 6.00 $ 2.10

Stockholders

As of March 20, 2011, there were approximately 741 record holders of our
common stock. On March 20, 2011, the last reported sale price of our common
stock on the OTCBB was $0.045 per share.

Recent Sales of Unregistered Securities

We have issued and sold securities of the Company as disclosed below within
the last three years. Unless otherwise noted, the following sales of securities
were effected in reliance on the exemption from registration contained in
Section 4(2) of the Act and Regulation D promulgated there under, and such
securities may not be reoffered or sold in the United States by the holders in
the absence of an effective registration statement, or valid exemption from the
registration requirements, under the Securities Act of 1933 (as amended, the
"Act"):

During the period from January 1, 2010 through December 31, 2010 we sold a
total of 1,875,000 common shares at a per share price of $0.04 and 5,555,556
common shares at a per share price of $0.045 shares to investors for aggregate
proceeds of $75,000 and $250,000, respectively.

Item 6. SELECTED FINANCIAL DATA

Not Required.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

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.

General

TOMI Environmental Solutions, Inc., a global surface and air
decontamination and infectious disease control company, providing green energy-
efficient environmental solutions for indoor air remediation and surface
decontamination through sales and licensing of our premier platform of Hydrogen
Peroxide misters, Ultra-Violet Ozone generators and Ultra-Violet Germicidal
Irradiation ("UVGI") products and technologies.

Our effort to combat bacterial and viral outbreaks along with hospital
infection control was recently enhanced with the addition of a newly developed
line of fixed and portable units that utilize hydrogen peroxide misting for the
cost effective method to control the spread of infectious diseases including
neutralizing pathogens from bio-terrorism attacks.

We commenced our planned principal operations in the second quarter of
2009. Since 2008, we began to implement our business plan by acquiring the
related intellectual property and/or the distribution rights for our Hydrogen
Peroxide Mister, Ultra-Violet ozone Generators, and our UVGI (Ultra Violet
Germicidal Irradiation) system that is at the core of our plan.

We have also opened two service hubs in Southern California and New York/
New Jersey.

We continue to pursue complementary businesses in manufacturing ROS related
products, testing labs and other indoor air treatment and maintenance products.

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.

The Company began sales to international locations during the third quarter
of 2010. During the three months ended September 30, 2010 had net revenue
totaling $7,708. In October 2010, the Company expanded its sales operations to
the United Arab Emirates with sales totaling $54,000.

Business Outlook

TOMI's business growth objective is to be "The Global Leader in Surface -
Air Decontamination and Infectious Disease Control" by developing and acquiring
a premier platform of Hydrogen Peroxide Misters, UV Ozone Generators and other
green UVGI products and technologies. We also intend to generate and support
quality research on other air remediation solutions including hydroxyl radicals
and other ROS (Reactive Oxygen Species) and to form business alliances with
major remediation companies, construction companies and corporations
specializing in disaster relief along with expanding our sales throughout
Europe, the Middle East and the Far East.

We continue to pursue complementary businesses in manufacturing ROS
(Reactive Oxygen Species)-related products, testing labs and other indoor air
treatment and maintenance products.

During the 2nd quarter of 2009, TOMI began recognizing revenue related to a
large LEEDS commercial project that was completed during the third 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 third quarter of 2010, TOMI formed its first foreign subsidiary
in Singapore. TOMI Environmental Solutions-Singapore Pte, Ltd has received its
first order recently from COSEM, which is a Safety & Security Services Pte. Ltd,
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, rapid surface and air
decontamination along with the ability to properly 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 indoor environments.

Also during the third quarter of 2010, TOMI rescinded its stock purchase
agreement with Adtec and reversed its 19% holding in Adtec due to a patent
infringement law suit from L-3 Communications, 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.

On November 12, 2010, TOMI signed a term sheet with L-3 Communications
setting forth the terms for a license /partnership agreement between L-3
Communications Holding, Inc., a Delaware corporation and its subsidiary Binary
Ionization, Inc., a Delaware corporation, or any subsidiaries thereof ("BII")
and TOMI Environmental Solutions, Inc. ("TOMI"), a Florida corporation for the
sale of BII's product the SteraMist(TM) Mobile Control Unit with the detachable
applicator (the "gun"), the SteraMist(TM) Room Decontamination Unit, and the
associated consumables (the "Product").

The Term Sheet provides for an exclusive license to distribute the Product
for all applications within the following foreign countries: Saudi Arabia,
Kuwait, Bahrain, Qatar, the United Arab Emirates (also known the GCC countries),
Singapore, Thailand and Hungary. This will include the right to sub-license, and
the right to register others as the exclusive representatives of TOMI in the
countries listed above. Along with the exclusive license TOMI will have an
exclusive license to distribute the Product to certain businesses in the United
States. This license is for up to two years providing certain sales milestones
are reached. TOMI and L3 are in the process of negotiating two definitive
license agreements, covering domestic and international sales, respectively. The
parties intend to finalize the domestic sales and license agreement prior to
April 1, 2011 and the international sales and license agreement shortly
thereafter.

The Company's management believes that certain international markets
present fertile opportunities for its products. With a view toward exploiting
these markets, in January 2011, the Company's CEO, Halden Shane, visited three
Middle East countries-the Kingdom of Saudi Arabia, the United Arab Emirates and
Kuwait. Dr. Shane made numerous presentations to government officials, meeting
in Saudi Arabia with the Ministers of Defense, Health, Education and Civil
Defense, as well as private sector individuals, resulting in TOMI's first sale
in the region and ongoing interest in its suite of products, particularly from
the Saudis, with whom it is negotiating a joint venture.

Dr. Shane then went on to Singapore making presentations to both government
officials and private sector businesses. As a result, TOMI entered into a joint
venture with ZERA Investments, a private investment company comprised of
respected local financial entrepreneurs that the Company believes will generate
material new business opportunities. The Company has received orders for two of
its major products and expects additional orders to follow.

Results of Operations

Years Ended December 31, 2010 and 2009

We began our planned principal operations during the second quarter of
2009. During the year ended December 31, 2010, we had total revenue of $365,167,
as compared to total revenue of $499,172 for the year ended December 31, 2009.
The decrease in revenue for the year ended December 31, 2010 when compared to
the prior comparable period is due to a change in the Company's business
strategy to licensing and selling our products to third parties and receiving
royalty and recurring solution income rather than providing direct service.

The net loss attributable to the Company for the year ended December 31,
2010 totaled $(1,543,179). The net loss for the year ended December 31, 2010 is
due to various general and administrative expenses including salaries expense,
share-based management and consulting fees, professional fees and outside
service expenses in the amounts of $452,401, $1,193,447, $247,470 and $92,877,
respectively. These general and administrative expenses were offset by a
reversal to income of $902,500 for the rescission of the Company's 19% interest
in Adtec during the third quarter of 2009, which is comprised of research and
development technology and a rescission of a liability to issue common stock in
the amount of $250,000.

The Company had net income attributable to common stockholders of
$13,454,204 for the year ended December 31, 2009. During the year ended
December 31, 2009, the company recorded a non-cash compensatory credit from
equity issuances of $18,312,558. Excluding the non-cash compensatory credit
element from equity issuances, the Company had a net loss of $($4,652,669)
during the year ended December 31, 2009.

