UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission File Number:
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(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of October 30, 2024, the registrant had
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
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PART I | FINANCIAL INFORMATION |
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Item 1 | Financial Statements. |
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Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Item 3 | Quantitative and Qualitative Disclosures About Market Risk. |
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Item 4 | Controls and Procedures. |
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PART II | OTHER INFORMATION |
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Item 1 | Legal Proceedings. |
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Item 1A | Risk Factors. |
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Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds. |
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Item 3 | Defaults Upon Senior Securities. |
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Item 4 | Mine Safety Disclosures. |
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Item 5 | Other Information. |
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Item 6 | Exhibits. |
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SIGNATURES |
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EXHIBIT INDEX |
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Table of Contents |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Form 10-Q, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we intend that such forward looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Form 10-Q, except for historical information, may be deemed forward-looking statements. You can generally identify forward-looking statements as statements containing the words “will,” “would,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “assume,” “can,” “could,” “plan,” “predict,” “should” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our businesses, or other characterizations of future events or circumstances are forward-looking statements.
Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately and many of which are beyond our control. As such, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under the section “Risk Factors” in our most recent annual report on Form 10-K previously filed with the Securities and Exchange Commission on April 1, 2024. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. Except as required by law, we undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
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Table of Contents |
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
TOMI ENVIRONMENTAL SOLUTIONS, INC.
ASSETS
Current Assets: |
| September 30, 2024 (Unaudited) |
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| December 31, 2023 |
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Cash and Cash Equivalents |
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Accounts Receivable - net |
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Other Receivables |
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Inventories (Note 3) |
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Vendor Deposits (Note 4) |
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Prepaid Expenses |
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Total Current Assets |
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Property and Equipment – net (Note 5) |
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Other Assets: |
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Intangible Assets – net (Note 6) |
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Operating Lease - Right of Use Asset (Note - 7) |
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Long Term Accounts Receivable - net |
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Other Assets |
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Total Other Assets |
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Total Assets |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
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Current Liabilities: |
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Accounts Payable |
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Accrued Expenses and Other Current Liabilities (Note 13) |
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Current Portion of Long-Term Operating Lease |
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Total Current Liabilities |
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Long-Term Liabilities: |
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Long-Term Operating Lease, Net of Current Portion (Note 7) |
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Convertible Notes Payable, net of unamortized debt discount of $ |
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Total Long-Term Liabilities |
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Total Liabilities |
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Commitments and Contingencies (Notes 7 and 11) |
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Shareholders’ Equity: |
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Cumulative Convertible Series A Preferred Stock; par value $ |
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Cumulative Convertible Series B Preferred Stock; $ |
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Common stock; par value $ |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Total Shareholders’ Equity |
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Total Liabilities and Shareholders’ Equity |
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The accompanying notes are an integral part of the condensed consolidated financial statements. |
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4 |
Table of Contents |
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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| For The Three Months Ended |
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Sales, net |
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Cost of Sales |
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Gross Profit |
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Operating Expenses: |
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Professional Fees |
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Depreciation and Amortization |
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Selling Expenses |
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Research and Development |
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Consulting Fees |
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General and Administrative |
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Total Operating Expenses |
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Income (loss) from Operations |
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Other Income (Expense): |
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Interest Income |
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Interest Expense |
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Total Other Income (Expense) |
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Income (loss) before income taxes |
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Provision for Income Taxes (Note 15) |
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Net Income (loss) |
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Net income (loss) Per Common Share |
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Basic |
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Diluted |
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| $ | ( | ) | |
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Basic Weighted Average Common Shares Outstanding |
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Diluted Weighted Average Common Shares Outstanding |
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The accompanying notes are an integral part of the consolidated financial statements. |
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5 |
Table of Contents |
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
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| For the nine months ended September 30, 2024 |
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| Series A Preferred |
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| Common Stock |
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| Additional Paid in |
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| Shares |
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| Amount |
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| Deficit |
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Balance at January 1, 2024 |
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Warrants and Options Exercised |
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Common Stock Issued for Services Provided |
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Equity Compensation |
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Net (Loss) for the nine months ended September 30, 2024 |
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Balance at September 30, 2024 |
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| For the nine months ended September 30, 2023 |
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| Series A Preferred |
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| Common Stock |
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| Additional Paid in |
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| Total Shareholders’ |
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| Shares |
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| Amount |
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Balance at January 1, 2023 |
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Equity Compensation |
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Common Stock Issued for Services Provided |
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Net (Loss) for the nine months ended September 30, 2023 |
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Balance at September 30, 2023 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
6 |
Table of Contents |
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| For the three months ended September 30, 2024 |
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| Series A Preferred |
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| Common Stock |
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| Additional Paid in |
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| Accumulated |
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| Total Shareholders’ |
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| Shares |
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| Amount |
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Balance at July 1, 2024 |
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Equity Compensation |
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Common Stock Issued for Services Provided |
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Net Income for the nine months ended September 30, 2024 |
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Balance at September 30, 2024 |
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| For the three months ended September 30, 2023 |
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| Series A Preferred |
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| Common Stock |
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| Additional Paid in |
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| Accumulated |
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| Total Shareholders’ |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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Balance at July 1, 2023 |
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Net (Loss) for the three months ended September 30, 2023 |
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Balance at September 30, 2023 |
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| $ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
7 |
Table of Contents |
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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| For the Nine Months Ended September 30, |
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| 2024 |
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| 2023 |
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Cash Flow From Operating Activities: |
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Net Income (Loss) |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used) In Operating Activities: |
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Depreciation and Amortization |
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Amortization of Right of Use Asset |
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Amortization of Deferred Financing Costs |
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Equity Compensation Expense |
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Value of Equity Issued for Services |
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Changes in Operating Assets and Liabilities: |
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Decrease (Increase) in: |
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Accounts Receivable |
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Inventory |
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Prepaid Expenses |
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Vendor Deposits |
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Other Assets |
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Increase (Decrease) in: |
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Accounts Payable |
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Accrued Expenses |
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Customer Deposits |
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| ( | ) | |
Lease Liability |
|
| ( | ) |
|
| ( | ) |
Net Cash Provided (Used) in Operating Activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash Flow From Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of Property and Equipment |
|
| ( | ) |
|
| ( | ) |
Net Cash (Used) in Investing Activities |
|
| ( | ) |
|
| ( | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
8 |
Table of Contents |
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
(UNAUDITED)
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Cash Flow From Financing Activities: |
|
|
|
|
|
| ||
Proceeds from Issuance of Stock and Warrants |
| $ |
|
|
|
| ||
Net Cash Provided By Financing Activities: |
|
|
|
|
|
| ||
Increase (Decrease) In Cash and Cash Equivalents |
|
| ( | ) |
|
| ( | ) |
Cash and Cash Equivalents - Beginning |
|
|
|
|
|
| ||
Cash and Cash Equivalents – Ending |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash Paid for Interest |
| $ |
|
| $ |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
9 |
Table of Contents |
TOMI ENVIRONMENTAL SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
TOMI Environmental Solutions, Inc., a Florida corporation (“TOMI”, the “Company”, “we”, “our” and “us”) is a global provider of disinfection and decontamination essentials through our premier Binary Ionization Technology® (BIT™) platform, under which we manufacture, license, service and sell our SteraMist® brand of products, including SteraMist® BIT™, a hydrogen peroxide-based mist and fog. Our solution and process are environmentally friendly as the only biproduct from our decontamination process is oxygen and water in the form of humidity. Our solution is organically listed in the United States and Canada as a sustainably green product with no or very little carbon footprint. Our business is organized into four divisions: Life Sciences, Healthcare, Food Safety and Commercial.
Invented under a defense grant in association with the Defense Advanced Research Projects Agency (“DARPA”) of the U.S. Department of Defense, BIT™ is registered with the U.S. Environmental Protection Agency (the “EPA”) and uses a low percentage hydrogen peroxide as its only active ingredient to produce a fog composed mostly of a hydroxyl radical (.OH ion), known as ionized Hydrogen Peroxide (iHP™). Represented by the SteraMist® brand of products, iHP™ produces a germ-killing aerosol that works like a visual non-caustic gas.
Our products are designed to service a broad spectrum of commercial structures, including, but not limited to, hospitals and medical facilities, bio-safety labs, pharmaceutical facilities, meat and produce processing facilities, food security including storage and transportation, universities and research facilities, vivarium labs, other service industries including cruise ships, office buildings, hotel and motel rooms, schools, restaurants, military barracks, police and fire departments, prisons, and athletic facilities. Our products are also used in single-family homes and multi-unit residences. Additionally, our products have been listed on the EPA’s List N as products that help combat COVID-19 and are actively being used for this purpose.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein, presented in accordance with generally accepted accounting principles utilized in the United States of America (“GAAP”), and stated in U.S. dollars, have been prepared by us, without an audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading.
These financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. These unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2023 and notes thereto which are included in the annual report on Form 10-K previously filed with the SEC on April 1, 2024 (the “Annual Report”). We follow the same accounting policies in the preparation of interim reports. The results of operations for the interim periods covered by this Form 10-Q may not necessarily be indicative of results of operations for the full fiscal year or any other interim period.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of TOMI and its wholly owned subsidiary, TOMI Environmental Solutions, Inc., a Nevada corporation. All intercompany accounts and transactions have been eliminated in consolidation.
For the three and nine months periods ended September 30, 2024, our net income was $
10 |
Table of Contents |
Reclassification of Accounts
Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year's presentation. These reclassifications had no material effect on previously reported results of operations or financial position.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, inventory, fair values of financial instruments, intangible assets, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of our assets and liabilities.
Fair Value Measurements
The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
| Level 1: | Quoted prices in active markets for identical assets or liabilities.
|
| Level 2: | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data for substantially the full term of the assets or liabilities.
|
| Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities. |
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximated fair value because of the short maturity of these instruments.
