Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-09908
TOMI ENVIRONMENTAL SOLUTIONS, INC.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Florida 59-1947988
________________________________________________________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9454 Wilshire Blvd., Penthouse, Beverly Hills, CA 90212
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(800) 525-1698
________________________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or such shorter period that the registrant was required to
submit and post such files). Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 13, 2011, the registrant had 64,451,909 shares of common stock
outstanding.
FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 2011
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
ITEM 4. CONTROLS AND PROCEDURES 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 1A. RISK FACTORS 20
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS 20
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 2011 December 31, 2010
------------------ -----------------
ASSETS
Current Assets:
---------------
Cash and cash equivalents $ 34,639 $ 61,179
Prepaid expenses - 2,862
------------------ -----------------
Total Current Assets 34,639 64,041
Property and equipment,net 132,272 153,638
Intangible assets, net 88,882 91,659
Security deposits 5,416 5,416
------------------ -----------------
Total Assets $ 261,209 $ 314,754
================== =================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
--------------------
Accounts payable and accrued expenses $ 219,669 $ 169,475
Accrued officers' compensation 5,000 1,066,269
Notes payable - current portion 8,292 8,077
Loan payable 53,868 23,158
Customer depoits - 53,940
------------------ -----------------
Total Current Liabilities 286,829 1,320,919
Long-Term Liabilities:
----------------------
Non-current portion of notes payable - 2,157
------------------ -----------------
Total Liabilities 286,829 1,323,076
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
Stockholders' Deficiency:
-------------------------
Cumulative Convertible Series A Preferred Stock,
par value $0.01; 1,000,000 shares authorized;
510,000 and 510,000 shares issued and
outstanding at March 31, 2011 and
December 31, 2010 $ 5,100 $ 5,100
Common Stock; par value $0.01; 75,000,000 shares
authorized; 63,701,909 and 48,282,871 shares
issued and outstanding at March 31, 2011 and
December 31, 2010, respectively 637,019 482,829
Additional paid-in Capital 10,783,305 9,584,424
Accumulated deficit (11,425,581) (11,032,491)
Deferred compensation (34,507) (52,788)
Accumulated other comprehensive income 617 348
------------------ -----------------
Total TOMI Environmental Solutions, Inc.
Shareholders' Deficency (34,047) (1,012,578)
Non-Controlling Interest 8,427 4,256
------------------ -----------------
Total Stockholders' Equity (Deficiency) (25,620) (1,008,322)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 261,209 $ 314,754
================== =================
The accompanying notes are an integral part of these consolidated financial statements.
F-1
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the Quarters Ended
March 31,
---------------------------------------
2011 2010
------------------ -----------------
Net revenue $ 147,974 $ 271,045
Cost of sales 105,122 127,885
------------------ -----------------
Gross Profit 42,852 143,160
------------------ -----------------
Costs and Expenses:
-------------------
Professional fees 66,180 40,016
Other general and administrative expenses 362,399 254,078
Management and consulting fees - related party - 284,651
------------------ -----------------
Total Costs and Expenses 428,579 578,745
------------------ -----------------
Loss from Operations (385,727) (435,585)
------------------ -----------------
Other Income (Expense):
------------------------
Other income, net - 67,366
Interest expense (3,192) (2,374)
------------------ -----------------
Total Other Income (Expense) (3,192) 64,992
------------------ -----------------
Net Loss $ (388,919) $ (370,593)
================== =================
Net loss attributable to common stockholders
Net loss $ (388,919) $ (370,593)
Preferred stock dividend - 60,103
------------------ -----------------
Loss attributable to common stockholders
before non-controlling interest (388,919) (430,696)
Income attributable to non-controlling interest 4,171 -
------------------ -----------------
Net loss attributable to common stockholders $ (393,090) $ (430,696)
================== =================
Basic loss per common share $ (0.01) $ (0.01)
================== =================
Basic weighted average number of shares outstanding 54,668,398 35,277,480
================== =================
The accompanying notes are an integral part of these consolidated financial statements.
