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<SEC-DOCUMENT>0001170022-10-000023.txt : 20101116
<SEC-HEADER>0001170022-10-000023.hdr.sgml : 20101116
<ACCEPTANCE-DATETIME>20101115214711
ACCESSION NUMBER: 0001170022-10-000023
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20100930
FILED AS OF DATE: 20101116
DATE AS OF CHANGE: 20101115
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TOMI Environmental Solutions, Inc.
CENTRAL INDEX KEY: 0000314227
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TO DWELLINGS & OTHER BUILDINGS [7340]
IRS NUMBER: 591947988
STATE OF INCORPORATION: FL
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-09908
FILM NUMBER: 101194873
BUSINESS ADDRESS:
STREET 1: 9454 WILSHIRE BLVD.
STREET 2: PENTHOUSE
CITY: BEVERLY HILLS
STATE: CA
ZIP: 90212
BUSINESS PHONE: 8005251698
MAIL ADDRESS:
STREET 1: 9454 WILSHIRE BLVD.
STREET 2: PENTHOUSE
CITY: BEVERLY HILLS
STATE: CA
ZIP: 90212
FORMER COMPANY:
FORMER CONFORMED NAME: Ozone Man, Inc.
DATE OF NAME CHANGE: 20071130
FORMER COMPANY:
FORMER CONFORMED NAME: RPS GROUP INC
DATE OF NAME CHANGE: 19940818
FORMER COMPANY:
FORMER CONFORMED NAME: DAUPHIN INC
DATE OF NAME CHANGE: 19940818
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>tomi-093010q6.txt
<TEXT>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-09908
TOMI ENVIRONMENTAL SOLUTIONS, INC.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Florida 59-1947988
________________________________________________________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9454 Wilshire Blvd., Penthouse, Beverly Hills, CA 90212
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(800) 525-1698
________________________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or such shorter period that the registrant was required to
submit and post such files). Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 15, 2010 had 41,698,717 shares of common stock outstanding.
<PAGE>
FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 2010
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
ITEM 4. CONTROLS AND PROCEDURES 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 1A. RISK FACTORS 20
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS 22
1
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOMI Environmental Solutions, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Sept 30, 2010 December 31, 2009
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current Assets:
- ---------------
Cash and Cash Equivalents $ - $ 13,126
Investments - Restricted, at cost - 3,563,062
Accounts Receivable - 11,660
Notes Receivable, net of reserve of $95,000
at September 30, 2010 - 75,000
Deferred Cost - 122,576
Prepaids & Other Current Assets 2,862 2,751
------------------ -----------------
Total Current Assets 2,862 3,788,175
------------------ -----------------
Property and Equipment - net 123,418 306,633
------------------ -----------------
Other Assets:
- -------------
Intangible Assets, net 94,434 102,767
Security Deposits 5,416 5,416
------------------ -----------------
Total Other Assets 99,850 108,183
------------------ -----------------
TOTAL ASSETS $ 226,130 $ 4,202,991
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
- --------------------
Accounts Payable and Accrued Expenses $ 148,336 $ 118,124
Bank Overdraft 1,953 -
Accrued Officers Compensation 952,239 827,868
Loan Payables 44,245 -
Notes Payable - Current Portion 13,940 45,896
Convertible Notes Payable, net of $42,129 and
$-0-, respectively 52,871 -
Derivative Liability Related to Convertible Notes 46,155 -
Obligations to be Settled through Issuance of Common Stock 250,000 268,500
Deferred Revenue - 199,022
Dividends Payable on Preferred Convertible Stock - 205,685
------------------ -----------------
Total Current Liabilities 1,509,739 1,665,095
Long-term Liabilities:
- ----------------------
Non-Current Portion of Notes Payable - Other 4,258 20,468
------------------ -----------------
Total Liabilities 1,513,997 1,685,563
------------------ -----------------
COMMITMENTS AND CONTINGENCIES - -
Stockholders' Equity (Deficiency):
- ----------------------------------
Cumulative Convertible Series A Preferred Stock,
$0.01 par value, 1,000,000 shares authorized,
510,000 shares issued and outstanding at September
30, 2010 and December 31, 2009. 5,100 5,100
Cumulative Convertible Series B Preferred Stock,
$1,000 stated value, 7.5% cumulative dividend,
4,000 shares authorized, none issued and outstanding
at September 30, 2010 and 3,250 shares issued and
outstanding at September 30, 2009, respectively. - 3,250,000
Common Stock, $.01 par value, 75,000,000 shares
authorized; 41,521,202 and 35,277,480 shares
issued and outstanding at September 30, 2010 and
December 31, 2009, respectively. 415,139 352,774
Additional Paid-in Capital 9,130,498 9,683,721
Accumulated Deficit (10,488,750) (9,489,312)
Deferred compensation (355,719) (1,284,855)
Accumulated Other Comprehensive Income 438 -
------------------ -----------------
Total TOMI Environmental Solutions, Inc. Shareholders'
(Deficency) Equity (1,293,294) 2,517,428
Non-Controlling Interest 5,427 -
