10-Q 1 ozom-10q_033109.txt 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, 2009 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. (Formerly The Ozone Man, 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) Former Name: The Ozone Man, Inc. ________________________________________________________________________________ (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 8, 2009 had 34,859,730 shares of common stock outstanding. FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 2009 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 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12 ITEM 4. CONTROLS AND PROCEDURES 12 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 13 ITEM 1A. RISK FACTORS 13 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 13 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 ITEM 5. OTHER INFORMATION 14 ITEM 6. EXHIBITS 14 1 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TOMI Environmental Solutions, Inc. (A Development Stage Company) CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited) March 31, 2009 December 31, 2008 ------------------ ----------------- ASSETS ------ Current Assets: --------------- Cash and Cash Equivalents $ 1,620,071 $ 367,697 Cash and Cash Equivalents - Restricted 3,250,000 - Accounts Receivable - 4,590 Prepaid Insurance 14,334 18,710 ------------------ ----------------- Total Current Assets 4,884,405 390,997 Property and Equipment - net 360,875 372,990 ------------------ ----------------- Other Assets: ------------- Intangible Assets 111,100 111,100 Security Deposits 6,630 - ------------------ ----------------- Total Other Assets 117,730 117,720 ------------------ ----------------- TOTAL ASSETS $ 5,363,010 $ 881,707 ================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- Current Liabilities: -------------------- Accounts Payable and Accrued Expenses $ 123,943 $ 175,327 Accrued Officers Compensation 638,087 546,536 Notes Payable - Current Portion 45,099 43,976 Obligations to be settled through issuance of common stock 250,000 - Dividends Payable on Preferred Convertible Stock 22,038 90,667 ------------------ ----------------- Total Current Liabilities 1,079,167 856,506 Long-term Liabilities: ---------------------- Non-Current Portion of Notes Payable - Other 54,632 66,365 ------------------ ----------------- Total Liabilities 1,133,799 922,871 ------------------ ----------------- COMMITMENTS AND CONTINGENCIES - - Stockholders' Equity (Deficit): Cumulative Convertible Series A Preferred Stock, $0.01 par value, 1,000,000 shares authorized, 510,000 shares issued and outstanding at March 31, 2009 and December 31, 2008. 5,100 5,100 Cumulative Convertible Series B Preferred Stock, $1,000 stated value, 4,000 shares authorized, 7.5% cumulative dividend, 3,250 shares issued and outstanding at March 31, 2009 and none at December 31, 2008. 3,250,000 - Common Stock, $.01 par value, 75,000,000 shares authorized; 34,859,730 and 34,474,515 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively. 348,596 344,744 Additional Paid-in Capital 8,229,045 22,758,193 Accumulated Deficit (370,762) (370,762) Accumulated Deficit During the Development Stage (5,240,210) (22,778,439) Deferred Stock Compensation (1,992,558) - ------------------ ----------------- Total Stockholders' Deficiency 4,229,211 (41,164) ------------------ ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 5,363,010 $ 881,707 ================== ================= The accompanying notes are an integral part of these consolidated financial statements.

2 TOMI Environmental Solutions, Inc. (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

For the For the For the Period From Quarter Ended Quarter Ended September 5, 2007 March 31, March 31, (Inception) through 2009 2008 March 31, 2009 ------------- ------------- ------------------- Net Revenues: $ 5,890 $ - $ 16,225 ------------- ------------- ------------- ------------------- Costs and Expenses: ------------------- Professional and Consulting Fees 295,092 30,832 1,398,988 Merger Expense - - 25,000 Other General and Administrative Expenses 482,393 49,039 869,047 Management and Consulting Fees (18,312,558) - 2,957,442 ------------- ------------- ------------------- Total Costs and Expenses (17,535,073) 79,871 5,250,477 ------------- ------------- ------------------- Income (Loss) from Operations 17,540,963 (79,871) (5,234,252) ------------- ------------- ------------------- Other Income (Expenses): ------------------------ Financing Costs - (12,500) (25,000) Forgiveness of Debt - - 25,000 Interest expense (2,735) - (5,959) ------------- ------------- ------------------- Total Other Income (Expenses) (2,735) (12,500) (5,959) ------------- ------------- ------------------- Net Income (Loss) $ 17,538,228 $ (92,371) $ (5,240,211) ============= ============= =================== Income (Loss) attributable to common stockholders Net Income (Loss) $ 17,538,228 $ (92,371) $ (5,240,211) Preferred stock dividend 22,038 - 22,038 ------------- ------------- ------------------- Income (Loss) atributable to common stockholders $ 17,516,190 $ (92,371) $ (5,262,249) ============= ============= =================== Net Income (Loss) per Common Share - Basic $ 0.51 $ (0.00) ============= ============= Net Income (Loss) per Common Share - Diluted $ 0.49 $ (0.00) ============= ============= Weighted Average Common Shares Outstanding - Basic 34,527,170 35,868,506 ============= ============= Weighted Average Common Shares Outstanding - Diluted 35,687,170 35,868,506 ============= ============= The accompanying notes are an integral part of these consolidated financial statements.

