What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 198 added, 163 removed, 386 unchanged (48% of the section changed)

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Business Update

As we exited 2020 and began 2021, the Company refocused its core customers, product development and market penetration.

As a result of the global COVID-19 pandemic, we experienced an increase of demand for our products and introduction to a new set of customers, which was beneficial to the Company as it brought awareness to all of our product offerings and opened the door to a new customer base.

These customers, mainly in our TOMI Service Network (TSN) and Commercial division, were initially looking for products that would aid in their ability to keep their businesses open as companies provided essential services.

As the customer base expanded, we worked with them to evaluate our current products as well as exploring new product offerings to meet our customer needs.

Our customers have requested a more mobile and lighter weight product and Tomi has introducing the SteraPak.

The TOMI Research & Development department has done a tremendous job the past few quarters on the development, testing, and validation of multiple new products.

In addition to the SteraPak, TOMI will be releasing the SteraMist Select Plus and the SteraMist Transport CES (Custom Engineered System).

As the quarantines continued and more businesses were closed, the Company saw a slowdown in demand for products from our customers.

This slowdown continued throughout Q2 2021, primarily because certain customers in the Hospital-HealthCare, TOMI Service Network, and Commercial divisions, have deemphasized the need for disinfection equipment such as SteraMist as compared to the same time last year following the initial surge of the COVID-19 pandemic.

As the COVID vaccine are distributed, some of our customers are evaluating the necessity of deep cleaning and in some cases no longer consider it a priority and are evaluating the on-going decontamination and disinfecting processes.

During 2021, the focused on the following initiatives:

research and development projects, developing new innovate products to enhance sales throughout our current divisions and upgrading its current set of SteraMist products.

We formally launched the SteraPak in Q3 and are fulfilling orders.

Our initial market research is positive for our new products we are anticipating launching by the end of the year including the SteraMist Surface Select Plus and Transport Custom Engineered System (CES).

We are developing the most intelligent permanent room CES for a large pharmaceutical company in Europe, which will expect to be installed by the end of 2021.

The SteraBox continues to be of an interest for the Life Sciences and the Company has developed a rotating applicator option to distribute our iHP mist more efficiently.

Finally, TOMI has modified and developed a new program for its SteraMist Environment system.

Throughout the first half of 2021, as the quarantines progressed, and more businesses were closed, the Company saw a slowdown in demand for products from our customers in the in the Hospital-HealthCare, TOMI Service Network, and Commercial divisions, which were affected by the work from home and the need for disinfection equipment such as SteraMist was not as predominant as compared to the same period of the prior year, which was primarily the result of the initial surge of the COVID-19 pandemic.

Nonetheless, TOMI and its current customers who have been using SteraMist believe that disinfection products will be critical in post-COVID environment, and we continue to educate our current and potential customer base on the capabilities of our products.

As stated, our existing life sciences customers closed early last year due to COVID and remained closed into 2021.

Starting early 2021, the Life Sciences customers and potential opportunities quickly resumed.

TOMI is working with the appropriate departments to get approvals for existing purchase orders for Environment Systems throughout existing and new Life Sciences clients with purchase orders in the six-figure range.

Currently we are seeing positive indicators in the marketplace amongst our current and prospective customers.

In 2021, our Life Sciences continued to flourish with onboarding high quality of customers.

As we expand throughout this industry, we are receiving referrals and are striving to implement SteraMist throughout the top 10 global pharmaceutical companies and expect to expand throughout their other facilities.

Product Development

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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 lower cost disinfection device like electrostatic sprayers (ESS), even if it provides the end-user with less efficacy and the potential of causing damage to its personal property and delicate equipment which were dangerous and causing explosions with many resulting in fires.

To respond to our customer demands of a lower cost and more versatile product, we developed a Backpack (SteraPak) solution that includes our award winning 6-log and above kill technology and speed without the damage to space and materials.

We expect our SteraPak to be competitively priced and open SteraMist to the largest cleaning market in the world-members of ISSA (International Sanitary Supply Association) and its divisions IEHA (Integrated Environment and Health Assessment) and EMEA (Europe, Middle East & Africa).

