UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission file number 000-09908
THE OZONE MAN, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-1947988
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(State of incorporation) (I.R.S. Employer Identification No.)
9454 Wilshire Blvd., Penthouse, Beverly Hills, CA 90212
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code:
(800) 525-1698
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $.01
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ]
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [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 definitions of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Small 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]
The aggregate market value of the common stock held by non-affiliates of
the registrant as of the last business day of the Registrant's most recently
completed second fiscal quarter was approximately $34,020,000 based
upon the closing price of registrant's common stock on that date.
As of March 15, 2009 the registrant had 34,509,730 shares of common
stock outstanding.
Documents incorporated by reference: None.
TABLE OF CONTENTS
PART I
Page
Item 1. Business 2
Item 1A. Risk Factors 6
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 10
Item 6. Selected Financial Data (Not Required) 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
(Not Required) 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 13
Item 9A. Controls and Procedures 13
Item 9B. Other Information (None) 14
PART III
Item 10. Directors, Executive Officers and Corporate Governance 14
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 16
Item 13. Certain Relationships and Related Transactions, and
Director Independence 17
Item 14. Principal Accountant Fees and Services 18
Item 15. Exhibits 18
Signatures 19
In this registration statement references to "Ozone Man," "we," "us,"
and "our" refer to The Ozone Man, 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.
1
PART I
Item 1. Business
Business
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The Company 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.
Products
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Ozone is a pale blue, unstable gas molecule because it consists of 3 atoms,
whereas oxygen is a molecule consisting of 2 oxygen atoms. This ozone
molecule is so unstable that it quickly breaks away from the other oxygen
atoms. These lone oxygen atoms go in search of other atoms to re-form
into oxygen. If it finds a carbon or sulfur molecule, it will break into that
molecule destroying it in the process. Free oxygen atoms are highly
reactive and they will oxidize or inactivate almost anything including most
viruses, bacteria, and organic and inorganic compounds they contact,
making ozone an enormously powerful disinfectant and oxidizer. Since
most indoor air pollutants are carbon and sulfur based, ozone will attack
them, leaving only oxygen in their place. Ozone is a much stronger
oxidizer than common disinfectants such as chlorine and hypochlorite.
The usage of chlorine in many countries has been decreased significantly
due to the possible formation of carcinogenic by-products during the
disinfections process. In contrast, ozone disinfections using the
Company's methodology does not produce any harmful residues, all of
our technicians wear safety equipment prior to reentry and all micro-
carcasses are vacuumed with HEPA vacuum, all the residual ozone will be
converted back to oxygen in a short time using fans along with open
ventilation. No person, pet or plant is ever exposed to levels greater than
EPA standards. Ozone produced using ultra-violet is considered an
environmentally friendly disinfectant.
Ultraviolet technology uses ultraviolet light to produce ozone, by passing
ambient air over an ultraviolet lamp, which splits oxygen molecules in the
air stream. Since ozone gas is unstable (a property that gives ozone its
exceptional oxidizing capabilities), ozone cannot be packaged or stored
and must be generated on site. In most common wastewater treatment
applications, an ozone generator combines with a compact air preparation
unit is utilized to treat the water safely and effectively.
Ozone is a much more powerful oxidizer than chlorine, as ozone
statistically disinfects quicker than chlorine. Ozone creates none of the
trihalomethanes commonly associated with chlorine compounds, and if
properly matched to the application, ozone will reduce most organic
compounds to carbon dioxide, water and residual heat. Finally, ozone
eventually returns to oxygen.
Ozone is not to be confused with smog, which is commonly referred to as
ozone. Low level or surface ozone (smog) is formed when oxygen
combines with volatile organic compounds (nitrogen oxides from motor
vehicles and power plant emissions, solvents, etc.), which then chemically
react in the presence of sunlight and warmth.
Our proprietary UV ozone generators produce nothing but ozone. Most
other manufacturers of ozone equipment produce nitrous oxides, which
when mixed with moisture become nitric acid, which is dangerous. The
EPA has determined that the highest level of safe ozone is 0.05 ppm. Our
high-powered generators produce ozone at lethal levels sometimes
exceeding 15.0 ppm. This is why people, pets, or plants cannot remain in
the property during our treatments that average 4 or more hours in length.
2
Industry Summary
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Driven by rising demand for clean water, clean air and chemical-free
treatment processes, the global market for ozone technology is projected
to grow at an annual rate of 7.5% through 2012. The overall global water
treatment market is experiencing rapid growth due to a number of factors
including:
. Rapid industrialization and resulting increases in infrastructure spending
. Increased awareness and concern for quality water, long-term health and
environmentally conscious manufacturing processes;
. Poor water quality, particularly in developing nations such as
China and India; and
. Water shortages resulting from droughts and shifts in
population to areas with insufficient water supplies.
Similarly, environmental concerns regarding indoor air quality are driving
demand for air purification products in both the residential and
commercial setting. While ozone technology has been in existence for
decades, the rising popularity of "green" products and services is
contributing to ozone's growing acceptance. Unlike chlorine and other
disinfectants, ozone technology employs a chemical-free process that can
be utilized to purify water and air and disinfect a variety of surfaces.
Additionally, because ozone reduces the need for continued use of costly
chemicals, companies are able to reduce expenses and generate a positive
return on investment. The ability to utilize more environmentally friendly
products and drive higher returns represents a compelling opportunity for
many users of ozone-based products and services.
The Company provides environmentally conscious products to customers
looking for cleaner, more effective solutions for their disinfection and air
treatment needs. Demand is increasing for non-chemical disinfection
technologies like ultraviolet light and ozone in markets such as
wastewater, dairy, laundry, agriculture, food and beverage manufacturing,
hospitality, medical, process water and pharmaceuticals, where companies
are experiencing pressure to reduce chemical by-products caused by
chlorine gas and liquid chlorine, along with significant energy savings.
Ozone technology, when used in air and water unlike chlorine and other
chemical disinfectants, utilizes a chemical-free process, whereby ozone
molecules are used to safely purify and disinfect the water and air with no
chemical byproducts. Once the ozone treatment process is complete, only
harmless oxygen is released back into the air and water. Ozone treatment
also reduces and frequently eliminates the need for costly chemicals used
as disinfectants.
Market
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Recognition of indoor pollution is growing. The AMA has indicated that
at least 50% of all illnesses are caused or aggravated by indoor air
pollution. The EPA made indoor pollution among its top five most urgent
environmental issues. According to the California Air Resources Board,
California alone lost 45 billion dollars due to direct and indirect effects of
indoor air pollution in one year alone. The Journal of Pediatrics states that
39% of all asthma is caused by poor indoor air and that cleaning those
pollutants would help reduce asthma. Further, the EPA states that today's
homes contain an estimated 1,500 hazardous compounds from
approximately 3,000 man-made products. Even low levels of pollutants
emitted by these products can affect human health over a period of months
or years. Ozone can also be used to kill, inactivate, reduce, and in some
cases eliminate most of the broad causes of indoor pollution such as:
allergens, dust mites, bacteria, residue from pesticides, construction by-
products, inactivates viruses, and smoking and cooking odors.
3
Accordingly, we seek to position The Ozone Man, Inc. as a leader in the
residential and commercial indoor inspection, air testing and ozone deep
cleaning treatment. We have developed and acquired a platform of ozone
generator products, services and technologies. The Ozone Man, Inc.
methodology is a process that purifies the air in a home or building. This
process eliminates most germs, viruses, bacteria, mildew, and mold
spores, in a multi-process one-day event. It also eliminates pet odors,
cooking smells, smoking odors, and chemical smells (such as paint, glue,
new carpets, etc.).
The Company sells indoor air quality products that utilize ozone and
ultraviolet technologies to deliver purified air in residential, commercial
and mobile transportation environments. The Company's systems provide
a protection against the following: odors; airborne microbes, including
bacteria, viruses, mold spores, mildew and fungus; organic compounds;
and inorganic compounds.
Residential Homes. The Company's target market initially was single-
family homes. Its products are air purification systems, the Terminator
and its purification filter which use ultraviolet UVC and UVV light. The
products are installed in the duct in a home's heating and cooling systems
and use UVGI to sterilize most airborne bacteria and viruses, while also
eliminating smoke and odors from pets, cooking and other household
sources to leave behind fresh, clean air. The Company's products also
address the consumer's growing concern over air quality and offers relief
to individuals who suffer from allergies, asthma and lung disease when
used in conjunction with the Company's filtering systems.
Commercial Facilities. The Company's Terminator is applicable for use
in hospitals, long-term care facilities, restaurants, bars and hotels. Like
the residential products, the commercial model is a powerful sterilizer and
odor eliminator and can be installed in the HVAC duct system.
Services
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The Company presently has five service hubs complete with service vans
and certified, trained personnel. The Company has a seven-day
certification process with a comprehensive operations manual and an
online examination and updating service for its technicians. In addition to
13 full time employees, the Company employees 29 part time independent
contractors, some of whom are certified trained personnel.
We do indoor inspections and indoor air testing which follows the Indoor
Environment Standards Organization (IESO) guidelines. This translates
to professional sampling capabilities as well as indoor contamination
inspection certifications. We inspect and test for any type of indoor
environmental problems.
