Business Context and Reporting Period
Company: TOMI Environmental Solutions, Inc. (formerly "The Ozone Man, Inc.")
Reporting Period: Quarterly period ended June 30, 2010 (Six months ended June 30, 2010 for comparative data).
Business Overview: A global green infectious disease control and air remediation company providing UV ozone generation, hydrogen peroxide misters, and UVGI products. The company shifted strategy from direct service to licensing products and receiving royalty income.
Going Concern Status: The filing explicitly states substantial doubt about the company's ability to continue as a going concern due to limited revenues, negative cash flow from operations, negative working capital of $1,585,990, and a stockholders' equity deficiency of $1,343,861.
Key Financial Metrics
| Metric | Q2 2010 (3 Months) | Q2 2009 (3 Months) | YTD 2010 (6 Months) | YTD 2009 (6 Months) |
|---|---|---|---|---|
| Net Revenues | $17,978 | $212,697 | $289,023 | $218,587 |
| Gross Profit | $17,443 | $172,001 | $160,602 | $177,891 |
| Net Income (Loss) | $(834,701) | $(556,647) | $(1,205,295) | $16,981,580 |
| EPS (Basic) | $(0.02) | $(0.02) | $(0.03) | $0.49 |
| Cash and Equivalents (End of Period) | $2,883 | $1,583,282 | $2,883 | $1,583,282 |
| Total Assets | $302,698 | $4,202,991 | $302,698 | $4,202,991 |
| Total Liabilities | $1,646,559 | $1,685,563 | $1,646,559 | $1,685,563 |
Debt and Liquidity:
- Convertible Notes: Issued $95,000 in new convertible notes during the period (April and May 2010) with 8% interest and variable conversion prices.
- Accrued Compensation: Significant accrued officer compensation of $988,209, primarily unpaid wages to the CEO.
- Derivative Liability: Recorded a derivative liability of $112,483 related to convertible notes.
- Cash Flow: Net cash used in operating activities was $186,378 for the six months ended June 30, 2010.
Material Changes vs. Prior Period
- Revenue Decline: Q2 2010 revenue dropped 91.5% compared to Q2 2009 ($17,978 vs. $212,697). Management attributes this to a strategic shift from direct service to licensing models.
- Asset Liquidation: Total assets decreased by approximately 92.8% year-over-year, largely due to the liquidation of restricted investments ($3.56 million) to settle obligations.
- Equity Deficiency: Stockholders' equity swung from a positive $2.52 million at year-end 2009 to a deficiency of $(1.34) million by June 30, 2010.
- Bad Debt Expense: The company fully reserved $95,000 in notes receivable from Advanced Disinfectant Technologies (Adtec), recording a bad debt expense.
- Comparison to 2009 Income: The net income of $16.9 million in the prior year (YTD 2009) was driven by a non-cash compensatory credit of approximately $18.3 million related to equity issuance amendments, which is not comparable to current operations.
Outlook, Risks, and Unusual Items
- Capital Needs: The company has an "immediate and urgent need for additional capital." It is negotiating equity/debt financing up to $5 million but notes no assurance funds will be available.
- Unusual Items:
- Adtec Exit: In July 2010 (subsequent event), the company cancelled its agreement with Adtec and relinquished its 19% interest due to patent infringement lawsuits.
- Series B Redemption: The company redeemed 3,250 shares of Series B Preferred Stock and paid holders $3,563,062 from investment proceeds.
- CEO Compensation: In August 2010, the company issued 2.5 million shares to the CEO to settle $150,000 in accrued compensation.
- Expansion: Established a Singapore subsidiary in July 2010 with a 55% ownership interest and received its first order from COSEM.
- Risks: Substantial doubt regarding going concern status; reliance on external financing; potential dilution from convertible notes and equity issuances; legal proceedings (though management believes current proceedings will not have a material adverse effect).
Investor Verification Checklist
- Liquidity Runway: Verify the company's ability to fund operations with only $2,883 in cash and significant accrued liabilities.
- Debt Conversion Terms: Review the variable conversion prices on the new convertible notes (42% discount to average low trading price) which could cause significant dilution.
- Revenue Sustainability: Assess the viability of the new licensing strategy given the sharp decline in direct service revenue.
- Accrued Liabilities: Confirm the status of the $988,209 in accrued officer compensation and potential for further equity issuance to settle these debts.
- Subsequent Events: Monitor the performance of the new Singapore subsidiary and the impact of the Adtec exit on future technology pipelines.