UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-09908

 TOMI ENVIRONMENTAL SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Florida	59-1947988
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

8430 Spires Way, Frederick, Maryland 21701 

(Address of principal executive offices) (Zip Code) 

(800) 525-1698 

(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
Common stock, par value $0.01 per share	TOMZ	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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). Yes ☒ No ☐

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	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		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 ☐ No ☒

As of May 2, the registrant had 19,732,705 shares of common stock outstanding.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2022 

TABLE OF CONTENTS  

		Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			2
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements.		3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		25
Item 3	Quantitative and Qualitative Disclosures About Market Risk.		42
Item 4	Controls and Procedures.		43
PART II	OTHER INFORMATION
Item 1	Legal Proceedings.		44
Item 1A	Risk Factors.		44
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds.		44
Item 3	Defaults Upon Senior Securities.		44
Item 4	Mine Safety Disclosures.		44
Item 5	Other Information.		44
Item 6	Exhibits.		44
SIGNATURES			45
EXHIBIT INDEX			46

1

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.

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. 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.

2

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements.

TOMI ENVIRONMENTAL SOLUTIONS, INC. 

 CONDENSED CONSOLIDATED BALANCE SHEETS 

ASSETS
Current Assets:
	March 31, 2022 (Unaudited)			December 31, 2021
Cash and Cash Equivalents	$	5,330,473		$	5,317,443
Accounts Receivable - net		2,500,408			1,964,776
Other Receivables		164,150			235,904
Inventories (Note 3)		5,100,095			4,743,280
Vendor Deposits (Note 4)		314,836			288,586
Prepaid Expenses		456,058			343,573
Total Current Assets		13,866,020			12,893,562
Property and Equipment – net (Note 5)		1,413,751			1,488,319
Other Assets:
Intangible Assets – net (Note 6)		953,042			956,284
Operating Lease - Right of Use Asset (Note - 7)		570,297			583,271
Capitalized Software Development Costs - net (Note 8)		-			10,476
Other Assets		390,549			341,006
Total Other Assets		1,913,888			1,891,037
Total Assets	$	17,193,659		$	16,272,918
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	1,814,153		$	1,054,040
Accrued Expenses and Other Current Liabilities (Note 13)		553,126			664,608
Customer Deposits		606,984			6,000
Current Portion of Long-Term Operating Lease (Note 7)		94,539			91,775
Total Current Liabilities		3,068,802			1,816,423
Long-Term Liabilities:
Long-Term Operating Lease, Net of Current Portion (Note 7)		837,158			861,415
Total Long-Term Liabilities		837,158			861,415
Total Liabilities		3,905,959			2,677,838
Shareholders’ Equity:
Cumulative Convertible Series A Preferred Stock; par value $0.01 per share, 1,000,000 shares authorized; 63,750 shares issued and outstanding at March 31, 2022 and December 31, 2021		638			638
Cumulative Convertible Series B Preferred Stock; $1,000 stated value; 7.5% Cumulative dividend; 4,000 shares authorized; none issued and outstanding at March 31, 2022 and December 31, 2021		-			-
Common stock; par value $0.01 per share, 250,000,000 shares authorized; 19,732,705 and 16,761,513 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.		197,328			196,810
Additional Paid-In Capital		57,292,795			56,941,209
Accumulated Deficit		(44,203,060	)		(43,543,576	)
Total Shareholders’ Equity		13,287,701			13,595,080
Total Liabilities and Shareholders’ Equity	$	17,193,659		$	16,272,918

The accompanying notes are an integral part of the condensed consolidated financial statements. 

3

TOMI ENVIRONMENTAL SOLUTIONS, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(UNAUDITED)  

	For The Three Months Ended
	March 31,
	2022			2021
Sales, net	$	2,308,584		$	2,073,455
Cost of Sales		887,889			838,297
Gross Profit		1,420,695			1,235,158
Operating Expenses:
Professional Fees		190,530			173,493
Depreciation and Amortization		82,292			83,449
Selling Expenses		340,789			474,389
Research and Development		37,076			195,620
Consulting Fees		63,210			106,174
General and Administrative		1,366,625			1,712,366
Total Operating Expenses		2,080,522			2,745,491
Loss from Operations		(659,827	)		(1,510,333	)
Other Income (Expense):
Interest Income		343			427
Interest Expense		-			(1,035	)
Total Other Income (Expense)		343			(608	)
Loss before income taxes		(659,484	)		(1,510,941	)
Provision for Income Taxes (Note 16)		-			-
Net loss	$	(659,484	)	$	(1,510,941	)
Net income (loss) Per Common Share
Basic	$	(0.03	)	$	(0.09	)
Diluted	$	(0.03	)	$	(0.09	)
Basic Weighted Average Common Shares Outstanding		19,718,330			16,805,402
Diluted Weighted Average Common Shares Outstanding		19,718,330			16,805,402

The accompanying notes are an integral part of the condensed consolidated financial statements. 

4

TOMI ENVIRONMENTAL SOLUTIONS, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED) 

					For the three months ended March 31, 2022
	Series A Preferred				Common Stock				Additional Paid		Accumulated			Total Shareholders’
	Shares		Amount		Shares		Amount		in Capital		Deficit			Equity
Balance at January 1, 2022		63,750		638		19,680,955		196,810	$	56,941,209	$	(43,543,576	)	$	13,595,080
Equity Compensation										297,766					297,766
Common Stock Issued for Services Provided						51,750		518		53,820					54,338
Net (Loss) for the three months ended March 31, 2022												(659,484	)		(659,484	)
Balance at March 31, 2022		63,750	$	638		19,732,705	$	197,328	$	57,292,795	$	(44,203,060	)	$	13,287,701
					For the three months ended March 31, 2021
	Series A Preferred				Common Stock				Additional Paid		Accumulated			Total Shareholders’
	Shares		Amount		Shares		Amount		in Capital		Deficit			Equity
Balance at January 1, 2021		63,750	$	638		16,761,514	$	167,614	$	52,142,400	$	(39,108,078	)	$	13,202,574
Common Stock Issued for Services Provided						50,000		500		227,500					228,000
Net (Loss) for the three months ended March 31, 2021												(1,510,941	)		(1,510,941	)
Balance at March 31, 2021		63,750	$	638		16,811,514	$	168,114	$	52,369,900	$	(40,619,018	)	$	11,919,634

The accompanying notes are an integral part of the condensed consolidated financial statements.     

5

TOMI ENVIRONMENTAL SOLUTIONS, INC. 

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

	For the Three Months Ended March 31,
	2022			2021
Cash Flow From Operating Activities:
Net Loss	$	(659,484	)	$	(1,510,941	)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used) In Operating Activities:
Depreciation and Amortization		82,292			83,449
Amortization of Right of Use Asset		39,329			39,329
Amortization of Software Costs		10,476			10,475
Equity Compensation Expense		352,104			228,000
Reserve for Bad Debt		-			115,000
Changes in Operating Assets and Liabilities:
Decrease (Increase) in:
Accounts Receivable		(535,632	)		(141,729	)
Inventory		(356,815	)		(983,941	)
Prepaid Expenses		(112,485	)		104,866
Vendor Deposits		(26,250	)		242,582
Other Receivables		71,754			198,951
Other Assets		(49,543	)		(157,295	)
Increase (Decrease) in:
Accounts Payable		760,113			545,198
Accrued Expenses		(111,482	)		127,948
Customer Deposits		600,984			(89,932	)
Lease Liability		(38,049	)		(36,941	)
Net Cash Provided (Used) in Operating Activities		27,311			(1,224,979	)
Cash Flow From Investing Activities:
Purchase of Property and Equipment		(14,281	)		(28,205	)
Net Cash (Used) in Investing Activities		(14,281	)		(28,205	)

The accompanying notes are an integral part of the condensed consolidated financial statements.  

6

TOMI ENVIRONMENTAL SOLUTIONS, INC.  

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED  

(UNAUDITED)  

	For the Three Months Ended March 31,
	2022		2021
Cash Flow From Financing Activities:
Net Cash From Financing Activities:		-		-
Increase (Decrease) In Cash and Cash Equivalents		13,030		(1,253,184	)
Cash and Cash Equivalents - Beginning		5,317,443		5,198,842
Cash and Cash Equivalents – Ending	$	5,330,473	$	3,945,657
Supplemental Cash Flow Information:
Cash Received From Income Tax Refund	$	72,086		-

The accompanying notes are an integral part of the condensed consolidated financial statements.

7

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 humidity. Our solution is organically listed in the United States and Canada it is sustainably a green product with no or very little carbon footprint. Our business is organized into five divisions: Healthcare, Life Sciences, TOMI Service Network, 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 (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, 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, 2021 and notes thereto which are included in the Annual Report on Form 10-K previously filed with the SEC on March 29, 2022. 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.

8

Reclassification of Accounts

Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation. These reclassifications had no 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 U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying condensed 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.

Cash and Cash Equivalents

Cash and cash equivalents includes 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 March 31, 2022 and December 31, 2021, 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 have a policy of reserving for doubtful accounts based on our best estimate of the amount of potential credit losses in existing accounts receivable. 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. Bad debt expense for the three months ended March 31, 2022 and 2021 was $0 and $115,000, respectively. At March 31, 2022 and December 31, 2021, the allowance for doubtful accounts was $1,678,000.

9

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 $0 as of March 31, 2022 and December 31, 2021.

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.

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 when recognized.

Capitalized Software Development Costs

In accordance with ASC 985-20 regarding the development of software to be sold, leased, or marketed, we expense such costs as they are incurred until technological feasibility has been established, at and after which time those costs are capitalized until the product is available for general release to customers. The periodic expense for the amortization of capitalized software development costs will be included in cost of sales. Amortization expense for both the periods ended March 31, 2022 and 2021, was $10,475.