F-2
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Quarters Ended
March 31,
---------------------------------------
2011 2010
------------------ -----------------
Operating Activities:
Net loss attributable to the Company $ (393,090) $ (370,593)
Less: Net earnings attributable to non-controlling interest 4,171 -
------------------ -----------------
Net loss $ (388,919) $ (370,593)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 25,160 23,181
Bad debt expense - 5,870
Common stock and options issued for services 207,177 -
Amortization of deferred compensation 18,281 323,271
Decrease in deferred revenue - (199,022)
Gain on sale of equipment - (67,366)
Changes in operating assets and liabilities:
(Increase) in accounts receivable - (865)
Decrease in prepaid and other current assets 2,862 122,899
Increase in accounts payable and accrued expenses 71,068 110,597
(Decrease) in obligations to issue common stock - (18,500)
(Decrease) in customer deposits (53,940) -
------------------ -----------------
Net cash used in operating activities (118,311) (70,528)
------------------ -----------------
Investing Activities:
Purchase of equipment (1,016) -
Proceeds from sale of equipment - 105,000
------------------ -----------------
Net cash provided by (used) in investing activities (1,016) 105,000
------------------ -----------------
Financing Activities:
Payments of notes receivable - (20,000)
Proceeds from sale of common stock 63,750 -
Proceeds from loan payables 32,122 -
Payments of loan payables (1,412) -
Payments of notes payables (1,942) (26,735)
------------------ -----------------
Net cash provided by (used in) financing activities 92,518 (46,735)
------------------ -----------------
Effect of exchange rate change 269 -
------------------ -----------------
Net decrease in cash and cash equivalents (26,540) (12,263)
Cash and cash equivalents at beginning of period 61,179 13,126
------------------ -----------------
Cash and cash equivalents at end of period $ 34,639 $ 863
================== =================
Cash paid during the period for:
Interest expense $ 3,192 $ 2,735
Income tax $ - $ -
The accompanying notes are an integral part of these consolidated financial statements.
F-3
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Quarters Ended
March 31,
---------------------------------------
2011 2010
------------------ -----------------
Supplemental Disclosures of Cash Flow Information:
--------------------------------------------------
Non-Cash Financing Activities:
Dividend payable on preferred stock $ - $ 60,103
Forgiveness of compensation - Officer $ 700,269 $ -
Common stock issued as consideration for accrued
compensation - Officer $ 366,000 $ -
Common stock issued as consideration of accrued expenses $ 14,875 $ -
Accrued expenses applied to option exercise $ 1,000 $ -
The accompanying notes are an integral part of these consolidated financial statements.
F-4
TOMI ENVIRONMENTAL SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS
TOMI Environmental Solutions, Inc., (the "Company" or "TOMI") is a global
surface and air decontamination and infectious disease control company,
providing green energy-efficient environmental solutions for indoor air
remediation and surface decontamination through sales and licensing of our
premier platform of Hydrogen Peroxide misters, Ultra- Violet Ozone generators
and Ultra-Violet Germicidal Irradiation ("UVGI") products and technologies.
Our effort to combat bacterial and viral outbreaks along with hospital
infection control was recently enhanced with the addition of a newly developed
line of fixed and portable units that utilize hydrogen peroxide misting for a
cost-effective method to control the spread of infectious diseases including
neutralizing pathogens from bio-terrorism attacks.
Our products are designed to service a broad spectrum of commercial
structures including office buildings, medical facilities, hotel and motel
rooms, restaurants, meat and produce processing facilities, military barracks,
athletic facilities and schools. Our products and services have also been used
in single-family homes and multi-unit residences.
We also intend to generate and support research on other air remediation
solutions including hydroxyl radicals and other Reactive Oxygen Species ("ROS")
and to form business alliances with major remediation companies, construction
companies and corporations specializing in disaster relief along with expanding
our sales in North America, Europe, the Middle East and the Far East.
In July 2010, the Company established TOMI Environmental Solutions-
Singapore Pte, Ltd. ("TOMI-Singapore"), a subsidiary with an ownership interest
of 55% and began operations in Singapore.
On February 7, 2011, the Company entered into a joint venture agreement
with Zera Investments, a Singapore private investment company. The agreement
calls for Zera to perform marketing of the Company's products and the raising
of capital.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The Company had limited revenues during the year ended December 31, 2010
and the quarter ended March 31, 2011. The Company has not been able to generate
positive cash from operations for the years ended December 31, 2010 and the
quarter ended March 31, 2011. In addition, at March 31, 2011, the Company has a
negative working capital of $252,190 and negative operating cash flows of
$118,311. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
The Company plans on funding operations and liquidity needs from licensing
arrangements, debt financing and sales of its common stock and notes convertible
into common stock. There can be no assurance that additional funds required for
continued operations during the next year or thereafter will be generated from
our operations.
Should the Company seek additional funds from external sources such as debt
or additional equity financings or other potential sources, there can be no
assurance that such funds will be available on terms acceptable to the Company
or that they will not have a significant dilutive effect on the Company's
F-5
existing stockholders. The inability to generate cash flow from operations or
to raise sufficient capital from external sources would force the Company to
substantially curtail or cease operations and would, therefore, have a material
adverse effect on its business.
Accordingly, the Company's existence is dependent on management's ability
to develop profitable operations and resolve its liquidity problems. The
accompanying financial statements do not include any adjustments related to the
recoverability or classification of asset-carrying amounts or the amounts and
classification of liabilities that may result should the Company be unable to
continue as a going concern.