------------------ -----------------
Total Stockholders' Equity (Deficiency) (1,287,867) 2,517,428
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 226,130 $ 4,202,991
================== =================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
<PAGE>
TOMI Environmental Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
For the For the
For the For the Nine Months Nine Months
Quarter Ended Quarter Ended Ended Ended
Sept 30, 2010 Sept 30, 2009 Sept 30, 2010 Sept 30, 2009
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Revenues $ 16,267 $ 218,176 $ 305,277 $ 427,562
Cost of Sales 1,168 54,586 129,576 113,689
-------------- -------------- -------------- --------------
Gross Profit 15,099 163,590 175,701 313,873
-------------- -------------- -------------- --------------
Costs and Expenses:
- -------------------
Professional Fees 123,249 46,984 197,819 583,099
Other General and Administrative Expenses 296,255 225,568 946,318 882,326
Rescission of Acquisition and Related
Research and Development Expense (902,500) - (902,500) -
Management and Consulting Fees 302,932 284,651 890,515 (17,743,256)
-------------- -------------- -------------- --------------
Total Costs and Expenses (180,064) 557,203 1,132,152 (16,277,831)
-------------- -------------- -------------- --------------
Income (Loss) from Operations 195,163 (393,613) (956,451) 16,591,704
-------------- -------------- -------------- --------------
Other Income (Expenses):
- ------------------------
Other Income (Expense) - - 5,909 -
Change in Fair Market Value of Derivative Liability 66,329 - 11,209 -
Interest Income - 593 - 2,109
Amortization of Debt Discount (52,870) - (52,870) -
Interest Expense (614) (2,310) (5,084) (7,561)
-------------- -------------- -------------- --------------
Total Other Income (Expenses) 12,845 (1,717) (40,836) (5,452)
-------------- -------------- -------------- --------------
Net Income (Loss) $ 208,008 $ (395,330) $ (997,287) $ 16,586,252
============== ============== ============== ==============
Income (Loss) attributable to common stockholders
Net Income (Loss) $ 208,008 $ (395,330) $ (997,287) $ 16,586,252
Preferred stock dividend - 61,483 - 144,247
-------------- -------------- -------------- --------------
Income (Loss) Atributable to Common Stockholders
Before Non-Controlling Interest $ 208,008 $ (456,813) $ (997,287) $ 16,442,005
============== ============== ============== ==============
Income Attributable to Non-Controlling Interest $ (2,151) $ - $ (2,151) $ -
============== ============== ============== ==============
Net Income (Loss) Atributable to the Company $ 205,857 $ (456,813) $ (999,438) $ 16,442,005
============== ============== ============== ==============
Net Income (Loss) per Common Share - Basic $ (0.01) $ (0.01) $ (0.03) $ 0.47
============== ============== ============== ==============
Net Income (Loss) per Common Share - Diluted $ (0.01) $ (0.01) $ (0.03) $ 0.46
============== ============== ============== ==============
Weighted Average Common Shares Outstanding - Basic 37,622,945 34,870,268 37,622,945 34,765,150
============== ============== ============== ==============
Weighted Average Common Shares Outstanding - Diluted 39,718,039 34,870,268 37,622,945 35,925,150
============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
TOMI Environmental Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept 30, 2010 Sept 30, 2009
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Income (Loss) Attributable to the Company $ (999,438) $ 16,586,252
Less: Net earnings attributable to noncontrolling interests 2,151 -
-------------- --------------
Net Income (Loss) $ (997,287) $ 16,586,252
Adjustments to reconcile net income (loss) to net
cash (used) by operating activities:
Depreciation and amortization 77,497 69,177
Bad Debt Expense 100,870 -
Amortization of Debt Discount 52,870 -
Common and Preferred Stock Issued for Services 241,868 300,655
Amortization of Deferred Compensation 929,235 569,302
Change in Fair Value of Derivative Liability (11,208) -
Rescission of Research and Development Technology (902,500) -
Management and Consulting Fees - (18,312,558)
Gain on Sale of Property and Equipment (5,919) -
Changes in Operating Assets and Liabilities:
(Increase) in Security deposits - (876)
(Increase) Decrease in Accounts Receivable 5,790 (151,292)
Decrease in Prepaids and other current assets 122,899 10,163
(Decrease) in Obligations paid through Issuance of Common Stock (18,500) -
Increase in Accounts Payable and Accrued Liabilities 324,233 612,908
(Decrease) in Deferred Revenue (199,022) -
-------------- --------------
Net Cash (Used) in Operating Activities (279,174) (316,269)
-------------- --------------
INVESTING ACTIVITIES
- --------------------
Purchase of Investments - (3,250,000)
Proceeds from Liquidation of Investments 3,563,062 -
Capital Expenditures (2,060) (20,442)
Proceeds from Sale of Property and Equipment 122,030 -
-------------- --------------
Net Cash (Used) in Investing activities 3,683,032 (3,270,442)
-------------- --------------
FINANCING ACTIVITIES
