TOMI ENVIRONMENTAL SOLUTIONS, INC.
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(Exact
name of registrant as specified in its charter)
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Florida
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59-1947988
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(State
or other jurisdiction of
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(IRS
Employer Identification No.)
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incorporation
or organization)
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9454
Wilshire Blvd., Penthouse, Beverly Hills, CA 90212
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(Address
of principal executive offices) (Zip
Code)
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(800)
525-1698
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(Registrant’s
telephone number, including area code)
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Not
Applicable
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(Former
name, former address and former fiscal year, if changed since last
report)
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Large
accelerated filer [ ]
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Accelerated
filer
[ ]
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Non-accelerated
filer [ ] (Do not check if a smaller
reporting company)
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Smaller
reporting company [X]
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Emerging
growth company [ ]
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QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31,
2017
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TABLE OF CONTENTS
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Page
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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PART I -
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FINANCIAL INFORMATION
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3
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Item
1
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Financial
Statements.
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3
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Item
2
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
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22
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Item
3
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Quantitative
and Qualitative Disclosures About Market Risk.
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31
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Item
4
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Controls
and Procedures.
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32
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PART II -
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OTHER INFORMATION
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33
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Item
1
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Legal
Proceedings.
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33
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Item
1A
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Risk
Factors.
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33
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Item
2
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Unregistered
Sales of Equity Securities and Use of Proceeds.
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33
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Item
3
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Defaults
Upon Senior Securities.
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33
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Item
4
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Mine
Safety Disclosures.
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33
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Item
5
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Other
Information.
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33
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Item
6
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Exhibits.
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33
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SIGNATURES
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34
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EXHIBIT
INDEX
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35
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TOMI
ENVIRONMENTAL SOLUTIONS, INC.
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CONDENSED
CONSOLIDATED BALANCE SHEET
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ASSETS
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Current
Assets:
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March 31, 2017
(Unaudited)
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December
31,
2016
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Cash and Cash
Equivalents
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$5,996,031
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$948,324
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Accounts Receivable
- net
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1,411,128
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1,521,378
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Inventories (Note
3)
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4,500,454
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4,047,310
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Deposits on
Merchandise (Note 10)
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79,119
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147,010
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Prepaid
Expenses
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123,399
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104,448
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Total
Current Assets
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12,110,131
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6,768,469
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Property and
Equipment – net (Note 4)
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549,801
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611,807
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Other
Assets:
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Intangible Assets
– net (Note 5)
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1,825,663
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1,918,040
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Security
Deposits
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4,700
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4,700
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Total
Other Assets
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1,830,363
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1,922,740
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Total
Assets
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$14,490,295
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$9,303,016
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LIABILITIES
AND SHAREHOLDERS’ EQUITY
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Current
Liabilities:
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Accounts
Payable
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$1,276,891
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$735,879
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Accrued
Expenses and Other Current Liabilities (Note 11)
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229,390
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278,413
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Accrued
Interest (Note 6)
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14,133
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-
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Customer
Deposits
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27,424
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30,120
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Deferred
Rent
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6,601
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8,541
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Total
Current Liabilities
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1,554,439
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1,052,953
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Convertible
Notes Payable, net of discount of $56,969 at
March 31, 2017 (Note 6)
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5,243,031
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-
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Total
Long-term Liabilities
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5,243,031
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-
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Total
Liabilities
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6,797,470
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1,052,953
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Commitments
and Contingencies
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-
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-
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Shareholders’
Equity:
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Cumulative
Convertible Series A Preferred Stock;
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par
value $0.01, 1,000,000 shares authorized; 510,000 shares
issued
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and
outstanding at March 31, 2017 and December 31, 2016
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5,100
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5,100
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Cumulative
Convertible Series B Preferred Stock; $1,000 stated
value;
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7.5%
Cumulative dividend; 4,000 shares authorized; none
issued
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and
outstanding at March 31, 2017 and December 31, 2016
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-
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-
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Common
stock; par value $0.01, 200,000,000 shares authorized;
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120,825,134
shares issued and outstanding
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at
March 31, 2017 and December 31, 2016.
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1,208,251
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1,208,251
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Additional
Paid-In Capital
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41,436,604
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41,367,946
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Accumulated
Deficit
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(34,957,131)
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(34,331,234)
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Total
Shareholders’ Equity
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7,692,824
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8,250,063
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Total Liabilities
and Shareholders’ Equity
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$14,490,295
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$9,303,016
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TOMI
ENVIRONMENTAL SOLUTIONS, INC.
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CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
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(UNAUDITED)
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For The Three
Months Ended
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March
31,
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2017
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2016
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Sales,
net
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$1,098,883
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$1,706,976
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Cost
of Sales
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416,357
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747,812
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Gross
Profit
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682,526
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959,164
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Operating
Expenses:
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Professional
Fees
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272,011
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177,660
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Depreciation
and Amortization
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159,151
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133,267
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Selling
Expenses
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179,384
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352,177
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Research
and Development
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30,647
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8,781
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Equity
Compensation Expense (Note 7)
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11,553
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338,629
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Consulting
Fees
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31,052
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129,626
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General
and Administrative
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610,355
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857,468
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Total Operating
Expenses
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1,294,153
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1,997,608
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Loss from
Operations
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(611,627)
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(1,038,444)
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Other Income
(Expense):
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Amortization
of Debt Discount (Note 6)
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(137)
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-
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Interest
Expense
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(14,133)
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-
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Total Other Income
(Expense)
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(14,270)
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-
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Net
Loss
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$(625,897)
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$(1,038,444)
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Loss Per Common
Share
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Basic
and Diluted
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$(0.01)
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$(0.01)
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Basic and Diluted
Weighted Average Common Shares Outstanding
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120,825,134
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120,177,335
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TOMI ENVIRONMENTAL SOLUTIONS, INC.
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CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY
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FOR THE THREE MONTHS ENDED MARCH 31, 2017
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(UNAUDITED)
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Series A
Preferred
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Common
Stock
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Shares
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Amount
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Shares
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Amount
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Additional
Paid in Capital
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Accumulated
Deficit
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Total
Shareholders’ Equity
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Balance at
December 31, 2016
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510,000
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$5,100
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120,825,134
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$1,208,252
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$41,367,946
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$(34,331,234)
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$8,250,064
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Equity based
compensation
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11,553
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11,553
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Warrants
issued as part of debt private placement
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57,106
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57,106
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Net Loss for
the three months ended March 31, 2017
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(625,897)
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(625,897)
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Balance at
March 31, 2017
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510,000
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$5,100
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120,825,134
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$1,208,252
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$41,436,604
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$(34,957,131)
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$7,692,825
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TOMI ENVIRONMENTAL SOLUTIONS, INC.
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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(UNAUDITED)
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For The
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Three Months Ended
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March 31,
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2017
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2016
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Cash
Flow From Operating Activities:
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Net
Loss
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$(625,897)
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$(1,038,444)
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Adjustments
to Reconcile Net Loss to
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Net
Cash Used In Operating Activities:
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Depreciation
and Amortization
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159,151
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133,267
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Amortization
of Debt Discount
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137
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-
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Equity
Based Compensation
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11,553
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281,628
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Value
of Equity Issued for Services
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-
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145,194
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Reserve
for Bad Debts
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-
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30,000
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Changes
in Operating Assets and Liabilities:
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Decrease
(Increase) in:
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Accounts
Receivable
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110,250
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(232,887)
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Inventory
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(453,144)
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(1,761,346)
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Prepaid
Expenses
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(18,951)
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(37,563)
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Deposits
on Merchandise
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67,890
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205,012
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Increase
(Decrease) in:
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Accounts
Payable
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541,012
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1,003,994
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Accrued
Expenses
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(49,024)
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266,198
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Accrued
Interest
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14,133
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-
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Accrued
Officers Compensation
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-
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36,542
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Deferred
Rent
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(1,940)
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(1,551)
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Advances
on Grant
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-
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(23,783)
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Customer
Deposits
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(2,695)
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(1,637)
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Net
Cash Used in Operating Activities
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(247,525)
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(995,375)
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Cash
Flow From Investing Activities:
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Purchase
of Property and Equipment
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(4,768)
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(297,149)
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Net
Cash Used in Investing Activities
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(4,768)
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(297,149)
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TOMI ENVIRONMENTAL SOLUTIONS, INC.