On February 23, 2008 we purchased from S.C.O. Medallion Healthy
Homes LTD all intellectual property for the Medallion methodology
system and all marketing materials, studies and information required to
operate the system including patents, trademarks, extensions, applications,
copyrights, equipment and technology that specifically relate to the
products and services of the business. On April 18, 2008 we purchased
from Air Testing and Design, Inc. intellectual property in connection with
our commercial generator system. This provides us with the ozone
treatment system that is the core of our business model.
We provide indoor pollution maintenance for all buildings. We call our
system the "Terminator", and it involves installation of a UVGI system in
the air ducts or air conditioning systems. This purifies the air before it
enters the indoor environment and insures the client of a clean fresh air
supply at all times. If there is not a forced air or air conditioning
system in the home or building, we have freestanding UV germicidal systems.
Our ozone deep cleaning treatment is a remedy for most indoor pollution.
When extreme contamination problems exist, we may call in other
professionals to assist in the remediation process and/or refer the client
to another source for the solution.
4
Our ozone deep cleaning treatment involves placing The Ozone Man, Inc.
UV ozone generators throughout an uninhabited home or building.
Depending on the type of contamination, the generators are left running
for 4 hours or longer. This is the essential time allotted for the ozone to
oxidize all the contaminants in the indoor environment, leaving the space
odor and contaminant free. This one step process works on most types of
odors, including smoke, pet, cooking and chemical odors and kills and or
eliminates most allergens, bacteria and viruses.
Decontaminated space will remain as such, as long as you do not
reintroduce the problem. Our inspection/testing service will first identify
the problem, and once the source is removed/repaired, the treatment is
then complete and the problem is solved. However, if you are a smoker
and if you start smoking again in the residence/office and/or you are a pet
owner and you bring the pets back into the residence and/or your residence
building has another leak/water intrusion, the problem will reoccur and
another treatment will be required. Our UVGI and filtration system helps
maintain the indoor environment and prevent reoccurrences of such
problems. Once our treatment is complete, the indoor environment is a
healthy place to reside or work.
The cost per treatment depends on the size of the dwelling and the type of
contamination. Residential dwellings cost $.50 per sq ft. Commercial
jobs generally run around $.67 per sq ft.
The Company intends to target the following four market segments:
HVAC and Filtration. The Company's short-term plan is to have HVAC
companies sell our units. The Company's long-term plan is to purchase
and acquire various small HVAC service companies. In the short term, we
intend to educate key personnel of these companies on the effectiveness,
ease of installation and quality of our system as well as the ability of our
filers to eliminate 99.9% of all particulates and odors in indoor structures.
The locations for these acquisitions shall be in the regions where we
currently have service vans to enable the sales leads of the Terminator and
filtration to assist and educate their client in encouraging the use of our
Ozone Man Deep Cleaning Treatments. Our HVAC technicians will be
able to buy these units from their wholesalers.
The use of the Terminator and filtration systems have been documented to
reduce energy, increase efficiency and limit cleaning costs of HVAC coils.
As a result, one can expect a 30-40% reduction in energy costs and almost
a complete elimination in coil cleaning costs.
Laundry. This division would be considered an energy savings division as
there is approximately a 30-40% overall savings with a significant savings
in lesser energy usage and moderate savings due to a reduction of
chemicals/detergent usage. Primary beneficiaries of the use of the
application of the laundry oxidation system would be hotels, prisons,
nursing homes, and dairy farms. All of these industries will be pursued
using an outright purchase, rental and/or a lease program including a
shared savings plan. We have been contacted by about 100 facilities with
interest in our program. We have hired via broker agreement a team of
two different sales personal totaling 4 to sell and or lease the program.
Hospitality. This division will be primarily for the use of air and deep
cleaning to make the hospitality-related companies (hotels, motels, etc.)
greener and cleaner prior to the check-in of hotel guests. Also, as
additional revenue, we will be able to apply the UVGI & filtration system
to these hotels to maintain cleaner air and save in energy costs.
5
Hospital. This should be the easiest to penetrate as we have a solution to
healthcare facilities' biggest problem: the spread of airborne contaminants.
Senate Bill 1058-MRSA became effective January 1, 2009. The
enactment of this bill demonstrates the concern hospitals have for the
spreading of MRSA as we already know that the hospital industry will be
held responsible for any hospital-acquired infection prior to 2009. Using
our UVGI/filtration products, it enables us to reduce expenses for coil
cleaning, which can range from $500 - $15,000, saving 25 - 30% of
energy costs and reduce unit down time. Therefore, we will be able to
enhance the well being of staff and patients by delivering clean,
particulate-free air. We can reduce filtration cots by as much as 50% and
will be able to offer a product that will decontaminate rooms identified
with disease-causing elements. This is handled by our on staff doctors and
former hospital administrators selling to current hospital administrators
and staff that we already know.
Competitors & Future Competition
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Although we are unaware of any direct public competition, we believe that
we will be faced with competition from an array of household cleansers,
pesticides, and remediation companies (among others) for our services.
Many retailers market a variety of air purifiers. The ozone generation
business may lead to multiple competitors and competition.
Employees
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We currently have 13 employees, all of which are full time.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. A number of these risks are
listed below. These risks could affect actual future results and could cause
them to differ materially from any forward-looking statements we have
made in this Annual Report. You should carefully consider the risks
described below, as well as the other information set forth in this Form 10-
K. The risks and uncertainties described below are not the only ones we
face. Should they materialize, any of the risks described below could
significantly and adversely affect our business, prospects, financial
condition or results of operations. In that case, the trading price of our
common stock could fall and you may lose all or part of the money you
paid to buy our securities.
Risk Related To Our Business
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Our independent registered public accounting firm has issued a
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"going concern" opinion.
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Our ability to continue as a going concern is dependent upon our ability to
generate profitable operations in the future and/or to obtain the necessary
financing to meet our obligations and repay our liabilities arising from
normal business operations when they come due. We plan to continue to
provide for our capital requirements by issuing additional equity. No
assurance can be given that additional capital will be available when
required or on terms acceptable to us. We also cannot give assurance that
we will achieve sufficient revenues in the future to achieve profitability
and cash flow positive operations. The outcome of these matters cannot be
predicted at this time and there are no assurances that, if achieved, we will
have sufficient funds to execute our business plan or to generate positive
operating results. Our independent registered public accounting firm has
indicated that these matters, among others, raise substantial doubt about
our ability to continue as a going concern.
6
No assurance of sales or profitability.
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The Company's business is dependent upon the acceptance of its products
and services as an effective and reliable method to perform indoor air
quality inspection, testing, remediation and maintenance. The Company's
business is also dependent on the effectiveness of its marketing program to
convince potential clients and potential independent contractors to utilize
its services so that the Company will become profitable. There can be no
assurance that the public or industry participants will accept the
Company's services, or that the Company will be successful or that its
business will earn any profit. There can be no assurance that the Company
will earn material revenues or that investors will not lose their entire
investment. There is no assurance that the Company will operate its
business successfully or that its common stock will have value. A failure
of the Company's marketing campaign would have a material adverse impact on
its operating results, financial condition and business performance.
Competition.
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The indoor air quality testing industry is extremely competitive. The
Company's principal competitors will include other indoor air quality
testers, home inspectors, termite inspectors, and remediation and
abatement companies. These competitors may have longer operating
histories, greater name recognition, larger installed customer bases, and
substantially greater financial and marketing resources than the Company.
The Company believes that the principal factors affecting competition in
this proposed market include name recognition, and the ability to receive
referrals based on client confidence in the Company's service. There are
no significant barriers of entry that could keep potential competitors from
opening similar indoor air quality testing facilities. The Company's
ability to compete successfully in the industry will depend in large part
upon its ability to market and sell its indoor air quality testing and air
remediation services and to respond effectively to changing insurance
industry standards and methodology. There can be no assurance that the
Company will be able to compete successfully in the indoor air quality
testing and remediation industry, or that future competition will not have a
material adverse effect on the business, operating results, and financial
condition of the Company.
Dependence on key personnel.
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The Company's success is substantially dependent on the performance of
its executive officers and key employees. Given the Company's early
stage of operation, the Company is dependent on its ability to retain and
motivate high quality personnel. Although the Company believes it will
be able to engage qualified personnel for such purposes, an inability to do
so could materially adversely affect the Company's ability to market and
perform its services. The loss of one or more of its key employees or the
Company's inability to hire and retain other qualified employees could
have a material adverse effect on the Company's business.
Inability to make new business acquisitions.
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In the short-term, the success of the Company's business plan depends
heavily on its ability to make key business acquisitions, and in the longer
term, on its ability to profitably integrate and operate those businesses.
There is no assurance that the Company will be able to find and acquire
the new businesses that it needs to successfully implement its business
plan. The Company needs to make new business acquisitions in order to
grow at an attractive pace. A failure of the Company to make the new
business acquisitions that it seeks will likely have an adverse impact on
its operating results, financial condition and business performance.
7
We may not be able to manage our growth effectively, create
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operating efficiencies or achieve or sustain profitability.