10

Accounts Payable

As of March 31, 2022, one vendor accounted for approximately 52% of accounts payable. As of December 31, 2021, two vendors accounted for approximately 53% of accounts payable.

For the three months ended March 31, 2022, two vendors accounted for 69%of cost of sales. For the three months ended March 31, 2021, two vendors accounted for 64%of cost of sales.

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 condensed 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 March 31, 2022, and December 31, 2021, our warranty reserve was $68,000. (See Note 14).

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 Accounting Standards Codification (ASC) guidance for income taxes. Net deferred tax benefits have been fully reserved at March 31, 2022 and December 31, 2021. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

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 treasury stock method and includes 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.

Potentially dilutive securities as of March 31, 2022 consisted of 2,826,710 shares of common stock issuable upon exercise of outstanding warrants, 413,000 shares of common stock issuable upon outstanding options and 63,750 shares of common stock issuable upon conversion of outstanding shares of Preferred A stock (“Convertible Series A Preferred Stock”).

Potentially dilutive securities as of March 31, 2021 consisted of 1,880,383 shares of common stock issuable upon exercise of outstanding warrants, 132,500 shares of common stock issuable upon outstanding options and 63,750 shares of common stock issuable upon conversion of outstanding shares of Preferred A stock (“Convertible Series A Preferred Stock”).

Diluted net income or (loss) per share is computed similarly to basic net income or (loss) per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if such additional shares were dilutive. Options, warrants, and preferred stock of approximately 3.3 million and 2.1 million exercisable or convertible into shares of common stock were outstanding at March 31, 2022 and March 31, 2021, respectively, but were excluded from the computation of diluted net loss per share at March 31, 2022 due to the anti-dilutive effect on net loss per share.

11

	For the Three Months Ended March 31, (Unaudited)
	2022			2021
Net Income (Loss)	$	(659,484	)	$	(1,510,941	)
Net income (loss) attributable to common shareholders	$	(659,484	)	$	(1,510,941	)
Weighted average number of shares of common stock outstanding:
Basic		19,718,330			16,805,402
Diluted		19,718,330			16,805,402
Net income (loss) attributable to common shareholders per share:
Basic	$	(0.03	)	$	(0.09	)
Diluted	$	(0.03	)	$	(0.09	)

The following provides a reconciliation of the shares used in calculating the per share amounts for the periods presented:

	For the Three Months Ended March 31, (Unaudited)
	2022			2021
Numerator:
Net Income (Loss)	$	(659,484	)	$	(1,510,941	)
Denominator:
Basic weighted-average shares		19,718,330			16,805,402
Effect of dilutive securities
Warrants		-			-
Options		-			-
Preferred Stock		-			-
Diluted Weighted Average Shares		19,718,330			16,805,402
Net Income (Loss) Per Common Share:
Basic	$	(0.03	)	$	(0.09	)
Diluted	$	(0.03	)	$	(0.09	)

Note: Warrants, options and preferred stock for the three months ended March 31, 2022 and 2021 are not included in the computation of diluted weighted average shares as such inclusion would be anti-dilutive. 

Revenue Recognition

We recognize revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). 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.

12

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 March 31, (Unaudited)
	2022		2021
SteraMist Product	$	1,886,000	$	1,661,000
Service and Training		423,000		412,000
Total	$	2,309,000	$	2,073,000

Revenue by Geographic Region

	For the three months ended March 31, (Unaudited)
	2022		2021
United States	$	1,879,000	$	1,804,000
International		430,000		269,000
Total	$	2,309,000	$	2,073,000

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.

Contract Balances

As of March 31, 2022, and December 31, 2021 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.

13

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 dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its 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 2016 Equity Incentive Plan, or 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 2,000,000 shares of common stock are authorized for issuance under the 2016 Plan. Shares issued under the 2016 Plan may be either authorized but unissued shares, treasury shares, or any combination thereof. Provisions in the 2016 Plan permit the reuse or reissuance by the 2016 Plan of shares of common stock for numerous reasons, including, but not limited to, shares of common stock underlying canceled, expired, or forfeited awards of stock-based compensation and stock appreciation rights paid out in the form of cash. Equity compensation expense will typically be awarded in consideration for the future performance of services to us. All recipients of awards under the 2016 Plan are required to enter into award agreements with us at the time of the award, and awards under the 2016 Plan are expressly conditioned upon such agreements. For the three months ended March 31, 2022 and 2021, we issued 51,750 and 50,000 shares of common stock, respectively, out of the 2016 Plan.

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 $250,000 at times during the year.

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 months ended March 31, 2022 and December 31, 2021.

Advertising and Promotional Expenses

We expense advertising costs in the period in which they are incurred. Advertising and promotional expenses for the three months ended March 31, 2022 and 2021 were approximately $194,000 and $266,000, respectively.

14

Research and Development Expenses

We expense research and development expenses in the period in which they are incurred. For the three months ended March 31, 2022 and 2021, research and development expenses were approximately $37,000 and $196,000, respectively.

Business Segments

We currently have one reportable business segment due to the fact that we derive our revenue primarily from one product. A breakdown of revenue is presented in “Revenue Recognition” in Note 2 above.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. This ASU is currently not expected to have a material impact on our condensed consolidated financial statements.

Recently adopted accounting pronouncements

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021. We adopted ASU 2021-10 starting in 2022, which did not have a material impact on our condensed consolidated financial statements.

NOTE 3. INVENTORIES

Inventories consist of the following at:

	March 31, 2022 (Unaudited)		December 31, 2021
Finished goods	$	4,664,317	$	4,293,080
Raw Materials		435,778		450,200
	$	5,100,095	$	4,743,280

NOTE 4. VENDOR DEPOSITS

At March 31, 2022 and December 31, 2021, we maintained vendor deposits of $314,836 and $288,586, respectively, for open purchase orders for inventory.

15

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at:

	March 31, 2022 (Unaudited)		December 31, 2021
Furniture and fixtures	$	357,236	$	357,236
Equipment		2,070,880		1,688,236
Vehicles		60,703		60,703
Computer and software		240,517		232,017
Leasehold improvements		386,120		386,120
Tenant Improvement Allowance		405,000		405,000
Capitalized Costs in Progress – Tooling and Molds		-		376,864
		3,520,456		3,506,176
Less: Accumulated depreciation		2,106,705		2,017,857
	$	1,413,751	$	1,488,319

For the three months ended March 31, 2022 and 2021, depreciation was $79,050 and $81,026, respectively. For the three months ended March 31, 2022 and 2021, amortization of tenant improvement allowance was $9,798 and was recorded as lease expense and included within general and administrative expense on the condensed consolidated statement of operations.

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. The trademarks have an indefinite life. Amortization expense was $3,242 and $2,422 for the three months ended March 31, 2022 and 2021, respectively.

Definite life intangible assets consist of the following:

	March 31, 2022 (Unaudited)		December 31, 2021
Intellectual Property and Patents	$	3,065,584	$	3,065,584
Less: Accumulated Amortization		2,871,639		2,868,397
Patents, net	$	193,945	$	197,187

Indefinite life intangible assets consist of the following:

Trademarks 759,097 759,097

Total Intangible Assets, net $ 953,042 $ 956,284

Approximate future amortization is as follows:

Year Ended:	Amount
April 1 – December 31, 2022	$	10,000
December 31, 2023		13,000
December 31, 2024		13,000
December 31, 2025		13,000
December 31, 2026		13,000
Thereafter		132,000
	$	194,000

16

NOTE 7. LEASES

In April 2018, we entered into a 10-year lease agreement for a new 9,000-square-foot facility that contains office, warehouse, lab and research and development space in Frederick, Maryland. The lease agreement commenced in December 2018 when the property was ready for occupancy. The agreement provided for annual rent of $143,460, an escalation clause that increases the rent 3% year over year, a landlord tenant improvement allowance of $405,000 and additional landlord work as discussed in the lease agreement. We took occupancy of the property on December 17, 2018 and the lease was amended in March 2019 to provide for a 4-month rent holiday and a commencement date of April 1, 2019. A 7% discount rate was determined using used our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

The balances for our operating lease where we are the lessee are presented as follows within our condensed consolidated balance sheet:

Operating leases:	March 31, 2022 (Unaudited)		December 31, 2021
Assets:
Operating lease right-of-use asset	$	570,297	$	583,271
Liabilities:
Current Portion of Long-Term Operating Lease	$	94,539	$	91,775
Long-Term Operating Lease, Net of Current Portion		837,158		861,415
	$	931,697	$	953,190

17

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 March 31, 2022  (Unaudited)		For the Three Months Ended March 31, 2021 (Unaudited)
Operating lease expense	$	39,329	$	39,329

Other information related to leases where we are the lessee is as follows:

	March 31, 2022 (Unaudited)			December 31, 2021
Weighted-average remaining lease term:
Operating leases	6.75 years			7.00 years
Discount rate:
Operating leases		7.00	%		7.00	%

Supplemental cash flow information related to leases where we are the lessee is as follows:

	For the Three Months Ended March 31, 2022  (Unaudited)		For the Three Months Ended March 31, 2021 (Unaudited)
Cash paid for amounts included in the measurement of lease liabilities:	$	38,049	$	36,941

As of March 31, 2022, the maturities of our operating lease liability are as follows:

Year Ended:	Operating Lease
April 1 – December 31, 2022	$	117,572
December 31, 2023		160,290
December 31, 2024		165,098
December 31, 2025		170,051
December 31, 2026		175,153
Thereafter		399,978
Total minimum lease payments		1,188,142
Less: Interest		256,445
Present value of lease obligations		931,697
Less: Current portion		94,539
Long-term portion of lease obligations	$	837,158

NOTE 8. CAPITALIZED SOFTWARE DEVELOPMENT COSTS

In accordance with ASC 985-20 we capitalized certain software development costs associated with updating our continuing line of product offerings. Capitalized software development costs consist of the following at:

	March 31, 2022
	(Unaudited)			December 31, 2021
Capitalized Software Development Costs	$	125,704		$	125,704
Less: Accumulated Amortization		(125,704	)		(115,229	)
Capitalized Software Development Costs - net	$	-		$	10,475

Amortization expense for the three months ended March 31, 2022 and 2021 was $10,475, respectively. 