3 TOMI Environmental Solutions, Inc. (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) FOR THE PERIOD SEPTEMBER 5, 2007 (INCEPTION) TO March 31, 2009

SERIES A SERIES B PREFERRED PREFERRED DEFICIT STOCK STOCK COMMON STOCK ADDITIONAL IN THE DEFERRED -------------- ---------------- ---------------------- PAID-IN ACCUMULATED DEVELOPMENT STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STAGE COMPENSATION TOTAL ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Balance - September 5, 2007 - $ - - $ - - $ - $ - $ - $ - $ - $ - ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Sale of Common Stock to Founders of Ozone - NV 30,000,000 3,000 27,000 30,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock in Connection with Reverse Acquisition 34,250,000 342,500 (342,500) - ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Effect of Recapital- ization 680,437 6,804 312,500 (370,762) (51,458) ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- (30,000,000) (3,000) 3,000 - ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock for Services @ $.50 per share at November 1, 2007. 10,000 100 4,900 5,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Beneficial Conversion Feature 25,000 25,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Net Loss for the Period September 5, 2007 (Inception) to December 31, 2007 (32,860) - (32,860) ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Balance - December 31, 2007 - - - - 34,940,437 349,404 29,900 (370,762) (32,860) - $ (24,318) ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Return of Common Stock in Connection with Reverse Acquisition (42,475) (425) 425 - ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock Pursuant to a Private Placement @ $.20 per share January 23, 2008 - July 7, 2008 2,750,000 27,500 522,500 550,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock Pursuant to a Private Placement @ $.50 per share at July 2, 2008 100,000 1,000 49,000 50,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock Pursuant to a Private Placement @ $.90 per share during the period September 3, 2008 - October 15, 2008 971,553 9,715 864,685 874,400 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock Pursuant to a Private Placement @ $1.00 per share at September 3, 2008 25,000 250 24,750 25,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock for services at $.20 per share at April 14, 2008 310,000 3,100 58,900 62,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock for services @ $2.00 per share at August 15, 2008 420,000 4,200 835,800 840,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock upon Conversion of Convertible Debt @ $.0125 per share 2,000,000 20,000 5,000 25,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Convertible Preferred Stock to Related Party for Services Rendered 510,000 5,100 20,394,900 20,400,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Repurchase and Retirement of Common Stock at $.001 per share at June 27, 2008 (7,000,000) (70,000) 63,000 (7,000) ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Dividends on Cumulative Convertible Preferred Stock as of 12/31/08 (90,667) (90,667) ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Net Loss for the Period January 1, 2008 to December 31, 2008 (22,745,579) (22,745,579) ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Balance - December 31, 2008 510,000 $5,100 - - 34,474,515 $344,744 $ 22,758,193 $ (370,762) $(22,778,439) $ - $ (41,164) ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock in lieu of cash compen- sation at January 7, 2009 35,215 352 175,723 176,075 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Common Stock Pursuant to a Private Placement @ $5.00 per share, net of financing cost at February 27, 2009 350,000 3,500 1,546,500 1,550,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Issuance of Convertible Series B Preferred Stock @ $1,000 per share at February 27, 2009 3,250 3,250,000 3,250,000 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Reversal of Dividends on Cumulative Convertible Series A Preferred Stock 90,667 90,667 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Dividends on Cumulative Convertible Series B Preferred Stock (22,038) (22,038) ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Effect of amended management services agreement and change in Preferred A conversion rate (18,312,558) (18,312,558) ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Deferral of Stock Based compen- sation 1,992,558 (1,992,558) - ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Net loss for the period January 1, 2009 - March 31, 2009 17,538,229 17,538,229 ---------- ------- ------ ------ --------- ------------ --------- ------------- ----------- ------------- ------------ ------------- Balance - March 31, 2009 (Unaudited)510,000 $5,100 3,250 3,250,000 34,859,730 $348,596 $ 8,229,045 $ (370,762) $ (5,240,210) $(1,992,558) $ 4,229,211 ========== ======= ====== ====== ========= ============ ========= ============= =========== ============= ============ ============= The accompanying notes are an integral part of these consolidated financial statements.