The second half of 2020 showed us that our customers prefer a lower cost disinfection devices.

To respond to our customer demands of lower cost and more versatile product, 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).

We plan to introduce our new innovative SteraPak globally in the third quarter 2021.

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.

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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 are waiting for the release and demonstration of these new products, especially the SteraPak.

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.

The SteraPak is a more cost-effective product and designed for small areas, crawl spaces, and quick disinfection.

In contrast, the Surface Unit is able to provide longer and more sustained disinfection covering larger areas during one treatment.

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 the introduction of a ten (10) liter and five (5) gallon bottles.

These new products and service introductions can significantly impact net sales, cost of sales and operating expenses.

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Net sales can also be affected when consumers and distributors anticipate a product introduction domestically and internationally.

Despite lower revenues for the quarter, the Company, its new product launches, and each division remain resilient.

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).

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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, Canada, and approximately thirty-five (35) other countries.

We maintain this registration in all fifty (50) states, Washington DC, Canada, and approximately thirty-five (35) other countries.

Our SteraMist ® products are designed to address a wide spectrum of industries using iHP ™ .

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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.

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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.

By late 2021, we anticipate annual comparison case studies from many of these facilities who were onboarded in 2020, which may show lower transmission infection rates in COVID, Clostridium difficile Spores and overall, HAI cases.

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.

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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.

The pandemic halted capital equipment and service sales in our Life Sciences division and its verticals.

As operations reconvene for these verticals, we are already seeing an increased demand from this division.

Long term, ongoing projects and validations resumed, along with proposals and interest for our CES permanent decontamination room.

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 late 2021 and into 2022.

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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 experienced greater impact from the COVID-19 pandemic quarter over quarter than any other division.

We believe that cleaning protocols 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 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.

We also expect our SteraPak release to be an important factor for this market that will increase the new member onboarding number quarter over quarter moving forward.

With the much-anticipated release of the SteraPak, the TSN should grow quarter over quarter.

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 presents significant potential as an opportunity for substantial growth with continued product research and compliance testing.

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We plan on pursuing all these avenues.

One of the most exciting is the elimination of fungus, virus, and bacteria contamination from seeds pre-packaging.

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.

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.

In the second quarter of 2021, interest in SteraMist disinfection within the commercial division continued to remain high.

We expect SteraPak to be 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 can generate substantial customer interest and create sales opportunities.

As part of our marketing and sales strategy for our product portfolio, we are utilizing professionals that work in the digital selling space such as B2B & B2C verticals.

We believe this strategy will provide us with greater global exposure and quicker sales cycle in all our verticals.

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.

We have listed the SteraPak on Amazon to better enhance consumer sales and accessibility in this division.

Working alongside a full-service Amazon consulting agency, ORCA Pacific, we can better position ourselves with optimized content and increase customer traffic with enhanced advertising.

With the ease of purchase, we expect Amazon to boost sales for the remainder of 2021 and into 2022.

Business Highlights and Recent Events

Globally, we have added approximately sixteen (16) new customers for the three months ended June 30, 2021.

In the short term, we expect to see healthy demand for the SteraMist ® products and services.

While the initial outbreak of COVID-19 pandemic caused a surge in demand for the SteraMist ® and subsequently declined as the pandemic is under control, we expect that customer demand for our products and services will continue at a more stabilized level, and we are building a team to address the post COVID-19 pandemic market opportunities.

We experienced a decline in our revenue for the three and six months ended June 30, 2021 when compared to the same period last year primarily because of an unsustainable spike due to increased demand caused by the onset of the COVID-19 pandemic in the first half of 2020.

We were positioned well to respond to the pandemic related spike in demand due to our inventory levels and increased production capacity which led to substantial revenue growth in the first and second quarter of 2020.

However, during of the second half of 2020 and early 2021, many of our established vertical clients were closed or required to reduce or suspend their business operations.

The markets that were negatively affected were our life sciences clients that were nonessential, University and privately owned vivarium labs, and many nonessential pharmaceutical research companies globally.