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 management
consulting expenses. General and administrative expenses primarily include
payroll and payroll related expenses, rent and depreciation.

Liquidity and Capital Resources

The consolidated financial statements contained in this Annual 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 and
sales arrangements, structured similarly to our current Licensing and Sales
Agreement that have profit margins from sale of equipment, licensing of
equipment, recurring income from solution sales.

We also intend to continue to raise equity capital through the sale of
restricted stock and short-term notes convertible into common stock.

Our liquid assets generally consist of unpledged assets and cash and cash
equivalents.

Contractual Obligations

None.

Off-Balance Sheet Arrangements

None.

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)
collectability 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 collectability of those
amounts. Provisions for discounts to customers, and allowance, and other
adjustments will be provided for in the same period the related sales are
recorded.

Fair Value Measurement

Effective January 1, 2008, the Company adopted the provisions of ASC 820,
"Fair Value Measurements". ASC 820 defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting
principles and expands disclosures about fair value measurements. The
implementation of this standard did not have any impact on the Company's
consolidated financial positions, results of operations, or cash flows. The
carrying amounts of cash and cash equivalents, accounts payable, other accrued
expenses and notes payables approximate fair value because of the short maturity
of these items.

Stock-Based Compensation

We account for stock-based compensation in accordance with FASB ASC 718,
Compensation - Stock Compensation. Under the provisions of FASB ASC 718, stock-
based compensation cost is estimated at the grant date based on the award's fair
value and is recognized as expense over the requisite service period. The
Company currently has one active stock-based compensation plan, TOMI
Environmental Solutions, Inc. Stock Option and Restricted Stock Plan (the
"Plan"). The Plan calls for the Company through a committee of its Board of
Directors, to issue up to 2,500,000 shares of restricted common stock or stock
options. The Company generally issues grants to its employees, consultants, and
board members. Stock options are granted with an exercise price equal to the
closing price of its common stock on the date of grant with a term no greater
than 10 years. Generally, stock options vest over two to four years. Incentive
stock options granted to shareholders who own 10% or more of the Company's
outstanding stock are granted at an exercise price that may not be less than
110% of the closing price of the Company's common stock on the date of grant
and have a term no greater than five years. At the date of grant, the Company
determines the fair value of the stock option award and recognizes compensation
expense over the requisite service period, which is generally the vesting period
of the award. The fair value of the stock option award is calculated using the
Black-Scholes option-pricing model. As of December 31, 2010, the Company issued
40,000 options under the Plan.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board ("FASB") established
the FASB Accounting Standards Codification ("ASC") as the single source of
authoritative GAAP to be applied by nongovernmental entities. The ASC is a new
structure which took existing accounting and organized them by topic. Relevant
authoritative literature issued by the Securities and Exchange Commission
("SEC") and selected SEC staff interpretations and administrative literature was
also included in the ASC. All other accounting guidance not included in the ASC
is non-authoritative. The ASC was effective for the Company's interim quarterly
period beginning August 1, 2009. The adoption of the ASC did not have an impact
on the Company's consolidated financial position, results of operations or cash
flow.

Effective August 1, 2009, the Company adopted a provision in accordance
with ASC guidance for earnings per share (originally issued as FASB Staff
Position No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-
Based Transactions Are Participating Securities"). This guidance establishes
that unvested share-based payment awards that contain non-forfeitable rights to
dividends are participating securities and shall be included in the computation
of earnings per share under the two-class method. The adoption of the ASC did
not have a material effect on the Company's consolidated financial statements.

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.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

The Company's financial statements for the fiscal year ended December 31,
2010 are included in this annual report, beginning on page F-1.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

During the two most recent fiscal years we have not had a change in, or
disagreement with, our independent registered public accounting firm.

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer
who is also our Principal Financial Officer, conducted an evaluation of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Annual Report (December 31, 2010, as is defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.
Our disclosure controls and procedures are intended to ensure that the
information we are required to disclose in the reports that we file or submit
under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms and (ii) accumulated and communicated to our
management, including the Principal Executive Officer and Principal Financial
Officer to allow timely decisions regarding required disclosures.

Based on that evaluation, our Principal Executive Officer concluded that,
as of the end of the period covered by this Annual Report, our disclosure
controls and procedures were effective. Our management has concluded that the
financial statements included in this Form 10-K present fairly, in all material
respects our financial position, results of operations and cash flows for the
periods presented in conformity with generally accepted accounting principles.

It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of future
events.

Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate
internal control over our financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) of the Exchange Act). Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.

Our internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our
assets, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our Principal Executive Officer,
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our Principal Executive Officer concluded
that, as of the end of the period covered by this Annual Report, our internal
control over financial reporting was effective.

This Annual Report does not include an attestation report of our
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only management's
report in this Annual Report.

Changes in Internal Control Over Financial Reporting

During our most recent fiscal quarter, there have been no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect our internal control over financial
reporting.

Item 9B. OTHER INFORMATION

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our executive officers and directors and their biographical information are
presented below. Our bylaws require three directors who serve until our next
annual meeting or until each is succeeded by a qualified director. Our
executive officers are appointed by our Board of Directors and serve at its
discretion. There are no existing family relationships between or among any
of our executive officers or directors.

Halden S. Shane: Dr. Shane has been our Chairman since the Company's
inception. Up until 2009 Dr. Shane also served as President and CEO of Tiger
Management International, a private management company that deals in business
management of private and public companies. Dr. Shane resigned all positions and
closed Tiger Management International in 2009. Dr. Shane was founder and CEO of
Integrated Healthcare Alliance, Inc. and also founder and General Partner of
Doctors Hospital West Covina, California. Prior thereto, Dr. Shane practiced
podiatric surgery specializing in ankle arthroscopy.

Willie L. Brown, Jr.: Mr. Brown is currently a consultant for Fox News and
a political lobbyist. He formerly served two terms as the Mayor of the City and
County of San Francisco (1996-2004). Prior to his service as Mayor, Mr. Brown
served as speaker of the California State assembly from 1980 through 1995. Mr.
Brown had also been a member of the state assembly since 1964 and has served on
the Boards of California State University and CalPERS.

Harold W. Paul: Mr. Paul has been a director since June 2009. He has been
engaged in the private practice of law for thirty five years, primarily as a
securities specialist. Mr. Paul has been company counsel to public companies
listed on the AMEX, NASDAQ and OTC exchanges. He has served as a director for
six public companies in a variety of industries, including technology and
financial services. He holds a BA degree from SUNY at Stony Brook and a JD
from Brooklyn Law School and is admitted to practice in New York and
Connecticut.

Richard L. Johnson: Since his admission to the California State Bar
Association in 1961, Mr. Johnson has served as a business manager/attorney and
consultant to a variety of individuals and companies. He is presently active in
private practice in Los Angeles, California.

Audit Committee

The Company's audit committee was established in June 2009 and is currently
comprised of Willie L. Brown, Jr. and Harold W. Paul.

Our Board has determined that it does not have a member of its Audit
Committee that qualifies as an "audit committee financial expert" as defined in
Item 401(e) of Regulation S-B, and is "independent" as the term is used in Item
7(d)(3)(iv) of Schedule 14A under the Exchange Act.

We believe that retaining an independent director who would qualify as an
"audit committee financial expert" would be overly costly and burdensome and
is not warranted in our current circumstances.

