TOMZ

Business Context and Reporting Period

Company: TOMI Environmental Solutions, Inc. (formerly The Ozone Man, Inc.)
Reporting Period: Quarter and nine months ended September 30, 2009
Business Overview: The Company provides green, energy-efficient environmental solutions for infectious disease control and air remediation using UV Ozone generation and Magnetic Resolution Activation (MRA) technologies. During the second quarter of 2009, the Company exited its development stage status and commenced principal operations.

Key Financial Metrics

Liquidity: The Company holds $1,548,433 in unrestricted cash and $3,250,000 in restricted investments designated for merger and acquisition reserves.
Debt: Total notes payable (current and long-term) amount to $77,788, secured by field service vehicles.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased significantly from $3,086 in the prior year periods to $218,176 for Q3 2009 and $427,562 for the nine months ended Sept 30, 2009, reflecting the commencement of principal operations.
• Net Income Volatility: The nine-month 2009 net income of $16.6 million is primarily driven by a non-cash compensatory credit of $18,312,558 resulting from the amendment of a management service agreement and recapitalization of Series A Preferred Stock. This contrasts with a net loss of $1.5 million in the same period in 2008.
• Capital Structure: The Company raised $5,000,000 in gross proceeds in February 2009 through the sale of common stock and Series B Convertible Preferred Stock. Total assets increased from $881,707 to $5.4 million year-over-year.
• Operating Cash Flow: Net cash used in operating activities was $316,270 for the nine months ended Sept 30, 2009, compared to $445,203 in the prior year period.

Guidance, Outlook, and Risks

Outlook: Management anticipates revenue streams will grow more diverse. The Company plans to expand service hubs and pursue alliances with construction and disaster relief corporations.
Recent Agreements:

• Adtec Acquisition: Entered an agreement to purchase 19% of Advanced Disinfectant Technologies LLC for 190,000 shares of common stock (valued at $807,500), with an option to acquire remaining interests.
• Degmor Partnership: Secured a proposal with Degmor Industries for licensing rights in New York and equipment sales, involving a $450,000 total transaction value (including $250,000 down payment).

• Legal Proceedings: The Company is subject to a legal proceeding arising in the ordinary course of business, which management does not believe will have a material adverse effect.
• Related Party Transactions: Significant accrued compensation exists for the CEO ($708,004), though $150,000 was recently forgiven. A large portion of the 2009 income is non-cash and related to equity adjustments.
• Liquidity Constraints: While cash balances have improved, the Company relies on equity offerings and debt to fund operations.

Investor Verification Checklist

• Non-Cash Income: Verify the sustainability of the $16.6M net income, which is largely attributable to a one-time $18.3M accounting credit from equity restructuring rather than operational cash generation.
• Restricted Cash: Confirm the terms and liquidity of the $3.25M restricted investment held for M&A purposes.
• Related Party Payables: Review the status of the $708,004 accrued officer compensation and the impact of the $150,000 forgiveness on future cash burn.
• Revenue Quality: Assess the collectibility of the $155,882 in accounts receivable and the recurring nature of the new revenue streams from commercial projects.
• Subsequent Events: Monitor the closing status of the Adtec acquisition and the Degmor Industries partnership to evaluate future growth catalysts.