11 |
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Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, held at financial institutions and other liquid investments with original maturities of three months or less. At times, these deposits may be in excess of insured limits. At September 30, 2024, and December 31, 2023, there were no cash equivalents.
Accounts Receivable
Our accounts receivable are typically from credit-worthy customers or, for certain international customers, are supported by pre-payments. For those customers to whom we extend credit, we perform periodic evaluations of their status and maintain allowances for potential credit losses as deemed necessary. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of September 30, 2024, the allowance for credit losses stood at $
Long-term trade accounts receivable, are principally amounts arising from the sale of goods and services with a contractual maturity date or realization period of greater than one year and are recognized as "Long-Term Accounts Receivable" in our Consolidated Balance Sheet.
Inventories
Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventories consist primarily of finished goods and raw materials.
We expense costs to maintain certification to cost of goods sold as incurred.
We review inventory on an ongoing basis, considering factors such as deterioration and obsolescence. We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories may not be usable. Our reserve for obsolete inventory was $
Property and Equipment
We account for property and equipment at cost less accumulated depreciation. We compute depreciation using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation for equipment, furniture and fixtures and vehicles commences once placed in service for its intended use. Leasehold improvements are amortized using the straight-line method over the lives of the respective leases or service lives of the improvements, whichever is shorter.
Leases
We recognize a right-of-use (“ROU”) asset and lease liability for all leases with terms of more than 12 months, in accordance with ASC 842. We utilize the short-term lease recognition exemption for all asset classes as part of our on-going accounting under ASC 842. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities. Recognition, measurement and presentation of expenses depends on classification as a finance or operating lease.
12 |
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As a lessee, we utilize the reasonably certain threshold criteria in determining which options we will exercise. Furthermore, our lease payments are based on index rates with minimum annual increases. These represent fixed payments and are captured in the future minimum lease payments calculation. In determining the discount rate to use in calculating the present value of lease payments, we used our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.
We have also elected the practical expedient to not separate lease and non-lease components for all asset classes, meaning all consideration that is fixed, or in-substance fixed, will be captured as part of our lease components for balance sheet purposes. Furthermore, all variable payments included in lease agreements will be disclosed as variable lease expense when incurred. Generally, variable lease payments are based on usage and common area maintenance. These payments will be included as variable lease expense in the period in which they are incurred.
Accounts Payable
As of September 30, 2024, one vendor accounted for approximately
For the three and nine months ended September 30, 2024, two vendors accounted for
Accrued Warranties
Accrued warranties represent the estimated costs, if any, that will be incurred during the warranty period of our products. We estimate the expected costs to be incurred during the warranty period and record the expense to the consolidated statement of operations at the date of sale. Our manufacturers assume the warranty against product defects from date of sale, which we extend to our customers upon sale of the product. We assume responsibility for product reliability and results. As of September 30, 2024, and December 31, 2023, our warranty reserve was $
Income Taxes
Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits that are, on a more likely than not basis, not expected to be realized in accordance with FASB ASC Topic 740, Income Taxes guidance for income taxes. Net deferred tax assets have been fully reserved at September 30, 2024 and December 31, 2023.
13 |
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Net Income (Loss) Per Share
Basic net income or (loss) per share is computed by dividing our net income or (loss) by the weighted average number of shares of common stock outstanding during the period presented. Diluted income or (loss) per share is based on the effect from potential issuance of shares of common stock, such as shares issuable pursuant to the exercise of options and warrants and conversions of preferred stock or debentures. The computation of diluted EPS is similar to the computation of basic EPS except that the numerator may have to adjust for any dividends and income or loss associated with potentially dilutive securities that are assumed to have resulted in the issuance of shares of common stock and the denominator may have to adjust to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued during the period to reflect the potential dilution that could occur from shares of common stock issuable through a contingent shares issuance arrangement, stock options, warrants, or convertible preferred stock. For purposes of determining diluted earnings per common share, the treasury stock method is used for stock options, and warrants, and the if-converted method is used for convertible preferred stock and convertible debt as prescribed in FASB ASC Topic 260.
Potentially dilutive securities for the nine months ended September 30, 2024 consisted of
Potentially dilutive securities for the three months ended September 30, 2023 consisted of
Options, warrants, preferred stock and shares associated with the conversion of debt to purchase approximately
The following provides a reconciliation of the shares used in calculating the per share amounts for the periods presented:
|
| For the Three Months Ended September 30, |
| |||||
|
| (Unaudited) |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Net Income (Loss) |
| $ |
|
| $ | ( | ) | |
Adjustments for convertible debt - as converted |
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders |
| $ |
|
| $ | ( | ) | |
Weighted average number of shares of common stock outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
| ||
Net income (loss) attributable to common shareholders per share: |
|
|
|
|
|
|
|
|
Basic |
| $ |
|
| $ | ( | ) |
|
| For the Nine Months Ended September 30, |
| |||||
(Unaudited) | ||||||||
|
| 2024 |
|
| 2023 |
| ||
|
|
| ||||||
Net Income (Loss) |
| ($ |
|
| ($ |
| ||
Net income (loss) attributable to common shareholders |
| ($ |
|
| ($ |
| ||
Weighted average number of shares of common stock outstanding: |
|
|
|
|
|
| ||
Basic |
|
|
|
|
|
| ||
Net income (loss) attributable to common shareholders per share: |
|
|
|
|
|
|
|
|
Basic and Diluted |
| ($ |
|
| ($ |
|
14 |
Table of Contents |
The following provides a reconciliation of the shares used in calculating the per share amounts for the periods presented:
|
| For the Three Months Ended September 30, |
| |||||
|
| (Unaudited) |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Numerator: |
|
|
|
|
|
| ||
Net Income (Loss) |
| $ |
|
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Basic weighted-average shares |
|
|
|
|
|
| ||
Effect of dilutive securities |
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
| - |
| |
Options |
|
|
|
|
| - |
| |
Preferred Stock |
|
|
|
|
| - |
| |
Diluted Weighted Average Shares |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders per share: |
|
|
|
|
|
|
|
|
Diluted |
| $ |
|
| $ | ( | ) |
The following table sets forth the number of potential shares of common stock that have been excluded from diluted net income per share net (loss) income per share because their effect was anti-dilutive:
|
| For the Three Months Ended September 30, |
| |||||
|
| (Unaudited) |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
| ||||||
Warrants |
|
|
|
|
| - |
| |
Convertible Debt |
|
| |
|
|
|
|
|
Options |
|
|
|
|
| - |
| |
|
|
|
|
|
| - |
|
Note: Warrants, options, convertible debt and preferred stock for the nine months ended September 30, 2024 and for the nine months ended September 30, 2023, are not included in the computation of diluted weighted average shares as such inclusion would be anti-dilutive.
15 |
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Revenue Recognition
We recognize revenue in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligation(s). At contract inception, we assess the goods or services promised within each contract, assess whether each promised good or service is distinct and identify those that are performance obligations.
We must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract; b) the transaction price under step (iii) above; and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above.
Title and risk of loss generally pass to our customers upon shipment. Our customers include end users as well as dealers and distributors who market and sell our products. Our revenue is not contingent upon resale by the dealer or distributor, and we have no further obligations related to bringing about resale. Shipping and handling costs charged to customers are included in Product Revenues. The associated expenses are treated as fulfillment costs and are included in Cost of Revenues. Revenues are reported net of sales taxes collected from Customers.
Disaggregation of Revenue
The following table presents our approximate revenues disaggregated by revenue source.
Product and Service Revenue
|
| For the three months ended September 30, (Unaudited) |
| |||||
|
| 2024 |
|
| 2023 |
| ||
SteraMist Product |
| $ |
|
| $ |
| ||
Service and Training |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
16 |
Table of Contents |
Revenue by Geographic Region
|
| For the three months ended September 30, (Unaudited) |
| |||||
|
| 2024 |
|
| 2023 |
| ||
United States |
| $ |
|
| $ |
| ||
International |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
Product and Service Revenue
|
| For the nine months ended September 30, (Unaudited) |
| |||||
|
| 2024 |
|
| 2023 |
| ||
SteraMist Product |
| $ |
|
| $ |
| ||
Service and Training |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
Revenue by Geographic Region
|
| For the nine months ended September 30, (Unaudited) |
| |||||
|
| 2024 |
|
| 2023 |
| ||
United States |
| $ |
|
| $ |
| ||
International |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
Product revenue includes sales from our standard and customized equipment, solution and accessories sold with our equipment. Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products.
Service and training revenue include sales from our high-level decontamination and service engagements, validation of our equipment and technology and customer training. Service revenue is recognized as the agreed upon services are rendered to our customers in an amount that reflects the consideration we expect to receive in exchange for those services.
Costs to Obtain a Contract with a Customer
We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses.
17 |
Table of Contents |
Contract Balances
As of September 30, 2024, and December 31, 2023, we did not have any unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Arrangements with Multiple Performance Obligations
Our contracts with customers may include multiple performance obligations. We enter into contracts that can include various combinations of products and services, which are primarily distinct and accounted for as separate performance obligations.
Significant Judgments
Our contracts with customers for products and services often dictate the terms and conditions of when the control of the promised products or services is transferred to the customer and the amount of consideration to be received in exchange for the products and services.
Equity Compensation Expense
We account for equity compensation expense in accordance with FASB ASC 718, “Compensation-Stock Compensation.” Under the provisions of FASB ASC 718, equity compensation expense is estimated at the grant date based on the award’s fair value.
The valuation methodology used to determine the fair value of options and warrants issued as compensation during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The expected term of the Company’s warrants has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” warrants. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its common stock, par value $0.01 (the “Common Stock”) and does not intend to pay dividends on its Common Stock in the foreseeable future. The expected forfeiture rate is estimated based on management’s best assessment.