In addition, the healthcare industry has shifted virtually all of its focus and resources in response to the pandemic and therefore reduced substantially their elective surgical and clinical related services, resulting in limited non-essential onsite personnel.

These trends made it more difficult for us to demo our equipment and execute our sales and marketing strategies.

Registered Direct Offering:

In September 2021, we closed a registered direct offering of approximately $5,000,000 priced At-The-Market under the Nasdaq rules.

The proceeds from the offering will be used for sales and marketing expenses associated with our products, advertising, purchase of inventory and other general corporate purposes.

We have a new international partner, Critical Sciences, based in Australia who will be our representative focusing on the Australian Government agencies responsible for scientific research.

We have also added new customers in secured U.S.

government facilities.

During the third quarter of 2021, we continued to add new customers, saw continued expansion of our technology from our existing customer base, launched our SteraPak and were engaged by a major pharmaceutical company in Europe to build an iHP Customer Engineered System which will be permanently installed into their facility.

In August 2021, we announced the launch our new Amazon store for our recently launched SteraPak, in the USA.

As the most cost effective SteraMist system, the SteraPak is primed to effectively target both businesses and consumer end users, making it, we believe, ideal flagship SteraMist product for sale on Amazon.

TOMI received a purchase order from a global top five biopharmaceutical company in the end of July 2021.

The order was for TOMI’s SteraMist Environment system and its validation service.

TOMI has received an initial order for a new facility after creating a new companywide decontamination standard, creating an opportunity to expand to multiple locations across the world.

In the third quarter 2021, we saw positive signs from our prospective and existing customers as businesses began to reopen their standard business operations and locations.

Our revenue for the three months ended September 30, 2021 grew sequentially to $2,204,569, which was a 50% increase over the our revenue reported for the three months ended June 30, 2021 of $1,465,525.

We experienced a decline in our revenue for the three and nine months ended September 30, 2021 when compared to the same period last year primarily because of the unsustainable spike in demand caused by the onset of the COVID-19 pandemic in the first half of 2020.

During of the second half of 2020 and early 2021, many of our established clients were closed or required to reduce or suspend their business operations.

In addition, the healthcare industry has shifted virtually all of its focus and resources in response to the pandemic and therefore substantially reduced their elective surgical and clinical related services, resulting in limited non-essential onsite personnel.

These trends made it difficult for us to demo our equipment and execute our sales and marketing strategies.

In addition, our customers have limited budgets for newer technologies.

We anticipate that the availability of significant federal funds to our customers for pandemic preparedness should assist them in purchasing our products.

We expect increased revenues in the second half of 2021 due to the marked interest in our new products, specifically our backpack solution ("SteraPak") across all verticals, especially hospital healthcare to replace the failed electrostatic sprayers at a similar price point, and from our service network members who have indicated interest in a portable SteraMist unit to add to their arsenal.

However, pandemic preparedness is now the radar of many companies throughout the world.

The United States has earmarked federal for disinfection.

We expect increased revenues in the fourth quarter of 2021and into 2022 due to the launch of our new products, specifically our backpack solution ("SteraPak") across all verticals, especially hospital healthcare to replace our competitors recalled electrostatic sprayers at a similar price point, and from our service network members who have indicated interest in a portable SteraMist unit to add to their arsenal.

Further, there has been an uptick in demand from our established life science customers for custom engineered systems with a portion of that revenue expected to be recognized in late 2021.

In addition, the opening of the Amazon channel for our products should result in additional sales of our products.

We believe that we possess the best technologies in the world in the disinfection and decontamination space.

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This should lead to a greater market share, increased profitability, and capability strength.

In addition, our products are an environmentally friendly solution and process which address the concerns of sustainability.

Customers are starting to request and discuss the positive results of our product and the environmentally friendly results compared to the caustic results of other disinfectants.

Dangerous pathogens still exist “Disease X” and will exist long after we recover from this pandemic.

While the United States and most of the world is currently recovering from the SARS CoV-2 coronavirus outbreak, there are many pathogens which are respiratory in nature that are still a looming threat, these cases are occurring globally to this day.

SteraMist can mitigate and reduce the impact of the next pandemic as it has already proven during the outbreaks of Ebola, MERS and recently with SARS CoV-2 pandemic.