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS –
CONTINUED
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(UNAUDITED)
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For The
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Three Months Ended
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March 31,
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2017
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2016
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Cash
Flow From Financing Activities:
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Proceeds
from Convertible Notes
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5,300,000
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—
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Net
Cash Provided by Financing Activities
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5,300,000
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—
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Increase
(Decrease) In Cash and Cash Equivalents
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5,047,707
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(1,292,524)
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Cash and Cash Equivalents—Beginning
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948,324
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5,916,068
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Cash and Cash Equivalents—Ending
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$5,996,031
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$4,623,544
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Supplemental
Cash Flow Information:
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Cash
Paid for Interest
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$-
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$-
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Cash
Paid for Income Taxes
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$800
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$800
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Non-Cash
Investing and Financing Activities:
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Establishment
of discount on convertible debt
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$57,106
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$-
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Level
1:
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Quoted
prices in active markets for identical assets or
liabilities.
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Level
2:
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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.
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Level
3:
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Unobservable
inputs that are supported by little or no market activity and that
are significant to the value of the assets or
liabilities.
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Three Months Ended March 31,
(Unaudited)
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2017
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2016
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SteraMist
Product
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$821,000
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$1,504,000
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Service
& Training
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278,000
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203,000
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Total
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$1,099,000
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$1,707,000
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Three Months Ended March 31,
(Unaudited)
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2017
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2016
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United
States
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$848,000
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$979,000
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International
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251,000
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728,000
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Total
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$1,099,000
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$1,707,000
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Inventories
consist of the following at:
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March
31,
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December
31,
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2017
(Unaudited)
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2016
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Raw
materials
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$11,967
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$13,031
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Finished
goods
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4,488,487
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4,034,279
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$4,500,454
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$4,047,310
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March
31,
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December
31,
|
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2017
(Unaudited)
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2016
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Furniture and
fixtures
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$91,216
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$91,216
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Equipment
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931,747
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926,979
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Vehicles
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56,410
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56,410
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Software
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39,999
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39,999
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Leasehold
improvements
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15,554
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15,554
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1,134,926
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1,130,158
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Less: Accumulated
depreciation
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585,125
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518,350
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$549,801
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$611,808
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March
31,
2017
(Unaudited)
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December
31,
2016
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Intellectual
Property and Patents
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$2,848,300
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$2,848,300
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Less: Accumulated
Amortization
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1,462,637
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1,370,260
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Intangible Assets,
net
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$1,385,663
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$1,478,040
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Trademarks
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$440,000
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$440,000
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Total Intangible
Assets, net
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$1,825,663
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$1,918,040
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Twelve Month Period Ending March 31,
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Amount
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2018
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$370,000
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2019
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370,000
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2020
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370,000
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2021
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276,000
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2022
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$—
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1,386,000
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March
31,
2017
(Unaudited)
|
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Convertible
notes
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$5,300,000
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Initial
discount
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(57,106)
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Accumulated
Amortization
|
137
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Convertible notes,
net
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$5,243,031
|
|
March 31, 2017
(Unaudited)
|
December 31,
2016
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||
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Number of Options
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Weighted Average Exercise Price
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Number of Options
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Weighted Average Exercise Price
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Outstanding,
beginning of period
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200,000
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$0.76
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100,000
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$0.96