On July 7, 2017, our shareholders approved the Company’s Amended and Restated 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan authorizes the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance units/shares. Up to
18 |
Table of Contents |
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We maintain cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation limit of $
Long-Lived Assets Including Acquired Intangible Assets
We assess long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, we measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If our long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. We base the calculations of the estimated fair value of our long-lived assets on the income approach. For the income approach, we use an internally developed discounted cash flow model that includes, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. We had no long-lived asset impairment charges for the three and nine months ended September 30, 2024 and 2023.
Advertising and Promotional Expenses
Advertising and promotional costs are expensed in the period they are incurred. For the three and nine months ended September 30, 2024, advertising and promotional expenses included in selling expenses were approximately $
Research and Development Expenses
Research and development expenses are expensed in the period they are incurred. For the three and nine months September 30, 2024, these expenses were approximately $
Business Segments
We currently have one reportable business segment due to the fact that we derive our revenue primarily from one product iHP (ionized Hydrogen Peroxide) with a variety of applications. A breakdown of revenue is presented in “Revenue Recognition” in Note 2 above.
19 |
Table of Contents |
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2024.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will result in the required additional disclosures being included in our consolidated financial statements, once adopted.
20 |
Table of Contents |
NOTE 3. INVENTORIES
Inventories consist of the following at (rounded to the nearest thousandth):
|
| September 30, 2024 (Unaudited) |
|
| December 31, 2023 |
| ||
Finished Goods |
| $ |
|
| $ |
| ||
Raw Materials |
|
|
|
|
|
| ||
Inventory Reserve |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
|
NOTE 4. VENDOR DEPOSITS
At September 30, 2024 and December 31, 2023, we maintained vendor deposits of $
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
|
| September 30, 2024 (Unaudited) |
|
| December 31, 2023 |
| ||
Furniture and fixtures |
| $ |
|
| $ |
| ||
Equipment |
|
|
|
|
|
| ||
Vehicles |
|
|
|
|
|
| ||
Computer and software |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Tenant Improvement Allowance |
|
|
|
|
|
| ||
Total cost of property and equipment |
|
|
|
|
|
| ||
Less: Accumulated depreciation |
|
|
|
|
|
| ||
Property and Equipment, net |
| $ |
|
| $ |
|
For the three and nine months ended September 30, 2024, depreciation was $
21 |
Table of Contents |
NOTE 6. INTANGIBLE ASSETS
Intangible assets consist of patents and trademarks related to our Binary Ionization Technology.
We amortize the patents over the estimated remaining lives of the related patents. Trademarks have an indefinite life. Amortization expenses were $
Definite life intangible assets consist of the following:
|
| September 30, 2024 (Unaudited) |
|
| December 31, 2023 |
| ||
Intellectual Property and Patents |
| $ |
|
| $ |
| ||
Less: Accumulated Amortization |
|
|
|
|
|
| ||
Patents, net |
| $ |
|
| $ |
|
Indefinite life intangible assets consist of the following:
Trademarks |
|
|
|
|
|
|
Total Intangible Assets, net |
| $ |
|
| $ |
|
Approximate future amortization is as follows (rounded to nearest thousandth):
Year Ended: | Amount | |||
October 1 – December 31, 2024 | $ | |||
December 31, 2025 | ||||
December 31, 2026 | ||||
December 31, 2027 | ||||
December 31, 2028 | ||||
Thereafter | ||||
Total | $ |
NOTE 7. LEASES
In April 2018, we entered into a
22 |
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The balances for our operating lease where we are the lessee are presented as follows within our condensed consolidated balance sheet:
Operating leases: |
| September 30, 2024 (Unaudited) |
|
| December 31, 2023 |
| ||
| ||||||||
Assets: |
|
|
|
|
|
| ||
Operating lease right-of-use asset |
| $ |
|
| $ |
| ||
Liabilities: |
|
|
|
|
|
|
|
|
Current Portion of Long-Term Operating Lease |
| $ |
|
| $ |
| ||
Long-Term Operating Lease, Net of Current Portion |
|
|
|
|
|
| ||
Total Right of Use Liability |
| $ |
|
| $ |
|
The components of lease expense are as follows and are included within general and administrative expense on our condensed consolidated statement of operations:
|
| For the Three Months Ended September 30, 2024 (Unaudited) |
|
| For the Three Months Ended September 30, 2023 (Unaudited) |
| ||
|
|
|
|
|
|
| ||
Operating lease expense |
| $ |
|
| $ |
|
|
| For the Nine Months Ended September 30, 2024 |
|
| For the Nine Months Ended September 30, 2023 |
| ||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
|
|
|
|
|
|
| ||
Operating lease expense |
| $ |
|
| $ |
|
Other information related to leases where we are the lessee is as follows:
|
| September 30, 2024 (Unaudited) |
|
| December 31, 2023 |
| ||
| ||||||||
Weighted-average remaining lease term: |
|
|
|
|
|
| ||
Operating leases |
|
|
|
| ||||
|
|
|
|
|
|
| ||
Discount rate: |
|
|
|
|
|
| ||
Operating leases |
|
| % |
|
| % |
23 |
Table of Contents |
Supplemental cash flow information related to leases where we are the lessee is as follows:
|
| For the Three Months Ended September 30, 2024 (Unaudited) |
|
| For the Three Months Ended September 30, 2023 (Unaudited) |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
| $ |
|
| $ |
|
|
| For the Nine Months Ended September 30, 2024 |
|
| For the Nine Months Ended September 30, 2023 |
| ||
|
| (Unaudited) |
|
| Unaudited) |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
| $ |
|
| $ |
|
As of September 30, 2024, the maturities of our operating lease liability are as follows:
Year Ended: |
| Operating Lease |
| |
October 1 – December 31, 2024 |
| $ |
| |
December 31, 2025 |
|
|
| |
December 31, 2026 |
|
|
| |
December 31, 2027 |
|
|
| |
December 31, 2028 |
|
|
| |
Thereafter |
|
|
| |
Total minimum lease payments |
|
|
| |
Less: Interest |
|
|
| |
Imputed value of lease obligations |
|
|
| |
Less: Current portion |
|
|
| |
Long-term portion of lease obligations |
| $ |
|
NOTE 8. CLOUD COMPUTING SERVICE CONTRACT
In May 2020, we entered into a cloud computing service contract with a vendor. The contract provides for annual payments in the amount of $
We have incurred implementation costs of $
24 |
Table of Contents |
NOTE 9. CONVERTIBLE DEBT
In October and November 2023, we entered into a Securities Purchase Agreement (the “SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which we agreed to sell and issue to the Investors in a private placement transaction (the “Private Placement”) in one or more closings up to an aggregate principal amount of $
The Notes mature and are due on the fifth anniversary of the issuance date in October and November of 2028. The Notes bear simple interest at a rate of
Amortization of deferred financing costs were $
Convertible notes consist of the following at:
|
| September 30, |
|
|
| |||
|
| 2024 |
|
| December 31, |
| ||
|
| (Unaudited) |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Convertible notes |
| $ |
|
| $ |
| ||
Less: Debt issuance costs |
|
| ( | ) |
|
| ( | ) |
Accumulated amortization |
|
|
|
|
|
| ||
Convertible notes, net |
| $ |
|
| $ |
|
25 |
Table of Contents |
NOTE 10. SHAREHOLDERS’ EQUITY
Our Board of Directors (the “Board”) may, without further action by our shareholders, 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 such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up by us before any payment is made to the holders of our Common Stock. Furthermore, the Board could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our Common Stock.
Convertible Series A Preferred Stock
Our authorized Convertible Series A Preferred Stock, $
Convertible Series B Preferred Stock
Our authorized Convertible Series B Preferred Stock, $
Common Stock
In January 2023, we issued
In May 2024, we issued
Stock Options
In May 2024, we issued options to purchase
26 |
Table of Contents |
The following table summarizes stock options outstanding as of September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
|
| December 31, |
| ||||||||||
|
| (Unaudited) |
|
| 2023 |
| ||||||||||
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Number of Options |
|
| Weighted Average Exercise Price |
| ||||
Outstanding, beginning of period |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Exercised |
|
| ( | ) |
|
|
|
|
| - |
|
|
|
| ||
Expired |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Outstanding, end of period |
|
|
|
| $ |
|
|
|
|
| $ |
|
Options outstanding and exercisable by price range as of September 30, 2024 were as follows:
Outstanding Options |
|
| Average |
|
| Exercisable Options |
| |||||||||||
|
|
|
| Weighted |
| |||||||||||||
|
|
|
|
|
| Remaining |
|
|
|
|
| Weighted |
| |||||
|
|
|
|
|
| Contractual |
|
|
|
|
| Average |
| |||||
Range |
|
| Number |
|
| Life in Years |
|
| Number |
|
| Exercise Price |
| |||||
$ | 0.71 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 0.75 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 0.80 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 0.85 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 0.96 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 1.12 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 1.93 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 2.16 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 4.40 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 7.06 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
Common Stock Warrants
The following table summarizes the outstanding common stock warrants as of September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||||||||||
|
| (Unaudited) |
|
| Weighted Average Exercise Price |
|
| Number of Warrants |
|
| Weighted Average Exercise Price |
| ||||
Outstanding, beginning of period |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Exercised |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Expired |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Outstanding, end of period |
|
|
|
| $ |
|
|
|
|
| $ |
|
27 |
Table of Contents |
Warrants outstanding and exercisable by price range as of September 30, 2024 were as follows:
Outstanding Warrants |
|
|
|
| Exercisable Warrants |
| ||||||||||||
Exercise Price |
|
| Number |
|
| Average Weighted Remaining Contractual Life in Years |
|
| Number |
|
| Weighted Average Exercise Price |
| |||||
$ | 0.64 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 0.80 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 0.96 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 1.20 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 1.68 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 2.18 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 4.00 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
$ | 6.95 |
|
|
|
|
|
|
|
|
|
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
There were no unvested warrants outstanding as of September 30, 2024.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Legal Contingencies
We may become a party to litigation in the normal course of business. In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon our financial condition, results of operations or cash flows. In addition, from time to time, we may have to file claims against parties that infringe on our intellectual property.