18

NOTE 9. 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 $30,409 and has a term of 5 years. The annual contract payments are capitalized as a prepaid expense and amortized over a twelve-month period.

We have incurred implementation costs of $66,857 in connection with the cloud computing service contract which have been capitalized in prepaid expenses and other assets as of March 31, 2022. In accordance with ASU No. 2018-15, such implementation costs are being amortized over the remaining contract terms beginning January 1, 2021, which was when the cloud-based service contract was placed in service. Amortization expense for the three months ended March 31, 2022 and 2021 were $4,526 and $3,482, respectively.

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, $0.01 par value, consists of 1,000,000 shares. At March 31, 2022 and December 31, 2021, there were 63,750 shares issued and outstanding. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock.

Convertible Series B Preferred Stock

Our authorized Convertible Series B Preferred Stock, $1,000 stated value, 7.5% cumulative dividend, consists of 4,000 shares. At March 31, 2022 and December 31, 2021, there were no shares issued and outstanding, respectively. Each share of Convertible Series B Preferred Stock may be converted (at the holder’s election) into two hundred shares of our common stock.

Common Stock

In January 2021, we issued 50,000 shares of common stock valued at approximately $228,000 to members of our Board (see Note 12). 

In September 2021, we sold 2,869,442 shares of common stock through a registered direct offering and issued 1,434,721 warrants to purchase common stock in a concurrent private placement. We received net proceeds from the transaction of $4,581,651, after deducting the placement agent’s fees and other estimated offering expenses. The Warrants have an exercise price of $1.68 per share, are exercisable immediately upon issuance and have a term of  five years from the date of issuance. In addition, we issued 172,167 warrants to the placement agent which have a term of five years and an exercise price of $2.18 per share. 

In January 2022, we issued 51,750 shares of common stock valued at approximately $54,000 to members of our Board pursuant to our equity plan (see Note 12).

Stock Options

 In January 2022 we issued an option to purchase 172,500 shares of common stock to our Chief Executive Officer at an exercise price of $1.12 per share pursuant to an employment agreement. The option was valued at $178,281 and has a contractual term of 10 years. We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions: volatility, 156%; expected dividend yield, 0%; risk free interest rate, 1.65%;

and an expected life of 5 years. The grant date fair value of each share of common stock underlying the warrant was $1.03.

19

In January 2022 we issued an option to purchase 57,500 shares of common stock to our Chief Operating Officer at an exercise price of $1.12 per share pursuant to an employment agreement. The option was valued at $59,427 and has a contractual term of 10 years. We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions: volatility, 156%; expected dividend yield, 0%; risk free interest rate, 1.65%; and an expected life of 5 years. The grant date fair value of each share of common stock underlying the warrant was $1.03.

In January 2022 we issued an option to purchase 40,000 shares of common stock to our Chief Financial Officer at an exercise price of $1.12 per share pursuant to an employment agreement. The option was valued at $41,340 and has a contractual term of 10 years. We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions: volatility, 156%; expected dividend yield, 0%; risk free interest rate, 1.65%; and an expected life of 5 years. The grant date fair value of each share of common stock underlying the warrant was $1.03.

The following table summarizes stock options outstanding as of March 31, 2022 and December 31, 2021:

	March 31, 2022 (Unaudited)				December 31, 2021
	Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
Outstanding, beginning of period		143,000	$	2.66		132,500	$	2.72
Granted		270,000		1.12		10,500		1.93
Exercised		-		-		-		-
Expired		-		-		-		-
Outstanding, end of period		413,000	$	1.65		143,000	$	2.66

Options outstanding and exercisable by price range as of March 31, 2022 were as follows:

Outstanding Options				Average Weighted		Exercisable Options
Range		Number		Remaining Contractual Life in Years		Number		Weighted Average Exercise Price
$	0.80		27,500		2.95		27,500	$	0.80
$	0.88		31,250		1.76		31,250	$	0.88
$	0.96		25,000		1.77		25,000	$	0.96
$	1.12		270,000		9.81		270,000	$	1.12
$	1.93		10,500		4.71		10,500	$	1.93
$	2.16		5,000		2.75		5,000	$	2.16
$	4.40		12,500		3.80		12,500	$	4.40
$	7.06		31,250		3.50		31,250	$	7.06
			413,000		7.38		413,000	$	1.65

Stock Warrants

On February 11, 2021, we agreed to amend (the “Warrant Amendment”) the warrant to purchase 125,000 shares of TOMI common stock, par value $0.01 (the “Common Stock”), issued by TOMI to Dr. Halden S. Shane, TOMI’s Chief Executive Officer and a director on TOMI’s board of directors, on February 11, 2014 (the “Warrant”), to provide TOMI an option to repurchase the Warrant from Dr. Shane at a negotiated price. In connection with the Warrant Amendment, TOMI repurchased the warrant from Dr. Shane (the “Repurchase”) for an aggregate cash consideration of $314,500, representing a 15% discount of the net exercise cash value of the Warrant, which was calculated using the closing price of the Common Stock on the Nasdaq on February 11, 2021 of $5.36, less the exercise price of the warrants in the amount of $2.40. On the same date, the Warrant Amendment and the Repurchase was considered, approved and adopted by a disinterested majority of TOMI’s board of directors. The $314,500 charge in connection with the warrant amendment has been included in General and Administrative expenses for the three months ended March 31, 2021.

20

The following table summarizes the outstanding common stock warrants as of March 31, 2022 and December 31, 2021:

	March 31, 2022 (Unaudited)						December 31, 2021
	(Unaudited)			Weighted Average Exercise Price			Number of Warrants			Weighted Average Exercise Price
Outstanding, beginning of period		3,381,021		$	2.22			2,049,133		$	2.55
Granted		-			-			1,606,888			1.73
Exercised		-			-			(76,796	)		-
Expired		(554,311	)		(2.24	)		(262,500	)		(2.65	)
Outstanding, end of period		2,826,710		$	2.22			3,381,021		$	2.22

Warrants outstanding and exercisable by price range as of March 31, 2022 were as follows: 

Outstanding Warrants						Exercisable Warrants
Exercise Price		Number		Average Weighted Remaining Contractual Life in Years		Number		Weighted Average Exercise Price
$	0.64		31,250		1.65		31,250	$	0.64
$	0.80		158,125		1.51		158,125	$	0.80
$	0.96		442,708		0.69		442,708	$	0.96
$	1.12		6,250		2.05		6,250	$	1.12
$	1.20		175,000		2.63		175,000	$	1.20
$	1.36		1,250		0.57		1,250	$	1.36
$	1.68		1,434,721		1.50		1,434,721	$	1.68
$	2.18		172,167		4.50		172,167	$	2.18
$	4.00		28,750		8.07		28,750	$	4.00
$	6.95		375,000		8.50		375,000	$	6.95
$	8.40		1,488		1.37		1,488	$	8.40
			2,826,710		3.41		2,826,710	$	2.22

There were no unvested warrants outstanding as of March 31, 2022.

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 March 31, 2022 and December 31, 2021, there were no claims against us for product liability.

21

COVID-19 Pandemic

The COVID-19 pandemic has temporarily increased the global demand for disinfection products and services that help prevent the spread and transmission of COVID-19 virus. The Company’s products have been identified as an essential disinfectant and decontamination vendor by various agencies and countries, which have materially affected its business and results of operations.  The Company experienced a substantial increase in demand for our products and services in 2020 due to the pandemic.  Throughout 2021, the Company experienced a reduction of demand due to various factors, including the closure of our major customers’ business operations due to the pandemic, which resulted in the suspension of many of its ongoing long-term projects.  As the impact of the COVID-19 pandemic began to subside and economic activities gradually return to normal, customers reallocated their resources elsewhere and reduced their spending on disinfection products, which resulted in lower demand for our products.  It is difficult to predict how COVID-19 pandemic will affect the Company’s financial performance in the remainder of 2022, as the global economy gradually reopens, customers adjust and change their operations, and the Company implements new marketing and sales strategies in response.

NOTE 12. CONTRACTS AND AGREEMENTS

Executive Agreements

Halden S. Shane

On September 22, 2020, we entered into a three-year employment agreement with Dr. Shane, effective October 1, 2020. The agreement provides for a base annual salary of $500,000. The agreement also provides for a signing bonus of 375,000 warrants. Dr. Shane is also entitled to a cash performance bonus and an annual issuance of an option to purchase 31,250 shares of common stock from the 2016 Plan at the discretion of the Board. The agreement also provides that we will reimburse Dr. Shane for the expenses associated with the use of an automobile up to $750 a month. The term of the agreement is three years.

In the event Dr. Shane is terminated as CEO as a result of a change in control, Dr. Shane will be entitled to a lump sum payment of two years’ salary at the time of such termination.

The Board may terminate Dr. Shane for cause by written notification to Dr. Shane; provided, however, that no termination for cause will be effective unless Dr. Shane has been provided with prior written notice and opportunity for remedial action and fails to remedy within 30 days thereof, in the event of a termination by the Company (i) by reason of willful dishonesty towards, fraud upon, or deliberate injury or attempted injury to, the Company, (ii) by reason of material breach of his employment agreement and (iii) by reason of gross negligence or intentional misconduct with respect to the performance of duties under the agreement. Upon termination for cause, Dr. Shane will be immediately paid an amount equal to his gross salary. The Board may terminate Dr. Shane other than for cause at any time upon giving notice to Dr. Shane. Upon such termination, Dr. Shane will be immediately paid an amount equal to his gross salary.