- --------------------
Proceeds from the Sale of Common Stock 75,000 1,750,000
Proceeds from the Sale of Series B Preferred Stock - 3,250,000
Expense of Private Placement - (200,000)
Redemption of Series B Preferred Stock (3,250,000) -
Redemption of Common Stock (313,063) -
Payment for Notes Receivable (20,000) -
Proceeds from Loan Payables 51,745 -
Payments for Loan Payables (7,500) -
Proceeds from Convertible Notes Payable 95,000 -
Payments of Notes Payable (48,166) (32,553)
-------------- --------------
Net Cash Provided by Financing Activities (3,416,984) 4,767,447
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (13,126) 1,180,736
-------------- --------------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 13,126 367,697
-------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ - $ 1,548,433
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
TOMI Environmental Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months For the Nine Months
Ended Sept 30, 2010 Ended Sept 30, 2009
------------------- -------------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $ 5,084 $ 7,561
================== ====================
Income taxes $ - $ -
=================== ===================
Supplemental Disclosures 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 to
related party $ 275,000 $ -
=================== ===================
Dividends payable on preferred stock - Series B $ 60,102 $ 144,247
=================== ===================
Derivative Liability $ 57,364 $ -
=================== ===================
Discount on convertible debt $ 95,000 $ -
=================== ===================
Reversal of dividends payable on preferred stock - Series B $ 265,787 $ -
=================== ===================
Reversal of dividends payable on preferred stock - Series A $ - $ (90,667)
=================== ===================
Change in stated value on preferred stock - Series A $ - $ (12,744,900)
=================== ===================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
TOMI Environmental Solutions, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS
TOMI Environmental Solutions, Inc. (formerly "The Ozone Man, Inc.") (the
"Company" or "TOMI") is a global green surface - air decontamination and
infectious disease control company provides 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 focus is to combat bacterial and viral outbreaks along with Hospital
infection control was recently enhanced with the addition of a newly developed
line of fixed or built in, mobile, and portable units of technology utilizing
hydrogen peroxide misting for the cost effective method to control the spread of
disease and the protection against bio-terrorism of our and other countries
borders.
Our products and services cover a broad spectrum of commercial structures
including office buildings, medical facilities, hotel and motel rooms, single
family homes, multi-unit residences and schools. Our products and services have
also been used in restaurant and laundry applications and can also be used for
water treatment in agriculture, meat processing plants and dairies.
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 year ended December 31, 2009 and
during the nine months ended September 30, 2010. The Company has not been able
to generate positive cash from operations for the years ended December 31, 2009
and nine months ended September 30, 2010. In addition, at September 30,
2010 the Company has a negative working capital of $1,506,877 and stockholders'
deficiency of $1,287,867. 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.
6
<PAGE>
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.
Basis of Presentation
The interim consolidated financial statements included herein, presented in
accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by the Company, without an audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. These unaudited condensed
consolidated interim financial statements should be read in conjunction with
the financial statements of the Company for the year ended December 31, 2009
and notes thereto which are included in the Form 10-K previously filed with
the SEC on April 15, 2010. The Company follows the same accounting policies in
the preparation of interim reports.
Principles of Consolidation
The accompanying financial statements include the accounts of TOMI (a Florida
Corporation) (Parent), its wholly owned subsidiary, The Ozone Man, Inc. (a
Nevada Corporation) and its 55% owned subsidiary, TOMI-Singapore. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Reclassification of Accounts
Certain reclassifications have been made to prior-year comparative financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported results of operations or financial
position.
Income (Loss) Per Share
The computation of income (loss) per share is based on the weighted average
number of common shares outstanding during the periods presented. Diluted income
(loss) per common share is computed based on the weighted average number of
common shares outstanding plus the dilutive effect of common stock equivalents.