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The ability to manage and operate our business as we execute our growth
strategy will require effective planning. Rapid growth could strain our
internal resources, leading to a lower quality of customer service,
reporting problems and delays in meeting important deadlines, resulting in
loss of market share and other problems that could adversely affect our
reputation and financial performance. Our efforts to grow have placed,
and we expect will continue to place, a significant strain on our personnel,
management systems, infrastructure and other resources. Our ability to
manage future growth effectively will also require us to continue to update
and improve our operational, financial and management controls and
procedures. If we do not manage our growth effectively, we could be
faced with slower growth and a failure to achieve or sustain profitability.
We may incur significant costs as a result of operating as a public company,
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and our management devotes substantial time to new compliance initiatives.
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We may incur significant legal, accounting and other expenses as a public
company, including costs resulting from regulations regarding corporate
governance practices. Our management and other personnel devote a
substantial amount of time to these compliance initiatives. Moreover,
these rules and regulations have increased our legal and financial
compliance costs and will make some activities more time-consuming and
costly. For example, these rules and regulations could make it more
difficult for us to attract and retain qualified persons to serve on our
board of directors or as executive officers.
In addition, the Sarbanes-Oxley Act of 2002 ("SOX") requires, among
other things, that we maintain effective internal control over financial
reporting and disclosure controls and procedures. For the year ended
December 31, 2008, we performed system and process evaluation and
testing of our internal control over financial reporting to allow
management to report on the effectiveness of our internal control over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.
Our testing, or the subsequent testing by our independent registered public
accounting firm in the year ending December 31, 2009, may reveal
deficiencies in our internal control over financial reporting that are
deemed to be material weaknesses. Our compliance with Section 404 may
require that we incur substantial expense and expend significant
management time on compliance-related issues. Moreover, if our
independent registered public accounting firm identify deficiencies in our
internal control over financial reporting that are deemed to be material
weaknesses, the market price of our stock would likely decline and we
could be subject to sanctions or investigations by the SEC or other
regulatory authorities, which would require additional financial and
management resources.
There are inherent limitations in all control systems, and
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misstatements due to error or fraud may occur and may not be detected.
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While we continue to take action to ensure compliance with the disclosure
controls and other requirements of SOX, there are inherent limitations in
our ability to control all circumstances. Our management, including our
Chief Executive Officer and Chief Financial Officer, does not expect that
any company's controls, including our own, will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. In addition, the design of a control system must
reflect the fact that there are resource constraints and the benefit of
controls must be evaluated in relation to their costs. 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, in 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 errors or mistakes. Further
8
controls can be circumvented by individual acts of some persons, by
collusion of two or more persons, or by management override of the
controls. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, a control may be
inadequate because of change in conditions or the degree of compliance
with the policies or procedures may deteriorate. Because of inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
Risk Related To Our Securities
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Our stock price is volatile and there is a limited market for our shares.
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The stock markets generally have experienced, and will probably continue
to experience, extreme price and volume fluctuations that have affected
the market price of the shares of many small capital companies. These
fluctuations have often been unrelated to the operating results of such
companies. Factors that may affect the volatility of our stock price
include the following:
. Our success, or lack of success, in developing and marketing our products
and services;
. Our ability to maintain compliance with OTCBB listing requirements;
. Our ability to raise the required capital to fund our business;
. The announcement of new products, services, or technological innovations
by us or our competitors;
. Changes in the executive leadership of the company;
. Quarterly fluctuations of our operating results;
. Changes in revenue or earning estimates; and
. Competition.
Based on the factors described above, recent trends should not be considered
reliable indicators of our future stock prices or financial results.
Our shares of common stock have been traded on the OTCBB. There has
been limited trading in our common stock and we cannot give assurances
that such a market will develop further or be maintained.
Investors should not expect the payment of dividends by us.
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We do not expect to pay dividends on our common stock in the
foreseeable future. Investors who require cash dividends from their
investments should not purchase our common stock or warrants.
Item 2. Properties
The Company leases 1,300 sq ft at 9454 Wilshire Blvd., Beverly Hills, CA
90212 at $72,000 annually, on a month-to-month tenancy, in a
professional office building. We believe the current facilities are adequate
for the immediate future.
Item 3. Legal Proceedings
We are not a party to any proceedings or threatened proceedings as of the
date of this filing.
9
Item 4. Submission of Matters to a Vote of Security Holders
We have not submitted a matter to a vote of our shareholders during the
2008 fiscal year.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Market Information
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The Company's common stock commenced trading on the OTC Bulletin
Board ("OTCBB") on June 24, 2008. The following table sets forth, for
the periods indicated, the last sale prices for the common stock as reported
by the OTCBB.
Period High Low
Fiscal 2009
1st Quarter $ 9.00 $ 2.35
Fiscal 2008
4th Quarter $ 9.00 $ 1.80
3rd Quarter $ 3.50 $ 1.01
2nd Quarter $ 2.50 $ 0.40
Holders and Dividends
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As of March 15, 2009 we had 737 shareholders of record holding
34,509,730 common shares. This number does not include the common
stock recently sold in a private placement as those shares have been
subscribed for, but are not yet issued and outstanding.
We have not paid cash or stock dividends on our common stock. We have no
present plan to pay any dividends, but intend to reinvest our earnings, if any.
Recent Sales of Unregistered Securities
- ---------------------------------------
On or about February 27, 2009, the Company sold to an accredited
investor, 350,000 common shares and 3,250 Preferred B shares
convertible into 650,000 common shares, at $5.00 per share for total
consideration of $5,000,000. All other sales of unregistered securities in
fiscal 2008 have been previously reported.
Issuer Purchase of Securities
- -----------------------------
None.
Item 6. Selected Financial Data
(Not Required)
10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
- --------
The Company commenced operations in the fourth quarter of 2007 upon
the acquisition of its operating subsidiary, The Ozone Man, Inc. (Nevada).
The Company 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.
In 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 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 expect to further expand our facilities in 2009.
Results of Operations for the initial period ended December 31, 2008
- --------------------------------------------------------------------
For the year ended December 31, 2008 we recorded revenues of $10,335
from the sale of products and services. However, these revenues are
immaterial with regard to those we expect to generate once we launch our
principal operations. As such we remain a development stage company.
There were no revenues in the period from September 5, 2007 (inception)
through December 31, 2007.
Costs and expenses for the year ended December 31, 2008 totaled
$22,738,246 including $1,090,021 in professional and consulting fees.
Losses from operations were $22,727,911 for the year ended December
31, 2008. However, approximately $20,400,000 of those recorded losses
were in connection with the issuance of preferred stock for services
rendered, a one time non-cash charge. When combined with losses from
the period from inception on September 5, through December 31, 2007 of
$32,860, cumulative development stage losses from operations since
inception to December 31, 2008 total $22,778,439. Additional financing
costs and net interest expense brought our net loss to $22,745,579 and
$22,778,439 for the year ended December 31, 2008 and the period from
September 5, 2007 (inception) through December 31, 2008, respectively.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 2008 we had cash of $367,697 and a working capital
deficit of approximately $465,000. Losses from operations for the year
ended December 31, 2008 were $22,745,579, however, approximately
$21,300,000 of operating expenses charged in 2008 were non-cash
charges related to the value of stock issued for services rendered.
Therefore, cash used in operations was $721,060. In addition, we recently
realized proceeds from the sale of our securities for advertising and
marketing programs.
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. The terms of sale are
specified in the Subscription Agreement and Stock Purchase Agreement
executed by the Company and Investor.
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 per share par value of $1,000, carries an annual
11
cumulative dividend of 7.5% and is senior in liquidation preference to all
other Series of stock. Pursuant to the terms of the Subscription Agreement,
the following restrictions have been stipulated as the use of proceeds:
. $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 Investor
has no right of approval over any transaction involving the use of
these funds.
. Approximately $1,050,000 is to be used for advertising and marketing
of the Company's products and services using agencies mutually
agreeable to the Company and the Investor.
. Approximately $500,000 is to be used to develop a direct response
television campaign to promote the Company's products and
services. Specifically, the Investor has required that the Company
use these proceeds to develop, "copyrighted content in the form of
a health book" using an existing manuscript adapted to a long and
short form for direct response television marketing.
. Approximately $200,000 of the proceeds were used to pay fees and
expenses related to the transaction including commissions as well
as legal and professional incurred by Investor related to the
transaction.
As a result of restrictions on the use of the proceeds, the Company expects
that amounts that have not yet been used as specified will be recorded as
restricted cash and investments (subject to market fluctuation) on its balance
sheets in subsequent periods. We intend to raise the additional funds through
the sale of our securities that we believe it should be sufficient to
implement our business plan through the end of 2009. There is no assurance
additional private placement funds will actually be raised and the failure to
do so will make it more difficult to implement our business plan.
The consolidated financial statements contained in this report have been
prepared on a "going concern" basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
For the reasons discussed herein, there is a significant risk that we will be
unable to continue as a going concern, in which case, you would suffer a
total loss of your investment in our company.