Elissa J. Shane

On October 1, 2020, we entered into an employment agreement with Elissa J. Shane, effective October 1, 2020. Pursuant to her employment agreement, Ms. Shane will receive an annual base salary of at least $270,000, subject to annual review and discretionary increase by the Compensation Committee of the Board. Ms. Shane is eligible to receive an annual cash bonus and other annual incentive compensation. The agreement originally provided for a grant of 93,750 warrants. Additionally, in connection with the execution of her employment agreement, on October 1, 2020, we issued Ms. Shane a warrant to purchase 93,750 shares of Common Stock at an exercise price of $6.17 per share. These provisions were subsequently amended to provide for the issuance to Ms. Shane of 31,250 options from the 2016 Equity Plan at the closing price of $7.06 on the date of grant in lieu of the warrant grant and the 93,750 warrants were cancelled. Ms. Shane acknowledged that the 31,250 options were in full consideration of the amount she was entitled to under the agreement. Her employment agreement also provides that we will reimburse Ms. Shane for reasonable and necessary business and entertainment expenses that she incurs in performing her duties. During the term of her employment, Ms. Shane will also be entitled to up to four weeks of paid vacation time annually, which will accrue up to six weeks, and to participate in our benefit plans and programs, including but not limited to all group health, life, disability and retirement plans. Ms. Shane is also entitled to the sum of $1,000 per month as a vehicle allowance. The initial term of her employment agreement is three years, which may be automatically extended for successive one-year terms, unless either party provides the other with 120 days’ prior written notice of its intent to terminate the agreement.

22

In the event Ms. Shane is terminated as COO as a result of a change in control, Ms. Shane will be entitled to a lump sum payment of one and a half years’ salary at the time of such termination.

Director Compensation

In January 2022, we increased the annual fee to the members of our Board to $44,000, to be paid in cash on a quarterly basis, with the exception of the audit committee chairperson, whose annual fee we increased to $50,600, also to be paid in cash on a quarterly basis. Director compensation also includes the annual issuance of our common stock.

For the three months ended March 31, 2021, we issued an aggregate of 50,000 shares of common stock that were valued at approximately $228,000 to members of our Board.

For the three months ended March 31, 2022, we issued an aggregate of 51,750 shares of common stock that were valued at approximately $54,000 to members of our Board.

Manufacturing Agreement

In June 2020 we entered into a manufacturing agreement with Planet Innovation Products, Pty Ltd (“PI”). The agreement does not provide for any minimum purchase commitments and is for a term of three years. The agreement also provides for a warranty against product defects.

Cloud Computing Service Contract

In May 2020 we entered into an agreement with a vendor for a cloud computing service contract. The contract provides for annual payments in the amount of $30,409 and has a term of 5 years. Approximate minimum future payments under the contract are as follows:

Year Ended:	Amount
April 1 - December 31, 2022	$	30,000
December 31, 2023		30,000
December 31, 2024		30,000
December 31, 2025		-
	$	90,000

NOTE 13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at: 

	March 31, 2022 (Unaudited)		December 31, 2021
Commissions	$	170,349	$	228,665
Payroll and related costs		178,026		241,434
Director fees		34,650		31,250
Sales Tax Payable		5,923		19,411
Accrued warranty (Note 14)		68,000		68,000
Other accrued expenses		96,178		75,848
Total	$	553,126	$	664,608

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.

23

The following table presents warranty reserve activities at:

	March 31, 2022 (Unaudited)			December 31, 2021
Beginning accrued warranty costs	$	68,000		$	68,000
Provision for warranty expense		6,597			75,618
Settlement of warranty claims		(6,597	)		(75,618	)
Ending accrued warranty costs	$	68,000		$	68,000

NOTE 15. INCOME TAXES

For the three months ended March 31, 2022 and 2021, our provision for income tax was $0. 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, which are, on a more likely than not basis, not expected to be realized in accordance with ASC guidance for income taxes. As of March 31, 2022 and December 31, 2021, we recorded a valuation allowance of $5,042,000 and $4,941,000, respectively for the portion of the deferred tax assets that we do not expect to be realized. Management believes that based on the available information, it is more likely than not that the remaining U.S. deferred tax assets will not be realized, such that a valuation allowance is required against U.S. deferred tax assets. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

NOTE 16. CUSTOMER CONCENTRATION

Three customers accounted for 41% of net revenue for the three months ended March 31, 2022. We had no customers/distributor whose revenue individually represented 10% or more of our total revenue for the three months ended March 31, 2021.

We had one customers/distributors that accounted for 14% of accounts receivable as of March 31, 2022. Three customers/distributors accounted for 42% of accounts receivable as of December 31, 2021.

NOTE 17. SUBSEQUENT EVENTS

24

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This section 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. For example, statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on the Company’s business and results of operations are forward-looking statements. 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 are not guaranteeing future performance and the Company’s 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, 2021 (the “2021 Form 10-K”) 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 particular 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 discussion should be read in conjunction with the 2021 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q. 0

Quarterly Highlights

Business Update

The first four months of the 2022 fiscal year has been active with respect to our sales and business development. We remain focused on growing our top line revenue, expanding our customer base, adding key employees, and making further innovations to our product line.

The first quarter of 2022 delivered improved revenue and operating results as we achieved a 11% growth in our first quarter sales and 24% reduction in our operating expenses when compared to the same period last year .  Our first quarter revenue also grew by 15% sequentially over what was reported in the fourth quarter of 2021.  The increase in sales was primarily due to higher demand for our mobile equipment and iHP corporate services. 

In the first quarter of 2022, we report positive cash flow from operations for first time since the second quarter of 2020, and this improvement in cash flow was attributable to customer deposits we received in the first quarter in addition to lower operating expenses. 

During the first quarter of 2022 we received approximately $3.5 million in orders from key fortune 500 customers, of which we anticipate about $3.2 million of which to be recognized as revenue in our current calendar year.  A key driver to our longer-term growth is strengthening demand for our Custom Engineered Systems (CES). We have secured several new orders for our iHP CES and more set to close eminently, revenue recognition will be upon delivery throughout 2022 and early 2023.

As the markets need for our automated disinfection CES continues to increase, TOMI has re-engaged with our manufacturing sales representatives and partners both domestically and internationally.  The renewed interest can be attributed to TOMI corporate’s support and the launch of the SteraMist Support Portal that is available on desktop.  We have also developed a mobile app which provides ease of use for sales support, branding, and assistance to our TOMI Service Network providers, sales representatives, and international distributors and end users.

Studies remain a focus as TOMI continues to pursue a wide array of industries. Studies focused on Botrytis cinerea and Mycotoxin, as well as furthering testing on chemical and biological warfare agents will further enhance TOMI’s ability to further penetrate the market.

25

Finally, our manufacturing capacity and capabilities were improved in the first quarter of 2022 with the addition of ARM Enertech Associates who can manufacture our CES in their Pennsylvania facility. Furthermore, our existing manufacturer Planet Innovation has expanded into California providing easier access to our internal technology team and a lower cost in domestic shipment charges. We anticipate these developments will reduce our overall costs and manufacturing lead times.

Product Development

As many industrial companies are reducing R&D and capital expenditures spending due to the economic impact of the pandemic, we are moving ahead with many new products in development. In 2022, we intend to increase capital expenditures (CapEx) and operating expenditures (OpEx), including development of new products, services and process technologies to sharpen our competitive advantage. In addition, we intend to expand our commercial service location to meet the expanding needs of our customers.

The second half of 2020 showed us that our customers prefer a disinfection device with lower cost and more versatility. To respond, we developed the Backpack (SteraPak) that includes our award winning 6-log and above kill technology and speed. In addition, our solution and process are environmentally friendly as the only biproduct from our decontamination process is oxygen and humidity. Our solution is OMRI certified and organically listed in the United States and Canada it is sustainably a green product with no or very little carbon footprint. We have competitively priced our SteraPak and expect to bring SteraMist to the largest cleaning market in the world, including members of ISSA (International Sanitary Supply Association) and its divisions IEHA (Integrated Environment and Health Assessment) and EMEA (Europe, Middle East & Africa). These organizations have historically been price conscious and were resistant early on to our SteraMist pricing of our professional decontamination equipment (SteraMist Surface and Environment Unit). As planned, we introduced our new innovative SteraPak domestically towards the end of the third quarter 2021.

During the third quarter 2021, we established and expanded our production capacity with the construction and purchase of the tooling and molds used in the production of our SteraPak. Our tooling and molds will allow us to streamline production and reduce manufacturing lead times and costs on the SteraPak.

Other new products that have been incorporated into our product line include the Select Plus, which is a hybrid product consisting of the Company’s current Surface Select and Environment systems. The unit will allow for enhanced flexibility by using a single applicator to decontaminate full-room to small-space volume while maintaining the size of the current Surface Select unit with more robust process controls. The iHP SteraMist Transport System has been designed for the transportation market, specifically ambulances. The iHP SteraMist Transport System is a simple timer based fogging system that can be installed semi-permanently or permanently and used for any transport and/or cargo vehicle. It will be an easy-to-use turn-key integration system. The implementation of this product and our patented non-corrosive iHP technology should replace the number one competitor in this marketplace, which uses an extremely harsh chemical.

Many of our customers have been waiting for the release and demonstration of these new products, especially the SteraPak.  All SteraMist systems will remain important to the marketplace as they are designed for specific needs and budgets. The Select Surface Unit perform most of the functionality that the Plus offers and is priced at a lower cost, although Select Plus will provide additional options that are appealing to certain customers, such as laboratory and pharmaceutical companies. The SteraPak is a more cost-effective product and designed for residential and commercial real estate including large buildings and public space, any area that needs quick consistent disinfection. There are many new and existing clients that are interested in the SteraPak due to the cost and mobility. 