Product Liability
As of September 30, 2024 and December 31, 2023, there were no claims against us for product liability.
NOTE 12. CONTRACTS AND AGREEMENTS
Director Compensation
In January 2023, we increased the annual fee to non-employee members of our Board to $
For the nine months ended September 30, 2023, we issued an aggregate of
For the nine months ended September 30, 2024, we issued an aggregate of
28 |
Table of Contents |
NOTE 13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at:
|
| September 30, 2024 (Unaudited) |
|
| December 31, 2023 |
| ||
Commissions |
| $ |
|
| $ |
| ||
Payroll and related costs |
|
|
|
|
|
| ||
Director fees |
|
|
|
|
|
| ||
Sales Tax Payable |
|
|
|
|
|
| ||
Accrued warranty (Note 14) |
|
|
|
|
|
| ||
Allowance for Sales Returns |
|
|
|
|
|
| ||
Other accrued expenses |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
NOTE 14. ACCRUED WARRANTY
Our manufacturers assume the warranty against product defects from date of sale, which we extend to our customers upon sale of the product. We assume responsibility for product reliability and results. The warranty is generally limited to a refund of the original purchase price of the product or a replacement part. We estimate warranty costs based on historical warranty claim experience.
The following table presents warranty reserve activities at:
|
| September 30, 2024 (Unaudited) |
|
| December 31, 2023 |
| ||
Beginning accrued warranty costs |
| $ |
|
| $ |
| ||
Provision for warranty expense |
|
|
|
|
|
| ||
Settlement of warranty claims |
|
| ( | ) |
|
| ( | ) |
Ending accrued warranty costs |
| $ |
|
| $ |
|
29 |
Table of Contents |
NOTE 15. INCOME TAXES
For the three and nine months ended September 30, 2024 and 2023, our provision for income tax was $
NOTE 16. CUSTOMER CONCENTRATION
One customer accounted for
One customer accounted for
As of September 30, 2024, two customers accounted for
30 |
Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (this “MD&A”) and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Forward-looking statements are not guaranteeing future performance and the TOMI Environmental Solutions, Inc. (the “Company,” “TOMI,” “we,” and “our”) actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company’s annual report on Form 10-K for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 1, 2024 (the “Annual Report”) under the heading “Risk Factors.” The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Unless otherwise stated, all information presented herein is based on the Company’s fiscal calendar, and references to years, quarters, months or periods refer to the Company’s fiscal years ended in December and the associated quarters, months and periods of those fiscal years. Each of the terms the “Company” and “TOMI” as used herein refers collectively to TOMI Environmental Solutions, Inc. unless otherwise stated.
The following MD&A should be read in conjunction with the Annual Report filed with the SEC and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.
Quarterly Highlights
Business Update
We continue to see improved financial results as the third quarter marks our second consecutive profitable quarter in our 2024 calendar year. The improved financial results are largely due to higher revenue, improved gross profit margins, and strategic reductions in operating expenses. We also were cash flow positive in the third quarter due to the improved turnover in our accounts receivable and lower monthly outgoing cash expenditures with management’s spending cuts. We continue to expand our customer base and secured significant agreements and new partnerships.
Revenue for the third quarter 2024 was $2,542,000 which represents $1,072,000 or 73% growth compared to the third quarter of the prior year. The higher revenue was attributable to increased demand for our mobile units and higher iHP service revenue.
For the nine months ended September 30, 2024, TOMI reported a 14.5% increase in revenue, amounting to $6,670,000, compared to the same period in 2023. This growth was primarily driven by higher mobile equipment sales, with our mobile SteraMist equipment increasing 90% in 2024 compared to 2023.
For the nine months ended September 30, 2024, our international revenue grew by 82%, driven by new customers in Canada, South Africa, and India, compared to the same period in 2023.
Our total recognized revenue and backlog for the nine months ended September 30, 2024 amounted to $7,200,000, consisting of approximately $6,700,000 in recognized revenue and a sales backlog of approximately $500,000 at the end of September 2024.
Our gross profit margins for the three months ended September 30, 2024 were 61.4%, compared to 55% in the same prior year period. The improved gross profit margins were attributable to our product mix in sale and the increased demand for our mobile equipment.
Our General and Administrative expenses declined by $148,000 or 4% during the first nine months ended September 30, 2024 compared to the same period in 2023. This decrease was primarily due to operating expense controls, lower executive compensation and a reduction in consultant fees.
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During the third quarter, management continued cost reduction initiatives that lowered our operating expenses by 10% compared to the same period last year. Additionally, our operating expenses in the third quarter of 2024 decreased by 19% compared to the second quarter of 2024 as a result of our cost-cutting measures.
We continue to pursue innovative solutions and new markets for our versatile and environmentally friendly SteraMist iHP technology.
During 2024, the service decontamination sector experienced shifts among key competitors, resulting in an increased volume of leads for our company. On March 7, 2024, we announced the expansion of SteraMist iHP Corporate Service contracts through the addition of new strategic partners. This growth accelerated through the second quarter and has seen substantial momentum in the third quarter, with record-breaking revenue. We continue to support key clients, including Pfizer, Inc. and Thermo Fisher Scientific facilities, while successfully onboarding new customers such as Integra life sciences, Curia, and multiple smaller engagements within the Food Safety sector. These new relationships are expected to drive future sales across both capital equipment and routine service contracts. The addition of these customers further solidifies iHP’s position as a market leader in advanced decontamination solutions, serving corporate clients across life sciences and adjacent industries.
To enhance our market presence in the western United States, we formed a strategic partnership with EMAQ in the second half of the year. EMAQ has made a significant investment exceeding $1,000,000 in SteraMist iHP equipment and will act as our regional partner to expand iHP services in this area. This collaboration is expected to drive substantial growth in solution sales, leveraging our razor-and-blade business model—where SteraMist delivery systems represent the razor, and our proprietary BIT Solution serves as the razor blade that is designed to generate ongoing revenue. The partnership is progressing well, with both companies effectively combining strengths and resources to build business and expand opportunities.
Demand for our CES systems continues to grow as our portfolio of systems that are being built. In February 2024, we announced the signing of a new contract for a SteraMist iHP Custom Engineered System (CES) installation with a California-based life sciences company. The contracted iHP Custom Engineered System (CES) is valued at approximately $600,000. This system, featuring six applicators, will be integrated into a clinical suite, and is expected to be fully qualified and in use by the end of the 2024 year.
This year we received an order for our CES system with a global leader in advanced laboratory services. This customer purchased two additional Environment Systems to their original fleet of two Environment Systems and a seven (7) applicator iHP Custom Engineered System (CES).
With the successful completion of each project, our iHP technology is rapidly gaining popularity as the preferred decontamination solution for pharmaceutical and biotech companies. Further, as we continue to install our technology in new CES projects, the product line evolves into a comprehensive turnkey solution.
We believe our industry is experiencing a shift towards modular cleanroom requirements which may benefit our business operations. The adaptability and efficiency offered by our iHP technology align perfectly with the changing needs of cleanroom setups. This trend allows us to capitalize on the increasing demand for flexible and scalable cleanroom solutions, further enhancing the relevance and value of our products within the industry.
32 |
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We believe our growing portfolio of CES systems will give us a competitive edge in the Life Sciences market segment, improving our brand recognition and creating new business and sales opportunities. In addition, after our installed CES projects are fully qualified and established for use, and as our portfolio grows, we anticipate this will have a positive impact on our long-term recurring BIT solution sales thus providing the potential to enhance our operating margins, further strengthening our position in the industry, and supporting sustainable growth.
We maintain an active focus on digital marketing initiatives and business development plans with existing customers. In an effort to optimize our budget, we reduced our participation in tradeshows and redirected resources towards more effective lead generation strategies such as referrals and references. While tradeshows offer valuable networking opportunities, we have found that for the short-term TOMI SteraMist’s strong reputation generates sufficient interest through other channels. These alternative approaches have proven to be more cost-effective and efficient in driving new business and expanding our customer base.
We recently launched a targeted campaign aimed at domestic manufacturers of cleanroom construction and general building companies that may require decontamination services as part of their project bids. This outreach extends to both existing partners and new prospects involved in modular cleanrooms, construction design firms, mobile healthcare pods, and related sectors. The campaign has already gained traction, resulting in numerous sales presentations. While many of these opportunities are geared toward long-term engagements, our expanded product offerings and scalable solutions—designed to meet varying industry needs—position us for sustained sales growth in the coming year and beyond.
We are steadily increasing our presence in the food safety marketplace primarily from tradeshows we attended in the past. As stated, we must demonstrate that we are a viable solution for this industry, and we are currently conducting numerous feasibility studies with both small and large companies. We have entered the coffee industry with Mayorga Coffee and Organea Terra SRL, the desserts and ice cream industry with Lakeview Farms and Crank and Boom, egg white food manufacturing, pet food production and packaging, and a few agribusinesses have joined in adding iHP SteraMist to their sanitization standard operating procedures.
To further highlight the effectiveness of SteraMist iHP technology in the food industry, TOMI announced several collaborative efforts with prominent organizations on new studies exploring expanded applications and benefits of SteraMist iHP. These partnerships have also opened doors to additional opportunities through introductions to their suppliers. One of these collaborations involves a leading producer of health, hygiene, and nutrition products, where we are developing a specialized application for spraying conveyor belts to streamline the decontamination process for packaged goods, targeting pathogens such as Salmonella and Listeria. This initiative represents a significant addition to our client portfolio, aligning with market trends driven by growing health awareness and increasing demand for sustainable, premium products. Additionally, TOMI will soon begin a project with a major conglomerate focused on the decontamination of heart monitoring devices to add to our focus on healthcare initiatives.
We would also like to emphasize that we are fully aware of the numerous challenges currently impacting the food market. In response, we have proactively engaged with key industry players to offer our solutions and support.