Basis of Presentation
The interim consolidated financial statements included herein, presented in
accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by the Company, without an audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. These unaudited condensed
consolidated interim financial statements should be read in conjunction with the
financial statements of the Company for the year ended December 31, 2010 and
notes thereto which are included in the Form 10-K previously filed with the SEC
on March 30, 2011. The Company follows the same accounting policies in the
preparation of interim reports.
Principles of Consolidation
The accompanying financial statements include the accounts of TOMI
Environmental Solutions, Inc. (a Florida Corporation) (TOMI-Florida), its
wholly owned subsidiary, TOMI Environmental Solutions, Inc. (a Nevada
Corporation) (TOMI-Nevada) and its 55% owned subsidiary, TOMI Environmental
Solutions-Singapore Pte, Ltd. (TOMI-Singapore). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires us to make estimates and
assumptions that affect the amounts reported and disclosed in the financial
statements and the accompanying notes. Actual results could differ materially
from these estimates. On an ongoing basis, we evaluate our estimates, including
those related to the accounts receivable, fair values of financial instruments,
intangible assets, useful lives of intangible assets and property and equipment,
fair values of stock-based awards, income taxes, and contingent liabilities,
among others. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities.
F-6
Reclassification of Accounts
Certain reclassifications have been made to prior-year comparative
financial statements to conform to the current year presentation. These
reclassifications had no effect on previously reported results of operations or
financial position.
Fair Value Measurements
The authoritative guidance for fair value measurements defines fair value
as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or the most advantageous market for
the asset or liability in an orderly transaction between market participants on
the measurement date. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable, (iii) able to
transact, and (iv) willing to transact. The guidance describes a fair value
hierarchy based on the levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value
which are the following:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active, or other
inputs that are observable or corroborated by observable market
data or substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market
activity and that are significant to the value of the assets or
liabilities.
The Company's financial instruments include cash and equivalents, accounts
receivable, other current assets, accounts payable and accrued expenses. All
these items were determined to be Level 1 fair value measurements.
The carrying amounts of cash and equivalents, accounts receivable, other
current assets, accounts payable and accrued expenses approximated fair value
because of the short maturity of these instruments. The recorded value of long-
term debt approximates its fair value as the terms and rates approximate market
rates.
Cash and cash equivalents
For purposes of the statement of cash flows, cash and cash equivalents
includes cash on hand held at financial institutions and other liquid
investments with original maturities of three months or less. Amounts held at
financial institutions did not exceed federally insured limits at March 31,
2011.
Property and Equipment
We account for property and equipment at cost less accumulated
depreciation. We compute depreciation using the straight-line method over the
estimated useful lives of the assets, generally three to five years.
Depreciation for equipment, furniture and fixtures and vehicles commences once
placed in service for its intended use.
F-7
Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets
The Company reviews its property and equipment and intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. We measure recoverability of these
assets by comparing the carrying amounts to the future undiscounted cash flows
the assets are expected to generate. If property and equipment and intangible
assets are considered to be impaired, the impairment to be recognized equals the
amount by which the carrying value of the asset exceeds its fair market value.
We have made no material adjustments to our long-lived assets in any of the
periods presented.
Intangible assets with definite lives are amortized over their estimated
useful lives of 10 years.
Income (Loss) Per Share
The computation of basic income (loss) per share is based on the weighted
average number of common shares outstanding during the periods presented.
Diluted income (loss) per common share is computed based on the weighted average
number of common shares outstanding plus the dilutive effect of common stock
equivalents. For the quarter ended March 31, 2011 and March 31, 2010, diluted
loss per common share is the same as basic loss per common share because the
effect of any potentially dilutive securities outstanding would be anti-dilutive
and has therefore, been excluded from the computation. For the quarter ended
March 31, 2011, there were common stock equivalents of 510,000 shares of
Convertible Series A Preferred Stock outstanding at a conversion rate of one
common shares for every preferred share (510,000 common shares) and 60,000
options (exercisable into 60,000 common shares). For the quarter ended March
31, 2010, there were common stock equivalents of 510,000 shares of Convertible
Series A Preferred Stock outstanding at a conversion rate of one common shares
for every preferred share (510,000 common shares) and 3,250 Series B Convertible
Preferred Stock at a conversion rate of two hundred common shares for every
preferred share (650,000 common shares). The common stock issued and outstanding
has been included for all presented periods with respect to the effect of the
recapitalization.
Revenue Recognition
For revenue from services and product sales, the Company recognized revenue
in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition"
(SAB No. 104), which superseded Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB No. 101). SAB No. 104 requires that
four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) service has been rendered or delivery has
occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured. Determination of criteria (3) and (4) are
based on management's judgment regarding the fixed nature of the selling prices
of the services rendered or products delivered and the collectibility of those
amounts. Provisions for discounts to customers, and allowance, and other
adjustments will be provided for in the same period the related sales are
recorded.
