TOMZ 10-Q Quarterly Report March 31, 2010

TOMI ENVIRONMENTAL SOLUTIONS, INC.

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10-Q 1 tomi-10q_033110.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, 2010 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 10, 2010 had 35,277,480 shares of common stock outstanding. FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 2010 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 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15 ITEM 4. CONTROLS AND PROCEDURES 15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 15 ITEM 1A. RISK FACTORS 15 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 15 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16 ITEM 5. OTHER INFORMATION 16 ITEM 6. EXHIBITS 16 1 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TOMI Environmental Solutions, Inc. CONSOLIDATED BALANCE SHEET

2 TOMI Environmental Solutions, Inc. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

3 TOMI Environmental Solutions, Inc. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

4 TOMI Environmental Solutions, Inc. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

5 TOMI Environmental Solutions, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: DESCRIPTION OF BUSINESS TOMI Environmental Solutions, Inc. (formerly "The Ozone Man, Inc.") (The "Company" or "TOMI") provides green, energy-efficient environmental solutions for infectious disease control and air remediation through inspection, air quality testing, training and treatment using our premier platform of UV Ozone generation services, products and technologies. Our focus to combat Hospital infection control was recently enhanced with the addition of (MRA) TM - Magnetic Resolution Activation product line as an additional cost effective method to control the spread of infectious disease. Our products and services cover a broad spectrum of commercial structures including office buildings, medical facilities, hotels, single homes, multi-unit residences and schools. Our products and services have also been used in restaurants and dairies. During the second quarter of 2009, the Company exited the status of development stage enterprise. The Company commenced its planned principal operations and earned revenues during the quarter ended June 30, 2009. The Company changed its name to TOMI Environmental Solutions, Inc. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Going Concern The Company had limited revenues during the year ended December 31, 2009 and during the quarter ended March 31, 2010. The Company has not been able to generate positive cash from operations for the years ended December 31, 2009 and 2008 and quarter ended March 31, 2010. In addition, the Company incurred a net loss of $370,593 for the quarter ended March 31, 2010 and after giving effect to the rescission transaction (see Note 9), the Company has a negative working capital and stockholder deficiency. 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 continuing to raise funds through the sale of its common stock. There can be no assurance that additional funds required during the next year or thereafter will be generated from 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 available or available on terms acceptable to the Company or that they will not have a significant dilutive effect on the Company's existing stockholders. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise 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. 6 TOMI Environmental Solutions, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 consolidated interim financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2009 and notes thereto which are included in the Form 10-K previously filed with the SEC on April 15, 2010. 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 (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. Restricted Investment The restricted investment in the amount of $3,563,062 at March 31, 2010 is carried at net realizable value (See Note 9). 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. 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. For the three months ended 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 (convertible Series of stock, options and warrants) would be anti-dilutive and has therefore, been excluded from the computation. For the three months ended March 31, 2009, diluted earnings per common stock was calculated after consideration of common stock equivalents. For the quarter ended March 31, 2010 and 2009, 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. 7 TOMI Environmental Solutions, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 and rebates to customers, estimated returns and allowance, and other adjustments will be provided for in the same period the related sales are recorded. New 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. NOTE 3: PROPERTY AND EQUIPMENT Property and equipment consisted of the following: March 31, 2010 December 31, 2009 ------------------ ----------------- (Unaudited) ------------------ Furniture and fixture $ 16,877 $ 16,877 Equipment 173,630 188,734 Vehicles 175,423 219,766 ------------------ ----------------- 365,930 425,377 Less: Accumulated depreciation 117,334 118,744 ------------------ ----------------- $ 248,596 $ 306,633 ================== ================= 8 TOMI Environmental Solutions, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Depreciation was $20,403 and $20,987 for the three months ended March 31, 2010 and 2009, 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, 2010. These assets are tested for impairment annually or if certain circumstances indicate a possible impairment may exist in accordance with ASC 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, 2010 there was no impairment. NOTE 5: 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 March 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: 2010 - $29,394, 2011 - $8,077, 2012 - $2,158. Each note is secured by the vehicle acquired. March 31, 2010 December 31, 2009 ------------------ ----------------- (Unaudited) ------------------ Total Vehicle Notes $ 36,629 $ 66,364 Less: Current Portion 31,337 45,896 ------------------ ----------------- Long term Portion $ 8,292 $ 20,468 ================== ================= 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 September 30, 2009, the Company has accrued $892,419 for unpaid wages under the employment agreement. 