Off-Balance Sheet Arrangements
- ------------------------------
None.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
(Not Required)
Item 8. Financial Statements and Supplementary Data
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
The Ozone Man, Inc. (A Florida Corporation)
We have audited the accompanying consolidated balance sheets of The
Ozone Man, Inc. and Subsidiary (a Development Stage Company) ("the
Company") as of December 31, 2008 and 2007 and the related consolidated
statements of operations, stockholders' deficiency and cash flows for the
year ended December 31, 2008, the period September 5, 2007 (inception)
to December 31, 2007, and the period September 5, 2007 (inception) to
December 31, 2008. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we
express no such opinion. Also, an audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Ozone Man, Inc. and
Subsidiary at December 31, 2008 and 2007, and the results of their operations
and their cash flows for the year ended December 31, 2008, the period
September 5, 2007 (inception) to December 31, 2007, and the period
September 5, 2007 (inception) to December 31, 2008 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred a net loss for the year
ended December 31, 2008, has had minimal revenues for the year ended
December 31, 2008 and has not commenced planned principal operations.
In addition, at December 31, 2008 the Company had a working capital
deficiency and a stockholders' deficiency. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans regarding those matters are also described in Note 2.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
WOLINETZ, LAFAZAN & COMPANY, P.C.
Rockville Centre, New York
March 27, 2009
F-1
The Ozone Man, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS December 31,
------ --------------------------
2008 2007
------------ ------------
Current Assets:
- ---------------
Cash and Cash Equivalents $ 367,697 $ 3,095
Accounts Receivable 4,590 -
Prepaid Expenses 18,710 -
------------ ------------
Total Current Assets 390,997 3,095
------------ ------------
Property and Equipment - net 372,990 -
------------ ------------
Other Assets:
- -------------
Intangible Assets 111,100 -
Security Deposits 6,620 -
------------ ------------
Total Other Assets 117,720 -
------------ ------------
TOTAL ASSETS $ 881,707 $ 3,095
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
- --------------------
Accounts Payable and Accrued Expenses $ 175,327 $ 6,857
Convertible Note Payable - Related Party,
Net of Discount - 10,556
Accrued Officers Compensation 546,536 -
Notes Payable - Current Portion 43,976 -
Other Payables - 10,000
Dividends Payable on Preferred Convertible Stock 90,667 -
------------ ------------
Total Current Liabilities 856,506 27,413
Long-term Liabilities:
- ----------------------
Non-Current Portion of Notes Payable - Other 66,365 -
------------ ------------
Total Liabilities 922,871 27,413
------------ ------------
COMMITMENTS AND CONTINGENCIES
Stockholders' Deficiency:
- -------------------------
Cumulative Convertible Preferred Stock,
$25 par value, 1,000,000 shares authorized,
510,000 shares issued and outstanding 12,750,000 -
Common Stock, $.01 par value, 75,000,000
shares authorized; shares issued and
outstanding 34,474,515 shares in 2008 and
34,940,437 shares in 2007 344,744 349,404
Additional Paid-in Capital 10,103,960 29,900
Accumulated Deficit (370,762) (370,762)
Accumulated Deficit During the Development Stage (22,869,106) (32,860)
------------ ------------
Total Stockholders' Deficiency (41,164) (24,318)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 881,707 $ 3,095
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
The Ozone Man, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the For the
Period From Period From
Sept. 5, 2007 Sept. 5, 2007
For the (Inception) (Inception)
Year Ended through through
December 31, December 31, December 31,
2008 2007 2008
------------- ------------- -------------
Sales - Net: $ 10,335 $ - $ 10,335
- ------------ ------------- ------------- -------------
Costs and Expenses:
- -------------------
Professional and Consulting Fees 1,090,021 13,875 1,103,896
Merger Expense - 25,000 25,000
Other General and Administrative Expenses 21,648,225 8,429 21,656,654
------------- ------------- -------------
Total Costs and Expenses 22,738,246 47,304 22,785,550
------------- ------------- -------------
Loss from Operations (22,727,911) (47,304) (22,775,215)
------------- ------------- -------------
Other Income (Expenses):
- ------------------------
Financing Costs (14,444) (10,556) (25,000)
Forgiveness of Debt - 25,000 25,000
Interest Income (Expense) (3,224) - (3,224)
------------- ------------- -------------
Total Other Income (Expenses) (17,668) 14,444 (3,224)
------------- ------------- -------------
Net Loss $(22,745,579) $ (32,860) $(22,778,439)
============= ============= =============
Loss attributable to common stockholders
Net Loss $(22,745,579) $ (32,860) $(22,778,439)
Preferred stock dividend 90,667 - 90,667
------------- ------------- -------------
Loss atributable to common stockholders $(22,836,246) $ (32,860) $(22,869,106)
============= ============= =============
Net Loss per Common Share - Basic and Diluted $ (0.66) $ (0.00)
============= =============
Weighted Average Common Shares Outstanding -
Basic and Diluted 34,391,534 34,935,367
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
The Ozone Man, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD SEPTEMBER 5, 2007 (INCEPTION) TO DECEMBER 31, 2008
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL IN THE
-------------------- ---------------------- PAID-IN ACCUMULATED DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STAGE 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 Recapitalization - - 680,437 6,804 312,500 (370,762) - (51,458)
(30,000,000) (3,000) 3,000 - - -
Issuance of Common Stock for
Services at $.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 at $.20 per share
during the period
January 23, 2008 -
July 7, 2008 - - 2,750,000 27,500 522,500 - - 550,000
Issuance of Common Stock
Pursuant to a Private
Placement at $.50 per share
at July 2, 2008 - - 100,000 1,000 49,000 - - 50,000
Issuance of Common Stock
Pursuant to a Private
Placement at $.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 at $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 at $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 at
$.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 12,750,000 - - 7,650,000 - - 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 December 31, 2008 - - - - - - (90,667) (90,667)
Net Loss for the year ended
December 31, 2008 - - - - - - (22,745,579) (22,745,579)
- ---------------------------- ------- ----------- ------------ --------- ------------ ---------- ------------- -------------
Balance - December 31, 2008 510,000 $12,750,000 34,474,515 $344,744 $10,103,960 $(370,762) $(22,869,106) $ (41,164)
============================ ======= =========== ============ ========= ============ ========== ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
The Ozone Man, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the For the
Period From Period From
Sept. 5, 2007 Sept. 5, 2007
For the (Inception) (Inception)
Year Ended through through
December 31, December 31, December 31,
2008 2007 2008
------------- ------------- -------------
OPERATING ACTIVITIES
Net (Loss) $(22,745,579) $ (32,860) $(22,778,439)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Depreciation 32,987 - 32,987
Amortization of Debt Discount 14,444 10,556 25,000
Common and Preferred Stock Issued
for Services 21,302,000 5,000 21,307,000
Debt Forgiveness - (25,000) (25,000)
Changes in Operating Assets and Liabilities:
(Increase) in Security Deposits (6,620) - (6,620)
(Increase) in Accounts Receivable (4,590) - (4,590)
(Increase) in Prepaid Insurance (18,710) - (18,710)
Increase in Accounts Payable and
Accrued Expenses 705,007 5,399 710,406
------------- ------------- -------------
Net Cash (Used) in Operating Activities (721,061) (36,905) (757,966)
------------- ------------- -------------
INVESTING ACTIVITIES
Capital Expenditures (405,977) - (405,977)
Purchase of Intangible Assets (111,100) - (111,100)
------------- ------------- -------------
Net Cash (Used) in Investing activities (517,077) - (517,077)
------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from the Sale of Common Stock 1,499,400 30,000 1,529,400
Purchase of Cancelled Common Stock (7,000) - (7,000)
Proceeds of Note Payable - Other (Net) 120,340 - 120,340
(Payment) Proceeds of Other Payable (10,000) 10,000 -
------------- ------------- -------------
Net Cash Provided by Financing Activities 1,602,740 40,000 1,642,740
------------- ------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 364,602 3,095 367,697
------------- ------------- -------------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 3,095 - -
------------- ------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 367,697 $ 3,095 $ 367,697
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $ 6,191 $ 6,191
============= =============
Supplemental Disclosures of Cash Flow Information:
Non Cash Financing Activities:
Issuance of Note Payable - Related Party
as payment of Accounts Payable $ - $ 25,000 $ 25,000
============= ============= =============
Issuance of 34,250,000 shares of Common
Stock in Connection with Reverse
Acquisition (Recapitalization) $ - $ 342,500 $ 342,500
============= ============= =============
Dividends payable on preferred stock $ 90,667 $ - $ 90,667
============= ============= =============
Discount on Convertible Debt $ - $ 25,000 $ 25,000
============= ============= =============
Return of Overissuance of Shares Related
to Recapitalization $ 425 $ - $ 425
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Organization
The Ozone Man, Inc. ("Ozone-FL") was originally incorporated in the
state of Florida in 1979 as Dauphin, Inc. ("Dauphin"). On June 27, 1994
Dauphin, through an exchange agreement, acquired 100% of the
outstanding common stock of RPS Executive Limousines, Ltd., a privately
held New York Corporation ("RPS Limo"). On July 19, 1994, Dauphin
changed its name to RPS Enterprises, Ltd. and effected a one-for-three
reverse split of its common stock. In addition, the Certificate of
Incorporation was amended to (a) increase the number of authorized
common shares, $.01 par value, from 10,000,000 shares to 20,000,000
shares and (b) to create 1,000,000 shares of a new series of cumulative
convertible $25.00 preferred stock, with semi-annual dividends of $2.00
per share. The acquisition resulted in the RPS Limo shareholder emerging
with a larger portion of voting rights of the combined company.