Share-based Compensation
We account for stock-based compensation in accordance with FASB ASC 718,
Compensation - Stock Compensation. Under the provisions of FASB ASC 718, stock-
based compensation cost is estimated at the grant date based on the award's fair
value and is recognized as expense over the requisite service period. The
F-8
Company currently has one active stock-based compensation plan, TOMI
Environmental Solutions, Inc. Stock Option and Restricted Stock Plan (the
"Plan"). The Plan calls for the Company through a committee of its Board of
Directors, to issue up to 2,500,000 shares of restricted common stock or stock
options. The Company generally issues grants to its employees, consultants, and
board members. Stock options are granted with an exercise price equal to the
closing price of its common stock on the date of grant with a term no greater
than 10 years. Generally, stock options vest over two to four years. Incentive
stock options granted to shareholders who own 10% or more of the Company's
outstanding stocks are granted at an exercise price that may not be less than
110% of the closing price of the Company's common stock on the date of grant
and have a term no greater than five years. At the date of grant, the Company
determines the fair value of the stock option award and recognizes compensation
expense over the requisite service period, which is generally the vesting period
of the award. The fair value of the stock option award is calculated using the
Black-Scholes option-pricing model. As of March 31, 2011, the Company issued
60,000 options and 750,000 common shares under the Plan.
Income Taxes
We recognize income taxes under the liability method. We recognize deferred
income taxes for differences between the financial reporting and tax bases of
assets and liabilities at enacted statutory tax rates in effect for the years in
which differences are expected to reverse. We recognize the effect on deferred
taxes of a change in tax rates in income in the period that includes the
enactment date.
Comprehensive Income
Comprehensive income is calculated in accordance with ASC 220
"Comprehensive Income". ASC 220 requires the disclosure of all components of
comprehensive income. As of March 31, 2011 comprehensive income relates to
foreign currency translation adjustment relating to the Company's Singapore
subsidiary.
Foreign Currency Translation
Assets and liabilities of the Company's Singapore subsidiary are translated
to US dollars using the current exchange rate for assets and liabilities.
Amounts on the statement of operations are translated at the average exchange
rates during the year. Gains or losses resulting from foreign currency
translation are included as a component of other comprehensive income (loss).
Advertising and Promotional Expenses
The Company expenses advertising costs in the period in which they are
incurred. For the quarter ended March 31, 2011 and 2010, advertising and
promotional expenses totaled approximately $321 and $2,625, respectively.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements. This guidance amends the disclosure requirements related to
recurring and nonrecurring fair value measurements and requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance and settlements of the
F-9
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance became effective for the reporting period
beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
the reporting period beginning January 1, 2011. The Company's adoption of this
updated guidance was not significant to our consolidated financial statements.
In February 2010, the FASB issued updated guidance related to subsequent
events. As a result of this updated guidance, public filers must still evaluate
subsequent events through the issuance date of their financial statements;
however, they are not required to disclose the date in which subsequent events
were evaluated in their financial statements disclosures. This amended guidance
became effective upon its issuance on February 24, 2010 at which time the
Company adopted this updated guidance.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
March 31, 2011 December 31, 2010
------------------ -----------------
(Unaudited)
Furniture and fixture $ 18,937 $ 18,937
Equipment 148,065 147,049
Vehicles 132,055 132,055
------------------ -----------------
299,057 298,041
Less: Accumulated depreciation 166,785 144,403
------------------ -----------------
$ 132,272 $ 153,638
================== =================
Depreciation was $22,382 and $20,403 for the three months ended March 31,
2011 and 2010, respectively.
NOTE 4: INTANGIBLE ASSETS
On February 23, 2008 the Company purchased from S.C.O. Medallion Healthy
Homes LTD all intellectual property for the Medallion methodology system for
$60,000.
On April 18, 2008 the Company purchased intellectual property from Air
Testing and Design, Inc. for $50,000. The property purchased includes patents,
trademarks, literature, drawings, schematics, vendor lists and rights to
purchase and resell equipment and other proprietary and intellectual property
associated with the ozone generators manufactured by the seller.
The Company began amortizing the intangible assets during the second
quarter of 2009 over the estimated useful life of ten years. The Company
recorded amortization expense of $2,778 during the three months ended March 31,
2011 and 2010. These assets are tested for impairment annually or if certain
circumstances indicate a possible impairment may exist in accordance with ASC
F-10
350, Intangibles - Goodwill and Other. The carrying value of these assets is
assessed at least annually and an impairment charge is recorded if appropriate.
As of March 31, 2011 there was no impairment.
NOTE 5: DEBT
Notes Payables
The Company financed three field service vehicles using notes with
various terms that have been recorded in the financial statements as notes
payable. As of March 31, 2011, two field service vehicles have been fully paid
and one field service vehicle has a balance of $8,292 remaining. The remaining
note payable expires in March 2012 and has an interest rate of approximately
10% per annum and payable in monthly installments of $732.16 including principal
and interest. The remaining note payable amount will mature through 2012 as
follows: 2011 - $6,135, 2012 - $2,157. The note is secured by the vehicle
acquired.
