Business Context and Reporting Period
Company: The Ozone Man, Inc. (f/k/a RPS Group, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Status: Development Stage Company
Business Overview: The Company provides environmental solutions for indoor air pollution through inspection, air quality testing, and ozone-based deep cleaning for residential and commercial structures. It also offers water treatment solutions for agriculture and industrial facilities. The Company operates five service hubs and utilizes proprietary UV ozone generators.
Key Financial Metrics
| Metric | Year Ended Dec 31, 2008 | Period from Inception (Sept 5, 2007) to Dec 31, 2008 |
|---|---|---|
| Revenues | $10,335 | $10,335 |
| Total Costs & Expenses | $22,738,246 | $22,785,550 |
| Net Loss | $(22,745,579) | $(22,778,439) |
| Cash and Cash Equivalents (Ending) | $367,697 | $367,697 |
| Working Capital | Deficit of approx. $465,000 | N/A |
| Total Assets | $881,707 | N/A |
| Total Liabilities | $922,871 | N/A |
| Stockholders' Deficiency | $(41,164) | N/A |
Note: Approximately $20.4 million of the 2008 operating loss was a non-cash charge related to the issuance of preferred stock for services rendered.
Material Changes and Operational Highlights
- Revenue Generation: The Company recorded minimal revenue of $10,335 in 2008, remaining in the development stage with no material revenues from principal operations.
- Acquisitions: In 2008, the Company purchased intellectual property for the "Medallion methodology system" ($60,000) and commercial generator systems ($50,000) to form the core of its business model.
- Stock Issuances: Significant non-cash expenses were incurred due to the issuance of 510,000 shares of Cumulative Convertible Preferred Stock valued at $20.4 million for management services provided by a related party (Tiger Management, LLC).
- Capital Structure: As of March 15, 2009, there were 34,509,730 shares of common stock outstanding. The Company has a working capital deficit and a stockholders' deficiency.
Outlook, Risks, and Subsequent Events
Going Concern Warning
The independent auditors have issued a "going concern" opinion. The Company has incurred significant losses, has minimal revenues, and has a working capital deficit. There is substantial doubt about the Company's ability to continue as a going concern without additional financing.
Subsequent Financing (February 27, 2009)
The Company completed a private placement raising $5,000,000 through the sale of 350,000 common shares and 3,250 Series B Convertible Preferred shares. Proceeds are restricted for specific uses:
- $3,250,000 for merger and acquisition reserves (HVAC providers).
- $1,050,000 for advertising and marketing.
- $500,000 for a direct response television campaign.
- $200,000 for transaction fees and expenses.
Key Risks
- Liquidity: Dependence on future equity or debt financing to meet obligations.
- Profitability: No assurance that the business model will generate sufficient revenue to achieve profitability.
- Competition: Highly competitive market with established players in air quality testing and remediation.
- Key Personnel: Heavy reliance on the CEO and key employees.
Investor Verification Checklist
- Use of Proceeds: Verify if the $5 million raised in Feb 2009 is being deployed strictly according to the restricted covenants (acquisitions, marketing, TV campaign).
- Revenue Validation: Confirm if the Company has moved beyond the development stage and generated material recurring revenue from its ozone cleaning services.
- Related Party Transactions: Review the valuation and necessity of the $20.4 million preferred stock issuance to the CEO's management company.
- Acquisition Strategy: Assess the progress of the planned acquisitions of HVAC service companies using the restricted acquisition reserve.
- Stock Volatility: Monitor trading volume and price on the OTCBB, noting the limited market for shares.