33 |
Table of Contents |
Key international sales highlights from the third quarter include our expansion into the Indian market, a highly competitive arena within the decontamination sector and a critical focus of TOMI’s global growth strategy. We secured approximately $150,000 in initial purchases, demonstrating our ability to successfully penetrate this challenging market. Establishing a foothold in India underscores the unrivaled effectiveness of SteraMist iHP technology and reinforces our competitive positioning.
Additionally, we achieved significant progress in Q3 with one of our platinum customers expanding their use of SteraMist iHP to a facility in South Africa. This marks their fourth location utilizing SteraMist technology and services, following successful implementations in Chile, Portugal, and Brazil.
On April 3, 2024, we announced the company has received the Gold Safety Award from Highwire. The award is presented to TOMI in recognition of the Company achieving a score of between 85-94 on the Highwire Safety Assessment. Highwire’s Safety Assessment reviews a company’s historic and current safety performance. The program provides a thorough, objective, and consistent evaluation of company performance so clients and contractors can identify, monitor, and mitigate risks more effectively. The results provide a strong indicator of how a contractor values safety and serve as a reliable predictor of future performance.
In evaluating sales related performance, management analyzes our revenue recognized for GAAP purposes which is presented in our quarterly and annual statement of operations as well as our sales orders we receive from customers during those same accounting periods. We define a “sales order” as a document we generate for our internal use in processing a customer order. Our sales orders essentially translate the format of the customer purchase orders we receive from our customers into the format used by us. We also evaluate our “customer sales backlog” which is defined as pending sales orders where revenue has not yet been recognized. Management believes analyzing the sales order and backlog metrics are useful in measuring our overall sales and business development performance as it gauges the overall volume of sales and business development activities.
Product Development
Our recent products developed and launched are as follows:
SteraMist Engineering continues to make strides collaborating with key manufactures of cleanroom technology and equipment developing a turnkey seamless decontamination integration to chambers, cabinets, passthroughs, isolators, cage washers, heat sterilizers, hot cells and more. TOMI begins this endeavor with a project management, turnkey modular solution, and process design consulting firm that we have partnered with in one of our previous CES projects.
In collaboration with certain partners, TOMI proudly introduced the SteraMist Integration System (SIS) product line tailored for enclosure decontamination. The inaugural offering, the Stand-Alone model, previously recognized as the Select Plus, has swiftly gained traction in the market, particularly catering to the Biosafety Cabinet (BSC) segment. This innovative solution offers customers seamless setup and versatility, making it an ideal choice for spaces necessitating a single-applicator decontamination fog.
We are actively engaged in discussions with numerous manufacturers to ensure the seamless integration of our SIS Manufacturer line. Our efforts are focused on finding the ideal end user in collaboration with our partners to facilitate the development of a comprehensive package. Once finalized, this standardized solution will significantly expand our reach within the Life Sciences sector.
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The SteraMist Hybrid, an integral component of the SteraMist Environment System, SteraMist Hybrid is designed with capabilities to communicate with a facility. The system is strategically positioned in a centralized location of the facility through a docking station and features our newly designed permanently mounted stainless steel applicators.
TOMI successfully installed the first official SteraMist Hybrid at Xenith Pharmaceutical F/KA Indigo Pharmaceutical, Inc.’s existing research facility, which selected the SteraMist Hybrid because it met the client’s strict delivery timeline while adhering to the facility’s budget constraints. We remain in specification discussions with Xenith for a Custom Engineered System for a future site dedicated to injectables.
Building upon our successful partnership with Indigo we continued to cultivate strong relationships within our existing network. In July, the same consultant who introduced Indigo brought BeSpoke Pharmaceuticals, a compounding pharmacy, to our attention. We successfully delivered a Hybrid system to BeSpoke, with installation imminent. Like Indigo, BeSpoke has committed to a marketing initiative to promote our Hybrid product line. These strategic partnerships underscore the effectiveness of our focused approach to business development. By prioritizing existing relationships and leveraging referrals, we are generating tangible results and accelerating revenue growth compared to traditional lead generation methods such as tradeshows.
This partnership has proven highly effective, with these facilities now purchasing mobile units and pallets of solution through the Nevada-based consultant. His expertise has been instrumental in driving broader adoption of SteraMist iHP technology across multiple sites and uses of SteraMist iHP.
We have seen positive reception of its SteraMist Transport unit, an all-in-one dual voltage fogging product designed to treat a wide variety of vehicle sizes with an application time of only 20 minutes per 1,000 cubic feet. The initial batch of this innovative product is currently in a soft launch phase and was sold for live practical assessment with an existing international customer and domestic distributor.
TOMI launched its fourth generation SteraMist Environment System. The 24-volt model allows for universal outlet usage and convert even more of the hydrogen peroxide BIT Solution to hydroxyl radicals thus lowering H2O2 PPM levels allowing for faster turnaround time. In addition, the unit has eight (8) outputs where four (4) are dedicated to our regular process of Constant or Pulse Injection, Dwell, and Aeration along with a light beacon status bar and four (4) are programmable to meet the customer needs for any external equipment they may desire to work with the system. This system is currently on the market and remains to be one of our most popular quoted product lines, has been implemented by customers, and is receiving praise for its further developments.
Our SteraMist® BIT™ solution product line is currently made up of a 32-ounce bottle for the SteraPak, a ten (10) liter, five (5) gallon, 55-gallon drum for our custom built-ins and our traditional one (1) gallon bottle. This brings the BIT Solution product line to a total of five (5) options provided to our customers, which will benefit our razor/razor-blade business model, where our SteraMist delivery systems represent the razor, and our proprietary BIT Solution represents the razor blade.
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We expect these new products and service introductions will positively impact our net sales, cost of sales and operating expenses during this fiscal year.
Overview
TOMI Environmental Solutions, Inc. (“TOMI,” “we,” “our,” or the “Company”) is a global leader in bacteria decontamination and infectious disease control, offering environmentally friendly solutions for indoor air and surface disinfection and decontamination. Our flagship product, SteraMist, uses our patented and registered Binary Ionization Technology (“BIT”) to deliver a low-percentage (7.8%) hydrogen peroxide-based fog or mist to affect all indoor environments and surface areas.
Developed under a grant from the United States Defense Advanced Research Projects Agency (“DARPA”), SteraMist generates ionized Hydrogen Peroxide (“iHP”) using cold plasma science. BIT transforms a sole active ingredient hydrogen peroxide solution into iHP through a high voltage atmospheric cold plasma arc, producing submicron to 3-micron hydroxyl radical particles that effectively treat surfaces and environments with the same velocity and characteristics of a gas. Our innovative and novel process ensures eradication of pathogens with a 6-log (99.9999%) and greater kill rate, effectively leaving no harmful by-products lingering in the treated area. SteraMist’s innovative methodology, inspired from atmospheric chemistry, not only guarantees effectiveness but also maintains a commitment to environmental sustainability by ensuring the only by-product from the process is oxygen and humidity, a complete package of benefits unmatched in its industry.
We owe our success to the collaborative efforts of Titan Defense and DARPA who uncovered a superior technology that mimics nature’s cleansing mechanism, bringing this natural phenomenon indoors providing a competitive edge that exceeds the capabilities of our competition in the healthcare disinfection, life sciences decontamination, and food safety sanitization markets.
We believe that we possess the best technologies in the world in the disinfection and decontamination space. The COVID-19 pandemic along with the needs of the pharmaceutical and vivarium space has provided us with the opportunity and experience to implement a clear strategy to develop and manufacture additional products to add to our portfolio. In addition, we continue to move our BIT technology as a standard in disinfection and decontamination globally. This should lead to increased market share, profitability, and capability strength.
Our products are an environmentally friendly solution, and our processes address the concerns of sustainability. Customers are requesting and discussing the positive results of our product and the environmentally friendly results compared to the caustic and environmentally unfriendly results of many other disinfectants.
SteraMist has established a successful track record in fighting pandemics and outbreaks and implementing SteraMist for emergency preparedness is vital. The COVID-19 pandemic took the world by surprise, and history has shown that other pandemics and viruses are likely to follow. Using a proven and trusted disinfectant for emergency outbreaks and daily for preventative maintenance, such as SteraMist, can alleviate the threat of infections from spreading and could stop a possible outbreak.
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The Science Behind the Technology
Introducing a revolutionary approach to disinfection and decontamination, our technology offers a streamlined and effective solution. By harnessing the power of atmospheric chemistry, our process converts 7.8% hydrogen peroxide into a plasma-generated hydroxyl radical, achieving a 6-log and greater kill of pathogens leaving only oxygen and humidity as by-products. It is a simple yet effective solution that sets a new standard for global cleaning disinfection decontamination practices.
BIT technology was initially developed in response to weaponized anthrax spore attacks, and detailed testing performed by DARPA demonstrated the success of the technology in neutralizing chemical warfare agents. BIT, a TOMI patented process aerosolizes and activates a low concentration hydrogen peroxide solution, producing a fine aqueous mist (0.3-3 um in diameter) that contains a high concentration of hydroxyl radicals (“.OH”). The .OH damages pathogenic and resistant organisms (such as bacteria, bacteria spores, viruses, mold spores, other fungi, and yeast) via oxidation of proteins, carbohydrates, and lipids and rendering the building blocks of nature’s amino acids, DNA and RNA inactive – leading to complete cellular disruption.
The unique alteration of the chemistry occurs only once BIT solution passes through the atmospheric cold plasma arc, which causes the breaking of the double bond of a hydrogen peroxide molecule and results in an .OH hydroxyl radical known as iHP. This patented process allows these hydroxyl radicals to exist in high concentrations without rapidly recombining and losing reactivity, while seeking all surfaces within the proximity of the resulting mist or fog.