Code of Ethics

The Board adopted a Code of Ethics in 2008 applies to, among other persons,
Board members, officers including our Chief Executive Officer, contractors,
consultants and advisors. Our Code of Ethics sets forth written standards
designed to deter wrongdoing and to promote:

1. honest and ethical conduct including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;

2. full, fair, accurate, timely and understandable disclosure in reports
and documents that we file with or submit to the SEC and in other
public communications made by us;

3. compliance with applicable governmental laws, rules and regulations;

4. the prompt internal reporting of violations of the Code of Ethics to
an appropriate person or persons identified in the Code of Ethics; and

5. accountability for adherence to the Code of Ethics.

Item 11. EXECUTIVE COMPENSATION

Executive Officer Compensation

Change in
Pension
Value and
Non- Non-
Equity qualified
Incentive Deferred All
Plan Compen- Other
Name and Stock Option Compen- sation Compen-
Principal Salary Bonus Awards Awards sation Earnings sation Total
Position Year ($) ($) ($) ($) ($) ($) ($) ($)
------------- ---- ---------- ----- ----------- ------ --------- --------- ------- -------

Halden Shane, 2010 64,000 (1) - 275,000 (2) - - - - 339,000
PEO, PFO 2009 20,000 (1) - 146,250 (2) - - - - 166,250
2008 25,000 (1) - - - - - - 25,000

(1) Does not include deferred compensation in the amounts of $1,066,269 and
$827,868 as of December 31, 2010 and December 31, 2009, respectively.

(2) In September 2009, Dr. Shane was issued 75,000 shares of common stock
valued at $146,250 based on the closing price on that date in payment of
accrued salaries of $150,000. The shares vest two years after issuance
provided he is still employed by the Company at that time. The fair market
value of the shares has been recorded as deferred compensation as of
September 30, 2009. In August 2010, Dr. Shane was issued 2,500,000 shares
of common stock valued at $275,000 based on the closing price on the date
of grant for payment of accrued salaries of $125,000.

The following discussion addresses any and all compensation awarded to,
earned by or paid to our named executive officers for the fiscal years ended
December 31, 2010 and December 31, 2009. We have not had a bonus, profit
sharing, or deferred compensation plan for the benefit of employees, officers
or directors.

We have not paid any salaries or other compensation to officers or
directors for their service on the Board of Directors for the years ended
December 31, 2010 and 2009. In September 2009, the Board of Directors adopted a
resolution to compensate outside directors 20,000 options per year and meeting
fees payable annually payable on January 2 of each year. We have entered into an
employment agreement with our CEO, Dr. Halden Shane, and effective January 1,
2009. Dr. Shane was paid $64,000 and $20,000 during the year ended December 31,
2010 and 2009, respectively. At December 31, 2010 and 2009, Dr. Shane was owed
$1,066,269 and $827,868, respectively, in unpaid salary. It is intended Dr.
Shane will defer any compensation until such time as business operations provide
sufficient cash flow to provide for salaries. See Subsequent Events Note No.11
to the financial statements.

Retirement or Change of Control Arrangements

We do not offer retirement benefit plans to our executive officers, nor
have we entered into any contract, agreement, plan or arrangement, whether
written or unwritten, that provides for payments to a named executive officer at
or in connection with the resignation, retirement or other termination of a
named executive officer, or a change in control of the company or a change in
the named executive officer's responsibilities following a change in control.

Compensation of Directors

A directors' compensation plan was adopted on September 18, 2009 and is
comprised of 20,000 options for outside directors upon appointment or election
to the board and 20,000 options issued annually the first day of each calendar
year that the outside director is continuing in service, together with cash fees
for each committee or subcommittee meeting attended. The options are to be
issued from the Company's stock option plan. Meeting fees are set at $1,000 and
$500 for each committee or subcommittee meeting, respectively, attended in
person, and $750 and $375 for each committee and subcommittee meeting,
respectively, attended by telephone.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Securities Under Equity Compensation Plans

The Board of Directors adopted the 2008 Stock Option Plan comprised of
2,500,000 shares and the plan was approved by the shareholders on May 13, 2009.

In January 2010 and January 2011, Willie L. Brown, Jr. and Harold W. Paul
were issued 20,000 options each.

Beneficial Ownership

The following table sets forth the beneficial ownership of our outstanding
common stock by our management and each person or group known by us to own
beneficially more than 5% of our outstanding common stock. Beneficial ownership
is determined in accordance with SEC rules and regulations, which generally
requires voting or investment power with respect to securities. Except as
indicated by footnote, the persons named in the table below have sole voting
power and investment power with respect to all shares of common stock shown as
beneficially owned by them. The percentage of beneficial ownership is based on
63,681,909 shares of common stock outstanding as of March 15, 2011.

CERTAIN BENEFICIAL OWNERS

Name and Address of Amount and Nature of Percent
Beneficial Owners Beneficial Owner of Class
--------------------------------- -------------------- -------

Halden Shane 14,076,923 22.1%
11710 Wetherby Lane
Los Angeles, CA 90077

Shane Family Trust (1) 8,100,000 12.7%
11710 Wetherby Lane
Los Angeles, CA 90077

Richard L. Johnson 1,940,000 3.0%
9454 Wilshire Blvd., Penthouse
Beverly Hills, CA 90212

Willie Brown, Jr. (2) 140,000 *%
9454 Wilshire Blvd., Penthouse
Beverly Hills, CA 90212

Harold W. Paul (3) 993,115 1.6%
9454 Wilshire Blvd., Penthouse
Beverly Hills, CA 90212

Belinha Shane (4) 1,000,000 1.6%
11710 Wetherby Lane
Los Angeles, CA 90077

Ah Kee Wee 7,865,556 12.4%
112 Spring Leaf Avenue
Singapore 788502

All Directors and Officers as a Group 25,250,038 39.7%
____________________________

(1) Halden Shane is a trustee of the Share Family Trust.
(2) Includes 40,000 options currently exercisable.
(3) Includes 20,000 options presently exercisable.
(4) Belinha Shane is the wife of Halden Shane. Mr. Shane disclaims beneficial
ownership of any shares held in her name.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE

Transactions with Related Parties

We have not engaged in any transactions during the past fiscal year
involving our executive officers, directors, more than 5% stockholders or
immediate family members of such persons.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Accountant Fees

The following table presents the aggregate fees billed for each of the last
two fiscal years by our independent registered public accounting firm Wolinetz,
Lafazan & Company, P.C., Certified Public Accountants, in connection with the
audit of our financial statements and other professional services rendered by
that accounting firm:

December 31, December 31,
2010 2009
------------ ------------
Audit fees $ 58,000 $ 60,630
Audit-related fees - -
Tax fees - -
All other fees - -
------------ ------------
Total $ 58,000 $ 60,630
============ ============

Audit fees represent the professional services rendered for the audit of
our annual financial statements and the review of our financial statements
included in quarterly reports, along with services normally provided by the
accounting firm in connection with statutory and regulatory filings or
engagements. Audit-related fees represent professional services rendered for
assurance and related services by the accounting firm that are reasonably
related to the performance of the audit or review of our financial statements
that are not reported under audit fees.

Tax fees represent professional services rendered by the accounting firm
for tax compliance, tax advice, and tax planning. All other fees represent fees
billed for products and services provided by the accounting firm other than the
services reported for the other categories.