March 31, 2011
------------------
Total Vehicle Notes $ 8,292
Less: Current Portion 8,292
------------------
Long term Portion $ -
==================
Loans Payable
At March 31, 2011, loans totaling $53,868 (which includes loans in the
amount of $53,844 from the Company's CEO) were advanced to the Company and are
non-interest bearing and payable on demand.
NOTE 6: SHAREHOLDERS' EQUITY
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of any authorized
but unissued or unreserved shares of preferred stock in series and at the time
of issuance, determine the rights, preferences and limitations of each series.
The holders of preferred stock may be entitled to receive a preference payment
in the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of the common stock. Furthermore, the board
of directors could issue preferred stock with voting and other rights that could
adversely affect the voting power of the holders of the common stock.
Convertible Series A Preferred Stock
The Company has authorized 1,000,000 shares of Convertible Series A
Preferred Stock, $0.01 par value. At March 31, 2011 and December 31, 2010,
there were 510,000 shares issued and outstanding.
F-11
Common Stock
The Company has authorized 75,000,000 shares of common stock, par value
$0.01. At March 31, 2011 and December 31, 2010, there were 63,701,909 and
48,282,871 shares issued and outstanding, respectively.
In February 2011, the Company issued 572,115 common shares with a fair
market value of $22,975 for payment of accrued legal fees in the amount of
$14,875; the excess fair market value of the common shares of $8,100 was
recorded as legal expenses during the three months ended March 31, 2011.
In February 2011, the Company issued 14,076,923 shares of common stock with
a fair market value of $563,077 to the CEO as consideration for payment of
$366,000 accrued compensation; the excess fair market value of $197,077 has been
recorded as share-based compensation during the three months ended March 31,
2011. Further, the CEO forgave accrued compensation due him amounting to
$700,269. The compensation forgiven by the CEO has been treated as a capital
contribution to the Company and therefore has been recorded as additional
paid-in capital in February
2011.
In February 2011, the Company sold 750,000 shares of common stock for
$63,750.
In February 2011, 20,000 stock options were exercised at a value of $0.05
per common stock.
Stock Options
The Company issued a total of 40,000 options valued at $2,000 to two
directors in January 2011. The options have an exercise price of $0.05 and a
fair market value of $0.05 per option. The options expire on January 2021. The
options were valued using the black-scholes model using the following
assumptions: volatility - 348%; dividend yield - 0%; zero coupon rate 3.50% and
a life of 10 years. The following table summarizes stock option as of March 31,
2011:
Weighted
Average
Weighted Remaining Weighted
Average Contractual Life Average Fair
Options Exercise Price (Years) Market Value
----------- -------------- ---------------- ------------
Outstanding at
December 31, 2010 40,000 $ 2.10 9.00 $ 2.10
Granted 40,000 0.05 9.75 0.05
Exercised (20,000) 0.05 9.75 0.05
----------- -------------- ---------------- ------------
Outstanding at
March 31, 2011 60,000 $ 1.42 9.08 $ 1.42
=========== ============== ================ ============
F-12
NOTE 7: RELATED PARTY
In February 2011, the Company's entered into a new employment agreement
with its CEO. The agreement calls for annual base compensation of $20,000,
subject to Consumer Price Index increases, incentive performance bonuses equal
to 12% of the Company's annual GAAP earnings for the year 2011 to 2015 and
discretionary bonuses, as well as expense reimbursements and certain employee
benefits. The agreement terminates December 31, 2015. During the quarter ended
March 31, 2011, a total of $5,000 was recorded as compensation for the
Company's CEO.
In February 2011, the Company issued 14,076,923 shares of common stock with
a fair market value of $563,077 to the CEO as consideration for payment of
$366,000 accrued compensation; the excess fair market value of $197,077 has been
recorded as share-based compensation during the three months ended March 31,
2011. Further, the CEO forgave accrued compensation due him amounting to
$700,269. The compensation forgiven by the CEO has been treated as a capital
contribution to the Company and therefore has been recorded as additional
paid-in capital in February
2011.
On September 18, 2009, the Board of Directors accepted an offer by Dr.
Halden Shane to forego $150,000 in unpaid wages. The foregone compensation has
been recorded as an increase to additional paid-in capital. On September 18,
2009, the Board of Directors granted 75,000 Shares of the Company's common
stock, valued at $146,250, to Dr. Halden Shane. The common shares were valued
based on the closing price per common share at the date of grant. The common
shares vest after two years of employment from the date of grant. The fair
market value of the unvested shares has been recorded as deferred compensation
at December 31, 2009. At March 31, 2011, deferred compensation associated with
this transaction totaled $34,507 and a total of $18,281 has been amortized
during quarter ended March 31, 2011 and 2010.