In third quarter of 2021, we expanded our SteraMist^® BIT^™ solution product line with a 32-ounce bottle for the SteraPak, and the introduction of a ten (10) liter and five (5) gallon bottle. These three new additions bring the BIT Solution product line to a total of five (5) options provided to our customers, which should also benefit our razor razor-blade business model.

These new products and service introductions can significantly impact net sales, cost of sales and operating expenses. The timing of product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch, and channel inventory of an older product often declines as the launch of a newer product approaches. Net sales can also be affected when consumers and distributors anticipate a product introduction domestically and internationally.

26

Overview

TOMI Environmental Solutions, Inc. (“TOMI”, “we” and “our”) is a global bacteria decontamination and infectious disease control company, providing environmental solutions for indoor surface decontamination through the manufacturing, sales, service and licensing of our SteraMist® brand of products, including SteraMist® BIT™, a low percentage (7.8%) hydrogen peroxide-based fog or mist that uses Binary Ionization Technology (BIT™). Our solution and process are environmentally friendly as the only biproduct from our decontamination process is oxygen and humidity. Our solution is organically listed in the United States and Canada it is sustainably a green product with no or very little carbon footprint. Most of our competitors in the disinfection space leave significant byproducts and are corrosive. SteraMist is not corrosive, and it does not damage equipment or facilities.

Our SteraMist® is a patented technology that produces ionized Hydrogen Peroxide (iHP™) using cold plasma science created under a grant by the United States Defense Advanced Research Projects Agency (DARPA). Our EPA registered BIT™ Solution is composed of a low concentration of hydrogen peroxide converted to iHP™ after passing the trade secret blended solution including its sole active ingredient of 7.8% hydrogen peroxide through an atmospheric cold plasma arc. The newly formed iHP™ fog and mist consists of submicron’s to 3-micron radical particles that are carried throughout the treatment area in a fog or mist moving with the same velocity and characteristics of a gas. This allows the ionized hydrogen peroxide fog or mist to affect all surfaces and air space throughout the targeted treatment area, over, above and beyond the ability of a manual cleaning processes. iHP™ damages pathogenic organisms through the oxidation of proteins, carbohydrates, and lipids. SteraMist® no-touch disinfection and or decontamination treat areas mechanically, causing cellular disruptions and/or dysfunctions resulting in a 6-log (99.9999%) and greater kill or inactivation of all pathogens in the treatment area.

Under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), we are required to register with the EPA and certain state regulatory authorities as a seller of disinfectants. In June 2015, SteraMist® BIT™ was registered with the EPA as a hospital-healthcare disinfectant and general broad-spectrum surface disinfectant for use as a misting/fogging agent. SteraMist® BIT™ now holds EPA registrations (# 90150-2) for mold control, and air and surface remediation (# 90150-1). In February 2016, we expanded our label with the EPA to include Clostridium difficile Spores and MRSA, as well as the influenza (Avian) virus h1n1, which we believe has better positioned us to penetrate all industries including the biodefense and healthcare industry. In August 2017, our EPA label was further expanded to include efficacy against Salmonella and Norovirus. As of January 27, 2017, our technology is one of 53 of the EPA’s “Registered Antimicrobial Products Effective against Clostridium difficile Spores”, as published on the EPA’s K List. Further, in December 2017, SteraMist® was included in the EPA’s list G (Norovirus), L (Ebola) and M (Avian Flu). In March 2020, our EPA label was further amended to include Emerging Viral Pathogens claims, thus meeting the criteria against Enveloped viruses and Large Non-enveloped viruses and included on List N (Emerging Viral Pathogens including SARS-CoV-2). In 2021, the EPA granted SteraMist® BIT™ 0.35% hydrogen peroxide – EPA registration number 90150-3.

SteraMist® BIT™ brings to the world a mechanical and automated method of cleaning using a game-changing technology and EPA registered Hospital-HealthCare disinfectant providing an upgrade to existing disinfecting and cleaning protocols while limiting liability in a facility when it comes to resistant infectious pathogens. We maintain this registration in all fifty (50) states, Washington DC, Canada, and approximately thirty-five (35) other countries.

Markets

Our SteraMist^® products are designed to address a wide spectrum of industries using iHP^™. Our operations consist of five main divisions based on our current target industries: Hospital-HealthCare, Life Sciences, TOMI Service Network (TSN), Food Safety and Commercial.

We continue to offer our customers a wide range of innovative mobile products designed to be easily incorporated into their existing disinfection and decontamination procedures and protocols. Our newly released SteraPak, among other product lines will allow us to progress further into market share, specifically for our Life Science, Hospital-HealthCare, TSN, and Commercial divisions. Additionally, we offer integrated facility equipment installations known as Custom Engineered Systems (CES), routine & emergency iHP Corporate Service, essential training packages, validations and qualifications, and onsite performance maintenance requests.

27

Each of these are structured to address the unique disinfection and decontamination needs of our customers worldwide regardless of industry requiring or requesting SteraMist^® disinfection decontamination.

A brief overview of the target industries is presented below:

Life Sciences

The SteraMist^® Environment System, Custom Engineered Systems (CES), the SteraMist^® Select Surface Unit (Plus), SteraBox, 90 Degree Applicator and our iHP^™ Corporate Service Division, are 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.

Long term, ongoing projects and validations continue to be a focus and lead to proposals and interest for our CES permanent decontamination room. As these are longer lead-time sales that can take months to design, build and implement, we expect installations to have impact to our results in 2022.

Further, we believe that post COVID pandemic has brought some attention to the SteraMist product line, as our CES in Pfizer Missouri was recently showcased in a New York Times article as they featured their COVID vaccine processes.  In addition, our iHP Corporate Service team treated one of four fill lines in a North Carolina pharmaceutical company that manufactures one of the COVID vaccines, with the remaining three lines set to be decontaminated in the future with SteraMist.

               For 2022 and beyond TOMI expects growth in SteraMist Custom Engineered Systems (CES) bids and the manufacturing and implementation of these fully automated decontamination systems.  The first CES system was completed in 2016 for Dana Farber Cancer Institute, as Dana Farber was designing a new vivariumand had the opportunity to integrate several new technologies to advance overall efficiency, quality, and design.  One such technology was the use of our ionized Hydrogen Peroxide (iHP) decontamination. TOMI’s CES is an automated system that can be fully integrated into any company’s infrastructure, enabling decontamination, without burdening manual use and with the collaboration of current premier customers and partners, TOMI has further perfected the system. The CES eliminates issues such as human error, guarantees accuracy that is unmatched by competitors, and decreases a client’s labor cost and downtime, and in a short time the CES may make up a majority of TOMI’s revenue. Since its launch, SteraMist’s CES has become a leading solution to growing customer demands.

Hospital-Healthcare

The SteraMist^® line of products, specifically the SteraMist^® Surface Unit and SteraMist^® Total Disinfection Cart, are our main solutions to aid our Hospital-HealthCare customers in providing high quality of safety to their patients and personnel by disinfecting operating rooms, pharmacies, ambulances, and emergency environments throughout a healthcare facility. TOMI’s latest product, the SteraPak, further assists healthcare communities with an easy-to-use, cordless disinfection solution, creating a more mobile solution. Our customers that have successfully adopted our technology in Hospital-Healthcare facilities, have recurring revenue and reorder rates of our BIT^™ Solution. We plan to continue to expand our marketing, advertising and educational campaigns targeted at the Hospital-Healthcare marketing in an effort to grow our customer base and increase adoption of our SteraMist^® line of products.

Our team of technicians and representatives train, maintain, and service capital equipment throughout the world for our Hospital-HealthCare customers. As our Training and Implementation department expands, we expect continued growth and purchases in our Hospital-HealthCare division. TOMI provides protocol development and implementation of SteraMist^® as it is critical in the healthcare setting. During 2020 the use of our SteraMist^® in such campuses increased due to our comprehensive training for their day and night shift maintenance and housekeeping departments. Annual comparison case studies from healthcare facilities are now available, which shows lower transmission infection rates in COVID, Clostridium difficile Spores and overall, HAI cases.

UCLA recently completed a successful collection of critical data for the Shield Study. The Shield Study is a multi-year study comparing SteraMist with manual clean. The Study was conducted by multiple well-established hospitals. Initial findings have been positive regarding ease of use, overall efficacy, and quick turnaround time of patient rooms. TOMI looks forward to announcing the full results as soon as they are available to make public.

28

TOMI anticipates this study will assist in the expansion of current HealthCare customers to follow the model of Gila River Health Care. Gila River is one of TOMI’s largest Healthcare customers owning a total of fourteen (14) Surface Units and Two (2) SteraPaks. The Gila River Indian Community (GRIC) is an Indian reservation in Arizona that is made up of seven (7) districts and is home to the Akimel O’oodham (Pima) and the Pee-Posh (Maricopa) tribes. Gila River Health Care, a premier Native American healthcare system, provides high quality patient care, delivering a wide variety of medical services such as general surgery, dental, and emergency medicine, as well as associated health services such as pharmacy and laboratory operations, skilled nursing and rehabilitation.

TOMI Service Network

The TOMI Service Network, or TSN, is an expansive network consisting of professionals throughout North America who are exclusively licensed and trained to use the SteraMist^® products. With the purchase of SteraMist and joining TSN, TOMI trains and services a wide array of professional remediation companies in the use of SteraMist^® throughout the TSN division. TSN allows for increased accessibility and brand awareness of iHP^® services to facilities in need of local routine and emergency disinfection and decontamination.

The TOMI Service Network (TSN) division is addressing the cleaning protocols that have changed permanently due to the COVID-19 pandemic, and our network is expected to play a significant role in facilitating and maintaining these protocols throughout the United States and Canada. The urgency for emergency disinfection services may have declined, but the education and support of such services that TOMI personnel provide to our members creates an advantage by maintaining strong business relationships while they service thousands of SteraMist customers, and the world returns to the new normal.