4 TOMI Environmental Solutions, Inc. (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

For the For the For the Period From Quarter Ended Quarter Ended September 5, 2007 March 31, March 31, (Inception) through 2009 2008 March 31, 2009 ------------- ------------- ------------------- OPERATING ACTIVITIES Net Income (Loss) $ 17,538,229 $ (92,371) $ (5,240,210) Adjustments to reconcile net income (loss) to net cash (used) by operating activities: Depreciation 20,987 1,478 53,973 Bad debt 3,900 - - Amortization of Debt Discount - 12,500 25,000 Common and Preferred Stock Issued for Services 129,405 - 21,436,405 Management and Consulting Fees (18,312,558) - (18,312,558) Debt Forgiveness - - (25,000) Changes in Operating Assets and Liabilities: (Increase) in Security deposits (10) (2,220) (6,630) Decrease in Accounts Receivable 689 - - (Increase) Decrease in Prepaid Insurance & other assets 4,376 - (14,334) Increase in Accounts Payable and Accrued Expenses 336,837 29,596 1,047,243 ------------- ------------- ------------------- Net Cash (Used) in Operating Activities (278,145) (51,017) (1,036,111) ------------- ------------- ------------------- INVESTING ACTIVITIES Purchase of restricted investment (3,250,000) - (3,250,000) Capital Expenditures (8,871) (150,638) (414,848) Purchase of Intangible Assets - (60,000) (111,100) ------------- ------------- ------------------- Net Cash (Used) in Investing activities (3,258,871) (210,638) (3,775,948) ------------- ------------- ------------------- FINANCING ACTIVITIES Proceeds from the Sale of Common Stock 1,750,000 335,000 3,279,400 Expense of private placement (200,000) - (200,000) Purchase of cancelled Common Stock - - (7,000) Proceeds from sale of Cumulative Convertible Series B Preferred Stock 3,250,000 - 3,250,000 (Payments) Proceeds of Note Payable - Other (Net) (10,610) 46,687 109,730 ------------- ------------- ------------------- Net Cash Provided by Financing Activities 4,789,390 381,687 6,432,130 ------------- ------------- ------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 1,252,374 120,032 1,620,071 ------------- ------------- ------------------- CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 367,697 3,095 - ------------- ------------- ------------------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,620,071 $ 123,127 $ 1,620,071 ============= ============= =================== The accompanying notes are an integral part of these consolidated financial statements.