7
<PAGE>
For the three months ended September 30, 2010 and the nine months ended
September 30, 2009, diluted earnings per common stock was calculated after
consideration of common stock equivalents. For the nine months ended September
30, 2010 and the three months ended September 30, 2009, diluted loss per common
share is the same as basic loss per common share because the effect of any
potentially dilutive securities outstanding (convertible Series of stock,
options and warrants and convertible debt) would be anti-dilutive and has
therefore, been excluded from the computation.
For the three and nine months ended September 30, 2010, there were common stock
equivalents of 510,000 shares of Convertible Series A Preferred Stock
outstanding at a conversion rate of one common share for every preferred share
(510,000 common shares) and common stock equivalent of 1,585,094 shares related
to the convertible debt. For the three and nine months ended September 30,
2009, there were common stock equivalents of 510,000 shares of Convertible
Series A Preferred Stock outstanding at a conversion rate of one common share
for every preferred share (510,000 common shares) and 3,250 Series B Convertible
Preferred Stock at a conversion rate of two hundred common shares for every
preferred share (650,000 common shares).
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 and rebates to customers, estimated returns
and allowance, and other adjustments will be provided for in the same period the
related sales are recorded.
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 September 30, 2010, comprehensive income relates to foreign
currency translation adjustment for the third quarter of 2010 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).
8
<PAGE>
New Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This guidance amends the disclosure requirements related to
recurring and nonrecurring fair value measurements and requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance became effective for the reporting period
beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
the reporting period beginning January 1, 2011. The Company's adoption of this
updated guidance was not significant to our consolidated financial statements.
In February 2010, the FASB issued updated guidance related to subsequent events.
As a result of this updated guidance, public filers must still evaluate
subsequent events through the issuance date of their financial statements;
however, they are not required to disclose the date in which subsequent events
were evaluated in their financial statements disclosures. This amended guidance
became effective upon its issuance on February 24, 2010 at which time the
Company adopted this updated guidance.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30, 2010 December 31, 2009
------------------ -----------------
(Unaudited)
------------------
Furniture and fixture $ 18,987 $ 16,877
Equipment 102,868 188,734
Vehicles 132,055 219,766
------------------ -----------------
253,860 425,377
Less: Accumulated depreciation 130,442 118,744
------------------ -----------------
$ 123,418 $ 306,633
================== =================
Depreciation was $22,385 and $69,163 for the three and nine months ended
September 30, 2010, respectively, and $21,823 and $63,622 for the three and
nine months ended September 30, 2009, respectively.
9
<PAGE>
NOTE 4: INTANGIBLE ASSETS
On February 23, 2008 the Company purchased from S.C.O. Medallion Healthy Homes
LTD all intellectual property for the Medallion methodology system for $60,000.
On April 18, 2008 the Company purchased intellectual property from Air Testing
and Design, Inc. for $50,000. The property purchased includes patents,
trademarks, literature, drawings, schematics, vendor lists and rights to
purchase and resell equipment and other proprietary and intellectual property
associated with the ozone generators manufactured by the seller.
The Company began amortizing the intangible assets during the second quarter of
2009 over the estimated useful life of ten years. The Company recorded
amortization expense of $2,778 and $8,334 during the three and nine months ended
September 30, 2010, respectively, and $2,775 and $5,555 for the three and nine
months ended September 30, 2009, respectively. These assets are tested for
impairment annually or if certain circumstances indicate a possible impairment
may exist in accordance with 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 September 30, 2010 there was no
impairment.
NOTE 5: DEBT
Notes Payables
The Company finances three field service vehicles using notes with various terms
that are recorded in the financial statements as notes payable. The notes expire
at various times through March 2012 and have interest rates from 8.8% to 10.1%
per annum and payable in monthly installments of $4,448 including principal and
interest and due by March, 2012. The remaining notes payable amount will mature
through 2012 as follows: 2010 - $7,963, 2011 - $8,077, 2012 - $2,158. Each note
is secured by the vehicle acquired.
September 30, 2010 December 31, 2009
------------------ -----------------
(Unaudited)
------------------
Total Vehicle Notes $ 18,198 $ 66,364
Less: Current Portion 13,940 45,896
------------------ -----------------
Long term Portion $ 4,258 $ 20,468
================== =================
10
<PAGE>
Convertible Notes Payable
On April 26, 2010, the Company issued a convertible note payable in the amount
of $60,000 due nine months after issuance and bearing an interest rate of 8% per
annum. The note is convertible to common stock at the option of the holder
based on a variable conversion price specified as the 42% discount of the
average three lowest trading 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 is 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 was recorded upon issuance of the note.