Our SteraPak release is an important factor for this market that we will increase the new member onboarding. Current members are showing interest in purchasing the SteraPak to expand their current SteraMist offerings.

Food Safety

Food Safety presents significant potential as an opportunity for substantial growth with continued product research and compliance testing. With the food safety industry in North America coming under closer scrutiny with the implementation and enforcement of new and established guidelines. This concentration has previously been approved by the USDA and FDA for direct food and crop application and will allow SteraMist^® to expand use sites beyond food processing machinery, restaurants, and food contact areas. This will assist compliance with the newly established Food Safety Modernization Act guidelines set in place by the FDA, as well as the Safe Food for Canadians Act and Safe Food for Canadians Regulations in Canada.

TOMI continues to work with premium companies in testing and validating SteraMist^® technology in the Food Safety and seed industries. In 2022, we look to make further progress in enhancing brand awareness by promoting and marketing this division. We are receiving an increase in inquiries within the Food Safety division directly from these efforts.

With the global population explosion, we anticipate an increase in the demand for a mechanical way to disinfect our food supply. Every day there are news articles around the world pertaining to the contamination of food supply. The many published articles that the USDA in cooperation with TOMI have demonstrated that our technology offers a consistent alternative to the decade’s old chemical disinfection process.

SteraMist will deliver more consistent and quicker results in all areas of our food supply- From Farm to Market, Processing to packaging and Storage to delivery. We plan on pursuing all these avenues. With the continued testing and need for the market coupled with our new .35% label, should make pursuing these opportunities successful. In addition, our solution and process is environmentally friendly in that the biproduct of SteraMist is only oxygen and humidity. We have our solution listed on OMRI and labeled as organic. Most disinfectants leave residue on furniture, objects, and foods. SteraMist does not leave any chemical residue on any surface. We have a very low carbon footprint, if any.

Commercial

Our Commercial division includes but is not limited to use sites such as aviation, airports, police and fire, prisons, manufacturing companies, automobile, military, 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 to use SteraMist^® throughout their community.

29

Interest in SteraMist disinfection within the commercial division remains high. The SteraPak is a popular product for this division because customers are looking for a more cost-effective solution compared to the current disinfectants on the market. As quick and mobile disinfection solution is preferred in this industry, we believe that SteraPak will generate substantial customer interest and create sales opportunities. Currently our customers are purchasing our SteraPak in all of our divisions to provide quick disinfection throughout various sites in their facilities.

Business Highlights and Recent Events

Revenues:

Total revenue for the three months ended March 31, 2022 and 2021, was $2,309,000 and $2,073,000, respectively, representing an increase of $236,000, or 11% compared to the same prior year period. The first quarter sales grew by 15% over what was reported in the fourth quarter of 2021. The increase in revenue was attributable to higher demand for our mobile equipment and iHP Corporate service revenue.

SteraMist product-based revenues for the three months ended March 31, 2022 and 2021, were $1,886,000 and $1,661,000, representing an increase of $225,000 or 14% when compared to the same prior year period.

Our service-based revenue for the three months ended March 31, 2022 and 2021, was $423,000 and $412,000, respectively, representing a year over year increase of 3%.

Our domestic revenue for the three months ended March 31, 2022 and 2021 was $1,879,000 and $1,804,000, respectively, an increase of $75,000, or 4% when compared to the same prior year period.

Internationally, our revenue for the three months ended March 31, 2022 and 2021, was approximately $430,000 and $269,000, respectively, representing an increase of $161,000 or 60% when compared to the first quarter of 2021.

We continue to see positive signs in the marketplace with our customers and prospective customers which has contributed to our growth in our reportable revenue for the first quarter and bolstered our current sales pipeline.  During the first quarter we received approximately $3,500,000 in orders, of which we anticipate $3,200,000 will be recognized as revenue in our current calendar year.  As of March 31, 2022, we maintain deposits from customers of approximately $607,000 which down payments on future orders that are expected to be recognized into revenue in 2022.  The growth in our orders was due to increased demand for our mobile equipment and Custom Engineered Systems (CES) from both the life science and hospital sectors.    

We believe that we possess the best technologies in the world in the disinfection and decontamination space. The COVID-19 pandemic has provided us with the opportunity and motivation 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, which we believe will lead to increased market share, profitability, and capability strength. Our products are an environmentally friendly solution and process which 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 results of other disinfectants.

Dangerous pathogens still exist and will exist long after we recover from this pandemic. While the United States and most of the world is currently recovering from the COVID-19 pandemic, there are many pathogens which are respiratory in nature that are still a looming threat; these cases are occurring globally to this day. We believe SteraMist can mitigate and reduce the impact of the next pandemic as it has already proved during the outbreaks of Ebola, MERS and recently with SARS CoV-2 pandemic. As the world faces uncertainty with an ongoing war, SteraMist is prepared for a chemical and biological warfare with proven efficacy against many agents, as well as inventory and support readily to deploy at a moment’s notice. The need for a speedy comprehensive mechanical disinfectant like SteraMist cannot be stressed enough and should be included as the new norm of cleaning.

30

2022 Events:

On January 12, 2022, we assisted the decontamination efforts of On Demand Pharmaceuticals, an innovative technology company transforming how medicines are made, by providing its SteraMist Environmental Systems for use at On Demand Pharmaceutical’s modular cleanroom.

On February 10, 2022, we announced that we received approximately $1.3 million of orders for its Custom Engineered Systems (CES) and have set installation dates for these systems. Two of the orders are from a Fortune 500 pharmaceuticals company and the other is from a leading research facility focused on immunology and infectious disease. These additional CES orders are timed nicely after the final commissioning of the CES reported in October 2021 and installed months later after announcement for Fresenius Kabi’s Portuguese affiliate Labesfal S.A. located in the heart of Portugal.

On March 8, 2022, we partnered with ARM EnerTech Associates, LLC, a U.S.-based engineering services & custom control panel manufacturer, to further develop its SteraMist brand of products.

On March 10, 2022 we announced that we fulfilled an urgent shipment of multiple SteraPak units to its local distributor in Hong Kong, TOMIMIST Hong Kong. The units were deployed by a well-known real-estate conglomerate in Hong Kong for use in shopping malls, commercial and residential buildings, and numerous other business premises to effectively combat the massive outbreak of COVID-19 Omicron variant infections in the city.

As conferences and tradeshows are reopening in 2022 companies to exhibit live, TOMI will be attending multiple shows across the country. It is critical for TOMI to perform live demonstrations to showcase the difference between our SteraMist iHP technology and our competitors. TOMI looks forward to making a large impact with live demonstrations of SteraMist disinfection technology throughout our multiple divisions.

On April 12, 2022, we announced the attendance of the RIA 2022 International Restoration Convention & Industry Expo. This show provided insight on the future of restoration businesses regarding mergers and acquisitions and meetings with core entities to discuss SteraMist disinfection potential with large franchises.

On April 25, 2022, we released that TOMI was exhibiting at FDIC International, which is the largest fire and rescue conference. As first-time exhibitors, we gained knowledge on the EMS market and their need for disinfection. With concerns of corrosion, vehicle turnover time, and residues left behind by older technologies, SteraMist technology saw great interest as it does not corrode or damage equipment, leave residue, and quickly disinfects. This market eagerly awaits the release of the iHP SteraMist Transport System.

Research Studies and Publications:

The EPA has registered our 0.35% hydrogen peroxide product for the use in green houses, pre harvests and post harvests. TOMI is conducting internal studies with the 0.35% on common pathogens in the food safety market to enhance protocols.

We continue to pursue acceptance of the additional 1% hydrogen peroxide label with the EPA for direct food application. Due to the pandemic, there have been significant delays by U.S. regulatory agencies in approving new submissions, including TOMI's new 1% registration.

Partner Indoor Environmental Solutions and Consultants, or IESC, LLC completed their Forensic Architectural & Engineering Investigation and Decontamination Report with Kalera Indoor Farms. IESC is a state-of-the art indoor air and surface decontamination company dedicated to food and health safety. In addition to being a TSN service provider, IESC are distributor partners to iHP SteraMist technology. Kalera, a global leader in vertical community farms for greens and culinary herbs harvested on demand all year is highly motivated to have iHP SteraMist be their cleaning decontamination solution. The recently received report outlines decontamination protocols and calculated savings and estimated service and purchasing options for Kalera.

TOMI has once again partnered with USDA Agricultural Research Service for continued research on BIT solution and the modeling of cold plasma-activated hydrogen peroxide process, evaluating concentration, treatment time, and dwell time on the efficacy of the technology against bacteria on stem scar and smooth surfaces of tomatoes. Although the final paper is with the reviewers to the journal, the final draft of this latest publication was approved late March of this year.

31

Received great preliminary biotoxin iHP inactivation data against Ricin A Chain by a U.S. government agency who will be expanding testing to Botulinum and SEB toxoids. TOMI is working directly with the agency to find funding and supporting efforts to validate their toxoid protocols against fully functional toxins. This same agency is constructing a scalable, reusable, portable iHP decontamination chamber for field remediation of biologically contaminated equipment.

Bio-Risk Decontamination and Restoration owner David Mark Quigley published the book Mycotoxin Deactivation: A Successful Mycotoxin Treatment and Reduction Case Study on the assessment, identification, treatment, and deactivation and validation procedures of Mycotoxins highlighting SteraMist iHP as the treatment for deactivating and render them inert. The book is available online at Amazon, Apple Books, and Rakuten kobo.

As previously discussed, TOMI has engaged HYGCEN Germany GmbH to perform a quantitative test of germ carriers for airborne room disinfection and testing of the effectiveness of a method for disinfecting room air to meet the new EU norm (standard) EN 17272. Certification that Binary Ionization Technology meets the new standard will continue to position iHP as the premier decontamination/disinfection technology available on the market today. On September 16, 2021, we announced that our technology has passed the EN 17272 evaluation. The EN 17272 is the European standard for airborne room disinfection in the form of gas, steam and/or aerosol.