Pre-approval Policies

Our audit committee evaluates and approves the scope, cost and engagement
of an auditor and has done so this year. The Company does not otherwise rely on
pre- approval policies and procedures.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report:

(1) The following financial statements of the Company are included in Part
II, Item 8 of this Annual Report on Form 10-K:

. Report of Independent Registered Public Accounting Firm, Wolinetz,
Lafazan & Company, P.C.;
. Consolidated Balance Sheets as of December 31, 2010 and December 31,
2009;
. Consolidated Statements of Income: For the Year Ended December 31,
2010, December 31, 2009 and December 31, 2008;
. Consolidated Statements of Stockholders' Equity: Years Ended
December 31, 2010, December 31, 2009 and December 31, 2008;
. Consolidated Statements of Cash Flows: For the Year Ended December
31, 2010, December 31, 2009 and December 31, 2008; and
. Notes to Consolidated Financial Statements.

(2) Schedules to financial statements:

All financial statement schedules have been omitted because they are
either inapplicable or the information required is provided in the Company's
Consolidated Financial Statements and Notes thereto, included in Part II, Item
8 of this Annual Report on Form 10-K.

(3) The exhibits listed on the accompanying Exhibit Index are filed as part
of this Annual Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

DATED: March 30, 2011 TOMI ENVIRONMENTAL SOLUTIONS, INC.

By: /s/ Halden S. Shane
--------------------------------
Halden S. Shane
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Title Date
_________________________ _____________________________________ ______________

/s/ Halden S. Shane Chairman of the Board and March 30, 2011
------------------------- Chief Executive Officer
Halden S. Shane (Principal Executive Officer)

/s/ Halden S. Shane Chief Financial Officer March 30, 2011
------------------------- (Principal Financial Officer and
Halden S. Shane Principal Accounting Officer)

/s/ Richard L. Johnson Director and Secretary March 30, 2011
-------------------------
Richard L. Johnson

/s/ Willie L. Brown, Jr. Director March 30, 2011
-------------------------
Willie L. Brown, Jr.

/s/ Harold W. Paul Director March 30, 2011
-------------------------
Harold W. Paul

EXHIBIT INDEX
Exhibit
Number Description

10.1 Shane Employment Contract

10.2 Joint Venture Agreement with Zera Investments

31.1 Certification of the Principal Executive Officer, as required by Rule
13a-14(a) of the Securities Exchange Act of 1934

31.2 Certification of the Principal Financial Officer, as required by Rule
13a-14(a) of the Securities Exchange Act of 1934

32.1 Certifications of the Principal Executive Officer provided pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

32.2 Certifications of the Principal Financial Officer provided pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

TOMI ENVIRONMENTAL SOLUTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm.................... F-2
Consolidated Balance Sheets as of December 31, 2010 and 2009............... F-3
Consolidated Statements of Income for the Years Ended
December 31, 2010 and 2009............................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2010 and 2009............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2010 and 2009............................................... F-6
Consolidated Statements of Comprehensive Income (Loss) for the Years
Ended December 31, 2010 and 2009......................................... F-7
Notes to Consolidated Financial Statements................................. F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
TOMI Environmental Solutions, Inc. (A Florida Corporation)

We have audited the accompanying consolidated balance sheets of TOMI
Environmental Solutions, Inc. and Subsidiaries ("the Company") as of December
31, 2010 and 2009 and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for each of the two years in
the period ended December 31, 2010. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. Also, an
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TOMI Environmental Solutions,
Inc. and Subsidiaries at December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2010 in conformity with accounting principles generally accepted
in the United States of America.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has had limited revenues during the years ended December
31, 2010 and 2009, has incurred a net loss from the year ended December 31,
2010 and has not been able to generate positive cash from operations for the
years ended December 31, 2010 and 2009. In addition, at December 31, 2010 the
Company has a working capital deficiency and stockholders' deficiency. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding those matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

WOLINETZ, LAFAZAN & COMPANY, P.C.

Rockville Centre, New York
March 30, 2011

F-2

TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS

December 31, December 31,
2010 2009
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 61,179 $ 13,126
Investment-restricted - 3,563,062
Accounts receivable - 11,660
Notes receivable - 75,000
Deferred costs - 122,576
Prepaid expenses 2,862 2,751
------------ ------------
Total Current Assets: 64,041 3,788,175
------------ ------------
Property and equipment, net 153,638 306,633
Intangible assets, net 91,659 102,767
Security deposits 5,416 5,416
------------ ------------
Total Assets $ 314,754 $ 4,202,991
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses $ 169,475 $ 118,124
Accrued officer's compensation 1,066,269 827,868
Notes payable - current portion 8,077 45,896
Loans Payable 23,158 -
Deferred revenue - 199,022
Customer deposits 53,940 -
Obligations to be settled through the issuance
of common stock - 268,500
Dividends payable on Preferred Stock - 205,685
------------ ------------
Total Current Liabilities: 1,320,919 1,665,095
------------ ------------
Long-Term Liabilities:
Non-current portion of notes payable - other 2,157 20,468
------------ ------------
Total Liabilities: 1,323,076 1,685,563
------------ ------------
Stockholders' Equity (Deficiency):
Cumulative Convertible Series A Preferred Stock;
par value $0.01; 1,000,000 shares
authorized;
510,000 and 510,000 shares issued and
outstanding at
December 31, 2010 and
December 31, 2009, respectively 5,100 5,100
Cumulative Convertible Series B Preferred Stock;
$1,000 stated value; 7.5 % cumulative dividend,
4,000 shares authorized; none and 3,250 shares
issued and outstanding at December 31, 2010 and
December 31, 2009, respectively - 3,250,000
Common Stock; par value $0.01; 75,000,000 shares
authorized; 48,282,871 and 35,277,480
shares
issued and outstanding at December 31, 2010 and
December 31, 2009, respectively 482,829 352,774
Additional paid-in capital 9,584,424 9,683,721
Accumulated deficit (11,032,491) (9,489,312)
Deferred compensation (52,788) (1,284,855)
Accumulated Other Comprehensive Income 348 -
------------ ------------
Total TOMI Environmental Solutions, Inc.
Shareholders' Equity (Deficiency) (1,012,578) 2,517,428
Non-controlling Interest 4,256 -
------------ ------------
Total Stockholders' Equity (Deficiency) (1,008,322) 2,517,428
------------ ------------
Total Liabilities and Stockholders'
Equity (Deficiency) $ 314,754 $ 4,202,991
============ ============