5 TOMI Environmental Solutions, Inc. (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

For the For the For the Period From Quarter Ended Quarter Ended September 5, 2007 March 31, March 31, (Inception) through 2009 2008 March 31, 2009 ------------- ------------- ------------------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest expense $ 2,735 $ - $ 8,296 ============= ============= =================== Income taxes $ - $ - $ - ============= ============= =================== Supplemental Disclosures of Cash Flow Information: -------------------------------------------------- Non Cash Financing Activities: Issuance of Common Stock for payment of accounts payable $ 46,670 $ - $ 46,670 ============= ============= =================== Issuance of Note Payable - Related Party as payment of Accounts Payable $ - $ - $ 25,000 ============= ============= =================== Issuance of 34,250,000 shares of Common Stock in Connection with Reverse Acquisition (Recapitalization) $ - $ - $ 342,500 ============= ============= =================== Dividends payable on preferred stock - Series B $ 22,038 $ - $ 22,038 ============= ============= =================== Discount on Convertible Debt $ - $ - $ 25,000 ============= ============= =================== Return of Overissuance of Shares Related to Recapitalization $ - $ 425 $ 425 ============= ============= =================== Reversal of dividends payable on preferred stock - Series A $ (90,667) $ - $ - ============= ============= =================== Change in par value on preferred stock - Series A $(12,744,900) $ - $ - ============= ============= =================== The accompanying notes are an integral part of these consolidated financial statements.

6 TOMI Environmental Solutions, Inc. (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: DESCRIPTION OF BUSINESS TOMI Environmental Solutions, Inc. (formerly "The Ozone Man, Inc.") (the "Company" or "TOMI") provides environmental solutions for indoor air pollution through inspection, air quality testing and indoor cleaning for both single homes and multi-unit residences and over a broad spectrum of commercial structures including medical facilities, hotel and motel rooms and schools. Our products and services may also be used for water treatment in agriculture, meat processing plants, laundries and dairies. On March 31, 2009, the board of directors approved a resolution to amend the Company's articles of incorporationOn May 14, 2009, the Company amended its articles of incorporation and changed its name to TOMI Environmental Solutions, Inc. Unaudited Condensed Consolidated Financial Statements The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("Commission"). While these condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, which are included in the Company's Annual Report on Form 10-K previously filed with the Commission on March 31, 2009. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. It is suggested that these consolidated interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2008 and notes thereto which are included in the Form 10-K previously filed with the Commission on March 31, 2009. The Company follows the same accounting policies in the preparation of interim reports. The Company has not yet generated significant revenues from planned principal operations and is considered a development stage company as defined in Statement of Financial Accounting Standards ("SFAS") No. 7. 7 TOMI Environmental Solutions, Inc. (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Principles of Consolidation The accompanying financial statements include the accounts of TOMI (a Florida Corporation) (Parent) and its wholly owned subsidiary, The Ozone Man, Inc. (a Nevada Corporation). All significant intercompany accounts and transactions have been eliminated in consolidation. Reclassification of Accounts Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or financial position. Concentrations of Credit Risk All of our non-restricted cash and cash equivalents are invested at financial institutions. The Company maintains cash balances at several financial institutions. Accounts at institution are insured by the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration ("NCUA") for the full balance under the Temporary Liquidity Guarantee Program. At times, these balances may exceed federally insured limits. Our restricted cash is held in an investment fund and thus there is no insurance for the amount of restricted cash. Income (Loss) Per Share The computation of income (loss) per share is based on the weighted average number of common shares outstanding during the periods presented. Diluted income (loss) per common share is computed based on the weighted average number of common shares outstanding plus the dilutive effect of common stock equivalents. During the three months ended March 31, 2009 and the period September 5, 2007 (inception) to March 31, 2009, there were 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 from September 5, 2007 (inception) with respect to the effect of the recapitalization. NOTE 3: PROPERTY AND EQUIPMENT At March 31, 2009, property and equipment consisted of the following: Furniture and fixture 13,339 Equipment 181,743 Vehicles 219,766 ----------- 414,848 Less: Accumulated depreciation (53,974) ----------- $360,874 =========== Depreciation was $20,987 and $53,974 for the three months ended March 31, 2009 and the period September 5, 2007 (inception) to March 31, 2009, respectively. 