We have participated in a large multi-year federal funded study, known as the “SHIELD study” that compares hospital manual cleaning to a SteraMist^® mechanical cleaning. Preliminary results collected by the current hospitals in the study is showing a decrease in the transference of pathogens resulting in HAIs and Clostridium difficile infections in the rooms that used SteraMist^® for their terminal clean, as compared to the rooms that have been manually cleaned. Sufficient data has been collected to complete the study in 2021, and we expect that data to be provided to the examiners with a published paper to soon follow.

Registrations & Intellectual Property (IP):

Our portfolio includes more than twenty (20) Utility Patent applications worldwide for both method and system claims on SteraMist^® BIT^™, either published or undergoing prosecution. In 2021, we were granted utility patents in Korea, Canada, Mexico, Taiwan, Israel, and Australia for our SteraMist BIT. In the recent past, we have obtained two related United States utility patents giving us protection of our technology until the year 2038, and we are pursuing further claims to additional capabilities in on-going United States and worldwide patent applications. 

We have submitted utility patent applications in multiple countries, including Europe, China, Brazil, and Australia for further additional applications of SteraMist BIT, and a related application has already been determined novel and inventive in Taiwan. 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 thirty-two (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 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 at multiple jurisdictions, such as food decontamination.

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, (word and/or logo) registered or pending across the globe. TOMI registers marks in eight (8) 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.

32

Financial Operations Overview

Our financial position as of March 31, 2022 and December 31, 2022, respectively, was as follows:

	March 31, 2022 Unaudited		December 31, 2021
Total shareholders’ equity	$	13,288,000	$	13,595,000
Cash and cash equivalents	$	5,330,000	$	5,317,000
Accounts receivable, net	$	2,500,000	$	1,965,000
Inventories	$	5,100,000	$	4,743,000
Prepaid expenses	$	456,000	$	344,000
Vendor Deposits	$	315,000	$	289,000
Other Receivables	$	164,000	$	236,000
Current liabilities	$	3,069,000	$	1,816,000
Long-term liabilities	$	837,000	$	861,000
Working Capital	$	10,797,000	$	11,077,000

During the three months ended March 31, 2022, our debt and liquidity positions were affected by the following:

· Net cash provided from operations of approximately $27,000.

· Customer deposits received of approximately $607,000.

Results of Operations for the three months ended March 31, 2022 compared to the three months ended March 31, 2021

	For The Three Months Ended March 31,						Change
	2022			2021			$			%
Revenue, Net	$	2,309,000		$	2,073,000		$	236,000			11	%
Gross Profit		1,421,000			1,235,000			186,000			15	%
Total Operating Expenses (1)		2,081,000			2,745,000			(664,000	)		-24	%
Income (Loss) from Operations		(660,000	)		(1,510,000	)		850,000			-56	%
Total Other Income (Expense)		-			(1,000	)		1,000		NM
Provision for Income Taxes		-			-			-		NM
Net Income (Loss)	$	(660,000	)	$	(1,511,000	)		851,000			-56	%
Basic Net Income (Loss) per share	$	(0.03	)	$	(0.09	)	$	0.06			-63	%
Diluted Net Income (Loss) per share	$	(0.03	)	$	(0.09	)	$	0.06			-63	%

(1)	Includes $352,000 and $228,000 in non-cash equity compensation expense for the three months ended March 31, 2022 and 2021, respectively.
(2)	NM – Not Meaningful

Sales and Revenue

Total revenue for the three months ended March 31, 2022 and 2021, was $2,309,000 and $2,073,000, respectively, representing an increase of $236,000, or 11% compared to the same prior year period. The increase in revenue was attributable to higher mobile equipment sales and 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. Further, as the COVID-19 pandemic subsides, we expect that the demand for our products and services will continue as we are building a team to address the post COVID-19 pandemic market opportunities.

33

Net Revenue

Product and Service Revenue

	For The Three Months Ended March 31,				Change
	2022		2021		$		%
SteraMist Product	$	1,886,000	$	1,661,000	$	225,000		14	%
Service and Training		423,000		412,000		11,000		3	%
Total	$	2,309,000	$	2,073,000	$	236,000		11	%

SteraMist product-based revenues for the three months ended March 31, 2022 and 2021, were $1,886,000 and $1,661,000, representing an increase of $225,000 or 14% when compared to the same prior year period.

Our service-based revenue for the three months ended March 31, 2022 and 2021, was $423,000 and $412,000, respectively, representing a year over year increase of 3%.

Revenue by Geographic Region

	For The Three Months Ended March 31,				Change
	2022		2021		$		%
United States	$	1,879,000	$	1,804,000	$	75,000		4	%
International		430,000		269,000		161,000		60	%
Total	$	2,309,000	$	2,073,000	$	236,000		11	%

Our domestic revenue for the three months ended March 31, 2022 and 2021 was $1,879,000 and $1,804,000, respectively, an increase of $75,000), or 4% when compared to the same prior year period.

Internationally, our revenue for the three months ended March 31, 2022 and 2021, was approximately $430,000 and $269,000, respectively, representing an increase of $161,000 or 60% when compared to the first quarter of 2021.

Cost of Sales

	For The Three Months Ended March 31,				Change
	2022		2021		$		%
Cost of Sales	$	888,000	$	838,000		50,000		6	%

Cost of sales was $888,000 and $838,000 for the three months ended March 31, 2022 and 2021, respectively, an increase of $50,000, or 6%, compared to the prior year. The primary reason for the increase in cost of sales is attributable to higher revenue in the current quarter. Our gross profit as a percentage of sales for the three months ended March 31, 2022 was 61.5% compared to 59.6% in the same prior period, respectively. The higher gross profit is attributable to the product mix in sales.

Professional Fees

	For The Three Months Ended March 31,				Change
	2022		2021		$		%
Professional Fees	$	191,000	$	173,000	$	18,000		10	%

34

Professional fees are comprised mainly of legal, accounting, and financial consulting fees.

Professional fees were $191,000 and $173,000 for the three months ended March 31, 2022 and 2021, respectively, an increase of approximately $18,000, or 10%, in the current year period.

Depreciation and Amortization

	For The Three Months Ended March 31,				Change
	2022		2021		$			%
Depreciation and Amortization	$	82,000	$	83,000	$	(1,000	)		-1	%

Depreciation and amortization were approximately $82,000 and $83,000 for the three months ended March 31, 2022 and 2021, respectively, representing a decrease of $1,000, or 1%.

Selling Expenses

	For The Three Months Ended March 31,				Change
	2022		2021		$			%
Selling Expenses	$	341,000	$	474,000	$	(133,000	)		-28	%

Selling expenses for the three months ended March 31, 2022 were approximately $341,000, as compared to $474,000 for the quarter ended March 31, 2021, representing a decrease of approximately $133,000 or 28%. The decrease in selling expense is attributable to a lower employee headcount and sales commissions in the current year period.

Research and Development

	For The Three Months Ended March 31,				Change
	2022		2021		$			%
Research and Development	$	37,000	$	196,000	$	(159,000	)		-81	%

Research and development expenses for the three months ended March 31, 2022 were approximately $37,000, as compared to $196,000 for the quarter ended March 31, 2021, representing a decrease of approximately $159,000, or 81%. The decline in research and development expenses is attributable to product development charges we incurred on the prior year period which did not reoccur in the current year period.

Consulting Fees

	For The Three Months Ended March 31,				Change
	2022		2021		$			%
Consulting Fees	$	63,000	$	106,000	$	(43,000	)		-41	%

Consulting fees were $63,000 and $106,000 for the three months ended March 31, 2022 and 2021, respectively, representing a decrease of $43,000, or 41%, in the current quarter period. The decrease is due to the timing of certain projects that occurred in the prior year that did not occur in the same current year period.

35

General and Administrative Expense

	For The Three Months Ended March 31,				Change
	2022		2021		$			%
General and Administrative	$	1,367,000	$	1,712,000	$	(345,000	)		-20	%

General and administrative expense includes salaries and payroll taxes, rent, insurance expense, utilities, office expense, product registration costs, equity compensation and bad debt expense.

General and administrative expense was $1,367,000 and $1,712,000 for the three months ended March 31, 2022 and 2021, respectively, a decrease of $345,000 in the current period. The decline in general and administrative expense is primarily attributable to lower payroll costs in the current year period.

Other Income and Expense

	For The Three Months Ended March 31,					Change
	2022		2021			$		%
Interest Expense		-		(1,000	)		1,000	NM
Other Income (Expense)	$	-	$	(1,000	)	$	1,000	NM

Interest expense was $0 and $1,000 for the three months ended March 31, 2022 and 2021, respectively.

Liquidity and Capital Resources

As of March 31, 2022, we had cash and cash equivalents of $5,330,000 and working capital of $10,797,000. Our principal capital requirements are to fund operations, invest in research and development and capital equipment, and the continued costs of public company reporting requirements. We have historically funded our operations through funds generated through operations and debt and equity financings. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations. We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all.

In September 2021, we sold 2,869,442 shares of common stock through a registered direct offering to certain institutional investors and issued 1,434,721 warrants in a concurrent private placement.  We received net proceeds from the transaction of $4,581,651, after deducting the placement agent’s fees and other estimated offering expenses. The Warrants have an exercise price of $1.68 per share, are exercisable immediately upon issuance and have a term of exercise equal to five years from the date of issuance. 

For the three months ended March 31, 2022 and 2021, we incurred a loss from operations of ($660,000) and ($1,510,000), respectively. Cash provided from operations for the three months ended March 31, 2022, was $27,000. Cash used in operations was $1,225,000 for the three months ended March 31, 2021.