F-3

TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2010 AND 2009

For the Year Ended
December 31,
--------------------------
2010 2009
------------ ------------
Net revenue $ 357,167 $ 499,172
Cost of sales 145,296 200,619
------------ ------------
Gross profit 211,871 298,553
------------ ------------
Costs and Expenses:
Professional fees 247,470 577,869
Other general and administrative expenses 1,054,562 1,370,871
(Recission) impairment of acquisition and related
research and development expense (902,500) 902,500
Compensation credit relating to modification of
management agreement - (18,312,558)
Management and consulting fees- related party 1,193,447 853,953
------------ ------------
Total Costs and Expenses 1,592,979 (14,607,365)
------------ ------------
Income (loss) from operations (1,381,108) 14,905,918
------------ ------------
Other Income (Expense)
Other Income, net 24,015 -
Loss of investment - restricted - (1,238,656)
Interest income - 2,109
Change in fair market value of derivative
liability (50,269) -
Amortization of debt discount (95,000) -
Foreign currency exchange loss (2,286) -
Interest expense (34,275) (9,482)
------------ ------------
Total Other Expense (157,815) (1,246,029)
------------ ------------
Net income (loss) $(1,538,923) $13,659,889
============ ============
Income (loss) attributable to common stockholders
Net income (loss) $(1,538,923) $13,659,889
Preferred stock dividend - 205,685
------------ ------------
Income (loss) attributable to common
stockholders before non-controlling
interest (1,538,923) 13,454,204
------------ ------------
Income attributable to non-controlling interest (4,256) -
------------ ------------
Net income (loss) attributable to common
stockholders $(1,543,179) $13,454,204
============ ============
Basic earnings per common share $ (0.04) $ 0.39
============ ============
Diluted earnings per common share $ (0.04) $ 0.37
============ ============
Basic weighted average number of shares outstanding 38,194,157 34,864,011
============ ============
Diluted weighted average number of shares outstanding 38,194,157 36,024,011
============ ============

F-4

TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 2010 AND 2009

Series A Series B Series A Series B
Preferred Preferred Common Preferred Preferred Common
Stock Stock Stock Stock Stock Stock
Shares Shares Shares Par Value Par Value Par Value
------------ ------------ ------------ ------------- ------------ ------------

Balance, December 31, 2008 510,000 - 34,474,515 $ 12,750,000 $ - $ 344,744
============ ============ ============ ============= ============ ============
Issuance of Common Stock in lieu of cash
compensation 162,965 1,630
Issuance of Common Stock pursuant to a
Private Placement @ $5.00 per share 350,000 3,500
Issuance of Common Stock pursuant to a
Private Placement @ $2.00 per share 100,000 1,000
Issuance of Convertible B Preferred
Stock @ $1,000 per share 3,250 3,250,000
Dividends on Cumulative Convertible
Series B Preferred Stock
Reversal of dividends
Deferred compensation
Amortization of deferred compensation
Forgiveness of compensation
Issuance of Common Stock to acquire LLC
interest 190,000 1,900
Change of Par Value for Series A
Preferred Stock from $25.00 per share
to $0.01 per share (12,744,900)
Net income
------------ ------------ ------------ ------------- ------------ ------------
Balance, December 31, 2009 510,000 3,250 35,277,480 5,100 3,250,000 352,774
============ ============ ============ ============= ============ ============
Issuance of Common Stock for services 2,989,952 29,900
Issuance of Stock Options to Directors
for services
Sale of common stock 7,430,556 74,306
Cancellation of Series B Preferred Stock (3,250) (3,250,000)
Dividends on Cumulative Convertible
Series B Preferred Stock
Cancellation of Dividends of Series B
Preferred Stock
Issuance of Common Stock for Settlement
of Litigation 300,000 3,000
Deferred Compensation
Amortization of Deferred Compensation
Cancellation of Common Stock (550,000) (5,500)
Cancellation of Common Stock relating to
Recission of Acquisition and Related
Research and Development Expenses (190,000) (1,900)
Issuance of Common Stock as consideration
of accrued officer's compensation 2,500,000 25,000
Debt Discount on Convertible Notes
Reclassification of derivative liability
Establishment of derivative liability
Issuance of Common Stock upon conversion
of convertible debt 374,883 3,749
Issuance of Common Stock as consideration
for payment of loans 150,000 1,500
Foreign Currency Translation Adjustment
Non-Controlling Interest
Net Loss
------------ ------------ ------------ ------------- ------------ ------------
Balance, December 31, 2010 510,000 - 48,282,871 $ 5,100 $ - $ 482,829
============ ============ ============ ============= ============ ============

TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 2010 AND 2009
(CONTINUED)

Additional Deferred Non- Other
Paid-In Accum. Stock Controlling Comprehensive
Capital (Deficit) Comp. Interest Income Total
------------ ------------- ----------- ----------- ------------- ------------

Balance, December 31, 2008 $10,013,293 $(23,149,201) $ - $ - $ - $ (41,164)
============ ============= =========== =========== ============= ============
Issuance of Common Stock in lieu of cash
compensation 418,196 419,826
Issuance of Common Stock pursuant to a
Private Placement @ $5.00 per share 1,546,500 1,550,000
Issuance of Common Stock pursuant to a
Private Placement @ $2.00 per share 199,000 200,000
Issuance of Convertible B Preferred
Stock @ $1,000 per share 3,250,000
Dividends on Cumulative Convertible
Series B Preferred Stock (205,685) (205,685)
Reversal of dividends 90,667 90,667
Deferred compensation 2,138,808 (2,138,808) 0
Amortization of deferred compensation 853,953 853,953
Forgiveness of compensation 150,000 150,000
Issuance of Common Stock to acquire LLC
interest 900,600 902,500
Change of Par Value for Series A
Preferred Stock from $25.00 per share
to $0.01 per share (5,567,658) (18,312,558)
Net income 13,659,889 13,659,889
------------ ------------- ----------- ----------- ------------- ------------
Balance, December 31, 2009 9,683,721 (9,489,312) (1,284,855) - - 2,517,428
============ ============= =========== =========== ============= ============
Issuance of Common Stock for services 181,812 211,712
Issuance of Stock Options to Directors
for services 84,000 84,000
Sale of common stock 250,694 325,000
Cancellation of Series B Preferred Stock 1,236,938 (2,013,062)
Dividends on Cumulative Convertible
Series B Preferred Stock (60,103) (60,103)
Cancellation of Dividends of Series B
Preferred Stock 265,788 265,788
Issuance of Common Stock for Settlement
of Litigation 15,000 18,000
Deferred Compensation 38,620 38,620
Amortization of Deferred Compensation 1,193,447 1,193,447
Cancellation of Common Stock (1,584,500) (1,590,000)
Cancellation of Common Stock relating to
Recission of Acquisition and Related
Research and Development Expenses (900,600) (902,500)
Issuance of Common Stock as consideration
of accrued officer's compensation 250,000 275,000
Debt Discount on Convertible Notes 95,000 95,000
Reclassification of derivative liability 107,636 107,636
Establishment of derivative liability (55,213) (55,213)
Issuance of Common Stock upon conversion
of convertible debt 8,251 12,000
Issuance of Common Stock as consideration
for payment of loans 6,000 7,500
Foreign Currency Translation Adjustment 348 348
Non-Controlling Interest 4,256 4,256
Net Loss (1,543,179) (1,543,179)
------------ ------------- ----------- ----------- ------------- ------------
Balance, December 31, 2010 $ 9,584,424 $(11,032,491) $ (52,788) $ 4,256 $ 348 $(1,008,322)
============ ============= =========== =========== ============= ============

F-5

TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended
December 31,
--------------------------
2010 2009
------------ ------------
Operating Activities:
Net income (loss) attributable to the Company $(1,543,179) $13,659,889
Less: Net earnings attributable to
non-controlliong interest 4,256 -
------------ ------------
Net income (loss) (1,538,923) 13,659,889

Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Depreciation and amortization 85,921 94,090
Bad debt expense 101,090 -
Amortization of debt discount 95,000 -
Common Stock and options issued for services 445,712 373,155
Common Stock issued for settlement of litigation 18,000 -
Common Stock issued (cancelled)for acquisition (902,500) 902,500
Amortization of deferred compensation 1,232,068 853,953
Management and consulting fees- related party - (18,312,558)
Change in fair market value of derivative
liability 50,269 -
Increase (Decrease) in deferred revenue (199,022) 199,022
Loss on investment - restricted - 1,238,656
Loss on sale of property and equipment 6,079 -
Changes in operating assets and liabilities:
Decrease in security deposits - 1,204
(Increase) Decrease in Accounts Receivable 5,570 (7,070)
(Increase) Decrease in prepaid and other
current assets 122,466 (106,617)
Increase in Accounts Payable and Accrued
Liabilities 146,250 689,299
Increase in customer deposits payable 53,940 -
------------ ------------
Net cash (used in) operating activities (278,080) (414,477)
------------ ------------
Investing Activities:
Purchase of restricted investments - (4,801,562)
Proceeds from liquidation of investments 3,563,062 -
Capital expenditures (46,248) (19,556)
Proceeds from sale of property and equipment 120,505 -
------------ ------------
Net cash (used in) investing activities 3,637,319 (4,821,118)
------------ ------------
Financing Activities:
Payment for Notes Receivable (20,000) (75,000)
Proceeds from the sale of Common Stock 325,000 1,950,000
Expense of Private Placement - (200,000)
Redemption of Series B preferred stock (3,250,000) -
Redemption of common stock (353,062) -
Proceeds from loan payables 73,992 -
Payments of loan payables (43,334) -
Proceeds from convertible notes payable 95,000 -
Payments of convertible notes payable (83,000) -
Proceeds from sale of cumulative convertible
preferred stock - Series B - 3,250,000
Payments of notes payable (56,130) (43,976)
------------ ------------
Net cash provided by (used in) financing
activities (3,311,534) 4,881,024
------------ ------------
Effect of exchange rate change 348 -
------------ ------------
Net increase (decrease) in cash and cash equivalents 48,053 (354,571)
Cash and cash equivalents at beginning of period 13,126 367,697
------------ ------------
Cash and cash equivalents at end of period $ 61,179 $ 13,126
============ ============
Cash paid during the period for:
Interest expense $ 34,275 $ 9,842
Income taxes $ - $ -

F-6

TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended
December 31,
--------------------------
2010 2009
------------ ------------
Supplemental Disclosure of Cash Flow Information:
Non-Cash Financing Activities:
Issuance of Common Stock for payment of Accounts
Payable $ 6,000 $ 46,670
Forgiveness of accrued compensation to related
party - 150,000
Common stock issued for payment of accrued
compensation 125,000 -
Dividends payable on preferred stock - Series B 60,102 205,685
Discount on convertible notes payable 95,000 -
Reversal of dividends payable on preferred stock-
Series A - 90,667
Reversal of dividends payable on preferred stock-
Series B 265,787 -
Change in stated value of Series A Preferred Stock - 12,744,900
Conversion of notes payables to common stock 12,000 -
Conversion of loan payables to common stock 7,500 -

F-7

TOMI ENVIRONMENTAL SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

TOMI Environmental Solutions, Inc., (the "Company" or "TOMI") is a global
surface and air decontamination and infectious disease control company,
providing green energy-efficient environmental solutions for indoor air
remediation and surface decontamination through sales and licensing of our
premier platform of Hydrogen Peroxide misters, Ultra- Violet Ozone generators
and Ultra-Violet Germicidal Irradiation ("UVGI") products and technologies.

In July 2010, the Company established TOMI Environmental Solutions-
Singapore Pte, Ltd. ("TOMI-Singapore"), a subsidiary with an ownership interest
of 55% and began operations in Singapore.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern

The Company had limited revenues during the years ended December 31, 2010
and 2009 and has incurred a net loss of $1,543,179 for the year ended December
31, 2010. The Company has not been able to generate positive cash from
operations for the years ended December 31, 2010 and 2009. In addition, at
December 31, 2010 the Company has a negative working capital of $1,256,790 and
stockholders' deficiency of $1,008,234. 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 sales of its common stock and notes convertible
into common stock. There can be no assurance that additional funds required for
continued operations during the next year or thereafter will be generated from
our 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 be available on terms acceptable to the Company
or that they will not have a significant dilutive effect on the Company's
existing stockholders. The inability to generate cash flow from operations or to
raise sufficient 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.

Principles of Consolidation

The accompanying financial statements include the accounts of TOMI (a
Florida Corporation) (Parent), its wholly owned subsidiary, TOMI Environmental
Solutions, Inc. (a Nevada Corporation) and its 55% owned subsidiary, TOMI-
Singapore. All significant intercompany accounts and transactions have been
eliminated in consolidation.

F-8

Use of Estimates

The preparation of consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires us to make estimates
and assumptions that affect the amounts reported and disclosed in the financial
statements and the accompanying notes. Actual results could differ materially
from these estimates. On an ongoing basis, we evaluate our estimates, including
those related to the accounts receivable, fair values of financial instruments,
intangible assets, useful lives of intangible assets and property and equipment,
fair values of stock-based awards, income taxes, and contingent liabilities,
among others. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities.

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.

Fair Value Measurements

The authoritative guidance for fair value measurements defines fair value
as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or the most advantageous market for
the asset or liability in an orderly transaction between market participants on
the measurement date. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable, (iii) able to
transact, and (iv) willing to transact. The guidance describes a fair value
hierarchy based on the levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value
which are the following:

Level 1 Quoted prices in active markets for identical assets or
liabilities.

Level 2 Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active, or
other inputs that are observable or corroborated by observable
market data or substantially the full term of the assets or
liabilities.

Level 3 Unobservable inputs that are supported by little or no market
activity and that are significant to the value of the assets or
liabilities.

The Company's financial instruments include cash and equivalents, accounts
receivable, other current assets, accounts payable and accrued expenses. All
these items were determined to be Level 1 fair value measurements.

The carrying amounts of cash and equivalents, accounts receivable, other
current assets, accounts payable and accrued expenses approximated fair value
because of the short maturity of these instruments. The recorded value of long-
term debt approximates its fair value as the terms and rates approximate market
rates.

Cash and cash equivalents

For purposes of the statement of cash flows, cash and cash equivalents
includes cash on hand held at financial institutions and other liquid
investments with original maturities of three months or less. Amounts held at
financial institutions did not exceed federally insured limits at December 31,
2010.

Property and Equipment

We account for property and equipment at cost less accumulated
depreciation. We compute depreciation using the straight-line method over the
estimated useful lives of the assets, generally three to five years.
Depreciation for equipment, furniture and fixtures and vehicles commences once
placed in service for its intended use.

F-9

Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets

The Company reviews its property and equipment and intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. We measure recoverability of these
assets by comparing the carrying amounts to the future undiscounted cash flows
the assets are expected to generate. If property and equipment and intangible
assets are considered to be impaired, the impairment to be recognized equals the
amount by which the carrying value of the asset exceeds its fair market value.
We have made no material adjustments to our long-lived assets in any of the
years presented.

Intangible assets with definite lives are amortized over their estimated
useful lives of 10 years.