Accordingly, the transaction was treated for accounting purposes as a
reverse acquisition.
In August 2002, certain investors purchased the majority of prior
management's stock and changed the name from RPS Enterprises Ltd. to
RPS Group, Inc. ("RPS Group"). In October 2002 RPS Group sold back
the operating subsidiary (RPS Limo) to prior management. RPS Group
was a shell company with no significant assets or operations since 2002.
On September 5, 2007, The Ozone Man, Inc. was incorporated in the State
of Nevada ("Ozone-NV"). On October 15, 2007, RPS Group, Inc filed
with the State of Florida, an amendment to its Articles of Incorporation
changing its name to The Ozone Man, Inc. ("Ozone-FL") and increased its
authorized common shares from 20,000,000 to 75,000,000 shares. In
addition Ozone-FL executed a 1:20 stock split.
On October 17, 2007, pursuant to a Definitive Agreement and Plan of
Reorganization, Ozone-FL acquired 100% of the issued and outstanding
common shares of Ozone-NV in exchange for 34,250,000 shares of
Ozone-FL's common stock (as amended) and $25,000 cash consideration.
The combination of the two companies is recorded as a recapitalization of
Ozone-NV pursuant to which Ozone-NV is treated as the continuing entity
although Ozone-FL is the legal acquirer. Accordingly, the Company's
historical financial statements are those of Ozone-NV. Ozone-FL and
Ozone-NV are hereafter collectively referred to as "the Company".
Description of Company
The Company 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.
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.
Principles of Consolidation
The accompanying financial statements include the accounts of The
Ozone Man, Inc. (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.
F-6
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company considers
all highly-liquid investments purchased with a maturity of three months or
less to be cash equivalents.
Revenue Recognition
For revenue from 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)
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 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.
Advertising Costs
The Company's policy is to charge advertising costs to operations as
incurred. The Company incurred advertising costs of $17,494 and $0 for
the year ended December 31, 2008, and the period September 5, 2007
(inception) to December 31, 2007, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability
method described in SFAS No. 109, "Accounting For Income Taxes", the
objective of which is to establish deferred tax assets and liabilities for the
temporary differences between the financial reporting and the tax bases of
the Company's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled. A valuation allowance
related to deferred tax assets is recorded when it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Loss Per Share
The computation of loss per share is based on the weighted average
number of common shares outstanding during the periods presented.
Diluted loss per common share is the same as basic loss per common share
as 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. As of December 31, 2008
there were 510,000 shares of Convertible Preferred Stock outstanding at a
conversion rate of five common shares for every preferred share (2,550,000
common stock) and there were no options or warrants outstanding. The common
stock issued and outstanding has been included from September 5, 2007
(inception) with respect to the effect of the recapitalization.
F-7
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related
assets, which approximate three to five years.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amount
of revenues and expenses during the reported period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable and accounts payable
approximates fair value because of the immediate or short-term maturity of
these financial instruments.
Research and Development
Research and development costs will be charged to operations as incurred.
There were no research and development costs during the year ended
December 31, 2008 and the period ended September 5, 2007 (inception) to
December 31, 2007.
Stock Based Compensation
The Company has adopted SFAS 123(R), "Share-Based Payment," which
supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and eliminates the intrinsic value method that was provided in
SFAS 123, "Accounting for Stock-Based Compensation" for accounting
of stock-based compensation to employees. The Company currently has
one active stock-based compensation plan, which was adopted and
approved by the Company's Board of Directors on November 17, 2008
and is subject to stockholder approval. That Plan is The Ozone Man, Inc.
Stock Option and Restricted Stock Plan (the "Plan"). The Plan calls for the
Company through a committee of its Board of Directors, to issue up to
2,500,000 shares of restricted common stock or stock options. The
Company generally issues grants to its employees, consultants, and board
members. Stock options are granted with an exercise price equal to the
closing price of its common stock on the date of grant with a term no
greater than 10 years. Generally, stock options vest over two to four years.
Incentive stock options granted to shareholders who own 10% or more of
the Company's outstanding stock are granted at an exercise price that may
not be less than 110% of the closing price of the Company's common
stock on the date of grant and have a term no greater than five years. At
the date of grant, the Company determines the fair value of the stock
option award and recognizes compensation expense over the requisite
service period, which is generally the vesting period of the award. The fair
value of the stock option award is calculated using the Black-Scholes option-
pricing model. As of December 31, 2008, there have been no grants made
pursuant to the Plan. The Company made no employee stock-based compensation
grants during the period September 5, 2007 (inception) to December 31, 2008.
F-8
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
The Company reviews the carrying value of the long-lived assets (intangibles)
periodically to determine if facts and circumstances exist that would
suggest that assets might be impaired or that the useful lives should be
modified. Among the factors the Company considers in making the
evaluation are changes related to the following:
. A significant decrease in market price.
. A significant adverse change in how an intangible asset is being
used or in its physical condition.
. A significant adverse change in legal factors or in the business climate.
. An accumulation of costs significantly higher than the amount
originally expected for the acquisition or construction of an asset.
. A current-period loss combined with a history of losses or a
projection of continuing losses associated with the asset.
. A realization that the asset will be disposed of significantly before
the end of its estimated useful life.
Recently-Enacted Accounting Standards
In September 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No.157, "Fair Value Measurements," which is effective for
fiscal years beginning after November 15, 2007. The Statement defines
fair value, establishes a frame work for measuring fair value in accordance
with Generally Accepted Accounting Principles, and expands disclosures
about fair value measurements. The Statement codifies the definition of
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The standard clarifies the principle that fair value
should be based on the assumptions market participants would use when
pricing the asset or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions. The
adoption did not have a material impact on the Company's financial
position and results of operations.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value
Opinion for Financial Assets and Financial Liabilities-Including an
amendment of FASB Statement No. 115" ("SFAS No. 159"), which
permits entities to choose to measure many financial instruments and
certain other items at fair value. The fair value option established by this
Statement permits all entities too choose to measure eligible items at fair
value at specified election dates. A business entity shall report unrealized
gains and losses on items for which the fair value option has been elected
in earnings at each subsequent reporting date. Adoption is required for
fiscal years beginning after November 15, 2007. Early adoption is
permitted as of the beginning of a fiscal year that begins on or before
November 15, 2007, provided the entity also elects to apply the provisions
of SFAS No. 159. The adoption did not have a material impact on the
Company's financial position and results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) "Business
Combinations" ("SFAS 141R"). SFAS 141R changes accounting for acquisitions
that close beginning in 2009 in a number of areas including the treatment of
contingent consideration, contingencies, acquisition costs, in-process
research and development and restructuring costs. More transactions and
events will qualify as business combinations and will be
F-9
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies (continued)
accounted for at fair value under the new standard. SFAS 141R promotes
greater use of fair values in financial reporting. In addition, under SFAS
141R, changes in deferred tax asset valuation allowances and acquired
income tax uncertainties in a business combination after the measurement
period will impact income tax expense. Some of the changes will
introduce more volatility into earnings. SFAS 141R is effective for fiscal
years beginning on or after December 15, 2008. SFAS 141R will have an
impact on accounting for any business acquired in the future.
In December 2007, the FASB issued SFAS No. 160 "Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB
No. 51" ("SFAS 160"). SFAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized as
noncontrolling interests (NCI) and Seriesified as a component of equity.
This new consolidation method will significantly change the accounting
for transactions with minority interest holders. SFAS 160 is effective for
fiscal years beginning after December 15, 2008. SFAS 160 would have an
impact on the presentation and disclosure of the noncontrolling interests of
any non-wholly owned business acquired in the future.
In December 2008, the FASB issued FASB Staff Positions ("FSP") SFAS
No. 140-4 and FASB Interpretation Number ("FIN") No. 46R-8,
"Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest Entities" (FSP SFAS No. 140-4
and FIN No. 46R-8). This statement increases the disclosure requirements
regarding continuing involvement with financial assets that have been
transferred, as well as the company's involvement with variable interest
entities. The FSP is effective for financial statements issued for interim
periods ending after Dec. 15, 2008. The adoption of this pronouncement is
not expected to have a significant effect on its financial statements.
In February 2008, the FASB issued FSP No. 157-1 "Application of FASB
Statement No. 157 to FASB Statement No.13 and other Pronouncements
that Address Fair Value Measurements for Purposes of Lease
Seriesification or Measurement under Statement 13" and No. 157-2
"Effective Date of FASB No. 157", which remove leasing transactions
from the scope of SFAS No. 157 and defer its effective date for one year
relative to certain nonfinancial assets and liabilities. As a result, the
application of the definition of fair value and related disclosures of SFAS
No. 157 (as impacted by these two FSP's) was effective for the Company
beginning January 1, 2008 on a prospective basis with respect to fair value
measurements of (a) nonfinancial assets and liabilities that are recognized
or disclosed at fair value in the Company's financial statements on a
recurring basis (at least annually) and (b) all financial assets and
liabilities. This adoption did not have a material impact on the Company's
results of operations or financial condition. The remaining aspects of SFAS
No. 157 for which the effective date was deferred under FSP No. 157-2 are
currently being evaluated by the company.