Amortization of debt discount was $35,111 for the nine months ended September
30, 2010. The Company has reserved 2,803,738 common shares under the promissory
note pursuant to the terms of the agreement as of September 30, 2010.
On May 17, 2010, the Company negotiated a convertible note payable in the amount
of $35,000 due nine months after issuance and bearing an interest rate of 8% per
annum. The note is convertible to common stock at the option of the holder
based on a variable conversion price specified as the 42% discount of the
average three lowest trading 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 is 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 was recorded upon issuance of the note.
Amortization of debt discount was $17,759 for the nine months ended September
30, 2010. The Company has reserved 1,635,514 common shares under the promissory
notes pursuant to the terms of the agreement as of September 30, 2010.
The Company paid expenses totaling $5,500 in connection with the two notes. The
notes also have provisions relating to conversion price adjustments relating to
the happening of certain events.
Loans Payable
Loans totaling $44,245 (which includes a loan in the amount of $35,245 from the
Company's CEO) with an imputed interest rate of 8% were advanced to the Company
as of September 30, 2010 and are payable on demand.
NOTE 6: SHAREHOLDERS' EQUITY
During September 2010 and in a private transaction, the Company sold 1,875,000
restricted common shares to investors for $75,000 or $0.04 per share. In
September 2010, the Company issued 1,550,722 common shares valued at $68,232 as
payment for consulting services. In September 2010, 118,000 common shares
valued at $60,180 were returned to a Company due to cancellation of a consulting
agreement. In September 2010 the Company issued 150,000 common shares in
consideration for a reduction of $6,000 of outstanding legal fees.
In August 2010 the Company issued 300,000 common shares valued at $12,000 for
settlement of a law suit. In August 2010 the company also issued 550,000 common
shares valued at $34,000 as payment to various consultants for services.
11
<PAGE>
On October 12, 2009, the Company had purchased 19% of the issued and
outstanding member interests of Adtec for 190,000 shares of the Company's
common stock valued at $902,500. In July 2010 the Company and Adtec agreed to
rescind the transaction and in August 2010, the related common shares originally
valued at $902,500 were returned to the Company. The Company relinquished its
interest in Adtec and recorded a reversed credit to research and development
expense related to the original transaction.
The Company issed a total of 318,000 common shares valued at $115,180 for
consulting services during the three months ended June 30, 2010. Deferred
compensation of $40,935 has been recorded for these common shares as of
June 30, 2010.
On May 13, 2010, shares totaling 200,000 valued at $40,000 originally issued
during the year 2008 for consulting services was rescinded and cancelled. A
consulting agreement was canceled during the third quarter of 2010 and 118,000
common shares valued at $60,180 were returned to the company. The value of the
common shares was recorded as an offset to consulting expenses during the
quarter ended September 30, 2010.
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.
On December 15, 2008 the Board of Directors approved the issuance of 510,000
shares of the Company's Series A Preferred Stock to Tiger Management, LLC, a
limited liability company wholly owned by the Company's CEO. The shares were
issued for management services performed by Tiger Management, LLC in 2007 and
2008 and were convertible into five shares of the Company's common stock at the
holder's option. The Company recorded a non-cash expense of $20,400,000 in
management and consulting fees during the year ended December 31, 2008, for
services rendered based on the fair value of the underlying common stock. The
fair value was determined using the price of the stock on the date the board
approved the issuance.
On March 31, 2009, the Company and Tiger Management, LLC amended the management
service agreement to include the vesting period for the Series A Preferred Stock
issued. The vesting period was established as June 2007 through December 31,
2010 and until the Company had reached at least one million dollars in annual
gross revenue. The Series A Preferred Stock issued to the CEO was also amended
to remove dividends; therefore, dividends accrued of $90,667 at December 31,
2008 were reversed during the three months ended March 31, 2009.
The Company's Board of Directors amended its articles of incorporation on March
31, 2009 to reduce the conversion rate to common stock for its Series A
Preferred Stock from five shares to one and to reduce the par value per share of
Series A Preferred Stock to $0.01 from $25. As a result, of both the
establishment of a vesting period and the change in conversion rate, the Company
has recorded $18,312,558 in compensation credit for equity issuance during the
first quarter of 2009.
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<PAGE>
At September 30, 2010, the Company has deferred compensation of $355,719 related
to the vesting feature and this deferred amount will be amortized over the
remaining periods. Amortization of deferred compensation was $302,932 and
$890,515 for the three and nine months ended September 30, 2010. The fair value
was determined using the price of the stock on the date the board approved the
amendment to the agreement.