Income (Loss) Per Share

The computation of basic 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 year ended December 31, 2010, diluted loss per common share
is the same as basic loss per common share because the effect of any potentially
dilutive securities outstanding would be anti-dilutive and has therefore, been
excluded from the computation. For the year ended December 31, 2009, diluted
earnings per common stock was calculated after consideration of common stock
equivalents. For the year ended December 31, 2010, there were common stock
equivalents of 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 40,000 options (exercisable into 40,000
common shares). For the year ended December 31, 2009, there were common stock
equivalents of 510,000 shares of Convertible Series A Preferred Stock
outstanding at a conversion rate of one common stock 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.

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 to customers, and allowance, and other
adjustments will be provided for in the same period the related sales are
recorded.

Stock-based Compensation

We account for stock-based compensation in accordance with FASB ASC 718,
Compensation - Stock Compensation. Under the provisions of FASB ASC 718, stock-
based compensation cost is estimated at the grant date based on the award's fair
value and is recognized as expense over the requisite service period. The
Company currently has one active stock-based compensation plan, TOMI
Environmental Solutions, Inc. Stock Option and Restricted Stock Plan (the
"Plan"). The Plan calls for the Company through a committee of its Board of
Directors, to issue up to 2,500,000 shares of restricted common stock or stock
options. The Company generally issues grants to its employees, consultants, and
board members. Stock options are granted with an exercise price equal to the
closing price of its common stock on the date of grant with a term no greater
than 10 years. Generally, stock options vest over two to four years. Incentive
stock options granted to shareholders who own 10% or more of the Company's
outstanding stocks are granted at an exercise price that may not be less than
110% of the closing price of the Company's common stock on the date of grant
and have a term no greater than five years. At the date of grant, the Company
determines the fair value of the stock option award and recognizes compensation
expense over the requisite service period, which is generally the vesting
period of the award. The fair value of the stock option award is calculated
using the Black-Scholes option-pricing model. As of December 31, 2010, the
Company issued 40,000 options and 750,000 common shares under the Plan.

F-10

Income Taxes

We recognize income taxes under the liability method. We recognize deferred
income taxes for differences between the financial reporting and tax bases of
assets and liabilities at enacted statutory tax rates in effect for the years in
which differences are expected to reverse. We recognize the effect on deferred
taxes of a change in tax rates in income in the period that includes the
enactment date.

Comprehensive Income

Comprehensive income is calculated in accordance with ASC 220
"Comprehensive Income". ASC 220 requires the disclosure of all components of
comprehensive income. As of December 31, 2010, comprehensive income relates to
foreign currency translation adjustment relating to the Company's Singapore
subsidiary.

Foreign Currency Translation

Assets and liabilities of the Company's Singapore subsidiary are translated
to US dollars using the current exchange rate for assets and liabilities.
Amounts on the statement of operations are translated at the average exchange
rates during the year. Gains or losses resulting from foreign currency
translation are included as a component of other comprehensive income (loss).

Advertising and Promotional Expenses

The Company expenses advertising costs in the period in which they are
incurred. For the years ended December 31, 2010 and 2009, advertising expenses
totaled approximately $12,000 and $22,000, respectively.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board ("FASB") established
the FASB Accounting Standards Codification ("ASC") as the single source of
authoritative GAAP to be applied by nongovernmental entities. The ASC is a new
structure which took existing accounting and organized them by topic. Relevant
authoritative literature issued by the Securities and Exchange Commission
("SEC") and selected SEC staff interpretations and administrative literature
was also included in the ASC. All other accounting guidance not included in
the ASC is non-authoritative. The ASC was effective for the Company's interim
quarterly period beginning August 1, 2009. The adoption of the ASC did not
have an impact on the Company's consolidated financial position, results of
operations or cash flow.

F-11

NOTE 3. PROPERTY AND EQUIPMENT

At December 31, 2010 and December 31, 2009, property and equipment
consisted of the following:

December 31, 2010 December 31, 2009
----------------- -----------------
Furniture and fixture $ 18,937 $ 16,877
Equipment 147,049 188,734
Vehicles 132,055 219,766
----------------- -----------------
298,041 425,377
Less: Accumulated depreciation 144,403 118,744
----------------- -----------------
$ 153,638 $ 306,633
================= =================

Depreciation was $74,814 and $85,757 for the years ended December 31, 2010
and 2009, 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
intellectual property, 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 $11,109 and $8,333 for the years ended December
31, 2010 and 2009, respectively. 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 December 31, 2010 there was no impairment.

NOTE 5. NOTES AND LOANS PAYABLE

Notes Payables

The Company financed three field service vehicles in 2008 using notes
payables with various terms. These notes are collateralized by the related
field service vehicles. The notes expire at various times through March 2012
and have interest rates from 8.8% to 10.1% per annum and are payable in monthly
installments of $4,448 (including principal and interest) and due by March
2012. As of December 31, 2010, the notes payables relating to two of the three
field service vehicles have been paid. The remaining notes payable will mature
in 2012 as follows: 2011 - $8,077; 2012 - $2,157. The note is secured by the
vehicle acquired.

December 31, 2010 December 31, 2009
----------------- -----------------
Total vehicle notes $ 10,234 $ 66,364
Less: current portion 8,077 45,896
----------------- -----------------
Long-term portion: $ 2,157 $ 20,468
================= =================

F-12

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 was 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 prices 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 was immediately due at an
amount of 150% of outstanding principal and unpaid interest. A discount of
$60,000 and a derivative liability of $32,832 were recorded upon issuance of
the note. Amortization of debt discount was $60,000 for the year ended December
31, 2010. During the term of the convertible notes payable, the change in
derivative liability totaling $31,749 was charged to other expense in 2010. On
October 29, 2010, $6,000 of the convertible notes payable was converted to
177,515 common shares. On November 8, 2010, $6,000 of the convertible notes
payable was converted to 197,368 common shares. On November 21, 2010 the
Company paid the remaining $48,000 convertible notes payable plus interest of
$17,060. The derivative liability resulting from the change in the fair market
value of the convertible note payable at the date of settlement totaling $67,980
was recorded a reclassification to additional paid-in capital upon settlement
of the convertible note payable.

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 was 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 prices 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 was immediately due at an
amount of 150% of outstanding principal and unpaid interest. A discount of
$35,000 and a derivative liability of $24,532 were recorded upon issuance of
the note. Amortization of debt discount was $35,000 for the year ended December
31, 2010. During the term of the convertible notes payable, the change in
derivative liability totaling $18,520 was charged to other expense in 2010. On
November 21, 2010 the Company repaid the full amount of the convertible notes
payable of $35,000 plus interest of $12,440. The derivative liability
resulting from the change in the fair market value of the convertible note
payable at the date of settlement totaling $39,656 was recorded as a
reclassification to additional paid-in capital upon settlement of the
convertible note payable.

The Company paid expenses totaling $5,500 in connection with the two notes.

Loans Payable

Loans totaling $73,992 (which includes loans in the amount of $57,492 from
the Company's CEO) were advanced to the Company during the year ended December
31, 2010 and are non-interest bearing and payable on demand. During the fourth
quarter of 2010 the Company issued 100,000 shares of common stock as
consideration for payment of $5,000 principal of the loans payable to the CEO.
The Company also issued 50,000 shares in payment of $2,500 principal to another
party. At December 31, 2010, the Company had loan payables totaling $23,158
(which includes an amount of $20,658 from the Company's CEO).