TOMI has and continues to adapt this innovative technology into an everyday solution for use by multiple industries. Under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), we are mandated to register our disinfectants with the Environmental Protection Agency (“EPA”) and specific state regulatory bodies. SteraMist BIT was EPA-registered (#90150-2) in June 2015 as a hospital-healthcare and broad-spectrum surface disinfectant for misting/fogging applications. We achieved a cutting-edge claim on the EPA label and was coined as the first equipment + solution combination hospital-healthcare disinfectant on the market and maintain the claim as the only EPA Registered Solution + Equipment combination that provides the unique technology of hydrogen peroxide ionization.
Today our EPA registered BIT solution is manufactured at an EPA-registered solution blender and our product performance is supported by Good Laboratory Practice (“GLP”) efficacy data which includes mold control and air/surface remediation with claims to combat Staphylococcus, Pseudomonas, MRSA, Salmonella, H1N1, Clostridium difficile spores, and Norovirus. In March 2020, our EPA label was updated to include claims against Emerging Viral Pathogens, meeting criteria for both Enveloped and Large Non-enveloped viruses. In 2021, SteraMist BIT 0.35% hydrogen peroxide received its EPA registration (#90150-3), and on June 2, 2022, SteraMist was added to its seventh EPA’s List, List Q for combating rare or novel viruses like Monkeypox virus and SARS-CoV-2 variants causing COVID-19.
TOMI continuous to build its portfolio of feasibility studies with renowned and trusted partners. In 2023, the U.S. Department of Defense’s BSAT Biorisk Program Office and the Department of Homeland Security’s Science and Technology Directorate’s Plum Island Animal Disease Center published a report demonstrating that iHP is an effective tool for decontamination of biological toxoids and dangerous pathogens that may disrupt our world. We maintain registrations in all 50 states, Washington D.C., Canada, and approximately 40 other countries. These endorsements signify our commitment to safeguarding our world against any potential threats.
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Industries & Market Segments
SteraMist products are designed to address a wide spectrum of industries using iHP. Our operations consist of four main divisions based on our current target industries: Life Sciences, Hospital-HealthCare, Food Safety, and Commercial. Launched in sequential order as listed to either strategically address the needs and/or ensure compliance with the specific regulations governing each industry segment.
Life Sciences
SteraMist iHP is designed to be tailored to provide a complete solution to address the regulatory inspections of disinfecting/decontaminating and Installation Qualification (IQ)-Operational Qualification (OQ)–Performance Qualification (PQ) validation processes within the life sciences industry.
The life sciences sector demands rigorous decontamination procedures to ensure the integrity and safety of pharmaceutical products, medical devices, and research environments. With the evolving landscape of the pharmaceutical market, there is an increasing demand for fully automated decontamination products that offer quick turnaround times to minimize downtime and expedite production cycles.
The life sciences industry was among the first to embrace the Company’s innovative decontamination solutions, recognizing the limitations of traditional methods and effects on progress. Our current portfolio of life science customers, including Fortune 100 companies, has been able to overcome the constraints imposed by outdated practices, paving the way for enhanced efficiency, safety, and productivity in their operations. Their early adoption of our SteraMist iHP lays a solid foundation for our future expansion. By demonstrating the effectiveness and value in a highly regulated and demanding sector, we establish credibility and trust that can facilitate broader adoption across other facilities, companies, and even industries.
The insights gained from working closely with life sciences companies also inform our product development and service offerings, enabling us to better meet the evolving needs of markets. In today’s pharmaceutical market, characterized by rapid innovation, stringent regulatory requirements, and global competition-efficiency and speed are paramount. Pharmaceutical companies, including Contract Development and Manufacturing Organizations (“CDMO”), are under pressure to streamline their operations while maintaining high standards of quality and compliance.
According to industry statistics, the global pharmaceutical market is projected to grow steadily, with emerging markets playing an increasingly significant role in driving growth. As their operations expand globally, there is a growing need for decontamination solutions that can deliver consistent fast results across the dynamic and ever-changing landscape of manufacturing and production facilities and research laboratories.
By offering fully automated products and services tailored to the unique requirements of pharmaceutical manufacturers and CDMOs, TOMI aims to support their efforts in maintaining the highest standards of quality, safety, and efficiency on a global scale.
Hospital-Healthcare
TOMI focuses on the Hospital-Healthcare Market by providing high quality of safety to patients and personnel by disinfecting operating rooms, pharmacies, ambulances, and emergency environments throughout a healthcare facility.
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Healthcare facilities worldwide should prioritize disinfection to mitigate the risk of healthcare-associated infections (“HAI”), enhance patient safety, and maintain a sterile environment conducive to healing. According to the World Health Organization, HAIs affect millions of patients globally each year, leading to prolonged hospital stays, increased healthcare costs, and deaths.
In 2024, it is estimated that approximately 7-10% of patients admitted to healthcare facilities worldwide will acquire at least one HAI during their stay. This translates to millions of cases annually, with significant economic burdens and human costs. Furthermore, the emergence of antimicrobial-resistant pathogens poses a growing threat, exacerbating the challenge of infection control in healthcare settings.
Effective disinfection measures, including the use of advanced technologies like SteraMist, are essential for reducing the incidence of HAIs and safeguarding patient health. By implementing rigorous disinfection protocols, healthcare facilities can significantly reduce the risk of infections, improve patient outcomes, and promote public health, but may also reduce healthcare costs and enhances the overall quality of care provided.
TOMI will intensify its efforts to penetrate the healthcare market by forging strategic partnerships and advocating for the adoption of advanced disinfection technologies. By collaborating with key stakeholders, including healthcare providers, facility managers, group purchasing organizations (“GPO”) like Vizient and regulatory bodies, we can promote the integration of SteraMist as a complementary solution to manual cleaning practices. Emphasizing the efficiency, efficacy, and cost-effectiveness of SteraMist in eliminating pathogens and reducing the risk of healthcare-associated infections will be essential in gaining traction in the market. Additionally, investing in targeted marketing campaigns and educational initiatives to raise awareness about the benefits of automated disinfection processes can help overcome resistance to change and accelerate market penetration.
Food Safety
Every day there are news articles around the world pertaining to the contamination of food supply. Unsafe food containing harmful bacteria, viruses, parasites, or chemical substances causes more than 200 diseases. It also creates a vicious cycle of disease and malnutrition, particularly affecting infants, young children, elderly and the sick. With the global population explosion, severe worldwide avian flu pandemics resulting in the unnecessary culling of bird flocks, unusually high number of accidents resulting in the destruction of dozens of storages, packing and processing food plants, in the U.S. alone, we anticipate an increase in the demand for a mechanical way to sanitize the food supply. TOMI, in cooperation with the USDA, demonstrated that our technology offers a consistent, quick, and effective solution.
Sanitation procedures must be implemented regularly and effectively to maintain cleanliness and prevent cross-contamination throughout the food processing chain. This includes proper cleaning and sanitizing of food preparation areas, storage facilities, transportation vehicles, and equipment used in food production. New challenges to food safety will continue to emerge, largely due to changes in the environment, new and emergent bacteria, toxins, and antimicrobial resistance. Food Safety presents an opportunity for significant growth for TOMI with continued product research and compliance testing.
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Compliance with food safety regulations is essential for food businesses to protect public health, uphold consumer trust, and meet legal requirements. Regulatory agencies such as the United States Food and Drug Administration (“FDA”) and the European Food Safety Authority, as well as the Canadian Safe Food for Canadians Act and Safe Food, establish and enforce sanitation standards to ensure the safety and quality of the food supply. Failure to comply with sanitation regulations can result in fines, product recalls, legal actions, and damage to the reputation of food businesses. Therefore, adherence to sanitation practices is paramount in the food industry to mitigate risks and maintain food safety standards.
We have made significant strides in boosting brand awareness within the food safety industry through targeted promotion and marketing initiatives. Leveraging a similar strategy to what proved successful in the Life Sciences sector, we focused on building a customer base through referrals and feasibility studies, gradually expanding our reach. By fostering relationships with key supporters of our technology and remaining patient in our approach, we have finally laid a foundation and expect to continue to expand and grow our presence in this critical market segment.
Commercial
In line with adopting a proactive approach through our TOMI Service Network, it’s imperative for the entire commercial world to follow suit. Proactive disinfection practices not only ensure the health and safety of employees, customers, and visitors but also safeguard business continuity and reputation. Our Commercial division includes, but is not limited to, use sites such as aviation, airports, police and fire, prisons, manufacturing companies, automobile, gymnasiums, cruise ships, shipping ports, preschool education, primary and secondary schools, colleges including dormitories, all modes of public and private transportation, regulatory consulting agencies, retail, housing and recreation, and of course emergency preparedness for counties and cities use of SteraMist throughout such communities.
SteraMist disinfection helps prevent the spread of harmful pathogens, including bacteria and viruses, reducing the risk of illnesses and infections among individuals. This is particularly crucial in shared spaces such as offices, retail stores, and restaurants where people gather regularly. A healthy and safe work environment promotes employee well-being and productivity. By reducing absenteeism due to illness and creating a comfortable workspace, disinfection measures contribute to a more efficient and effective workforce. For businesses in the service industry, such as hotels, restaurants, and retail stores, providing a clean and hygienic environment is essential for delivering a positive customer experience. Cleanliness influences customer perceptions and can impact loyalty and repeat business. Disinfection helps mitigate the risk of liability claims associated with poor health and safety practices. Implementing proactive disinfection measures can minimize the potential for legal and financial repercussions resulting from health-related incidents.
TOMI, in conjunction with its partners, collaborators, and industry associations, is proactively educating the community on the importance of preventive disinfection through verbal explanation and visual demonstrations of the impact of maintaining a clean environment. We engage in targeted social media campaigns, offer training programs and workshops on best practices, and share case studies of real-life examples highlighting the long-term benefits in promoting health and safety for a successful business.
By further implementing these strategies and our reach, we can effectively convey the importance of proactive disinfection and inspire action among businesses and individuals to prioritize cleanliness and hygiene in commercial settings.