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. 9 TOMI Environmental Solutions, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 September 30, 2009. As of March 31, 2010, $38,620 of the deferred compensation had been amortized and deferred compensation is $107,630. 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 performed 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 management and consulting fees 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. The Company's Board of Directors' amended its articles of incorporation on March 31, 2009 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 first quarter of 2009. The Company had previously recorded $20,400,000 in other general and administrative expenses during the year ended December 31, 2008. At March 31, 2010, the Company has recorded $853,954 in deferred compensation related to the vesting feature and this deferred amount will be amortized over the remaining 9 month period. Amortization of deferred compensation was $284,651 for the three months ended March 31, 2010. 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. NOTE 7: 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. 10 TOMI Environmental Solutions, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8: NOTES RECEIVABLES The Company executed two promissory notes with Adtec in the amount of $75,000 and $20,000 on November 23, 2009 and February 2010. The first note is due on or before November 30, 2010 and the second note is due on or before February 2011. The notes bear interest of 8% per annum. In the event of default, the Company is entitled to receive seven foggers at no charge or to deduct any unpaid amounts from the acquisition of the remaining 81% of Adtec. NOTE 9: SUBSEQUENT EVENTS The Company has evaluated subsequent events through May 17, 2010. On April 13, 2010, the Company's Board of Directors rescinded the transaction entered into in February 2009 with Taurus Global Opportunity Fund, canceled the Series B stock and 350,000 common shares and paid the holders $3,563,062 from the proceeds of the restricted investment. (See Note 6) The accrued dividends on the Series B will stop upon the effective date of the cancellation of the agreement on April 13, 2010 and the accrued dividend of $265,787 will be reversed into additional paid in capital. On April 26, 2010, the Company executed a Secured Convertible Notes Payable in the amount of $60,000. The note bears interest of 8% and is convertible to common shares. The Company has reserved 608,122 common shares under the promissory notes. 11 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 TOMI Environmental Solutions, Inc. (formerly "The Ozone Man, Inc.") (The "Company" or "TOMI") provides green, energy-efficient environmental solutions for infectious disease control and air remediation through inspection, airquality testing, training and treatment using our premier platform of UV Ozone generation services, products and technologies. Our focus to combat Hospital infection control was recently enhanced with the addition of (MRA) TM - Magnetic Resolution Activation product line as an additional cost effective method to control the spread of infectious disease and can also be used after a biological attack of our homeland. Our products and services cover a broad spectrum of commercial structures including office buildings, medical facilities, hotel, single homes, multi-unit residences and schools. Our products and services have also been used in restaurants 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. During the second quarter of 2009, we exited the status of development stage enterprise because we commenced our planned principal operations and because we earned revenues during the quarter ended June 30, 2009. We purchased 19% of the outstanding interests of Advanced Disinfectant Technologies LLC ("Adtec") in October 2009 for 190,000 shares of our common stock and we have entered into a letter of intent to purchase the remaining interest of 81% in Adtec. Although Adtec has had minimal revenues to date, as it has essentially been a research and development company, we believe its hydroxal mist fogger will be an integral part of our product line. Adtec's advantage over its competitors rests in the efficiency of its fogger as it disinfects quicker and therefore cuts down labor costs. Further, its hydrogen peroxide concentration is four times less than others and is not caustic to electronic equipment. 