NOTE 6. SHAREHOLDERS' EQUITY

The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of any authorized
but unissued or unreserved shares of preferred stock in series and at the time
of issuance, determine the rights, preferences and limitations of each series.
The holders of preferred stock may be entitled to receive a preference payment
in the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of the common stock. Furthermore, the board
of directors could issue preferred stock with voting and other rights that could
adversely affect the voting power of the holders of the common stock.

Convertible Series A Preferred Stock

The Company has authorized 1,000,000 shares of Convertible Series A
Preferred Stock, $0.001 par value. At December 31, 2010 and 2009, there were
510,000 shares issued and outstanding.

Common Stock

The Company has authorized 75,000,000 shares of common stock, par value
$0.01. At December 31, 2010 and 2009, there were 48,282,871 and 35,277,480
shares issued and outstanding, respectively.

F-13

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 December
31, 2009 the Company accrued $205,685 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 October 12, 2009, the Company purchased 19% of the issued and
outstanding member interests of Advanced Disinfectant Technologies LLC
("Adtec"). Pursuant to the agreement the Company purchased the stated interest
in Adtec for consideration of 190,000 shares of its common stock valued at
$902,500 based on the closing price of the Company's common stock of $4.75 on
October 12, 2009. Adtec has had minimal revenues since inception and was
essentially engaged in research and development; as a result, the $902,500
acquisition cost has been expensed as research and development.

On November 3, 2009, TOMI issued 100,000 common shares for $200,000 under a
stock subscription agreement.

The Company issued 162,965 common shares valued at $419,826 during the year
ended December 31, 2009 as compensation for services rendered by consultants.

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. In connection with this
transaction, the Company recognized a loss on investment of $1,238,652 for the
year ended December 31, 2009.

In July 2010, the Company cancelled 190,000 shares valued at $902,500 due
to a recession of the Adtec agreement to acquire 19% of the issued and
outstanding member interest of Adtec. Accordingly, the Company recognized a
credit of $902,500 which offset the $902,500 research and development expense
originally recognized in 2009. The Company is evaluating legal recourse.

In September 2010 and in a private placement transaction, the Company sold
1,875,000 restricted common shares to investors for $75,000.

In October and November of 2010, a total of $12,000 principal convertible
notes payable were converted into 374,883 common shares.

In November 2010, and in a private placement transaction, the company sold
5,555,556 restricted common shares for $250,000.

In September 2010, the Company issued 300,000 common shares valued at
$18,000 in settlement of a lawsuit.

During the year ended December 31, 2010, the Company issued 2,989,952
common shares valued at $211,712 as compensation for consulting services.

During the year ended December 31, 2010, the Company cancelled 200,000
common shares valued at $40,000 that was previously issued to a consultant due
to cancellation of a consulting agreement. This amount was credited to
professional fees. In addition, the Company reversed a liability to issue
common stock amounting to $250,000. This amount has been credited to other
general and administrative expenses.

F-14

In December 2010, the Company issued 150,000 shares of common stock as
consideration for payment of $7,500 principal loans payable.

Stock Options

The Company issued a total of 40,000 options valued at $84,000 to two
directors in January 2010. The options have an exercise price of $2.10 and a
fair market value of $2.10 per option. The options expire on January 2020. The
options were valued using the black-scholes model using the following
assumptions: volatility - 316%; dividend yield - 0%; zero coupon rate - 3.85%
and a life of 10 years. As of December 30, 2010, 40,000 options remain issued
and outstanding.

NOTE 7. RELATED PARTY

On November 16, 2008, the Company entered into an employment agreement with
its President and CEO, Dr. Halden Shane. The agreement calls for annual base
salary of $390,000 plus incentive cash bonuses and certain benefits. The
agreement terminates upon the death or disability of Dr. Shane.

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, 2011 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 net 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 December 31, 2009, the Company has recorded $1,138,605 in deferred
compensation related to the vesting feature and this deferred amount will be
amortized over the remaining 12 month period. Amortization of deferred
compensation was $853,953 for the year ended December 31, 2009. During the year
ended December 31, 2010 amortization expense totaled $1,138,605 fully amortizing
this compensation element. 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.

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 December 31, 2009. At December 31, 2010, deferred compensation associated
with this transaction totaled $52,788 and a total of $93,462 has been amortized
during the year ended December 31, 2010.

In August 2010, the Company issued to Dr. Shane 2,500,000 shares of common
stock as consideration for payment of $125,000 accrued compensation. These
shares were valued at $275,000 which was the quoted market value on the date of
issuance. Accordingly, the Company recorded compensation expense of $150,000 in
connection with this transaction.

As of December 31, 2010, the Company has accrued $1,066,269 for unpaid
wages under the employment agreement.

F-15

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. 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 due on
November 30, 2010 and February 2011, respectively. The notes bear interest of
8% per annum. In the event of default, the Company is entitled to receive seven
foggers for the first note and two foggers for the second note at no charge. As
of December 31, 2010, the Company fully reserved these notes receivables and
recorded bad debt expense of $95,000.

NOTE 10. INCOME TAXES

At December 31, 2010 the Company had available net-operating loss
carryforwards for Federal tax purposes of approximately $4,550,000, which may
be applied against future taxable income, if any, from 2027 to 2030. Certain
significant changes in ownership of the Company may restrict the future
utilization of these tax loss carryforwards.

At December 31, 2010 the Company had a deferred tax asset of approximately
$1,547,000 representing the benefit of its net operating loss carry-forwards.
The Company has not recognized any tax benefit or tax assets from these loss
carry-forwards due to the fact that realization of the tax benefit is uncertain
and therefore, a valuation allowance equal to 100% of the tax benefit has been
applied against the value of any tax asset arising from these losses. The
difference between the federal statutory tax rate of 34% and the Company's
effective tax rate of 0% is due to an increase in the valuation allowance of
approximately $148,000 in 2010.

NOTE 11. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial
statements were issued and up to the time of filing of the financial statements
with the Securities and Exchange Commission.

On February 7, 2011, the Company entered into a joint venture agreement
with Zera Investments, a Singapore private investment company. The agreement
calls for Zera to perform marketing of the Company's products and the raising
of capital.

In February 2011, the Company issued 572,115 common shares for payment of
$14,875 legal expenses.

In February 2011, the Company's entered into a new employment agreement
with its CEO. The agreement calls for annual base compensation of $20,000,
subject to Consumer Price Index increases, incentive performance bonuses equal
to 12% of the Company's annual GAAP earnings for the year 2011 to 2015 and
discretionary bonuses, as well as expense reimbursements and certain employee
benefits. The agreement terminates December 31, 2015.

In February 2011, the CEO was issued 14,076,923 shares of common stock as
consideration for payment of $366,000 accrued compensation. Further, the CEO
forgave accrued compensation due him amounting to $700,000. The compensation
forgiven by the CEO has been treated as a capital contribution to the Company
and therefore has been recorded as additional paid-in capital in February
2011.

In February 2011, the Company sold 750,000 shares of common stock for
$63,750.

F-16

Attached files

TOMI Environmental Solutions, Inc. Reports

Also read