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The Company is committed to further expanding its marketing, advertising, and educational campaigns aimed at its customer base and driving adoption of our SteraMist iHP product line across all our industries: Life Sciences, Hospital-Healthcare, TOMI Service Network, Food Safety, and Commercial. We will continue to innovate and develop tailored products to meet the specific needs of each, ensuring seamless implementation and optimal performance. Our dedicated team of technicians and representatives will continue to provide comprehensive training, maintenance, and servicing of capital equipment worldwide, supporting customers in maximizing the benefits of our patented technology. Additionally, TOMI will continue to offer protocol development and implementation services for SteraMist iHP, recognizing its critical role in various settings, particularly in pandemic preparedness scenarios.
SteraMist Pro Certified (“SPC”) - New Program Offering
The TOMI Service Network or TSN, an expansive network consisting of professionals who are exclusively licensed and trained to use the SteraMist products. TOMI trained and serviced a wide array of professional remediation companies in the use of SteraMist. The TSN addressed many cleaning protocols that changed permanently due to the COVID-19 pandemic, a network that played a significant role in facilitating and maintaining these protocols. COVID-19 highlighted the limitations of reactive approaches to cleanliness and hygiene. Recognizing this, TOMI is now championing a proactive approach to disinfection. While the pandemic may have initially spurred reactive measures, we are advocating for a shift towards proactive, ongoing disinfection protocols.
Through consistent and persistent efforts, we are slowly but steadily changing minds across all industries that individuals interact with in their daily lives. By emphasizing the importance of maintaining clean and safe environments as a preemptive measure providing long-term benefits of proactive disinfection in ensuring the health and well-being of their employees, customers, and communities, rather than merely reacting to immediate threats, we are promoting a culture of preventive healthcare. To do this more widely, we needed to offer something more than the SPC to the world.
The SteraMist Pro Certified (SPC) program signifies a significant step towards industry excellence. Our aim is to establish a standard that reflects a commitment to continuous improvement, adherence to evolving disinfection and biohazard response norms, and dedication to setting benchmarks in the field.
Central to our mission is ensuring that the SPC program resonates with consumers by placing their needs at the forefront, portraying the certification as user-centric rather than SteraMist-centric. This approach is crucial in garnering recognition and legitimacy for the certification.
In optimizing our communication, offerings, and requirements, we are prioritizing the categorization of Certification participants: Individuals, Sole Proprietors/Small Businesses, Franchises, and Internal/Departments. This classification will enable us to tailor our approach and support to meet the specific needs and challenges faced by each group.
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As we move forward, the SteraMist Pro Certified (SPC) program will encompass a comprehensive set of criteria to ensure industry-leading standards. This includes:
| 1. | SteraMist equipment ownership: Demonstrating a commitment to utilizing SteraMist technology for effective disinfection. |
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| 2. | Public health commitment: Upholding a dedication to safeguarding public health through rigorous disinfection practices. |
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| 3. | Training excellence: Ensuring thorough and ongoing training for personnel involved in disinfection procedures. |
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| 4. | Employee awareness and training: Fostering a culture of awareness and competence among staff regarding disinfection protocols. |
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| 5. | Equipment maintenance assurance: Guaranteeing the proper maintenance and upkeep of SteraMist equipment to optimize performance. |
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| 6. | Internal self-audit program: Implementing regular self-assessment processes to monitor and improve disinfection practices. |
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| 7. | Customer feedback innovation: Embracing customer feedback to drive innovation and enhance service delivery. |
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| 8. | Continuous improvement documentation: Documenting efforts to continuously enhance disinfection practices and procedures. |
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| 9. | Environmental sustainability commitment: Incorporating environmentally sustainable practices into disinfection operations. |
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| 10. | Emergency response plan with risk assessment: Developing comprehensive plans and risk assessments to effectively respond to emergencies. |
The SPC program seeks to ensure certified entities are equipped to deliver disinfection decontamination while prioritizing public health, safety, and environmental sustainability.
As a result, we will no longer maintain the TOMI Service Network (TSN) in its current form. Instead, we launched a proactive program now available to all our customers—including those in Life Sciences, Healthcare, Food Safety, and Commercial sectors. This on-demand program reflects our proactive approach, leveraging the expertise of all partners and key relationships to strengthen our brand and global presence. Through these valuable relationships we have built with industry experts, we continue to advance contamination control and validation practices.
With SteraMist iHP, we now have a game-changing technology across four key industries, capable of addressing everything from routine cleaning to complex cleanroom decontamination, patient healthcare environments, biohazard management, and border control along with an educational platform. Our domestic and international service provider partnerships are essential in driving this mission forward and expanding our impact worldwide.
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Business Highlights and Recent Events
Revenues
Total revenue for the nine months ended September 30, 2024, was $6,670,000, a 14.5% increase or $843,000 compared to $5,827,000 for the nine months ended September 30, 2023. This growth was driven by higher sales of SteraMist products and iHP Service Revenue.
SteraMist product-based revenue, which is primarily comprised of our mobile and CES equipment, was up 85% in the third quarter of the current year, when compared to the same prior year period.
Our third-quarter international revenue grew by 230%, driven by new customers in Canada, South Africa and the India, compared to the same period in 2023.
2024 Events:
On April 15, 2024, we announced our attendance at Interphex 2024 showcasing our new innovations. Interphex 2024 provides an opportunity for a wide range of biotechnology industry leaders to discover SteraMist’s groundbreaking iHP technology which was held in New York City on April 16-18, 2024.
One June 6, 2024, we announced comprehensive cost reduction initiatives to align the Company’s cost structure with targeted profitability objectives. The Company’s operational cash savings initiatives include a modification of compensation arrangement for our executive officers, pursuant to which executives will reduce their compensation by 30% of their current cash compensation for the remainder of 2024, and an optimization of our consulting arrangement, under which we terminated select external consulting agreements, with remaining consultants agreeing to reduce their consultant fees.
On June 13, 2024, we announced two recent sales in the Life Sciences sector, underscoring the Company’s successful strategic expansion in the sector and growth potential. The first purchase agreement, signed with one of the largest private pharmaceutical companies in the world, includes the acquisition of a SteraMist Environment System and TOMI validation services for the client’s vivarium facility in Mexico. The second purchase agreement arises from the Company’s collaboration with a trusted partner with decades of experience in big pharma. This partnership facilitated the sale of the first Hybrid System to Indigo Pharmaceutical, Inc. as announced in September 2023. Continuing this momentum, the partner has now successfully sold another SteraMist Hybrid System to BeSpoke Pharmaceuticals, a Nevada-based manufacturer targeting 503B products.
On July 24, 2024, we announced that EMAQ Group, Inc. purchased twenty (20) SteraMist Environment Systems, generating $1,180,280 in revenue which was recognized in the second quarter of 2024. This strategic partnership aims to enhance the market penetration of SteraMist iHP decontamination solutions within the pharmaceutical industry and is expected to grant SteraMist iHP technology the significant traction it deserves, delivering decontamination solutions that meet the stringent demands of the pharmaceutical sector.
On August 22, 2024, we announced the expansion of its partnership with a global leader in laboratory testing and diagnostics services with multiple mobile equipment purchases and a Custom Engineered System (CES) to support the expansion of their Wisconsin facility.
On September 6, 2024, we announced that Elissa J. Shane, Chief Operating Officer, and Joe Rzepka, Chief Financial Officer, will be participating in the H.C. Wainwright 24th Annual Global Investment Conference to be held September 9-11, 2024, at the Lotte New York Palace Hotel in New York City.
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Intellectual Property
Our success depends in part upon our ability to obtain and maintain proprietary protection for our products and technologies. We protect our technology and products by, among other means, obtaining United States and foreign patents. In addition, the process of obtaining and protecting patents can be long and expensive. We also rely upon trade secrets, technical know-how, and continuing technological innovation to develop and maintain our competitive position.
As part of our intellectual property protection strategy, we have registered our BIT™ solution with the EPA, all 50 states in the United States, and multiple countries worldwide. We have received or are in the process of receiving Conformité Européene (“CE”) marks in the European Economic Area (“EEA”) and are approved by Underwriters Laboratory (“UL”).
Our portfolio includes more than 25 Utility or Design Patents worldwide which expire at various dates through the year 2038 for both method and system claims on SteraMist® BIT™, as well as design of devices. We continue to pursue further claims to additional capabilities in on-going United States and worldwide patent applications; we have recently obtained new patents in Mexico and Japan. We have obtained four related United States utility patents, giving us protection of our technology until the year 2038; we are currently pursuing allowance for a fifth US patent for our backpack decontamination units and mobile carts. We have obtained utility patents for our technologies in diverse countries such as Brazil, Japan, Korea, Israel, Australia, Taiwan, Canada, Mexico, Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Portugal, Romania, Slovenia, and Sweden, Singapore, New Zealand, and in the UK, and continue to pursue protections all over the world.
We have submitted utility patent applications in multiple jurisdictions and countries, including Europe, China, Brazil, Korea and Australia for further additional applications of SteraMist BIT, and a related application has already been determined novel and inventive in Taiwan, Japan, Israel, New Zealand, Australia and Singapore. We have recently filed new patent pending applications on novel uses and enhancements of our technology in the United States. We have been awarded a design patent on our surface-mounted applicator device in the United States, China, Japan, Taiwan, and Korea. We have filed and have been granted or have pending acceptance on 32 separate design patents for our: Decontamination Chamber(s), Decontamination Applicator, Decontamination Cart, Applicator, and Surface Mounted Applicator 90-Degree Device. These patents are published around the world, including but not limited to the United States, China, Hong Kong, Europe, United Kingdom, Singapore, Taiwan, Vietnam, Canada, South Korea, and Japan. We are also pursuing IP protection for further applications of our SteraMist BIT in diverse fields in multiple jurisdictions, such as food decontamination and, in installed systems for the application of iHP for the protection of buildings post outbreak or after a biological attack. With worldwide attention on the etiology of SARs CoV2 coming from a lab leak, attention on the prevention and control of a leak or mishap should be on the mind of all the biological labs managers around the world. The fact that iHP and our BIT platform can be incorporated in new or existing buildings to create an “immune building” should assist in further lab applications of SteraMist in the biosecurity industry in the future. Our current patents with claims to systems already serve to provide protection for our technology in this area and our on-going pending applications will further enhance the scope of our intellectual property. Recently, we have filed new patent applications, both in the United States and internationally, which are directed to improved applicator designs, and designs for applications in cell biology; these new designs have been found novel during review in the World Intellectual Property Organization international application process. Initial findings for our filed improved applicator designs in cell biology may be followed by accelerated applications in many countries.