8 TOMI Environmental Solutions, Inc. (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: LONG TERM DEBT The Company finances five field service vehicles using notes with various terms that are recorded in the financial statements as notes payable. The notes expire at various times through December 2012 and have interest rates from 8.8% to 10.1% per annum and payable in monthly installments of $4,448 including principal and interest and due by March, 2012. The remaining notes payable amount will mature through 2012 as follows: 2009 - $33,366, 2010 - $45,896, 2011 - $16,153, $4,316 - 2012. Each note is secured by the vehicle acquired. Total Vehicle Notes $99,731 Less: Current Portion ($45,099) ----------- Long term Portion $54,632 =========== NOTE 5: SHAREHOLDERS' EQUITY On February 27, 2009 the Company completed the sale of 350,000 shares of its common stock and 3,250 shares of Series B Convertible Preferred Stock for per share purchase prices of $5.00 and $1,000, respectively. Gross proceeds from the sale were $5,000,000, net of $200,000 financing expense. Under the terms of the Subscription Agreement, the Company created a new class of preferred stock as Series B Convertible Preferred Stock ("Series B"). The Company is authorized to issue 4,000 shares of its new Series B preferred stock. The Series B stock is convertible into 200 shares of the Company's common stock for every share of Series B stock. The Series B preferred has a stated value of $1,000 per share, carries an annual cumulative dividend of 7.5% and is senior in liquidation preference to all other classes of stock. As of March 31, 2009, the Company accrued $22,038 for these dividends. Pursuant to the terms of the Subscription Agreement, one restriction remains stipulated as the use of proceeds as of March 31, 2009: $3,250,000 for merger and acquisition reserves to be used to acquire established independent providers of heating, ventilation and air conditioning ("HVAC") sales and services. The original restriction regarding the use of the $1,550,000 for advertising and marketing has since been waived by the investors. The Investor has no right of approval over any transaction involving the use of these funds. On March 31, 2009, the board of directors approved a resolution to amend the Company's Articles of Incorporation. On May 14, 2009, the Company amended its articles of incorporation to reduce the par value per share for its Cumulative Convertible Series A Preferred Stock ("Series A Preferred Stock") to $0.01 from $25 and to reduce the conversion rate to common stock to one from five. The effect of the change in par value has been reflected in the consolidated financial statements. All share and per share data have been retroactively adjusted to reflect the recapitalization. NOTE 6: RELATED PARTY On November 16, 2008, the Company entered into an employment agreement with its President and CEO, Dr. Halden Shane, ("Employment Agreement"). As of March 31, 2009, the Company has accrued $638,087 for unpaid wages under the employment agreement. 9 TOMI Environmental Solutions, Inc. (A DEVELOPMENT STAGE COMPANY) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On December 15, 2008 the Board of Directors approved the issuance of 510,000 shares of the Company's Series A Preferred Stock to Tiger Management, LLC, a limited liability company wholly owned by the Company's CEO. The shares were issued for management services preformed by Tiger Management, LLC in 2007 and 2008 and were convertible into five shares of the Company's common stock at the holder's option. The Company recorded a non-cash expense of $20,400,000 in other general and administrative expenses during the year ended December 31, 2008, for services rendered based on the fair value of the underlying common stock. The fair value was determined using the price of the stock on the date the board approved the issuance. On March 31, 2009, the Company and Tiger Management, LLC amended the management service agreement to include the vesting period for the Series A Preferred Stock issued. The vesting period was established as June 2007 through December 31, 2010 and until the Company had reached at least one million dollars in annual gross revenue. The Series A Preferred Stock issued to the CEO was also amended to remove dividends; therefore, dividends accrued of $90,667 at December 31, 2008 were reversed during the three months ended March 31, 2009. On March 31, 2009, the board of directors approved a resolution to amend the Company's Articles of Incorporation. On May 14, 2009, the Company amended its articles of incorporation to reduce the conversion rate to common stock for its Series A Preferred Stock from five shares to one and to reduce the par value per share of Series A Preferred Stock to $0.01 from $25. As a result, of both the establishment of a vesting period and the change in conversion rate, the Company has recorded $18,312,558 in compensation credit for equity issuance during the three months ended March 31, 2009. The Company had previously recorded $20,400,000 in other general and administrative expenses during the year ended December 31, 2008. The Company has recorded deferred compensation of $1,992,558 related to the vesting feature and this deferred amount will be amortized over the remaining 21 month period. The fair value was determined using the price of the stock on the date the board approved the amendment to the agreement. All share and per share data have been retroactively adjusted to reflect the recapitalization. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION In this report references to "TOMI" "we," "us," and "our" refer to TOMI Environmental Solutions, Inc. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS The Securities and Exchange Commission ("SEC") encourages companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions. This report contains these types of statements. Words such as "may," "will," "expect," "believe," "anticipate," "estimate," "project," or "continue" or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Overview of the Business On March 31, 2009, the board of directors approved a resolution to amend the Company's Articles of Incorporation. On May 14, 2009, we amended our articles of incorporation and changed our corporate name to TOMI Environmental Solutions, Inc. from "The Ozone Man, Inc". We provide environmental solutions for indoor air pollution through inspection, air quality testing and indoor cleaning for both single homes and multi-unit residences and over a broad spectrum of commercial structures including medical facilities, hotel and motel rooms and schools. Our products and services may also be used for water treatment in agriculture, meat processing plants, laundries and dairies. We commenced our operations in the fourth quarter of 2007 and since 2008 we began to implement our business plan by acquiring for cash both the intellectual property and methodology that forms the basis of our ozone treatment system that is at the core of our plan. We have also opened five service hubs around the country in California, New York/New Jersey, Florida and North Carolina with service vans and certified, trained personnel and we expect to continue the expansion of our facilities. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The estimation process requires assumptions to be made about future events and conditions, and as such, is inherently subjective and uncertain. Actual results could differ materially from our estimates. The SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of our financial condition and results of operations and most demanding of our judgment. There were no material changes to our critical accounting policies and estimates during the three months March 31, 2009. 11 Results of Operations for the Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008: We began our operations on September 5, 2007 (inception) and we are in the early stage of development. Therefore, it is difficult to draw a meaningful comparison for the Quarter Ended March 31, 2009 when compared to the Quarter Ended March 31, 2008. Net income for the three months ended March 31, 2009 of $17,538,228. The net income for the three months ended March 31, 2009 is attributed to a non-cash compensatory credit element from equity issuances. 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. Further, On May 14, 2009, the Company amended its 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 has recorded $18,312,558 in compensation credit for equity issuance during the three months ended March 31, 2009. The Company had previously recorded $20,400,000 in non-cash other general and administrative expenses during the year ended December 31, 2008. The fair value was determined using the price of the stock on the date the board approved the amendment to the agreement. Liquidity and Capital Resources Operations and liquidity needs are funded through cash flows from equity offerings and debt. On February 27, 2009 the Company completed the sale of 350,000 shares of its common stock and 3,250 shares of Series B Convertible Preferred Stock for per share purchase prices of $5.00 and $1,000, respectively. Gross proceeds from the sale were $5,000,000. At March 31, 2009, we had an unresticted cash balance of $1,620,071. We had a restricted cash balance of $3,250,000 pursuant to the terms of the Subscription Agreement, which stipulated the use of the proceeds for merger and acquisition reserves to be used to acquire established independent providers of heating, ventilation and air conditioning ("HVAC") sales and services. 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, 2009. 12 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 month period ended March 31, 2009. PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 1A. RISK FACTORS. See discussion contained in 10-K filed with the Commission on March 31, 2009. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. On January 7, 2009, the Company issued 35,215 shares in lieu of cash compensation. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On February 19, 2009 and May 10, 2009 the registrant solicited and obtained the written consents of a majority of its shareholders to effect amendments to its certificate of incorporation in accord with Section 607.0704 of the Florida Corporations Law. The February 19, 2009 consent related to an amendment creating an additional class of preferred stock (Class B) and the May 10, 2009 consent related to an amendment changing the corporation's name to TOMI Environmental Solutions, Inc. from The Ozone Man, Inc. and changing the terms and conditions of the company's Class A preferred stock. The shareholders consent also approved the company's 2008 stock option plan. In each instance 18,643,000 shares, an amount in excess of the requisite 50% consented to the amendments. 13 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. SIGNATURE 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 SERVICES, INC. Date: May 15, 2009 By: /s/ Halden Shane ------------------------------------------------ Halden Shane Principal Executive Officer Principal Financial and Accounting Officer 14