On September 18, 2009, the Board of Directors accepted an offer by Dr. Halden
Shane to forego $150,000 in unpaid wages. The foregone compensation has been
recorded as an increase to additional paid-in capital. On September 18, 2009,
the Board of Directors granted 75,000 Shares of the Company's common stock,
valued at $146,250, to Dr. Halden Shane. The common shares were valued based
on the closing price per common share at the date of grant. The common shares
vest after two years of employment from the date of grant. The fair market
value of the unvested shares has been recorded as deferred compensation at
September 30, 2009. During the three and nine months ended September 30, 2010,
$18,281 and $75,182 of the deferred compensation had been amortized and deferred
compensation is $71,068 at September 30, 2010.
On November 16, 2008, the Company entered into an employment agreement with its
President and CEO, Dr. Halden Shane, ("Employment Agreement"). As of September
30, 2010, the Company has accrued $952,239 for unpaid wages under the employment
agreement. On August 10, 2010, Dr. Shane was issued 2,500,000 common shares as
payment for $150,000 of accrued compensation. The Company recorded expense of
$125,000 in connection with this transaction.
2008 Stock Option Plan
The Company's 2008 Stock Option Plan (the "Plan"), approved by stockholders on
May 13, 2009, authorizes the grant of stock options and stock awards (each an
"Award"). A maximum of 2,500,000 shares of common stock are reserved for
potential issuance as Awards under the Plan. Unless sooner terminated, the
Plan will continue for a period of 10 years from its effective date.
Stock and option awards granted under the Plan totaled 750,000 shares through
September 30, 2010.
NOTE 7: COMMITMENTS AND CONTINGENCIES
The Company is subject to a legal proceeding and claim which has arisen in the
ordinary course of its business. This action, when finally concluded and
determined, will not in the opinion of management, have a material adverse
effect upon the financial position, liquidity and results of operations of the
Company.
13
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NOTE 8: NOTES RECEIVABLES
The Company is the holder of two promissory notes with Advanced Disinfectant
Technologies ("Adtec") in the amount of $75,000 and $20,000 due on November 30,
2010 and February 2011. The first note is due on or before November 30, 2010
and the second note is due on or before February 2011. The notes bear interest
of 8% per annum. In the event of default, the Company is entitled to receive
seven foggers for first note two foggers for second note at no charge. As of
September 30, 2010, the Company fully reserved these notes receivable and
recorded bad debts expense of $95,000.
NOTE 9: NON-CONTROLLING INTEREST
In July 2010, the Company established TOMI-Singapore with an ownership
interest of 55% and began operations in Singapore. Non-controlling interest
totaled $5,427 at September 30, 2010. Income attributed to non-controlling
interest totaled $2,151 during the quarter ended September 30, 2010.
NOTE 10: SUBSEQUENT EVENTS
On October 29, 2010, Asher Enterprise, the holder of the $60,000 convertible
note sent to the Company a Notice of Conversion indicating that it intended to
convert $6,000 of the Note into 177,515 unrestricted common shares which is a
price of $0.0338 per shares which was calculated as a 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
On November 8, 2010, Asher Enterprise, the holder of the $60,000 convertible
note sent to the Company a Notice of Conversion indicating that it intended to
convert $6,000 of the Note into 195,368 unrestricted common shares which is a
price of $0.0304 per shares which was calculated as a 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.
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.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In this report references to "TOMI" "we," "us," and "our" refer to TOMI
Environmental Solutions, Inc.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission ("SEC") encourages companies to disclose
forward-looking information so that investors can better understand future
prospects and make informed investment decisions. This report contains these
types of statements. Words such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "project," or "continue" or comparable terminology
used in connection with any discussion of future operating results or financial
performance identify forward-looking statements. You are cautioned not to place
undue reliance on the forward-looking statements, which speak only as of the
date of this report. All forward-looking statements reflect our present
expectation of future events and are subject to a number of important factors
and uncertainties that could cause actual results to differ materially from
those described in the forward-looking statements.
Overview of the Business
TOMI Environmental Solutions, Inc. (formerly "The Ozone Man, Inc.") (the
"Company" or "TOMI ") a global green surface - air decontamination and
infectious disease control company provides 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 focus is to combat bacterial and viral outbreaks along with Hospital
infection control was recently enhanced with the addition of a newly developed
line of fixed or built in , mobile, and portable units of technology utilizing
hydrogen peroxide misting for the cost effective method to control the spread of
disease and the protection against bio-terrorism of our and other countries
borders.