On March 31, 2009, the Company and Tiger Management, LLC amended the
management service agreement to establish the vesting period for the Series A
Preferred Stock issued. The vesting period was established to be the period
June 2007 through December 31, 2010 and until the Company had reached at least
one million in annual gross revenue. The Board of Directors' amended the
Company's articles of incorporation to reduce the conversion rate to common
stock for its Series A Preferred Stock from five shares to one share and to
reduce the par value per Series A Preferred Stock to $0.01 from $25. As a
result, the Company recorded $18,312,558 in compensation credit for equity
issuance during the first quarter of 2009. The Company had previously recorded
$20,400,000 in non-cash other general and administrative expenses during the
year ended December 31, 2008; the difference of $2,087,442 was deferred and
amortized through December 31, 2010. The fair value was determined using the
price of the stock on the date the board approved the amendment to the
agreement. During the quarter ended March 31, 2011 and 2010, none and $284,651
of the deferred compensation was amortized and recorded as management and
consulting fees.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company is subject to a legal proceeding and claim which has arisen in
the ordinary course of its business. This action, when finally concluded and
determined, will not in the opinion of management, have a material adverse
effect upon the financial position, liquidity and results of operations of the
Company.
F-13
NOTE 9: SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the financial
statements were issued and up to the time of filing of the financial statements
with the Securities and Exchange Commission.
In April 2011, the Company sold 750,000 common shares valued at $63,750.
In April 2011, the Company established TOMI Environmental Solutions-China
(TOMI-China), a Chinese subsidiary with an ownership interest of 55%.
F-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In this report references to "TOMI" "we," "us," and "our" refer to TOMI
Environmental Solutions, Inc.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission ("SEC") encourages companies to
disclose forward-looking information so that investors can better understand
future prospects and make informed investment decisions. This report contains
these types of statements. Words such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "project," or "continue" or comparable terminology
used in connection with any discussion of future operating results or financial
performance identify forward-looking statements. You are cautioned not to place
undue reliance on the forward-looking statements, which speak only as of the
date of this report. All forward-looking statements reflect our present
expectation of future events and are subject to a number of important factors
and uncertainties that could cause actual results to differ materially from
those described in the forward-looking statements.
General
TOMI Environmental Solutions, Inc., a global surface and air
decontamination and infectious disease control company, providing green energy-
efficient environmental solutions for indoor air remediation and surface
decontamination through sales and licensing of our premier platform of Hydrogen
Peroxide misters, Ultra-Violet Ozone generators and Ultra-Violet Germicidal
Irradiation ("UVGI") products and technologies.
Our effort to combat bacterial and viral outbreaks along with hospital
infection control was recently enhanced with the addition of a newly developed
line of fixed and portable units that utilize hydrogen peroxide misting for the
cost effective method to control the spread of infectious diseases including
neutralizing pathogens from bio-terrorism attacks.
Our products are designed to service a broad spectrum of commercial
structures including office buildings, medical facilities, hotel and motel
rooms, restaurants, meat and produce processing facilities, military barracks,
athletic facilities and schools. Our products and services have also been used
in single-family homes and multi-unit residences.
We commenced our planned principal operations in the second quarter of
2009. Since 2008, we began to implement our business plan by acquiring the
related intellectual property and/or the distribution rights for our Hydrogen
Peroxide Mister, Ultra-Violet ozone Generators, and our UVGI (Ultra Violet
Germicidal Irradiation) system that is at the core of our plan.
We have also opened two service hubs in Southern California and
New York/New Jersey.
We also intend to generate and support research on other air remediation
solutions including hydroxyl radicals and other Reactive Oxygen Species ("ROS")
and to form business alliances with major remediation companies, construction
companies and corporations specializing in disaster relief along with expanding
our sales in North America, Europe, the Middle East and the Far East.
We continue to pursue complementary businesses in manufacturing ROS related
products, testing labs and other indoor air treatment and maintenance products.
15
During the first quarter of 2010 the company completed the sale of its
equipment to its licensee partner in New Your City and its alliance partner
Rolyn in Rockville, Maryland. The company also successfully trained
approximately 43 technicians for those respective companies.
The Company began sales to international locations during the third quarter
of 2010. From the third quarter of 2010 to March 31, 2011, the Company had
international net revenues totaling $136,511.
Business Outlook
TOMI's business growth objective is to be "The Global Leader in Surface-Air
Decontamination and Infectious Disease Control" by developing and acquiring a
premier platform of Hydrogen Peroxide Misters, UV Ozone Generators and other
green UVGI products and technologies. We also intend to generate and support
quality research on other air remediation solutions including hydroxyl radicals
and other ROS (Reactive Oxygen Species) and to form business alliances with
major remediation companies, construction companies and corporations
specializing in disaster relief along with expanding our sales throughout
Europe, the Middle East and the Far East.