Areas impacted by the deferral relate to nonfinancial assets and liabilities
that are measured at fair value, but are recognized or disclosed at fair
value on a nonrecurring basis. This deferral applies to such items as
nonfinancial assets and liabilities initially measured at fair value in a
business combination (but not measured at fair value in subsequent
periods) or nonfinancial long-lived asset groups measured at fair value for
an impairment assessment. The effects of these remaining aspects of
SFAS No. 157 are to be applied to fair value measurements prospectively
beginning January 1, 2009. The Company does not expect them to have a
material impact on the Company's results of operations or financial
condition. In October 2008, the FASB issued FSP No. 157-3,
"Determining the Fair Value of a Financial Asset When the Market for
That Asset is Not Active" (FSP 157-3). FSP 157-3 clarifies the application
of SFAS 157, which the Company adopted as of January 1, 2008, in cases where
a market is not active. The Company has considered FSP 157-3 in its
determination of estimated fair values as of December 31, 2008, and the
impact was not material.
F-10
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies (continued)
In March 2008, the FASB issued SFAS No. 161, "Disclosures about
Derivative Instruments and Hedging Activities-an amendment of FASB
Statement No. 133," (SFAS "161") as amended and interpreted, which
requires enhanced disclosures about an entity's derivative and hedging
activities and thereby improves the transparency of financial reporting.
Disclosing the fair values of derivative instruments and their gains and
losses in a tabular format provides a more complete picture of the location
in an entity's financial statements of both the derivative positions existing
at period end and the effect of using derivatives during the reporting
period. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement
133 and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity's financial position, financial
performance, and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. Early adoption is permitted, but not expected.
Management is evaluating the potential effect this guidance may have on
the Company's financial condition and results of operations.
In April 2008, the FASB issued FSP SFAS No. 142-3, which amends the
factors that must be considered in developing renewal or extension
assumptions used to determine the useful life over which to amortize the
cost of a recognized intangible asset under SFAS No. 142, "Goodwill and
Other Intangible Assets." The FSP requires an entity to consider its own
assumptions about renewal or extension of the term of the arrangement,
consistent with its expected use of the asset, and is an attempt to improve
consistency between the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS No. 141, "Business Combinations."
The FSP is effective for fiscal years beginning after December 15, 2008,
and the guidance for determining the useful life of a recognized intangible
asset must be applied prospectively to intangible assets acquired after the
effective date. The FSP is not expected to have a significant impact on the
Company's results of operations, financial condition or liquidity.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of
Generally Accepted Accounting Principles." The statement is intended to
improve financial reporting by identifying a consistent hierarchy for
selecting accounting principles to be used in preparing financial
statements that are prepared in conformance with generally accepted
accounting principles. Unlike Statement on Auditing Standards
(SAS) No. 69, "The Meaning of Present Fairly in Conformity With
GAAP," FAS No. 162 is directed to the entity rather than the auditor. The
statement is effective 60 days following the SEC's approval of the Public
Company Accounting Oversight Board (PCAOB) amendments to AU
Section 411, "The Meaning of Present Fairly in Conformity with GAAP,"
and is not expected to have any impact on the Company's results of
operations, financial condition or liquidity.
In June 2008, FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, "Determining Whether Instruments Granted in Share-
Based Payment Transactions Are Participating Securities." Under the FSP,
unvested share-based payment awards that contain rights to receive non-
forfeitable dividends (whether paid or unpaid) are participating securities,
and should be included in the two-class method of computing EPS. The
FSP is effective for fiscal years beginning after December 15, 2008, and
interim periods within those years, and is not expected to have a
significant impact on the Company's results of operations, financial
condition or liquidity. Management does not believe that any other
recently issued, but not yet effective, accounting standards if currently
adopted would have a material effect on the accompanying financial statements.
F-11
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Going Concern
The Company had no material revenues and incurred a net loss of
$22,745,579 during the year ended December 31, 2008. In addition, the
Company had a working capital deficit of approximately $465,000 at
December 31, 2008. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company is attempting to address its lack of liquidity by raising
additional funds, either in the form of debt or equity, or some combination
thereof and raised gross proceeds of $5,000,000 from the sale of its
securities on February 27, 2009. However, significant restrictions on the
use of those proceeds require the Company to use those funds specifically
for acquisitions and advertising and not for general working
capital, (See Note 14, Subsequent Event). In addition the Company
raised gross proceeds of approximately $1,500,000 in 2008 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.
NOTE 3 - Property and Equipment
At December 31, 2008, property and equipment consisted of the following:
Furniture and fixtures $ 13,339
Equipment 172,872
Vehicles 219,766
----------
405,977
Less Accumulated Depreciation 32,987
----------
$ 372,990
==========
Depreciation was $32,987 for the year ended December 31, 2008. There
was no depreciation expense from the period September 5, 2007
(inception) to December 31, 2007.
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 from Air Testing and Design, Inc. intellectual property 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.
F-12
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Intangible Assets (continued)
These intangible assets are not currently amortized but will be tested for
impairment annually or if certain circumstances indicate a possible
impairment may exist in accordance with SFAS 142, Goodwill and Other
Intangible Assets. The carrying value of these assets is assessed at least
annually and an impairment charge is recorded if appropriate. As of
December 31, 2008 there was no impairment.
For the period from September 5, 2007 (inception) through and as of
December 31, 2008, the Company is considered a development stage
enterprise in accordance with SFAS 7, Accounting and Reporting for
Development Stage Enterprises. When the Company's management no
longer believes it is a development stage entity, management expects to
begin amortizing intangible assets over a period ranging from seven to ten
years.
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 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. Each
note is secured by the vehicle acquired. As of December 31, 2008, the
total amount due under these notes was as follows:
Total vehicle notes: $ 110,341
Less current portion: 43,976
---------
Long term portion: $ 66,365
=========
Maturities of the long term portion of the vehicle notes are as follows:
December 31,
------------
2009 43,976
2010 45,896
2011 16,153
2012 4,316
---------
$ 110,341
=========
NOTE 6 - Convertible Debt
On October 17, 2007 a convertible promissory note in the amount of
$25,000 was issued to one individual who is a stockholder, legal counsel
and former officer of Ozone-FL as payment of accounts payable owed by
the Company to him for legal services. The note was non-interest bearing
and convertible into 2,000,000 shares of the Company's common stock.
In connection with the convertible debt, the Company recorded a deferred
debt discount in the amount of $25,000 to reflect the beneficial conversion
feature of the convertible debt. The beneficial conversion feature was
recorded pursuant to Emerging Issues Task Force ("EITF") 00-27:
"Application of EITF No. 98-5, Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, to Certain Convertible Instruments". In accordance
with EITF 00-27, the Company evaluated the value of the beneficial
conversion feature and recorded the amount of $25,000 as a reduction to
the carrying amount of the convertible debt and as an addition to paid-in
capital.
F-13
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - Convertible Debt (continued)
Amortization of the debt discount amounted to $10,556, and $14,444 for
the period September 5, 2007 (inception) to December 31, 2007 and the
year ended December 31, 2008, respectively, and is reported as financing
costs.
On November 17, 2008, the Company issued 2,000,000 shares of common
stock upon conversion of this convertible note.
NOTE 7 - Commitments and Contingencies
All of the Company's office leases are on a month to month basis with
ongoing renewals each month. For the year ended December 31, 2008 and
from September 5, 2007, (inception) through December 31, 2007, total
rent expense was approximately $32,460, and $0, respectively.
Employment Agreement: On November 16, 2008, the Company entered
into an employment agreement with its President and CEO, Dr. Halden
Shane, ("Employment Agreement"). The Employment Agreement is
effective January 1, 2009. Under the terms of the Employment Agreement,
the Company will employ Dr. Halden Shane as President and CEO for an
annual base salary of $390,000. In addition, Dr. Halden Shane is
eligible to receive incentive cash bonus of up to 40% of his base
compensation.
In addition, the Employment Agreement entitles Dr. Halden Shane to
certain benefits and vacation time in accordance with the Company's
policies.
The Employment Agreement terminates upon the death or disability of Dr.
Halden Shane, his resignation or his termination for cause as defined in
the Employment Agreement. Should the Company terminate Dr. Halden
Shane in his role as President and CEO for any reason other than cause,
death or permanent disability, (all as defined in the Employment
Agreement), he is entitled to certain Termination Benefits. These benefits
include twelve months base pay and a cash bonus based on the average
cash bonus received in the 24 months prior to termination. In addition, any
stock incentive subject to vesting will continue to vest for twelve months
following termination. Additional payments may apply in the event he is
terminated while the Company has securities trading on an established
public exchange or he is terminated within sixteen months of a change of
control (both conditions as defined in the Employment Agreement.)
Litigation: The Company is not currently a party to any known ongoing,
pending or threatened litigation, but may, from time to time, become a
party to legal proceedings in the ordinary course of business.
NOTE 8 - Preferred Stock
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of any
authorized but unissued or unreserved shares of preferred stock in series
and at the time of issuance, determine the rights, preferences and
limitations of each series. The holders of preferred stock may be entitled
to receive a preference payment in the event of any liquidation,
dissolution or winding-up of the Company before any payment is made to the
holders of the common stock. Furthermore, the board of directors could
issue preferred stock with voting and other rights that could adversely
affect the voting power of the holders of the common stock.