Our products and services cover a broad spectrum of commercial structures
including office buildings, medical facilities, hotel and motel rooms single
homes, multi-unit residences and schools. Our products and services have also
been used in restaurant and laundry applications and can also be used for water
treatment in agriculture, meat processing plants and dairies.
We commenced our planned principal operations in the second quarter of 2009.
Since 2008, we began to implement our business plan by acquiring for cash both
the intellectual property and methodology that forms the basis of our 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.
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.
15
<PAGE>
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 through its Singapore
subsidiary during the third quarter of 2010. During the three months ended
September 30, 2010 had net revenue totaling $7,708 through its Singapore
subsidiary. In October 2010, the Company expanded its sales operations to the
United Arab Emirates with sales totaling $54,000 through its Singapore
subsidiary.
Business Outlook
TOMI's business growth objective is to be "The Global Green Leader in Surface -
Air Decontamination and Infectious Disease Control " by developing and
acquiring a premier platform of Hydrogen Peroxide Misters, UV Ozone Generators
and 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 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
commercial project that was completed during the 3rd quarter of 2009. This
revenue relates to our commercial division and is a highly attractive business
for the Company. TOMI continues to pursue revenue from multiple sources and
anticipates that our revenue stream will grow more diverse in the future.
During the 3rd quarter of 2010, TOMI formed its first foreign subsidiary in
Singapore. TOMI Environmental Solutions-Singapore Pte, Ltd has received its
first order recently from COSEM which is a Safety & Security Services Pte. Ltd
and a wholly owned subsidiary company of the Co-operative of SCDF Employees Ltd.
It is managed and staffed by experienced ex-employees of the Singapore Civil
Defense Force (SCDF). The new Singapore subsidiary, which is majority, owned by
the Company, will feature an array of experienced individuals with specific
knowledge of the customers, business climate, and state-owned industries that
understand the urgent need to have clean air, rapid surface and air
decontamination along with the ability to proprly 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 3rd quarter of 2010, TOMI rescinded its stock purchase agreement
with Adtec and reversed its 19 percent holding in Adtec due to a patient
infringement law suit from 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.
16
<PAGE>
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.
Critical Accounting Policies and Estimates
Refer to our Form 10-K filed with SEC on April 15, 2010.
New Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This guidance amends the disclosure requirements related to
recurring and nonrecurring fair value measurements and requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance became effective for the reporting period
beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
the reporting period beginning January 1, 2011. The Company's adoption of this
updated guidance was not significant to our consolidated financial statements.
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.
17
<PAGE>
Results of Operations for the Three and Nine Months September 30, 2010 Compared
to the Three and Nine Months Ended September 30, 2009:
We began our planned principal operations during the second quarter of 2009.
Revenue for the three and nine months ended September 30, 2010 totaled $16,267
and $305,277 respectively. Revenue for the three and nine months ended
September 30, 2009 totaled $218,176 and $427,562. The decrease in revenue for
the three and nine months ended September 30, 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.
Net income attributable to the Company for the three months ended September
30, 2010 and net loss attributable to the Company for the nine months ended
September 30, 2010 totaled $205,857 and ($999,438), respectively. Net (loss)
income before preferred stock dividends for the three and nine months
ended September 30, 2009 totaled ($395,330) and $16,586,252, respectively.
The net income for the three months ended September 30, 2010 is due to the
rescission of the Company's 19% interest in Adtec, which comprised of research
and development technology. The related value of the interest of $902,500 was
reversed to income upon rescission of the agreement and return of 190,000
common shares to the Company.
The net income for the nine months ended September 30, 2009 is primarily
attributed to a non-cash compensatory credit element from equity issuances of
approximately $18,000,000. On March 31, 2009, the Company and Tiger Management,
LLC amended the management service agreement to establish the vesting period for
the Series A Preferred Stock issued. The vesting period was established to be
the period June 2007 through December 31, 2010 and until the Company had reached
at least one million in annual gross revenue. Our Board of Directors amended
the Company's articles of incorporation to reduce the conversion rate to common
stock for its Series A Preferred Stock from five shares to one share and to
reduce the par value per Series A Preferred Stock to $0.01 from $25. As a
result, the Company recorded $18,312,558 in compensation credit for equity
issuance during the first quarter of 2009. The Company had previously recorded
$20,400,000 in non-cash other general and administrative expenses during the
year ended December 31, 2008. The fair value was determined using the price of
the stock on the date the board approved the amendment to the agreement.
Professional and consulting fees include legal, accounting and management
consulting expenses. General and administrative expenses primarily include
payroll and payroll related expenses, rent and depreciation.