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Granted
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—
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—
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100,000
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0.55
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Exercised
|
—
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—
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—
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—
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Outstanding,
end of period
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200,000
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$0.76
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200,000
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$0.76
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Outstanding
Options
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Average
Weighted
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Exercisable
Options
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|||
Range
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Number
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Remaining
Contractual
Life in
Years
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Number
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Weighted
Average
Exercise
Price
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|
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|
|
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$2.10
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|
40,000
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2.76
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40,000
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$2.10
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$0.05
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20,000
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3.77
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20,000
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$0.05
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$0.27
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|
40,000
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7.76
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40,000
|
$0.27
|
$0.55
|
|
100,000
|
8.85
|
100,000
|
$0.55
|
|
|
200,000
|
6.91
|
200,000
|
$0.76
|
|
March 31, 2017
(Unaudited)
|
December 31,
2016
|
||
|
Number of Warrants
|
Weighted Average Exercise Price
|
Number of Warrants
|
Weighted Average Exercise Price
|
Outstanding,
beginning of period
|
36,701,413
|
$0.31
|
35,676,413
|
$0.30
|
Granted
|
883,332
|
0.69
|
1,400,000
|
0.42
|
Expired
|
—
|
—
|
(375,000)
|
0.05
|
Outstanding,
end of period
|
37,584,745
|
$0.32
|
36,701,413
|
$0.31
|
Outstanding Warrants
|
|
Exercisable Warrants
|
||
Range
|
Number
|
Average
Weighted
Remaining
Contractual
Life in Years
|
Number
|
Weighted
Average
Exercise Price
|
$0.01
|
1,575,000
|
0.28
|
1,575,000
|
$0.01
|
$0.05
|
600,000
|
0.75
|
600,000
|
$0.05
|
$0.15
|
7,750,000
|
0.55
|
7,750,000
|
$0.15
|
$0.26
|
100,000
|
1.24
|
100,000
|
$0.26
|
$0.27
|
250,000
|
4.75
|
250,000
|
$0.27
|
$0.29
|
10,125,613
|
3.56
|
10,125,613
|
$0.29
|
$0.30
|
11,925,800
|
1.50
|
11,925,800
|
$0.30
|
$0.32
|
250,000
|
4.50
|
250,000
|
$0.32
|
$0.33
|
75,000
|
1.50
|
75,000
|
$0.33
|
$0.42
|
250,000
|
4.25
|
250,000
|
$0.42
|
$0.50
|
625,000
|
3.68
|
425,000
|
$0.50
|
$0.55
|
100,000
|
3.83
|
100,000
|
$0.55
|
$0.62
|
75,000
|
1.30
|
75,000
|
$0.62
|
$0.69
|
883,332
|
2.96
|
883,332
|
$0.69
|
$1.00
|
3,000,000
|
3.09
|
3,000,000
|
$1.00
|
|
37,584,745
|
2.17
|
37,384,745
|
$0.32
|
Unvested
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
Number
|
Average
Weighted
Remaining
Contractual
Life in
Years
|
$0.50
|
200,000
|
5.00
|
Twelve Month Period Ending March 31,
|
Amount
|
|
|
|
|
2018
|
$45,000
|
|
$45,000
|
Accrued
expenses and other current liabilities consisted of the following
at:
|
||
|
|
|
|
March 31,
|
|
|
2017
(unaudited)
|
December 31,
2016
|
Commissions
|
$70,075
|
$172,735
|
Payroll
and related costs
|
29,764
|
40,264
|
Director
fees
|
63,250
|
19,000
|
Other
accrued expenses
|
66,301
|
46,414
|
Total
|
$229,390
|
$278,413
|
|
March
31,
2017
(Unaudited)
|
December
31,
2016
|
|
|
|
Total
shareholders’ equity
|
$7,692,824
|
$8,250,063
|
Cash and cash
equivalents
|
$5,996,031
|
$948,324
|
Accounts
receivable, net
|
$1,411,128
|
$1,521,378
|
Inventories
|
$4,500,454
|
$4,047,310
|
Deposits on
merchandise
|
$79,119
|
$147,010
|
Current
liabilities
|
$1,554,439
|
$1,052,953
|
Convertible notes
payable, net
|
$5,243,031
|
$—
|
Working
capital
|
$10,555,692
|
$5,715,516
|
|
For the Three
Months
|
|
|
Ended March
31,
|
|
|
2017
|
2016
|
Revenues
|
$1,099,000
|
$1,707,000
|
Gross
Profit
|
$682,000
|
$959,000
|
Total Operating
Expenses(1)
|
$1,294,000
|
$1,998,000
|
Loss from
Operations
|
$(612,000)
|
$(1,038,000)
|
Total Other Income
(Expense)
|
$(14,000)
|
$—
|
Net
Loss
|
$(626,000)
|
$(1,038,000)
|
Basic loss per
share
|
$(0.01)
|
$(0.01)
|
Diluted loss per
share
|
$(0.01)
|
$(0.01)
|
|
Three Months Ended March 31,
|
|
|
(Unaudited)
|
|
|
2017
|
2016
|
SteraMist
Product
|
$821,000
|
$1,504,000
|
Service
& Training
|
278,000
|
203,000
|
Total
|
$1,099,000
|
$1,707,000
|
|
Three Months Ended March 31,
|
|
|
(Unaudited)
|
|
|
2017
|
2016
|
United
States
|
$848,000
|
$979,000
|
International
|
251,000
|
728,000
|
Total
|
$1,099,000
|
$1,707,000
|
|
Payments Due by
Period
|
||||
Contractual
Obligations
|
Total
|
Less
than
1
Year
|
1–3
Years
|
3–5
Years
|
More
than
5
Years
|
Operating
leases(1)
|
$45
|
$45
|
$—
|
$—
|
$—
|
Convertible
Debt(2)
|
5,300
|
|
$5,300
|
$—
|
$—
|
|
$5,345
|
$45
|
$5,300
|
$—
|
$—
|
|
TOMI
ENVIRONMENTAL SOLUTIONS, INC.
|
|
|
|
|
|
|
Date: May 15,
2017
|
By:
|
/s/
Halden
S. Shane
|
|
|
|
Halden S.
Shane
|
|
|
|
Chief Executive
Officer
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
Date: May 15,
2017
|
By:
|
/s/
Nick
Jennings
|
|
|
|
Nick
Jennings
|
|
|
|
Chief Financial
Officer
Principal Financial
Officer and Principal Accounting Officer)
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
Herewith
|
||||||
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
|
4.1
|
|
Form of
Note issued on March 8, 2017
|
|
8-K
|
|
000-09908
|
|
4.1
|
|
3/21/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Form of
Warrant issued on March 15, 2017
|
|
8-K
|
|
000-09908
|
|
4.2
|
|
3/21/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification
of Halden S. Shane, Chief Executive Officer, pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
||||||
31.2
|
|
Certification
of Nick Jennings, Chief Financial Officer, pursuant to
Rule 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
||||||
32.1#
|
|
Certification
of Halden S. Shane, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
||||||
32.2#
|
|
Certification
of Nick Jennings, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
||||||
101.INS
|
|
XBRL
Instance Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
||||||
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
||||||
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
||||||
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
||||||
101.LAB
|
|
XBRL
Taxonomy Extension Labels Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
||||||
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
/s/ HALDEN
S.
SHANE
|
Halden
S. Shane
Chief
Executive Officer
(Principal
Executive Officer)
|
/s/
Nick
Jennings
|
Nick
Jennings,
Chief
Financial Officer
(Principal
Financial Officer and Principal Accounting Officer)
|
/s/ HALDEN
S.
SHANE
|
Halden
S. Shane
Chief
Executive Officer
(Principal
Executive Officer)
|
/s/ Nick
Jennings
|
Nick
Jennings
Chief
Financial Officer
(Principal
Financial Officer and Principal Accounting Officer)
|
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
May 10, 2017 |
|
Document And Entity Information | ||
Entity Registrant Name | TOMI Environmental Solutions, Inc. | |
Entity Central Index Key | 0000314227 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 121,043,958 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2017 |
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Condensed Consolidated Statement Of Operations | ||
Sales, net | $ 1,098,883 | $ 1,706,976 |
Cost of Sales | 416,357 | 747,812 |
Gross Profit | 682,526 | 959,164 |
Operating Expenses: | ||
Professional Fees | 272,011 | 177,660 |
Depreciation and Amortization | 159,151 | 133,267 |
Selling Expenses | 179,384 | 352,177 |
Research and Development | 30,647 | 8,781 |
Equity Compensation Expense (Note 7) | 11,553 | 338,629 |
Consulting fees | 31,052 | 129,626 |
General and Administrative | 610,355 | 857,468 |
Total Operating Expenses | 1,294,153 | 1,997,608 |
Loss from Operations | (611,627) | (1,038,444) |
Other Income (Expense): | ||
Amortization of Debt Discount (Note 6) | (137) | 0 |
Interest Expense | (14,133) | 0 |
Total Other Income (Expense) | (14,270) | 0 |
Net Loss | $ (625,897) | $ (1,038,444) |
Loss Per Common Share | ||
Basic and Diluted | $ (0.01) | $ (0.01) |
Basic and Diluted Weighted Average Common Shares Outstanding | 120,825,134 | 120,177,335 |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) - 3 months ended Mar. 31, 2017 - USD ($) |
Series A Preferred Stock |
Common Stock |
Additional Paid in Capital |
Accumulated Deficit |
Total |
---|---|---|---|---|---|
Beginning Balance, Shares at Dec. 31, 2016 | 510,000 | 120,825,134 | |||
Beginning Balance, Amount at Dec. 31, 2016 | $ 5,100 | $ 1,208,252 | $ 41,367,946 | $ (34,331,234) | $ 8,250,063 |
Equity based compensation, Amount | 11,553 | 11,553 | |||
Warrants issued as part of debt private placement | 57,106 | 57,106 | |||
Net Loss | (625,897) | (625,897) | |||
Ending Balance, Shares at Mar. 31, 2017 | 510,000 | 120,825,134 | |||
Ending Balance, Amount at Mar. 31, 2017 | $ 5,100 | $ 1,208,252 | $ 41,436,604 | $ (34,957,131) | $ 7,692,824 |
1. DESCRIPTION OF BUSINESS |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
Business Combination, Description [Abstract] | |
NOTE 1. DESCRIPTION OF BUSINESS | TOMI Environmental Solutions, Inc. (TOMI, the Company, we, our and us) is a global provider of infection prevention and decontamination products and services, focused primarily on life sciences including healthcare, bio-safety, pharmaceutical, clean-room and research.