12 On November 15, 2009, we executed a license/sales agreement with Degmor Industries, a leading environmental remediation firm based in New York City with expertise in facility restoration after disaster related and environmental contamination. Degmor has been servicing a broad array of clients in the New York metro area for more than twenty years. Under the terms of the agreement, we granted Degmor a license for our Ultraviolet byproduct free ozone generator, High Tech Hydroxyl Mist Ultra-D Disinfection Systems and our UVGI and Filtration Products to be used in the purification of indoor air, decontamination of surfaces and elimination of infectious diseases. We will receive 12.5% of all gross revenues earned by Degmor under the licensed technology. After the first year of license agreement, we will receive a license fee of 10% of gross revenues. We will also receive an annual recertification fee of $7,500 per year after the first year of license agreement. Business Outlook TOMI's business growth strategy is to be "Your Professional Infectious Disease Control & Air Remediation Company" We have developed and acquired premier platform of UV Ozone generators, the Ultra-D fogger and the UVGI "Terminator" Our strategy is continue to align our company with other premiere emergency disaster relief ,environmental remediators and other general certified remediators throughout the country. We will continue to train, certify and license our products with a recurring fee from work performed in the treatment of infectious disease control and air remediation. Our certification process will allow over 20,000 certified remediators to be put into a position to add revenue to their bottom line while waiting for an emergency or disaster to happen. With our quality customer base in Rolyn and Degmor, TOMI potentially has a great lead in the market. We have a sustainable competitive advantage because of our unique technology. TOMI is not in a sector already crowded by other venture backed companies, which leads us to the potential of material growth prospects. We are also creating a standard in the industry that will undoubtedly put the remediating industry in the forefront in the treatment of indoor air pollution and infectious disease control. We also strive to generate top-notch research on other air remediation solutions including hydroxyl radicals. We continue to pursue complementary businesses in the manufacturing of other indoor air remediation products, testing labs and other indoor air maintenance products. We are also in preliminary discussions with countries in Asia and Europe to establish operations through subsidiaries. During the fourth quarter of 2009, the Company began generating revenue related to commercial projects, licensing fees and the sales from its equipment and product line. TOMI continues to pursue revenue from multiple sources and anticipates that our revenue stream will grow more diverse in the coming quarters. Critical Accounting Policies and Estimates Refer to our Form 10-K filed with SEC on April 15, 2010. New 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 13 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 Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009: We began our planned principal operations during the second quarter of 2009. Revenue for the three months ended March 31, 2010 and 2009 totaled $271,045 and $5,890, respectively. Revenue and operating results for the two periods are not comparable because the Company began its planned principal operations during the second quarter of 2009 and was in its development stage prior to the second quarter of 2009. Revenue for the three months ended March 31, 2010 is comprised of equipment sales. Net (loss) income for the three months ended March 31, 2010 and 2009 was ($370,593) and $17,538,228, respectively. The net income for the three months ended March 31, 2009 is primarily attributed to a non-cash compensatory credit element from equity issuances of approximately $18,000,000. 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. Our 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 fair value was determined using the price of the stock on the date the board approved the amendment to the agreement. Professional and consulting fees include legal, accounting and consulting expenses. General and administrative expenses primarily include payroll and payroll related expenses, rent and depreciation. Other income of $67,366 during the three months ended March 31, 2010 relates to the sale of equipment and van. Liquidity and Capital Resources We plan on funding operations and our liquidity needs from licensing arrangements, structured similarly to the Degmor Licensing Agreement that have profit margins from sale of equipment, licensing of equipment, recurring income from solution sales, along with a 12% income from annual gross sales for the utilization of the equipment licensed. We also intend to continue to raise equity capital through the sale of restricted stock. Furthermore, we are currently negotiating equity and/or debt financing in the amount of up to $5 million dollars. On April 26, 2010, the Company executed a Secured Convertible Notes Payable in the amount of $60,000. The note bears interest of 8% and is convertible to common shares. The Company has reserved 608,122 common shares under the promissory notes. 14 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, 2010. 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, 2010. PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. We are not a party to any 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 31, 2009. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. On April 26, 2010, the Company executed a Secured Convertible Notes Payable in the amount of $60,000. The note bears interest of 8% and is convertible to common shares. The Company has reserved 608,122 common shares under the promissory notes. 15 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. 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 17, 2010 By: /s/ Halden Shane ------------------------------------------------ Halden Shane Principal Executive Officer Principal Financial and Accounting Officer 16

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TOMZ 10-Q Quarter ended March 31, 2010