Liquidity and Capital Resources
The unaudited condensed consolidated financial statements contained in this
Quarterly Report have been prepared on a "going concern" basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. We have an immediate and urgent need for
additional capital. For the reasons discussed herein, there is a significant
risk that we will be unable to continue as a going concern, in which case, you
would suffer a total loss of your investment in our company.
18
<PAGE>
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, and with a 12% income from annual gross
sales for the utilization of the equipment licensed.
We also intend to continue to raise equity capital through the sale of
restricted stock and short-term notes convertible into common stock.
Off-Balance Sheet Arrangements
None.
Subsequent Events
On October 29, 2010, the holder of the $60,000 convertible note sent to the
Company a Notice of Conversion indicating that it intended to convert $6,000 of
the Note into 177,515 unrestricted common shares which is a price of $0.0338 per
shares which was calculated as a 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.
On November 8, 2010, the holder of the $60,000 convertible note sent to the
Company a Notice of Conversion indicating that it intended to convert $6,000 of
the Note into 197,368 unrestricted common shares which is a price of $0.0304 per
shares which was calculated as a 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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
19
<PAGE>
ITEM 4. CONTROLS AND PROCEDURES
We have established a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by us in our reports filed
under the Securities Exchange Act, is recorded, processed, summarized and
reported within the time periods specified by the SEC's rules and forms.
Disclosure controls have also designed with the objective of ensuring that this
information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure. We believe our disclosure
controls and internal controls are effective for the three months ended
September 30, 2010.
We do not expect that our disclosure controls or internal controls over
financial reporting will prevent all errors or all instances of fraud. A
control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system's objectives will be
met. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. Management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Because of the inherent limitation of a cost-effective control system,
misstatements due to error or fraud may occur and not be detected. We did not
implement any changes in controls during the three months ended September 30,
2010.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not a party to any proceedings or threatened proceedings as of the date
of this filing.
In August, 2010 the Company settled a lawsuit with a former consultant seeking
$60,000 and 200,000 common shares for an aggregate of 300,000 shares subject to
certain restrictions and lockup provisions and no cash consideration. The
Company has recorded the settlement at a value of $12,000.
ITEM 1A. RISK FACTORS.
See discussion contained in 10-K filed with the Commission on March 31, 2009.
The materialization of any risks and uncertainties identified in our Forward
Looking Statements contained in this report together with those previously
disclosed in the Form 10-K or those that are presently unforeseen could result
in significant adverse effects on our financial condition, results of operations
and cash flows. See Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward Looking Statements" in this
Quarterly Report on Form 10-Q.
20
<PAGE>
The risk factors in our Annual Report on Form 10-K for the year ended December
31, 2009 have been amended by inclusion as follows.
There is no assurance that we will on a permanent basis be able to continue to
distribute the hydrogen peroxide mister.
During the quarter ending 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
21
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ITEM 6. EXHIBITS
Part I Exhibits
31.1 Principal Executive Officer Certification
31.2 Principal Financial Officer Certification
32.1 Section 1350 Certification
Part II Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOMI ENVIRONMENTAL SOLUTIONS, INC.
Date: November 15, 2010
By: /s/ Halden Shane
------------------------------------------------
Halden Shane
Principal Executive Officer
Principal Financial and Accounting Officer
22
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>2
<FILENAME>tomi-10q_093010ex311.txt
<TEXT>
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Halden Shane, Principal Executive Officer of the Registrant, TOMI
Environmental Solutions, Inc., certify that:
1. I have reviewed this Form 10-Q of the Registrant;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I am
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial
reporting; and
5. I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Dated: November 15, 2010 By: /s/ Halden Shane
--------------------------------
Halden Shane
Principal Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>tomi-10q_093010ex312.txt
<TEXT>
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Halden Shane, Principal Financial Officer of the Registrant, TOMI
Environmental Solutions, Inc., certify that:
1. I have reviewed this Form 10-Q of the Registrant;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I am
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial
reporting; and
5. I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Dated: November 15, 2010 By: /s/ Halden Shane
--------------------------------
Halden Shane
Principal Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>tomi-10q_093010ex32.txt
<TEXT>
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TOMI Environmental Solutions,
Inc. (the "Company") on Form 10-Q for the period ended September 30, 2010 as
filed with the Securities and Exchange Commission (the "Report"), the
undersigned, in the capacities and on the dates indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
1. the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: November 15, 2010 By: /s/ Halden Shane
--------------------------------
Halden Shane
Principal Executive Officer
Principal Financial and Accounting Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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