TOMI provides environmental solutions for indoor and outdoor surface decontamination through the sale of equipment, services and licensing of its SteraMist Binary Ionization Technology® (BIT), which is a hydrogen peroxide-based mist and fog registered with the U.S. Environmental Protection Agency (EPA). TOMIs mission is to help its customers create a healthier world through its product line and its motto is innovating for a safer world for healthcare and life. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein, presented in accordance with generally accepted accounting principles utilized in the United States of America (GAAP), and stated in U.S. dollars, have been prepared by the Company, without an audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP 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 financial 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 financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2016 and notes thereto which are included in the Annual Report on Form 10-K previously filed with the SEC on March 29, 2017. The Company follows the same accounting policies in the preparation of interim reports. The results of operations for the interim periods covered by this Form 10-Q may not necessarily be indicative of results of operations for the full fiscal year or any other interim period.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of TOMI and its wholly-owned subsidiary, TOMI Environmental Solutions, Inc., a Nevada corporation. The Companys 55% owned subsidiary, TOMI Environmental-China, has been dormant since its formation in April 2011. 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.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying condensed consolidated 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 accounts receivable, inventory, 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 our assets and liabilities.
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:
Our financial instruments include cash and equivalents, accounts receivable, accounts payable, accrued expenses and convertible debt. All these items were determined to be Level 1 fair value measurements.
The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximated fair value because of the short maturity of these instruments. The recorded value of convertible debt approximates its fair value as the terms and rates approximate market rates (See also Note 6).
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. At times, these deposits may be in excess of insured limits.
Accounts Receivable
Our accounts receivable are typically from credit worthy customers or, for certain international customers, are supported by pre-payments. For those customers to whom we extend credit, we perform periodic evaluations of them and maintain allowances for potential credit losses as deemed necessary. We have a policy of reserving for doubtful accounts based on our best estimate of the amount of potential credit losses in existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Bad debt expense for the three months ended March 31, 2017 and 2016 was $0 and $30,000, respectively.
At March 31, 2017 and December 31, 2016, the allowance for doubtful accounts was $300,000 and $300,000, respectively.
As of March 31, 2017, one customer accounted for 11% of accounts receivable. Three customers accounted for 43% of net revenues for the three months ended March 31, 2017.
As of December 31, 2016, one customer accounted for 10% of accounts receivable. Two customers accounted for 52% of net revenues for the three months ended March 31, 2016.
Inventories
Inventories are valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories consist primarily of finished goods and raw materials. At March 31, 2017 and December 31, 2016, we did not have a reserve for slow-moving or obsolete inventory.
Deposits on Merchandise
Deposits on merchandise primarily consist of amounts paid in advance of the receipt of inventory (see Note 10).
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. Leasehold improvements are amortized using the straight-line method over the lives of the respective leases or service lives of the improvements, whichever is shorter.
Accounts Payable
As of March 31, 2017 and December 31, 2016, two vendors accounted for approximately 67% and 49% of total accounts payable, respectively. One vendor accounted for 67% and 77% of cost of goods sold for the three months ended March 31, 2017 and 2016, respectively.
Accrued Warranties
Accrued warranties represent the estimated costs, if any, that will be incurred during the warranty period of our products. We make an estimate of expected costs that will be incurred by us during the warranty period and charge that expense to the consolidated statement of operations at the date of sale. Our manufacturer assumes warranty against product defects for one year, which we extend to our customers upon sale of the product. We assume responsibility for product reliability and results. As of March 31, 2017 and December 31, 2016, the Company did not establish a warranty reserve.
Income Taxes
Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized in accordance with ASC guidance for income taxes. Net deferred tax benefits have been fully reserved at March 31, 2017 and December 31, 2016. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.
Loss Per Share
Basic loss per share is computed by dividing the Company’s net loss by the weighted average number of shares of common stock outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of shares of common stock, such as shares issuable pursuant to the exercise of options and warrants and conversions of preferred stock or debentures.
Potentially dilutive securities as of March 31, 2017 consisted of 9,814,805 shares of common stock from convertible debentures, 37,584,745 shares of common stock issuable upon exercise of outstanding warrants, 200,000 shares of common stock issuable upon outstanding options and 510,000 shares of common stock issuable upon conversion of outstanding shares of Preferred A stock (“Convertible Series A Preferred Stock”). Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive.
Potentially dilutive securities as of March 31, 2016, consisted of 36,026,413 shares of common stock issuable upon exercise of outstanding warrants, 200,000 shares of common stock issuable upon outstanding options and 510,000 shares of common stock issuable upon conversion of outstanding shares of Convertible Series A Preferred Stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive.
After giving effect to the add back of interest expense on the convertible note and the amortization of the debt discount on the convertible notes totaling $14,270, net loss per share attributable to common shareholders would be $0.01 per share.
Revenue Recognition
For revenue from services and product sales, we recognize 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 managements 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.
Stock-Based Compensation
We account for stock-based compensation in accordance with Financial Accounting Standards Board (FASB), ASC 718, CompensationStock Compensation. Under the provisions of FASB ASC 718, stock-based compensation cost is estimated at the grant date based on the awards fair value and is recognized as expense over the requisite service period. During the year ended December 31, 2015, we had one active stock-based compensation plan, the TOMI Environmental Solutions, Inc. Stock Option and Restricted Stock Plan (the 2008 Plan). The 2008 Plan allowed 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 awards to its employees, consultants and board members. Stock options are granted with an exercise price equal to the closing price of our common stock on the date of the 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 our outstanding equity securities are granted at an exercise price that is not less than 110% of the closing price of our common stock on the date of grant and have a term no greater than five years. On the date of a grant, we determine the fair value of the stock option award and recognize 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. On August 25, 2015, we terminated the 2008 Plan.
On January 29, 2016, our board of directors adopted the 2016 Equity Compensation Plan (the 2016 Plan), subject to approval by our shareholders. The 2016 Plan authorizes the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance units/shares. Up to 5,000,000 shares of common stock are authorized for issuance under the 2016 Plan. Shares issued under the 2016 Plan may be either authorized but unissued shares, treasury shares, or any combination thereof. Provisions in the 2016 Plan permit the reuse or reissuance by the 2016 Plan of shares of common stock for numerous reasons, including, but not limited to, shares of common stock underlying canceled, expired, or forfeited awards of stock-based compensation and stock appreciation rights paid out in the form of cash. Stock-based compensation will typically be awarded in consideration for the future performance of services to us. All recipients of awards under the 2016 Plan are required to enter into award agreements with the Company at the time of the award; awards under the 2016 Plan are expressly conditioned upon such agreements. For the year ended December 31, 2016, the Company issued options to purchase 100,000 shares of common stock out of the 2016 Plan. As of March 31, 2017, the 2016 Plan had not been approved by our shareholders.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We maintain cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation limit of $250,000 at times during the year.
Long-Lived Assets Including Acquired Intangible Assets
We assess long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, we measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If our long-lived 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 base the calculations of the estimated fair value of our long-lived assets on the income approach. For the income approach, we use an internally developed discounted cash flow model that includes, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. We had no long-lived asset impairment charges for the three months ended March 31, 2017 and 2016.
Advertising and Promotional Expenses
We expense advertising costs in the period in which they are incurred. Advertising and promotional expenses for the three months ended March 31, 2017 and 2016 were approximately $8,900 and 41,000, respectively.
Research and Development Expenses
We expense research and development expenses in the period in which they are incurred. For the three months ended March 31, 2017 and 2016, research and development expenses were approximately $31,000 and $9,000, respectively.
Shipping and Handling Costs
We include shipping and handling costs relating to the delivery of products directly from vendors to the Company in cost of sales. Other shipping and handling costs, including third-party delivery costs relating to the delivery of products to customers, are classified as a general and administrative expense. Shipping and handling costs included in general and administrative expense were $21,000 and $31,000 for the three months ended March, 31, 2017 and 2016, respectively.