F-14
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - Preferred Stock (continued)
On December 15, 2008 the Board of Directors approved the issuance of
510,000 shares of the Company's Cumulative Convertible Preferred Stock
to Tiger Management, LLC, a limited liability company wholly owned by
the Company's President and CEO. The shares were valued at
$20,400,000 and issued for management services preformed by Tiger
Management, LLC in 2007 and 2008 and are convertible into five shares of
the Company's common stock at the holder's option (see Note 11, Related
Party Transactions).
In addition, on February 27, 2009, the Company completed the sale of its
common stock and a new Series of Series B Preferred Convertible Stock
to private investors. The Company issued 3,250 shares of Series B
Convertible Preferred Stock and 350,000 shares of its Common Stock to
investors for total proceeds of $5,000,000 (See Note 13, Subsequent
Event). The Series B Convertible Preferred Stock is convertible into
common shares at the holder's discretion at a rate of 200 shares of
common stock for each share of preferred.
NOTE 9 - Common Stock
In September 2007, Ozone-NV issued 30,000,000 shares of common stock
for $30,000 to the three founders of Ozone-NV.
On October 15, 2007 Ozone-FL amended it Articles of Incorporation
increasing the authorized shares from 20,000,000 shares to 75,000,000
shares. The par value remained $.01 per share. On October 17, 2007
Ozone-FL implemented a 1:20 reverse stock split affecting the pre-
organization shareholders. All share and per-share data have been
retroactively adjusted to reflect these recapitalizations.
On October 17, 2007, pursuant to the aforementioned Definitive
Agreement and Plan of Reorganization the founders of Ozone-NV
exchanged 100% of their outstanding shares of Ozone-NV in return for
34,250,000 shares of Ozone-FL's common stock (see Note 1).
On November 1, 2007, the Company issued 10,000 shares of common
stock for the payment of professional fees in the amount of $5,000.
During the year ended December 31, 2008 the Company sold 3,846,553
shares of common stock at per share prices ranging from $0.20 to $1.00
for total net proceeds of $1,499,400. In addition, the Company issued an
additional 730,000 common shares for services rendered during the year.
The total value of services recognized for common shares issued for
services totaled $902,000.
NOTE 10 - Concentration of Risk
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation for the full balance under the Temporary Liquidity Guarantee
Program. At times these balances may exceed federally insured limits.
F-15
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - Related Party Transactions
On December 15, 2008 the Board of Directors approved the issuance of
510,000 shares of the Company's Cumulative Convertible 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 are
convertible into five shares of the Company's common stock at the
holder's option. The Company recorded an expense of $20,400,000 which
is reported in other general and administrative expenses during the year
ended December 31, 2008, for these services 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. In addition, the
Cumulative Convertible Preferred Shares yield an annual dividend of
$2.00 per share. As such the Company recorded a pro-rated dividend
payable of $90,667 as of December 31, 2008.
As of December 31, 2008 the Company recorded $546,536 in accrued
compensation to the Company's CEO for unpaid wages for the period
October 23, 2007 (inception) to December 31, 2008
NOTE 12 - Income Taxes
On September 5, 2007, (inception) the Company adopted the provisions of
Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes-an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with SFAS No. 109, "Accounting for Income
Taxes," and prescribes a recognition threshold and measurement process
for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in an
interim period, disclosure and transition.
The Company has identified its federal tax return and its Florida and
California state tax returns as its "major" tax jurisdictions, as defined.
Based on the Company's evaluation, it has been concluded that there are
no significant uncertain tax positions requiring recognition in the
Company's financial statements. Since both Florida parent company was
recapitalized and the operating subsidiary acquired and incorporated in
Nevada in 2007 the evaluation was performed for the 2007 tax year. The
Company believes that its income tax positions and deductions would be
sustained on audit and does not anticipate any adjustments that would
result in a material change to its financial position. As such, no liability
for unrecognized tax benefits was required to be reported at December 31,
2007 or 2008.
The Company's policy for recording interest and penalties associated with
audits is to record such items as a component of income tax expense.
There were no amounts accrued for penalties or interest as of or during the
period from September 5, 2007 (inception) through December 31, 2007.
The Company does not expect its unrecognized tax benefit position to
change during the next twelve months. Management is currently unaware
of any issues under review that could result in significant payments,
accruals or material deviations from its position. The adoption of the
provisions of FIN 48 did not have a material impact on the Company's
financial position, results of operations and cash flows.
There were no corporate taxes payable recorded as of December 31, 2008.
At December 31, 2008, the Company had available net operating loss
carry-forwards for federal tax purposes of approximately $1,476,000 which
may be applied against future taxable income, if any, from 2027 to 2028.
Significant changes in ownership of the Company may
restrict some or all of those from being utilized.
F-16
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - Income Taxes (Continued)
At December 31, 2008 the Company had a deferred tax asset of approximately
$632,000 representing the benefit of its net operating loss carry-forwards.
The Company has not recognized any tax benefit or tax assets from these loss-
carry-forwards loss carry due to the fact that realization of the tax benefit
is uncertain and therefore, a valuation allowance equal to 100% of the tax
benefit has been applied against the value of any tax asset arising from these
losses. The difference between the federal statutory tax rate of 34% and the
Company's effective tax rate of 0% is due to an increase in the valuation
allowance of approximately $610,000 in 2008.
NOTE 13 - Forgiveness of Debt
In October 2007 a stockholder and former legal counsel and officer of
Ozone-FL waived payment of the Company's accounts payable to him for past
due legal services performed in the amount of $25,000. Accordingly, the
Company recorded debt forgiveness income in the amount of $25,000.
NOTE 14 - Subsequent Events
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.
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. Pursuant to the terms of the Subscription
Agreement, the following restrictions have been stipulated as the use of
proceeds:
. $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 Investor has no right of approval over any
transaction involving the use of these funds.
. Approximately $1,050,000 is to be used for advertising and
marketing of the Company's products and services using
agencies mutually agreeable to the Company and the Investor.
. Approximately $500,000 is to be used to develop a direct
response television campaign to promote the Company's
products and services. Specifically, the Investor has
required that the Company use these proceeds to develop,
"copyrighted content in the form of a health book" using an
existing manuscript adapted to a long and short form for
direct response television marketing.
. Approximately $200,000 of the proceeds were used to pay
fees and expenses related to the transaction including
commissions as well as legal and professional incurred by
Investor related to the transaction.
F-17
THE OZONE MAN, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - Subsequent Events (Continued)
The Company has executed a subscription agreement for the purchase
of $3,250,000 of the Class A Shares of Global Asset Fund., Ltd., a
Cayman Islands Company. Since these funds are subject to the
restrictions described above, this transaction will be recorded as
restricted investments on the Company's balance sheet and are
subject to market fluctuation. This investment also carries a 2%
annual management fee.
In addition the Company has deposited $1,550,000 of the proceeds in
the Grand Adirondack Federal Credit Union, located in New York City,
and this transaction will be recorded as restricted cash on the
Company's balance sheet.
Both of the above investments constitute a concentration of credit
risk.
F-18
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
During the two most recent fiscal years we have not had a change in, or
disagreement with, our independent registered public accounting firm.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
- ----------------------------------
Our management, with the participation of our Principal Executive Officer
who is also our Principal Financial Officer, conducted an evaluation of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Annual Report (December 31, 2008, as is defined
in Rule 13a-15(e) promulgated under the Securities Exchange Act of
1934, as amended. Our disclosure controls and procedures are intended to
ensure that the information we are required to disclose in the reports that
we file or submit under the Securities Exchange Act of 1934 is (i)
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms
and (ii) accumulated and communicated to our management, including the
Principal Executive Officer and Principal Financial Officer to allow timely
decisions regarding required disclosures.
Based on that evaluation, our Principal Executive Officer and Principal
Financial Officer concluded that, as of the end of the period covered by
this Annual Report, our disclosure controls and procedures were effective.
Our management has concluded that the financial statements included in
this Form 10-K present fairly, in all material respects our financial
position, results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of
future events.
Management's Report on Internal Control Over Financial Reporting
- ----------------------------------------------------------------
Management is responsible for establishing and maintaining adequate
internal control over our financial reporting (as defined in Rule 13a-15(f)
and 15d-15(f) of the Exchange Act). Internal control over financial
reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles
generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our
assets, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America,
and that our receipts and expenditures are being made only in accordance
with authorizations of our management and directors, and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
13
Our management, with the participation of our Principal Executive Officer
and Principal Financial Officer, conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, our Principal Executive Officer and Principal
Financial Officer concluded that, as of the end of the period covered by
this Annual Report, our internal control over financial reporting was
effective.
This Annual Report does not include an attestation report of our
independent registered public accounting firm regarding internal control
over financial reporting. Management's report was not subject to
attestation by our independent registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit
us to provide only management's report in this Annual Report.
Changes in Internal Control Over Financial Reporting
- ----------------------------------------------------
During our most recent fiscal quarter, there have been no changes in our
internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect our internal control over financial
reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Our executive officers and directors, their ages and biographical
information are presented below. Our bylaws require three directors who
serve until our next annual meeting or until each is succeeded by a
qualified director. Our executive officers are appointed by our Board of
Directors and serve at its discretion. There are no existing family
relationships between or among any of our executive officers or directors.