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Our products are sold around the world under various brand names and trademarks. We consider our brand names and trademarks to be valuable in the marketing of our products. As of today, we have over two hundred trademarks or trademark applications, (word and/or logo) registered or pending across the globe. TOMI registers marks in eight classes of specification of goods and services: Class 1 for Chemicals for Treating Hazardous Waste, Class 5 for Disinfectants, All-Purpose for Hard Surfaces and for Treating Mold, Class 7 for Handheld Power Operated Spraying Machines, Class 11 for Sterilizers for Medical Use and Air Purification, Class 35 for Business Consultation and Management Services, Class 37 for General Disinfecting Services, Class 40 for Chemical Decontamination and Manufacturing Services, and Class 41 for Providing Education Training and information related to biological and bacterial decontamination services. Recently, we have expanded our trademark protection into India.
Financial Operations Overview
Our financial position as of September 30, 2024 and December 31, 2023, respectively, was as follows:
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| September 30, 2024 (Unaudited) |
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| December 31, 2023 |
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Total shareholders’ equity |
| $ | 7,355,000 |
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| $ | 8,359,000 |
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Cash and cash equivalents |
| $ | 809,000 |
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| $ | 2,339,000 |
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Accounts receivable – Current, net |
| $ | 3,146,000 |
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| $ | 2,430,000 |
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Inventories |
| $ | 4,580,000 |
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| $ | 4,627,000 |
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Prepaid expenses |
| $ | 346,000 |
|
| $ | 371,000 |
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Vendor Deposits |
| $ | 97,000 |
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| $ | 29,000 |
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Other Receivables |
| $ | 164,000 |
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| $ | 164,000 |
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Accounts receivable – Long Term, net |
| $ | 206,000 |
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| $ | 206,000 |
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Current liabilities – Excluding Deferred Revenue |
| $ | 2,215,000 |
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| $ | 2,058,000 |
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Long-term liabilities – Convertible Notes |
| $ | 2,345,000 |
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| $ | 2,298,000 |
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Long-term liabilities – Other |
| $ | 547,000 |
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| $ | 643,000 |
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Working Capital |
| $ | 6,928,000 |
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| $ | 7,903,000 |
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During the nine months ended September 30, 2024, our debt and liquidity positions were affected by the following:
| · | Net cash used in operations of approximately $1,453,000. |
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Results of Operations for the Three and Nine Months Ended September 30, 2024 Compared to the Three and Nine Months Ended September 30, 2023:
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| For The Three Months Ended September 30, |
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| Change |
|
| For The Nine Months Ended September 30, |
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| Change |
| ||||||||||||
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| 2024 |
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| 2023 |
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| $ |
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| 2024 |
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| 2023 |
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| $ |
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Revenue, Net |
| $ | 2,542,000 |
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| $ | 1,470,000 |
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| $ | 1,072,000 |
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| $ | 6,670,000 |
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| $ | 5,827,000 |
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| $ | 843,000 |
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Gross Profit |
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| 1,561,000 |
|
|
| 809,000 |
|
|
| 752,000 |
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|
| 4,086,000 |
|
|
| 3,450,000 |
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|
| 636,000 |
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Total Operating Expenses (1) |
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| 1,412,000 |
|
|
| 1,710,000 |
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|
| (298,000 | ) |
|
| 5,042,000 |
|
|
| 5,629,000 |
|
|
| (587,000 | ) |
Income (Loss) from Operations |
|
| 149,000 |
|
|
| (901,000 | ) |
|
| 1,050,000 |
|
|
| (956,000 | ) |
|
| (2,179,000 | ) |
|
| 1,223,000 |
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Total Other Income (Expense) |
|
| (90,000 | ) |
|
| - |
|
|
| (90,000 | ) |
|
| (265,000 | ) |
|
| 1,000 |
|
|
| (266,000 | ) |
Provision for (benefit from) Income Taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net Income (Loss) |
| $ | 59,000 |
|
| $ | (901,000 | ) |
|
| 960,000 |
|
| $ | (1,221,000 | ) |
| $ | (2,178,000 | ) |
|
| 957,000 |
|
Basic Net Income (Loss) per share |
| $ | 0.00 |
|
| $ | (0.05 | ) |
| $ | 0.05 |
|
| $ | (0.06 | ) |
| $ | (0.11 | ) |
| $ | 0.05 |
|
Diluted Net Income (Loss) per share |
| $ | 0.00 |
|
| $ | (0.05 | ) |
| $ | 0.05 |
|
| $ | (0.06 | ) |
| $ | (0.11 | ) |
| $ | 0.05 |
|
Revenue
Total revenue for the three months ended September 30, 2024 and 2023, was $2,542,000 and $1,470,000, respectively, representing an increase of $1,072,000 or 73% compared to the same prior year period. Product based revenues for the nine months ended September 30, 2024 and 2023, were $5,247,000 and $4,501,000, representing an increase of $746,000 or 17% when compared to the same prior year period. The higher revenue was attributable to increased demand for our mobile units and higher iHP service revenue.
As customers mature through the product and adoption cycle and our sales pipeline converts to revenue, we expect to generate more predictable sales quarter over quarter.
Product and Service Revenue
|
| For The Three Months Ended September 30, |
|
| Change |
|
| For The Nine Months Ended September 30, |
|
| Change |
| ||||||||||||
|
| 2024 |
|
| 2023 |
|
| $ |
|
| 2024 |
|
| 2023 |
|
| $ |
| ||||||
SteraMist Product |
| $ | 1,766,000 |
|
|
| 953,000 |
|
| $ | 813,000 |
|
| $ | 5,247,000 |
|
| $ | 4,501,000 |
|
| $ | 746,000 |
|
Service and Training |
|
| 776,000 |
|
|
| 517,000 |
|
|
| 259,000 |
|
|
| 1,423,000 |
|
|
| 1,326,000 |
|
|
| 97,000 |
|
Total |
| $ | 2,542,000 |
|
| $ | 1,470,000 |
|
| $ | 1,072,000 |
|
| $ | 6,670,000 |
|
| $ | 5,827,000 |
|
| $ | 843,000 |
|
SteraMist Product-based revenues for the three months ended September 30, 2024 and 2023, were $1,776,000 and $953,000, representing an increase of $813,000 or 85% when compared to the same prior year period. The higher revenue was attributable to increased demand for our mobile units and higher iHP service revenue. For the nine months ended September 30, 2024 and 2023, our total revenue was $6,670,000 and $5,827,000, respectively, representing an increase of $843,000, or 14% compared to the same prior year period.
Our service-based revenue for the three months ended September 30, 2024 and 2023, was $776,000 and $517,000, respectively, representing an increase of $259,000 or 50%. For the nine months ended September 30, 2024 and 2023, our service-based revenue was $1,423,000 and $1,326,000, representing an increase of $97,000 or 7% when compared to the same prior period in 2023. The increase in service revenue was due to timing of emergency service work that occurred in the same prior period.
46 |
Table of Contents |
Revenue by Geographic Region
|
| For The Three Months Ended September 30, |
|
| Change |
|
| For The Nine Months Ended September 30, |
|
| Change |
| ||||||||||||
|
| 2024 |
|
| 2023 |
|
| $ |
|
| 2024 |
|
| 2023 |
|
| $ |
| ||||||
United States |
| $ | 1,886,000 |
|
| $ | 1,271,000 |
|
| $ | 615,000 |
|
| $ | 5,169,000 |
|
| $ | 5,001,000 |
|
| $ | 168,000 |
|
International |
|
| 656,000 |
|
|
| 199,000 |
|
|
| 457,000 |
|
|
| 1,501,000 |
|
|
| 826,000 |
|
|
| 675,000 |
|
Total |
| $ | 2,542,000 |
|
| $ | 1,470,000 |
|
| $ | 1,072,000 |
|
| $ | 6,670,000 |
|
| $ | 5,827,000 |
|
| $ | 843,000 |
|
Our domestic revenue for the three months ended September 30, 2024 and 2023 was $1,886,000 and $1,271,000, respectively, an increase of $615,000 or 48%, when compared to the same prior year period. For the nine months ended September 30, 2024 and 2023, our domestic revenue was $5,169,000 and $5,001,000, representing an increase of $168,000 or 3% when compared to the same prior period in 2023. Our domestic product-based revenue increased due to higher domestic demand for our equipment and iHP services.
Internationally, our revenue for the three months ended September 30, 2024 and 2023, was approximately $656,000 and $199,000, respectively, representing an increase of $457,000 or 230% when compared to the same prior year period. For the nine months ended September 30, 2024 and 2023, our international revenue was $1,501,000 and $826,000, representing an increase of $675,000 or 82% when compared to the same prior period in 2023. The higher revenue was attributable to increased demand for our mobile units.
Cost of Sales
|
| For The Three Months Ended September 30, |
|
| Change |
|
| For The Nine Months Ended September 30, |
|
| Change |
| ||||||||||||
|
| 2024 |
|
| 2023 |
|
| $ |
|
| 2024 |
|
| 2023 |
|
| $ |
| ||||||
Cost of Sales |
| $ | 981,000 |
|
| $ | 661,000 |
|
| $ |