Business Segments
We currently have one reportable business segment due to the fact that we derive our revenue primarily from one product. A breakdown of revenue is shown below:
Net Revenue
Product and Service Revenue
Revenue by Geographic Region
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as non-current. We have retrospectively adopted this standard as of December 31, 2015, although there was no impact on the Company, as all of the deferred tax assets for the year ended December 31, 2014 were classified as noncurrent.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) Leases (Topic 842). ASU 2016-02 provides new lease accounting guidance. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (ASU 2016-09) Compensation Stock Compensation (Topic 718). ASU 2016-09 provides improvements to employee share-based payment accounting. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently in the process of evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements. |
3. INVENTORIES |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 3. INVENTORIES |
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4. PROPERTY AND EQUIPMENT |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 4. PROPERTY AND EQUIPMENT | Property and equipment consists of the following:
For the three months ended March 31, 2017 and 2016, depreciation was $66,775 and $40,890, respectively. |
5. INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 5. INTANGIBLE ASSETS |
Intangible assets consist of patents and trademarks related to our Binary Ionization Technology. We amortize the patents over the estimated remaining lives of the related patents. The trademarks have an indefinite life. Amortization expense was $92,377 and $92,377 for the three months ended March 31, 2017 and 2016, respectfully.
Indefinite life intangible assets consist of the following:
Approximate amortization over the next five years is as follows:
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6. CONVERTIBLE DEBT |
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Convertible Debt [Abstract] | |||||||||||||||||||||||||||||||
NOTE 6. CONVERTIBLE DEBT | On March 15, 2017, the Company closed a private placement transaction in which it issued to certain accredited investors unregistered senior callable convertible promissory notes (the “Notes”) and three-year warrants to purchase an aggregate of 883,332 shares of common stock at an exercise price of $0.69 per share in exchange for aggregate gross proceeds of $5,300,000. The Notes bear interest at a rate of 4% per annum and mature on August 31, 2018, unless earlier redeemed, repurchased or converted. The Notes rank senior to all of the Company’s unsecured debt. The Notes are convertible at the option of the holder into common stock at a conversion price of $0.54 per share. Subsequent to September 1, 2017, the Company may redeem the Notes at any time prior to maturity at a price equal to 100% of the outstanding principal amount of the Notes to be redeemed, plus accrued and unpaid interest as of the redemption date. Interest on the Notes is payable semi-annually in cash on February 28 and August 31 of each year, beginning on August 31, 2017. Interest expense related to the Notes for the three months ended March 31, 2017 was $14,133.
The warrants were valued at $57,728 using the Black-Scholes pricing model with the following assumptions: expected volatility: 111.54%; expected dividend: $0; expected term: 3 years; and risk free rate: 1.59%. The estimated fair value of the warrants was calculated using the Black-Scholes valuation model. The Company recorded the warrants’ relative fair value of $57,106 as an increase to additional paid-in capital and a discount against the related debt.
The debt discount is being amortized over the life of the Notes using the effective interest method. Amortization expense for the three months ended March 31, 2017 was $137.
Convertible notes consist of the following at March 31, 2017:
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7. STOCKHOLDERS' EQUITY |
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Statement of Stockholders' Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 7. STOCKHOLDERS' EQUITY |
Our board of directors may, without further action by our shareholders, 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 such 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 our 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 our common stock.
Convertible Series A Preferred Stock
Our authorized Convertible Series A Preferred Stock, $0.01 par value, consists of 1,000,000 shares. At March 31, 2017 and December 31, 2016, there were 510,000 shares issued and outstanding, respectively. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock.
Convertible Series B Preferred Stock
Our authorized Convertible Series B Preferred Stock, $1,000 stated value, 7.5% Cumulative dividend, consists of 4,000 shares. At March 31, 2017 and December 31, 2016, there were no shares issued and outstanding, respectively.
Common Stock
During the three months ended March 31, 2017, we did not issue any shares of common stock. During the three months ended March 31, 2016, we issued 275,416 shares of common stock valued at approximately $145,000 for professional services rendered.
Stock Options
In February 2016, we issued options to purchase 100,000 shares of common stock to four directors, valued at $54,980 in total. The options have an exercise price of $0.55 per share. The options expire in February 2026. The options were valued using the Black-Scholes model using the following assumptions: volatility: 224%; dividend yield: 0%; zero coupon rate: 1.47%; and a life of 10 years.
The following table summarizes stock options outstanding as of March 31, 2017 and December 31, 2016:
Options outstanding and exercisable by price range as of March 31, 2017 were as follows:
Stock Warrants
For the three months ended March 31, 2016, we recognized total equity based compensation of approximately $168,000 on warrants issued to the Chief Executive Officer (“CEO”) in connection with his current and previous employment agreements. For the three months ended March 31, 2016, we recognized $39,000 in stock compensation expense for the warrants issued to the CEO in February 2014 that vested in February 2016. In addition, on March 31, 2016, we issued warrants to purchase up to 250,000 shares of common stock to the CEO with a term of five years that vest upon issuance and have an exercise price of $0.50 per share. We utilized the Black-Scholes method to fair value the warrants to purchase up to 250,000 shares of common stock received by the CEO totaling approximately $129,000 with the following assumptions: volatility, 162%; expected dividend yield, 0%; risk free interest rate, 1.47%; and a life of 5 years. The grant date fair value of each warrant was $0.51.
For the three months ended March 31, 2016, we recognized total equity based compensation of approximately $58,000 on warrants issued to the Chief Financial Officer (“CFO”) in connection with his current and previous employment agreements. For the three months ended March 31, 2016, we recognized $7,000 in stock compensation expense for the accrued but unvested portion of the warrants issued to the CFO under his previous agreement with the Company. In addition, on January 26, 2016, we issued warrants to purchase up to 100,000 shares of common stock to the CFO with a term of five years that vested upon issuance and have an exercise price of $0.55 per share. We utilized the Black-Scholes method to fair value the warrants to purchase up to 100,000 shares of common stock received by the CFO totaling approximately $51,000 with the following assumptions: volatility, 164%; expected dividend yield, 0%; risk free interest rate, 1.47%; and a life of 5 years. The grant date fair value of each warrant was $0.51.
For the three months ended March 31, 2016, we recognized equity compensation expense of approximately $57,000 related to warrants issued in April 2016 to an employee pursuant to his employment agreement with the Company. We accrued for the estimated fair value of the warrants as of March 31, 2016. We utilized the Black-Scholes method to fair value the warrants received by the employee with the following assumptions: volatility, 159%; expected dividend yield, 0%; risk free interest rate, 1.47%; and a life of 5 years. The grant date fair value of each warrant was $0.46.
For the three months ended March 31, 2017, we recognized approximately $12,000 in equity compensation expense for the accrued but unvested portion of the warrants issued to an employee pursuant to his agreement with the Company.
In March 2017, in connection with the issuance of the Notes, we issued three-year warrants to purchase up to an aggregate of 883,332 shares of common stock at an exercise price of $0.69 per share (see Note 6).
The following table summarizes the outstanding common stock warrants as of March 31, 2017 and December 31, 2016:
Warrants outstanding and exercisable by price range as of March 31, 2017 were as follows:
Unvested warrants outstanding as of March 31, 2017 were as follows:
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8. RELATED PARTY TRANSACTIONS |
3 Months Ended |
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Mar. 31, 2017 | |
Related Party Transactions [Abstract] | |
NOTE 8. RELATED PARTY TRANSACTIONS |
For each of the three months ended March 31, 2017 and 2016, we incurred fees for legal services rendered by Harold Paul in the amount of $15,000, respectively. Mr. Paul is also director of the Company.