We continue to pursue complementary businesses in manufacturing ROS
(Reactive Oxygen Species)-related products, testing labs and other indoor air
treatment and maintenance products.
During the 2nd quarter of 2009, TOMI began recognizing revenue related to a
large LEEDS commercial project that was completed during the third quarter of
2009. This revenue relates to our commercial division and is a highly attractive
business for the Company. TOMI continues to pursue revenue from multiple sources
and anticipates that our revenue stream will grow more diverse in the future.
During the third quarter of 2010, TOMI formed its first foreign subsidiary
in Singapore. TOMI Environmental Solutions-Singapore Pte, Ltd and has recently
filled two recent orders from COSEM, which is a Safety & Security Services Pte.
Ltd, a wholly owned subsidiary company of the Co-operative of SCDF Employees
Ltd. It is managed and staffed by experienced ex-employees of the Singapore
Civil Defense Force (SCDF). The new Singapore subsidiary, which is majority,
owned by the Company, will feature an array of experienced individuals with
specific knowledge of the customers, business climate, and state-owned
industries that understand the urgent need to have clean air, rapid surface and
air decontamination along with the ability to properly control any outbreaks of
infectious disease. Management believes that these contacts will foster
critical relationships and convince more customers that TOMI Environmental
Solutions will improve homeland security and infectious disease control within
indoor environments.
In February 2011, TOMI entered into a joint venture with ZERA Investments,
a private investment company comprised of respected local financial
entrepreneurs that the Company believes will generate material new business
opportunities. The Company has received orders for two of its major products and
expects additional orders to follow.
The agreement provides for an exclusive license to distribute the Product
for all applications within the following foreign countries: Saudi Arabia,
Kuwait, Bahrain, Qatar, the United Arab Emirates (also known the GCC countries),
Singapore, Thailand and Hungary. This includes the right to sub-license, and the
right to register others as the exclusive representatives of TOMI in the
countries listed above. Along with the exclusive license TOMI has an exclusive
license to distribute the Product to certain businesses in the United States.
This license is for up to two years providing certain sales milestones are
reached.
16
The Company's management believes that certain international markets
present fertile opportunities for its products. With a view toward exploiting
these markets, in January 2011, the Company's CEO, Halden Shane, visited three
Middle East countries-the Kingdom of Saudi Arabia, the United Arab Emirates and
Kuwait. Dr. Shane made numerous presentations to government officials, meeting
in Saudi Arabia with the Ministers of Defense, Health, Education and Civil
Defense, as well as private sector individuals, resulting in TOMI's first sale
in the region and ongoing interest in its suite of products, particularly from
the Saudis, with whom it is negotiating a joint venture.
In April 2011, TOMI formed TOMI Environmental Solutions - China ("TOMI-
China"), having a 55% ownership in the subsidiary. In connection with the
formation of TOMI-China, TOMI-US and the 45% stockholder, Eco-Green
Environmental Private Limited, a private company, entered into a joint venture
agreement. This new subsidiary is based in China and is comprised of respected
local Political and business members. The joint venture partner has a history
and expertise in the environmental and green housing industry. Already the
Company is finishing a proposal for sales of its products and expects to
receive more orders in the near future.
In May 2011, we contracted an independent sales agent, Accu-Med Marketing
L.L.C. ("Acc-Med"), to promote and market our products on a non-exclusive basis
in the United States. Acc-Med has the resources to successfully market our
products.
Critical Accounting Policies and Estimates
Refer to our Form 10-K filed with SEC on March 30, 2011.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements. This guidance amends the disclosure requirements related to
recurring and nonrecurring fair value measurements and requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance became effective for the reporting period
beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
the reporting period beginning January 1, 2011. The Company's adoption of this
updated guidance was not significant to our consolidated financial statements.
In February 2010, the FASB issued updated guidance related to subsequent
events. As a result of this updated guidance, public filers must still evaluate
subsequent events through the issuance date of their financial statements;
however, they are not required to disclose the date in which subsequent events
were evaluated in their financial statements disclosures. This amended guidance
became effective upon its issuance on February 24, 2010 at which time the
Company adopted this updated guidance.
Results of Operations for the Three Months March 31, 2011 Compared to the Three
Months Ended March 31, 2010
During the quarter ended March 31, 2011, we had total revenue of $147,974,
as compared to total revenue of $271,045 for the quarter ended March 31, 2010.
This decrease in revenues is primarily attributable to our change in business
model, whereby we were previously licensing our technology and servicing and
17
selling our equipment. The decrease in revenue for the quarter ended March 31,
2011 when compared to the prior comparable period is due to the size of
equipment sales. The Company had more customers during the quarter ended March
31, 2011 as compared to the one significant customer in the quarter ended March
31, 2010; however, we had one significant sale during the quarter ended March
31, 2010.