Name Age Position Held Director Since
- -------------------- --- ------------------------ --------------
Halden S. Shane 64 Chief Executive Officer, October 2007
Chairman of the Board
Richard L. Johnson 73 Secretary, Director October 2007
Willie L. Brown, Jr. 74 Director October 2007
Halden S. Shane: Dr. Shane has been our Chairman since the Company's
inception. For the past five years he has served as President and CEO of
Tiger Management International, a private management company that
deals in business management of private and public companies. Dr. Shane
was founder and CEO of Integrated Healthcare Alliance, Inc. and also
founder and General Partner of Doctors Hospital West Covina, California.
Prior thereto, Dr. Shane practiced podiatric surgery specializing in ankle
arthroscopy.
Richard L. Johnson: Since his admission to the California State Bar
Association in 1961, Mr. Johnson has served as a business
manager/attorney and consultant to a variety of individuals and
companies. He is presently active in private practice in Los Angeles,
California.
14
Willie Brown, Jr.: Mr. Brown has served two terms as the Mayor of the
City and County of San Francisco (1996-2004). Prior to his service as
Mayor, Mr. Brown served as speaker of the California State assembly
from 1980 thorough 1995. Mr. Brown had also been a member of the
state assembly since 1964 and has served on the Boards of California State
University and Calpers.
Audit Committee
- ---------------
We do not have an audit committee serving at this time, nor do we have an
audit committee financial expert serving on an audit committee. Our
entire board acts as our audit committee.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and persons who own more than ten percent
of a registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes
in ownership of our common stock. Officers, directors and greater than
ten-percent beneficial owners are required by SEC regulations to furnish
us with copies of all Section 16(a) reports they file. We believe no reports
were required to be filed during the past fiscal year.
Code of Ethics
- --------------
The Board adopted a Code of Ethics in 2008 applies to, among other
persons, Board members, officers including our Chief Executive Officer
and Chief Financial Officer, contractors, consultants and advisors. Our
Code of Ethics sets forth written standards designed to deter wrongdoing
and to promote:
1) honest and ethical conduct, including the ethical handling
of actual or apparent conflicts of interest between personal and
professional relationships;
2) full, fair, accurate, timely and understandable disclosure in
reports and documents that we file with or submit to the SEC and in other
public communications made by us;
3) compliance with applicable governmental laws, rules and
regulations;
4) the prompt internal reporting of violations of the Code of
Ethics to an appropriate person or persons identified in the Code of Ethics;
and
5) accountability for adherence to the Code of Ethics.
A copy of the Code of Ethics is filed as an exhibit to this report. A copy of
this report may be obtained upon written request.
Item 11. Executive Compensation
Executive Officer Compensation
- ------------------------------
The following discussion addresses any and all compensation awarded to,
earned by or paid to our named executive officers for the fiscal years
ended December 31, 2008. We have not had a bonus, profit sharing, or
deferred compensation plan for the benefit of employees, officers or
directors.
15
We have not paid any salaries or other compensation to officers or directors
for their service on the Board of Directors for the year ended December 31,
2008 except $25,000 to Dr. Shane. Further, we have entered into an employment
agreement with our CEO effective January 1, 2009, and have deferred salary
payments until the Company has substantial capital to pay his salary. It is
intended that directors will defer any compensation until such time as business
operations provide sufficient cash flow to provide for salaries. As December 31,
2008, Dr. Shane was owed $546,536.00 in unpaid salary.
Retirement or Change of Control Arrangements
- --------------------------------------------
We do not offer retirement benefit plans to our executive officers, nor
have we entered into any contract, agreement, plan or arrangement,
whether written or unwritten, that provides for payments to a named
executive officer at or in connection with the resignation, retirement or
other termination of a named executive officer, or a change in control of
the company or a change in the named executive officer's responsibilities
following a change in control.
Compensation of Directors
- -------------------------
We do not have any standard arrangement for compensation of our
directors for any services provided as director; including services for
committee participation or for special assignments.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Securities Under Equity Compensation Plans
- ------------------------------------------
The Board of Directors has adopted a stock option plan comprised of
2,500,000 shares but the plan has not yet been submitted to the
shareholders for approval, and accordingly, no shares have been issued.
Beneficial Ownership
- --------------------
The following table sets forth the beneficial ownership of our outstanding
common stock by our management and each person or group known by us
to own beneficially more than 5% of our outstanding common stock.
Beneficial ownership is determined in accordance with SEC rules and
regulations, which generally requires voting or investment power with
respect to securities. Except as indicated by footnote, the persons named
in the table below have sole voting power and investment power with
respect to all shares of common stock shown as beneficially owned by
them. The percentage of beneficial ownership is based on 34,509,730
shares of common stock outstanding as of March 15, 2009.
16
CERTAIN BENEFICIAL OWNERS
Name and address of Amount and nature of Percent
beneficial owners beneficial owner of class
- --------------------------------- -------------------- -------
Shane Family Trust (1) (2) 5,000,000 14.5%
11710 Wetherby Lane
Los Angeles, CA 90077
Richard L. Johnson 2,500,000 7.2%
9454 Wilshire Blvd., Penthouse
Beverly Hills, CA 90212
Willie Brown, Jr. 100,000 *%
9454 Wilshire Blvd., Penthouse
Beverly Hills, CA 90212
Juliann Gold 4,312,500 12.5%
9903 Santa Monica Blvd
Beverly Hills, CA 90212
Roar Investment LLC 4,312,500 12.5%
9903 Santa Monica Blvd
Beverly Hills, CA 90212
Belinha Shane (3) 3,000,000 8.7%
11710 Wetherby Lane
Los Angeles, CA 90077
Directors and Officers as a Group 7,600,000 22.0%
(1) Halden Shane is trustee of the Share Family Trust.
(2) Dr. Shane is the sole stockholder of Tiger Management
International Inc., the holder of 510,000 Preferred A shares that
were issued as payment for services rendered and are
convertible into common shares at the holder's option on a 5:1
basis. None of the Preferred A shares have been converted to
date and the common shares into which they may be converted
are not included herein.
(3) Belinha Shane is the wife of Halden Shane. He disclaims
beneficial ownership of any shares held in her name.
Item 13. Certain Relationships and Related Transactions, and
Director Independence
Transactions with Related Parties
- ---------------------------------
We have not engaged in any transactions during the past fiscal year
involving our executive officers, directors, more than 5% stockholders or
immediate family members of such persons.
On December 15, 2008 the Company issued 510,000 Preferred A shares,
convertible into Common shares on a 5:1 basis to Tiger Management
International Inc. for management services rendered in 2007 and 2008.
Dr. Shane is the sole member of Tiger Management International LLC.
Director Independence
- ---------------------
None of our directors are independent directors as defined by NASD Rule
4200(a)(15).
17
Item 14. Principal Accountant Fees and Services
Accountant Fees
- ---------------
The following table presents the aggregate fees billed for each of the last
two fiscal years by our independent registered public accounting firm
Wolinetz, Lafazan & Company, P.C., Certified Public Accountants, in
connection with the audit of our financial statements and other
professional services rendered by that accounting firm.
2007 2008
-------- --------
Audit fees $ 8,500 $ 37,000
Audit-related fees 0 0
Tax fees 0 0
All other fees $ 0 $ 0
Audit fees represent the professional services rendered for the audit of our
annual financial statements and the review of our financial statements
included in quarterly reports, along with services normally provided by the
accounting firm in connection with statutory and regulatory filings or
engagements. Audit-related fees represent professional services rendered
for assurance and related services by the accounting firm that are
reasonably related to the performance of the audit or review of our
financial statements that are not reported under audit fees.
Tax fees represent professional services rendered by the accounting firm
for tax compliance, tax advice, and tax planning. All other fees represent
fees billed for products and services provided by the accounting firm other
than the services reported for the other categories.
Pre-approval Policies
- ---------------------
We do not have an audit committee currently serving and as a result our
board of directors performs the duties of an audit committee. Our board of
directors will evaluate and approve in advance the scope and cost of the
engagement of an auditor. We do not rely on pre-approval policies and
procedures.
Item 15. Exhibits
No. Description
- --- -----------
10.1 Employment Contract
14.0 Code of Ethics
31.1 CEO's Certification Pursuant to Rule 13a-14 and 15d-14 Under
The Securities Exchange Act of 1934, As Amended
31.2 CFO's Certification Pursuant to Rule 13a-14 and 15d-14 Under
The Securities Exchange Act of 1934, As Amended
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
18
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned who is duly
authorized.
THE OZONE MAN, INC.
Date: March 27, 2009
By: /s/ Halden Shane
- ---------------------------
Halden Shane
Principal Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: March 27, 2009
By: /s/ Halden Shane
- ---------------------------
Halden Shane
Principal Executive Officer
Principal Financial and Accounting Officer
Date: March 27, 2009
By: /s/Richard Johnson
- ---------------------------
Richard Johnson
Secretary and Director
Date: March 27, 2009
By: /s/Willie Brown, Jr.
- ---------------------------
Willie Brown, Jr.
Director
19