In January 2016, we entered into a distributor agreement with TOMI Asia to facilitate growth in Asia. Wee Ah Kee, one of our significant shareholders, is the Chief Executive Officer of TOMI Asia. We amended the distributor agreement in August 2016, at which time TOMI Asia changed its name to SteraMist Asia. The initial term of our new agreement is three years and the agreement sets revenue targets of $5.5 million, $8.5 million and $12 million of our products during 2016, 2017 and 2018, respectively. Our new agreement includes mainland China and Indochina and excludes South Korea, Japan, Australia and New Zealand. No sales were made under the distributor agreement for the three months ended March 31, 2017 and 2016, respectfully.
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9. COMMITMENTS AND CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||
NOTE 9. COMMITMENTS AND CONTINGENCIES | Lease Commitments
In September 2014, we entered into a lease agreement for office and warehouse space in Frederick, Maryland. As part of the lease agreement, we received a rent holiday in the first 5 months of the lease. The lease also provides for an escalation clause pursuant to which the Company will be subject to an annual rent increase of 3%, year over year. The lease expires on January 31, 2018. The Company accounts for the lease using the straight line method and recorded $11,427 in rent expense for the three months ended March 31, 2017 and 2016, respectively. Approximate minimum annual rents under the lease are as follows:
Legal Contingencies
We may become a party to litigation in the normal course of business. In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon our financial condition, results of operations or cash flows. In addition, from time to time, we may have to file claims against parties that infringe on our intellectual property.
Product Liability
As of March 31, 2017 and December 31, 2016, there were no claims against us for product liability. |
10. CONTRACTS AND AGREEMENTS |
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Mar. 31, 2017 | |
Contracts And Agreements | |
NOTE 10. CONTRACTS AND AGREEMENTS |
Manufacturing Agreement
In November 2016, we entered into a new manufacturing and development agreement with RG Group Inc. The agreement does not provide for any minimum purchase commitments and is for a term of two years with provisions to extend. The agreement also provides for a warranty against product defects for one year.
As of March 31, 2017 and December 31, 2016, balances due to RG Group, Inc. accounted for approximately 53% and 31% of total accounts payable, respectively. At March 31, 2017 and December 31, 2016, we maintained required deposits with RG Group, Inc. in the amounts of $79,119 and $147,010, respectively. For the three months ended March 31, 2017 and 2016, RG Group, Inc. accounted for 67% and 77% of cost of goods sold, respectively.
Agreements with Directors
In March 2017, we increased the annual board fee to directors to $30,000, to be paid on a quarterly basis, with the exception of the audit committee chairperson, whose annual fee we increased to $35,000, also to be paid on a quarterly basis. In addition, we issued to each of our four board members 50,000 shares of common stock. The 200,000 shares of common stock were valued at $32,000 and accrued for in the three months ended March 31, 2017.
Other Agreements
In June 2015, we launched the TOMI Service Network (“TSN”). The TSN is a national service network composed of existing full service restoration industry specialists that have entered into licensing agreements with us to become Primary Service Providers (“PSP’s”). The licensing agreements grant protected territories to PSP’s to perform services using our SteraMist™ platform of products and also provide for potential job referrals to PSP’s whereby we are entitled to referral fees. Additionally, the agreement provides for commissions due to PSP’s for equipment and solution sales they facilitate to other service providers in their respective territories. As part of these agreements, we are obligated to provide to the PSP’s various training, ongoing support and facilitate a referral network call center. As of March 31, 2017, we had entered into 63 licensing agreements in connection with the launch of the TSN. The licensing agreements contain fixed price minimum equipment and solution orders based on the population of the territories granted pursuant to the licensing agreements.
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11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (USD $) |
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11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
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12. CUSTOMER CONCENTRATION |
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Mar. 31, 2017 | |
Risks and Uncertainties [Abstract] | |
NOTE 12. CUSTOMER CONCENTRATION | The Company had certain customers whose revenue individually represented 10% of more of the Companys total revenue, or whose accounts receivable balances individually represented 10% of more of the Companys accounts receivable.
For the three months ended March 31, 2017, three customers accounted for 43% of revenue. Two customers accounted for 52% of net revenues for the three months ended March 31, 2016.
At March 31, 2017 and December 31, 2016, one customer accounted for 11% and 10% of accounts receivable, respectively. |
13. SUBSEQUENT EVENTS |
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Mar. 31, 2017 | |
Notes to Financial Statements | |
NOTE 13. 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 SEC.
In April 2017, we issued 50,000 shares of common stock valued at $8,000 to Walter Johnsen. Mr. Johnsen is a director of the Company.
In April 2017, we issued 50,000 shares of common stock valued at $8,000 to Kelly Anderson. Ms. Anderson is a director of the Company.
In April 2017, we issued 50,000 shares of common stock valued at $8,000 to Harold Paul. Mr. Paul is a director of the Company.
In April 2017, we issued 50,000 shares of common stock valued at $8,000 to Edward Fred. Mr. Fred is a former director of the Company.
In May 2017, we issued a senior callable convertible promissory note with an aggregate principal amount of $700,000. The note matures on November 8, 2018, unless earlier redeemed, repurchased or converted. The note is convertible at any time by the holder into common stock at a conversion price of $0.54 per share. Before November 8, 2018, we may, at our option, after 30 days’ prior notice, redeem the note at any time prior to maturity at a price equal to 100% of the principal amount of the note to be redeemed plus accrued and unpaid interest as of the redemption date. Interest on the note is payable semi-annually in cash on February 28 and August 31 of each year, beginning on August 31, 2017, at a rate of 4 percent per annum. In addition, we issued a three-year warrant to purchase up to an aggregate of 116,559 shares of common stock at an exercise price of $0.69 per share.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation |
The interim unaudited condensed consolidated financial statements included herein, presented in accordance with generally accepted accounting principles utilized in the United States of America (GAAP), and stated in U.S. dollars, have been prepared by the Company, without an audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP 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 financial 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 financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2016 and notes thereto which are included in the Annual Report on Form 10-K previously filed with the SEC on March 29, 2017. The Company follows the same accounting policies in the preparation of interim reports. The results of operations for the interim periods covered by this Form 10-Q may not necessarily be indicative of results of operations for the full fiscal year or any other interim period. |
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Principles of Consolidation | The accompanying condensed consolidated financial statements include the accounts of TOMI and its wholly-owned subsidiary, TOMI Environmental Solutions, Inc., a Nevada corporation. The Companys 55% owned subsidiary, TOMI Environmental-China, has been dormant since its formation in April 2011. All significant intercompany accounts and transactions have been eliminated in consolidation. |
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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. |
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Use of Estimates |
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying condensed consolidated 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 accounts receivable, inventory, 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 our assets and liabilities. |
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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:
Our financial instruments include cash and equivalents, accounts receivable, accounts payable, accrued expenses and convertible debt. All these items were determined to be Level 1 fair value measurements. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximated fair value because of the short maturity of these instruments. The recorded value of convertible debt approximates its fair value as the terms and rates approximate market rates (See also Note 6).
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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. At times, these deposits may be in excess of insured limits. |
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Accounts Receivable | Our accounts receivable are typically from credit worthy customers or, for certain international customers, are supported by pre-payments. For those customers to whom we extend credit, we perform periodic evaluations of them and maintain allowances for potential credit losses as deemed necessary. We have a policy of reserving for doubtful accounts based on our best estimate of the amount of potential credit losses in existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Bad debt expense for the three months ended March 31, 2017 and 2016 was $0 and $30,000, respectively.
At March 31, 2017 and December 31, 2016, the allowance for doubtful accounts was $300,000 and $300,000, respectively.
As of March 31, 2017, one customer accounted for 11% of accounts receivable. Three customers accounted for 43% of net revenues for the three months ended March 31, 2017.