Professional fees include legal, accounting and management consulting
expenses. Professional fees totaled $66,180 and $40,016 for the quarter ended
March 31, 2011 and 2010, respectively. The increase in professional fees is due
to higher legal fees and accounting fees.
General and administrative expenses primarily include share-based
compensation, payroll and payroll related expenses, rent and depreciation.
General and administrative expenses totaled $362,399 and $254,078 for the
quarter ended March 31, 2011 and 2010, respectively. General and administrative
expenses for the quarter ended March 31, 2011 includes $207,177 non-cash share-
based compensation. In February 2011, we issued 14,076,923 shares of common
stock with a fair market value of $563,077 to the CEO as consideration for
payment of $366,000 accrued compensation; the excess fair market value of
$197,077 was recorded as share-based compensation during the three months ended
March 31, 2011 attributing to an increase in general and administrative expense
for the quarter ended March 31, 2011 when compared to the quarter ended March
31, 2010. This increase in general and administrative expense for the quarter
ended March 31, 2011 was offset by a decrease of approximately $110,000 in
quarterly CEO compensation resulting from the execution of a new employment
agreement with our CEO in January 2011 which reduced his base annual
compensation to $20,000.
Management and consulting fees totaled $0 and $284,651 for the quarter
ended March 31, 2011 and 2010, respectively. On March 31, 2009, the Company and
Tiger Management, LLC amended the management service agreement to establish the
vesting period for the Series A Preferred Stock issued. The vesting period was
established to be the period June 2007 through December 31, 2010 and until the
Company had reached at least one million in annual gross revenue. The Board of
Directors' amended the Company's articles of incorporation to reduce the
conversion rate to common stock for its Series A Preferred Stock from five
shares to one share and to reduce the par value per Series A Preferred Stock
to $0.01 from $25. As a result, the Company recorded $18,312,558 in
compensation credit for equity issuance during the first quarter of 2009. The
Company had previously recorded $20,400,000 in non-cash other general and
administrative expenses during the year ended December 31, 2008; the difference
of $2,087,442 was deferred and amortized through December 31, 2010. The fair
value was determined using the price of the stock on the date the board approved
the amendment to the agreement. The deferred compensation was fully amortized
and recognized as management and consulting fee through December 31, 2010 and
thus, there was no such expense during the quarter ended March 31, 2011 when
compared to the quarter ended March 31, 2010.
Other income and expense, net, totaled ($3,192) and $64,992 for the quarter
ended March 31, 2011 and 2010, respectively. The decrease in other income and
expense, net, is attributed to a gain from sale of a van and equipment during
the quarter ended March 31, 2010; there were no such items during the quarter
ended March 31, 2011.
Liquidity and Capital Resources
The condensed consolidated financial statements contained in this Interim
Report have been prepared on a "going concern" basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. We have an immediate and urgent need for additional capital. For
the reasons discussed herein, there is a significant risk that we will be
unable to continue as a going concern, in which case, you would suffer a total
loss of your investment in our company.
18
We plan on funding operations and our liquidity needs from licensing and
sales arrangements, structured similarly to our current Licensing and Sales
Agreement that have profit margins from sale of equipment, licensing of
equipment, and recurring income from solution sales.
We also intend to continue to raise equity capital through the sale of
restricted stock and short-term notes convertible into common stock.
Our liquid assets consist of cash and cash equivalents.
Contractual Obligations
None.
Off-Balance Sheet Arrangements
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 4. CONTROLS AND PROCEDURES
We have established a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by us in our reports filed
under the Securities Exchange Act, is recorded, processed, summarized and
reported within the time periods specified by the SEC's rules and forms.
Disclosure controls have also designed with the objective of ensuring that this
information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure. We believe our disclosure
controls and internal controls are effective for the three months ended March
31, 2011.
We do not expect that our disclosure controls or internal controls over
financial reporting will prevent all errors or all instances of fraud. A
control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system's objectives will be
met. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. Management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Because of the inherent limitation of a cost-effective control system,
misstatements due to error or fraud may occur and not be detected. We did not
implement any changes in controls during the three months ended March 31, 2011.
19
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not a party to any material proceedings or threatened proceedings as
of the date of this filing.
ITEM 1A. RISK FACTORS.
See discussion contained in 10-K filed with the Commission on March 30,
2011.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In February 2011, we sold 750,000 shares of common restricted stock for
$63,750.
In April 2011, we sold 750,000 shares of common restricted stock for
$63,750.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
Part I: Exhibits
31.1 Principal Executive Officer Certification
31.2 Principal Financial Officer Certification
32.1 Section 1350 Certification
Part II: Exhibits
None.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOMI ENVIRONMENTAL SOLUTIONS, INC.
Date: May 16, 2011
By: /s/ Halden Shane
------------------------------------------------
Halden Shane
Principal Executive Officer
Principal Financial and Accounting Officer
2