36

A breakdown of our statement of cash flows for the three months ended March 31, 2022 and 2021 is provided below:

	For the three months ended March 31,
	2022			2021
Net Cash Provided By (Used) in Operating Activities	$	27,000		$	(1,225,000	)
Net Cash Used in Investing Activities	$	(14,000	)	$	(28,000	)
Net Cash Provided by Financing Activities:	$	-		$	-

Operating Activities

Cash provided by operating activities for the three months ended March 31, 2022 was 27,000, compared to cash used in operations for the three months ended March 31, 2022 of $1,225,000. Our cash provided by operations improved in the current year period as a result of increase sales, gross profit, customer deposits and lower operating expenses.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2022 and 2021 was $14,000 and $28,000, respectively.

Financing Activities

Cash provided by financing activities for three months ended March 31, 2022 and 2021 was $0

Liquidity

Our revenues can fluctuate due to the following factors, among others:

· ramp up and expansion of our internal sales force and manufacturers’ representatives;

· length of our sales cycle;

· global response to the outbreak of COVID-19 Pandemic;

· expansion into new territories and markets; and

· timing of orders from distributors.

We could incur operating losses and an increase of costs related to the continuation of product and technology development, sales expense as we continue to grow our sales teams, inventory as we continue to ensure we have products needed and geographic presence, tooling capital expenditures as we ramp up and streamline our production and administrative activities including compliance with the Sarbanes-Oxley Act of 2002 Section 404.

Management has taken and will endeavor to continue to take a number of actions in order to improve our results of operations and the related cash flows generated from operations in order to strengthen our financial position, including the following items:

· expanding our label with the EPA to further our product registration internationally;

· continued expansion of our internal sales force and manufacturer representatives in an effort to drive global revenue in all verticals;

· continue research and development and add new products to our “Stera” product line;

· source alternative lower-cost suppliers;

· expansion of international distributors; and

· continued growth in all of our verticals.

We expect that the cash we generate from our core operations will generally be sufficient to cover our future capital expenditures and to pay down our near-term debt obligations, although we may choose to seek alternative financing sources.

37

We believe that our existing balance of cash and cash equivalents and amounts expected to be provided by operations will provide us with sufficient financial resources to meet our cash requirements for operations, working capital and capital expenditures over the next twelve months.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The estimation process requires assumptions to be made about future events and conditions, and as such, is inherently subjective and uncertain. Actual results could differ materially from our estimates.

The SEC defines critical accounting policies as those that are, in management’s view, most important to the portrayal of our financial condition and results of operations and most demanding of our judgment. We consider the following policies to be critical to an understanding of our condensed consolidated financial statements and the uncertainties associated with the complex judgments made by us that could impact our results of operations, financial position and cash flows.

Revenue Recognition

We recognize revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). 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.

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.

38

Contract Balances

As of March 31, 2022, and December 31, 2021 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.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying condensed 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.

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. All these items were determined to be Level 1 fair value measurements.

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.

39

Cash and Cash Equivalents

For purposes of the statement of cash flows, cash and cash equivalents includes 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.

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 them and maintain allowances for potential credit losses as deemed necessary. We have a policy of reserving for doubtful accounts based on our best estimate of the amount of potential credit losses in existing accounts receivable. 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.

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.

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.

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.

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 when recognized.

Capitalized Software Development Costs

In accordance with ASC 985-20 regarding the development of software to be sold, leased, or marketed we expense such costs as they are incurred until technological feasibility has been established, at and after which time those costs are capitalized until the product is available for general release to customers. The periodic expense for the amortization of capitalized software development costs will be included in cost of sales.

40

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 condensed consolidated statement of operations at the date of sale. Our manufacturers assume the warranty against product defects which we extend to our customers upon sale of the product. We assume responsibility for product reliability and results.

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 Accounting Standards Codification (ASC) guidance for income taxes.

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 treasury stock method and includes 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.

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 and is recognized as expense over the requisite service period.

On July 7, 2017, our shareholders approved the 2016 Equity Incentive Plan, or 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 625,000 shares of common stock are authorized for issuance under the 2016 Plan. Shares issued under the 2016 Plan may be either authorized but unissued shares, treasury shares, or any combination thereof. Provisions in the 2016 Plan permit the reuse or reissuance by the 2016 Plan of shares of common stock for numerous reasons, including, but not limited to, shares of common stock underlying canceled, expired, or forfeited awards of stock-based compensation and stock appreciation rights paid out in the form of cash. Equity compensation expense will typically be awarded in consideration for the future performance of services to us. All recipients of awards under the 2016 Plan are required to enter into award agreements with us at the time of the award; awards under the 2016 Plan are expressly conditioned upon such agreements.

On December 30, 2020, we received shareholder approval to amend and restate the 2016 Equity Incentive Plan to increase the maximum number of shares of common stock authorized from issuance by 1,375,000, from 625,000 shares to 2,000,000.

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 $250,000 at times during the year.

41

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 months ended March 31, 2022 and 2021.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. This ASU is currently not expected to have a material impact on our condensed consolidated financial statements.

Recently adopted accounting pronouncements

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021. We adopted ASU 2021-10 starting in 2022, which did not have a material impact on our condensed consolidated financial statements.

42

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management conducted an evaluation of the effectiveness of our disclosure controls and procedures (as is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, our management has concluded that, as of March 31, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level because we have identified a material weakness in our internal control over financial reporting as discussed below, and such material weakness has not been remediated as of March 31, 2022.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management have concluded that, as of March 31, 2022, we did not maintain effective controls over the preparation, review, presentation and disclosure of our financial statements relating to bad debt. Specifically, we noted the following:

· We did not design or maintain effective controls with respect to the review of the accounting for bad debt reserves, including maintaining effective controls to prevent or detect errors in the assessment of bad debt reserves. Specifically, our policy for bad debt reserves was primarily based on customer relationships and management’s view of the collectability of the receivables. The bad debt expense analysis resulted in a material adjustment to accounts receivable and bad debt expense for the year ended December 31, 2021.

· We did not maintain effective controls to identify and maintain segregation of duties to support the identification, authorization, approval, accounting for, and the disclosure of bad debt reserves.

These control deficiencies did not result in a misstatement to our consolidated financial statements for the quarter ended March 31, 2022, following the adjustment to accounts receivable as discussed above. However, these control deficiencies, if not remediated, could result in a misstatement to the annual or interim consolidated financial statements which would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.

Remediation Plans

Our management, with oversight from our Audit Committee, is in the process of developing and implementing remediation plans in response to the identified material weaknesses described above. Specifically, we are revising our bad debt reserve policy to consider the time of balances outstanding along with the credit worthiness of the customer and revising our review and approval policies and procedures to include segregation of duties and approvals. 

We believe the measures described above will remediate the control deficiencies we have identified and strengthen our internal control over financial reporting. These material weaknesses will not be considered remediated until the applicable remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures.

Changes in Internal Control Over Financial Reporting

During our most recent fiscal quarter, except as otherwise disclosed above regarding the material weakness and our remediation plan, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

43

PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations, financial position or cash flows. Regardless of the outcome, any litigation could have an adverse impact on us due to defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors.

You should carefully consider the information described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 29, 2022.   Except as set forth below, there have been no material changes to the risk factors we previously disclosed in our filings with the SEC, including the Form 10-K. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.

There can be no assurance that we will be able to regain and maintain compliance with continued listing standards of the Nasdaq Capital Market.

The Nasdaq Capital Market’s continued listing standards for our common stock require, among other things, that (i) we maintain a closing bid price for our common stock of at least $1.00, and (ii) we maintain: (A) stockholders’ equity of $2.5 million; (B) market value of listed securities of $35 million; or (C) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. Any failures to satisfy any continued listing requirements could lead to the receipt of a deficiency notice from the Nasdaq and ultimately to a delisting from trading of our common stock.

On April 14, 2022, we received a deficiency letter notifying us that we had not maintained a closing bid price for our common stock of at least $1.00 for a 30-day period. In accordance with Nasdaq rules, we have been provided an initial period of 180 calendar days, or until October 11, 2022 (the “Compliance Date”), to regain compliance with the bid price requirement. If we do not regain compliance with the bid price requirement by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period. If we do not regain compliance with the bid price requirement by October 11, 2022 and are not eligible for an additional compliance period at that time, our common stock will be subject to delisting from the Nasdaq Capital Market. We cannot be certain that we will be able to regain compliance and then maintain compliance with the minimum bid price and the other standards in order to maintain a listing of our common stock on the Nasdaq Capital Market.

If our common stock were delisted from the Nasdaq Capital Market, among other things, this could result in a number of negative implications, including reduced liquidity in our common stock as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws as well as the potential loss of confidence by suppliers, customers and employees, institutional investor interest, fewer business development opportunities, greater difficulty in obtaining financing and breaches of certain contractual obligations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The documents listed in the Exhibit Index of this Form 10-Q are incorporated herein by reference.

44

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TOMI ENVIRONMENTAL SOLUTIONS, INC.
Date: May 5, 2022	By:	/s/ Halden S. Shane
		Halden S. Shane
		Chief Executive Officer
		(Principal Executive Officer)
Date: May 5, 2022	By:	/s/ Nick Jennings
		Nick Jennings
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

45

EXHIBIT INDEX

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing  Date	Filed Herewith
10.1	Amendment to Executive Employment Agreement	8-K		10.1	2/25/2022
31.1	Certification of Halden S. Shane, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					x
31.2	Certification of Nick Jennings, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					x
32.1#	Certification of Halden S. Shane, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					x
32.2#	Certification of Nick Jennings, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					x
101.INS	XBRL Instance Document.					x
101.SCH	XBRL Taxonomy Extension Schema Document.					x
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					x
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					x
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document.					x
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					x

+ Indicates a management contract or compensatory plan.

# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, or the Exchange Act.

46