As of December 31, 2016, one customer accounted for 10% of accounts receivable. Two customers accounted for 52% of net revenues for the three months ended March 31, 2016. |
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Inventories | Inventories are valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories consist primarily of finished goods and raw materials. At March 31, 2017 and December 31, 2016, we did not have a reserve for slow-moving or obsolete inventory. |
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Deposits on Merchandise | Deposits on merchandise primarily consist of amounts paid in advance of the receipt of inventory (see Note 10). |
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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. Leasehold improvements are amortized using the straight-line method over the lives of the respective leases or service lives of the improvements, whichever is shorter. |
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Accounts Payable | As of March 31, 2017 and December 31, 2016, two vendors accounted for approximately 67% and 49% of total accounts payable, respectively. One vendor accounted for 67% and 77% of cost of goods sold for the three months ended March 31, 2017 and 2016, respectively. |
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Accrued Warranties |
Accrued warranties represent the estimated costs, if any, that will be incurred during the warranty period of our products. We make an estimate of expected costs that will be incurred by us during the warranty period and charge that expense to the consolidated statement of operations at the date of sale. Our manufacturer assumes warranty against product defects for one year, which we extend to our customers upon sale of the product. We assume responsibility for product reliability and results. As of March 31, 2017 and December 31, 2016, the Company did not establish a warranty reserve. |
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Income taxes | Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized in accordance with ASC guidance for income taxes. Net deferred tax benefits have been fully reserved at March 31, 2017 and December 31, 2016. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. |
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Loss Per Share |
Basic loss per share is computed by dividing the Company’s net loss by the weighted average number of shares of common stock outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of shares of common stock, such as shares issuable pursuant to the exercise of options and warrants and conversions of preferred stock or debentures.
Potentially dilutive securities as of March 31, 2017 consisted of 9,814,805 shares of common stock from convertible debentures, 37,584,745 shares of common stock issuable upon exercise of outstanding warrants, 200,000 shares of common stock issuable upon outstanding options and 510,000 shares of common stock issuable upon conversion of outstanding shares of Preferred A stock (“Convertible Series A Preferred Stock”). Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive.
Potentially dilutive securities as of March 31, 2016, consisted of 36,026,413 shares of common stock issuable upon exercise of outstanding warrants, 200,000 shares of common stock issuable upon outstanding options and 510,000 shares of common stock issuable upon conversion of outstanding shares of Convertible Series A Preferred Stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive.
After giving effect to the add back of interest expense on the convertible note and the amortization of the debt discount on the convertible notes totaling $14,270, net loss per share attributable to common shareholders would be $0.01 per share. |
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Revenue Recognition | For revenue from services and product sales, we recognize 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 managements 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. |
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Stock-Based Compensation | We account for stock-based compensation in accordance with Financial Accounting Standards Board (FASB), ASC 718, CompensationStock Compensation. Under the provisions of FASB ASC 718, stock-based compensation cost is estimated at the grant date based on the awards fair value and is recognized as expense over the requisite service period. During the year ended December 31, 2015, we had one active stock-based compensation plan, the TOMI Environmental Solutions, Inc. Stock Option and Restricted Stock Plan (the 2008 Plan). The 2008 Plan allowed 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 awards to its employees, consultants and board members. Stock options are granted with an exercise price equal to the closing price of our common stock on the date of the 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 our outstanding equity securities are granted at an exercise price that is not less than 110% of the closing price of our common stock on the date of grant and have a term no greater than five years. On the date of a grant, we determine the fair value of the stock option award and recognize 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. On August 25, 2015, we terminated the 2008 Plan.
On January 29, 2016, our board of directors adopted the 2016 Equity Compensation Plan (the 2016 Plan), subject to approval by our shareholders. The 2016 Plan authorizes the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance units/shares. Up to 5,000,000 shares of common stock are authorized for issuance under the 2016 Plan. Shares issued under the 2016 Plan may be either authorized but unissued shares, treasury shares, or any combination thereof. Provisions in the 2016 Plan permit the reuse or reissuance by the 2016 Plan of shares of common stock for numerous reasons, including, but not limited to, shares of common stock underlying canceled, expired, or forfeited awards of stock-based compensation and stock appreciation rights paid out in the form of cash. Stock-based compensation will typically be awarded in consideration for the future performance of services to us. All recipients of awards under the 2016 Plan are required to enter into award agreements with the Company at the time of the award; awards under the 2016 Plan are expressly conditioned upon such agreements. For the year ended December 31, 2016, the Company issued options to purchase 100,000 shares of common stock out of the 2016 Plan. As of March 31, 2017, the 2016 Plan had not been approved by our shareholders. |
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Concentrations of Credit Risk | Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We maintain cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation limit of $250,000 at times during the year. |
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Long-Lived Assets Including Acquired Intangible Assets | We assess long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, we measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If our long-lived 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 base the calculations of the estimated fair value of our long-lived assets on the income approach. For the income approach, we use an internally developed discounted cash flow model that includes, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. We had no long-lived asset impairment charges for the three months ended March 31, 2017 and 2016. |
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Advertising and Promotional Expenses | We expense advertising costs in the period in which they are incurred. Advertising and promotional expenses for the three months ended March 31, 2017 and 2016 were approximately $8,900 and 41,000, respectively. |
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Research and Development Expenses | We expense research and development expenses in the period in which they are incurred. For the three months ended March 31, 2017 and 2016, research and development expenses were approximately $31,000 and $9,000, respectively. |
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Shipping and Handling Costs | We include shipping and handling costs relating to the delivery of products directly from vendors to the Company in cost of sales. Other shipping and handling costs, including third-party delivery costs relating to the delivery of products to customers, are classified as a general and administrative expense. Shipping and handling costs included in general and administrative expense were $21,000 and $31,000 for the three months ended March, 31, 2017 and 2016, respectively. |
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Business Segments | We currently have one reportable business segment due to the fact that we derive our revenue primarily from one product. A breakdown of revenue is shown below:
Net Revenue
Product and Service Revenue
Revenue by Geographic Region
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Recent Accounting Pronouncements | In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as non-current. We have retrospectively adopted this standard as of December 31, 2015, although there was no impact on the Company, as all of the deferred tax assets for the year ended December 31, 2014 were classified as noncurrent.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) Leases (Topic 842). ASU 2016-02 provides new lease accounting guidance. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (ASU 2016-09) Compensation Stock Compensation (Topic 718). ASU 2016-09 provides improvements to employee share-based payment accounting. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently in the process of evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reportable business segment | Product and Service Revenue
Revenue by Geographic Region
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3. INVENTORIES (Tables) |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES |
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4. PROPERTY AND EQUIPMENT (Tables) |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT |
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5. INTANGIBLE ASSETS (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Definite life intangible assets |
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Indefinite life intangible assets |
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Approximate amortization over the next five years |
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6. CONVERTIBLE DEBT (Tables) |
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Convertible Debt [Abstract] | |||||||||||||||||||||||||||||||
Convertible Notes potential future financing and fundamental transactions |
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7. STOCKHOLDERS' EQUITY (Tables) |
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Statement of Stockholders' Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of stock options outstanding |
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Options outstanding and exercisable by price range |
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Summary of stock warrants outstanding |
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Warrants outstanding and exercisable by price range |
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Unvested warrants outstanding |
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9. COMMITMENTS AND CONTINGENCIES (Tables) |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||
Minimum annual rents |
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11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables) |
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Accrued Expenses And Other Current Liabilities Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Accrued expenses and other current liabilities |
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) |
3 Months Ended | |
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Mar. 31, 2017 |
Mar. 31, 2016 |
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Net Revenue | $ 1,099,000 | $ 1,707,000 |
SteraMist Product [Member] | ||
Net Revenue | 821,000 | 1,504,000 |
Service & Training [Member] | ||
Net Revenue | 278,000 | 203,000 |
United States [Member] | ||
Net Revenue | 848,000 | 979,000 |
International [Member] | ||
Net Revenue | $ 251,000 | $ 728,000 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | ||
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Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||
Bad Debt Expense | $ 0 | $ 30,000 | |
Allowance for doubtful accounts | $ 300,000 | $ 300,000 | |
Accounts receivable | 11.00% | 10.00% | |
Accounts payable vendor accounted percentage | 67.00% | 49.00% | |
Cost of goods sold vendor accounted percentage | 67.00% | 77.00% | |
Potentially dilutive securities, convertible debentures | 9,814,805 | 36,026,413 | |
Potentially dilutive securities, outstanding warrants | 37,584,745 | 200,000 | |
Potentially dilutive securities, outstanding options | 200,000 | ||
Potentially dilutive securities, convertible Series A preferred stock | 510,000 | 510,000 | |
Advertising and promotional expenses | $ 8,900 | $ 41,000 | |
Research and Development Expenses | 30,647 | 8,781 | |
Shipping and Handling Costs | $ 21,000 | $ 31,000 | |
Revenue, Net [Member] | Three Customer [Member] | |||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||
Accounts receivable | 43.00% | 52.00% |
3. INVENTORIES (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 11,967 | $ 13,031 |
Finished goods | 4,488,487 | 4,034,279 |
Inventory, end of period | $ 4,500,454 | $ 4,047,310 |
4. PROPERTY AND EQUIPMENT (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
Furniture and fixtures | $ 91,216 | $ 91,216 |
Equipment | 931,747 | 926,979 |
Vehicles | 56,410 | 56,410 |
Software | 39,999 | 39,999 |
Leasehold Improvements | 15,554 | 15,554 |
Property and Equipment Gross | 1,134,926 | 1,130,158 |
Less: Accumulated depreciation | 585,125 | 518,350 |
Property and Equipment Net | $ 549,801 | $ 611,807 |
4. PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Property and Equipment | ||
Depreciation | $ 66,775 | $ 40,890 |
5. INTANGIBLE ASSETS (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Intellectual Property and Patents | $ 2,848,300 | $ 2,848,300 |
Less: Accumulated Amortization | 1,462,637 | 1,370,260 |
Intangible Assets, net | $ 1,385,663 | $ 1,478,040 |
5. INTANGIBLE ASSETS (Details 1) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Trademarks | $ 440,000 | $ 440,000 |
Total Intangible Assets, net | $ 1,825,663 | $ 1,918,040 |
5. INTANGIBLE ASSETS (Details 2) |
Mar. 31, 2017
USD ($)
|
---|---|
Amortization | |
2018 | $ 370,000 |
2019 | 370,000 |
2020 | 370,000 |
2021 | 276,000 |
2022 | 0 |
Total | $ 1,386,000 |
5. INTANGIBLE ASSETS (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 92,377 | $ 92,377 |
6. CONVERTIBLE DEBT (Details) |
Mar. 31, 2017
USD ($)
|
---|---|
Convertible Debt Details | |
Convertible notes | $ 5,300,000 |
Initial discount | (57,106) |
Accumulated Amortization | 137 |
Convertible notes, net | $ 5,243,031 |
6. CONVERTIBLE DEBT (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 15, 2017 |
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Expected volatility | 111.54% | ||
Remaining term (years) | 3 years | ||
Risk-free rate | 1.59% | ||
Amortization expense | $ 92,377 | $ 92,377 | |
Interest expense | $ 14,133 | $ 0 | |
Convertible Notes | |||
Exercise price | $ 0.69 | ||
Warrants purchase shares | 883,332 | ||
warrants purchase shares Price | $ 5,300,000 | ||
Debt Interest rate | 4.00% |
7. STOCKHOLDERS' EQUITY (Details) - $ / shares |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Number of Options | ||
Outstanding option, Beginning balance | 200,000 | 100,000 |
Granted, Options | 0 | 100,000 |
Exercised, Options | 0 | 0 |
Outstanding option, Ending balance | 200,000 | 200,000 |
Weighted Average Exercise Price | ||
Outstanding Weighted Average Exercise Price, Beginning balance | $ 0.76 | $ 0.96 |
Granted, Weighted Average Exercise Price | 0.00 | 0.55 |
Exercised, Weighted Average Exercise Price | 0.00 | 0.00 |
Outstanding Weighted Average Exercise Price, Ending balance | $ 0.76 | $ 0.76 |
7. STOCKHOLDERS' EQUITY (Details 2) - Warrant [Member] - $ / shares |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Outstanding Warrants, Beginning Balance | 36,701,413 | 35,676,413 |
Granted, Warrants | 883,332 | 1,400,000 |
Expired, Warrants | 0 | (375,000) |
Outstanding Warrants, Ending Balance | 37,584,745 | 36,701,413 |
Outstanding Weighted Average Exercise Price, Beginning balance | $ 0.31 | $ 0.3 |
Granted, Weighted Average Exercise Price | 0.69 | 0.42 |
Expired, Weighted Average Exercise Price | 0.00 | 0.05 |
Outstanding Weighted Average Exercise Price, Ending balance | $ 0.32 | $ 0.31 |
7. STOCKHOLDERS' EQUITY (DEFICIENCY) (Details 4) - Unvested Warrant [Member] |
3 Months Ended |
---|---|
Mar. 31, 2017
$ / shares
shares
| |
Schedule of Trading Securities and Other Trading Assets [Line Items] | |
Weighted Average Exercise Price, Unvested Warrants | $ / shares | $ 0.50 |
Unvested Warrants, Number | shares | 200,000 |
Average Weighted Remaining Contractual Life in Years, Unvested Warrants | 5 years |
8. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Mr. Paul | ||
Fees for legal services | $ 15,000 | $ 15,000 |
9. COMMITMENTS AND CONTINGENCIES (Details) |
Mar. 31, 2017
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2018 | $ 45,000 |
Total | $ 45,000 |
9. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Commitments and Contingencies Disclosure [Abstract] | ||
Rent expense | $ 11,427 | $ 11,427 |
10. CONTRACTS AND AGREEMENTS (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Accounts payable | 53.00% | 31.00% | |
Deposits | $ 79,119 | $ 147,010 | |
Cost of goods sold | 67.00% | 77.00% | |
Maintainable required deposits | $ 79,119 | $ 147,010 | |
Incurred costs | 359,112 | ||
Mr. Johnsen | |||
Common stock valued accrued | 8,000 | ||
Ms. Anderson | |||
Common stock valued accrued | 8,000 | ||
Mr. Fred | |||
Common stock valued accrued | 8,000 | ||
Mr. Paul | |||
Common stock valued accrued | $ 8,000 |
11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Accrued Expenses And Other Current Liabilities Details | ||
Commissions | $ 70,075 | $ 172,735 |
Payroll and related costs | 29,764 | 40,264 |
Director fees | 63,250 | 19,000 |
Other accrued expenses | 66,301 | 46,414 |
Total | $ 229,390 | $ 278,413 |
12. CUSTOMER CONCENTRATION (Details Narrative) - Revenue, Net [Member] |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Three customers [Member] | ||
Concentration risk percentage1 | 43.00% | |
Two customers [Member] | ||
Concentration risk percentage1 | 52.00% | |
One customers [Member] | ||
Concentration risk percentage1 | 11.00% | 10.00% |
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