We believe, SteraMist can mitigate and reduce the impact of the next pandemic as it has already proven during the outbreaks of Ebola, MERS and recently with SARS CoV-2 pandemic.

The need for a speedy comprehensive mechanical disinfectant like SteraMist cannot be stressed enough and should be included as the new norm of cleaning.

The world has seen how quickly viruses spread starting with just one child getting a virus from daycare, spreading to a parent, and passing on to colleagues in a workplace, which can shut down a business.

With all the unknown viruses and their variants in the world, preparedness is the most important measure to ensure your family and business survives.

On May 18, 2021, Dr.

Halden Shane presented at 16 th annual Needham virtual technology and media conference while continuing to pursue and enhance SteraMist media presence across many platforms.

In May 2021, we provided an update on our partnership with AV8R Solutions, a SteraMist service provider and manufacturing representative with focus on aviation industry.

In June 2021, we announced the implementation of SteraMist technology in the fourth Catalent facility, and a planned expansion into a fifth location.

In June 2021, we joined the Russell Microcap Index at the conclusion of the 2021 Russell indexes annual reconstitution, effective June 28, 2021.

In June 2021, we received an order which secured a project to install an iHP Custom Engineered System (CES) in a pharmaceutical facility in Western Europe

In August 2021, we announced the launch of the SteraPak.

We are currently taking deposits from customers for the product and expects to begin filling backlog orders in the third quarter of 2021.

The Company expects to sell the SteraPak product through all divisions including Hospital-Healthcare, Life Sciences, TOMI Service Network (TSN), Food Safety, and Commercial.

As conferences and tradeshows are reopening in the second half of 2021 for companies to exhibit live, TOMI will be attending multiple shows across the country.

On August 4, 2021, we announced the launch of the SteraPak.

The Company is currently selling the SteraPak product through all divisions.

On August 10, 2021, we secured a project to install an iHP Custom Engineered System (CES) for a major pharmaceutical company in Europe.

This on track to be completed by the end of the year.

On September 13, 2021, we announced the launch a new Amazon store for select SteraMist products, including the recently launched SteraPak, in the USA.

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.

On September 27, 2021, we announced that we entered into definitive agreements with several institutional investors for the issuance and sale of 2,869,442 shares of its common stock in a registered direct offering priced at-the-market under Nasdaq rules.

On October 5, we announced that we have received a purchase order from a multinational top five pharmaceutical company.

On October 11, 2021, we announced that we obtained EPA registration for its 0.35% hydrogen peroxide BIT Solution, an all-in-one disinfectant for use across the entire food supply chain.

As conferences and tradeshows are reopening in the third quarter of 2021for 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.

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Research Studies:

The EPA has registered our 0.35% hydrogen peroxide product for the use in green houses, pre harvests and post harvests.

We continue to pursue acceptance of the additional 1% hydrogen peroxide label with the EPA.

Due to the pandemic, there have been significant delays by U.S.

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The 1% label has been delayed by EPA due to the reallocation of staff resources responding to an influx of product submissions to deal with COVID-19 (TOMI successfully added Emerging Pathogen claims and was added to EPA list in March 2020.), significantly delaying all other PRIA actions, well documented delays caused by staffing vacancies, and the continuing prohibition of in person meetings.

TOMI has partnered with the Department of Chemistry and Biochemistry of Texas Tech University to conduct a wide range of studies on spray pattern, deposition, and hydrogen peroxide content to compare our 1% label to other similar products on the market.

TOMI has also once again partnered with USDA Agricultural Research Service for continued research on 1% solution.

TOMI's long term relationship with USDA ARS continues to achieve results.

In March 2021, an article entitled "Hydrogen peroxide residue on tomato, apple, cantaloupe, and Romaine lettuce after treatments with cold plasma-activated hydrogen peroxide” was accepted for publication in the Journal of Food Microbiology and we are excepting another paper to be published by the end of the year.

We continue to work with our German aircraft partner and Boeing in a third-party test required for the aviation industry.

We will incur no costs for this work as both testing partners are clients.

We anticipate the testing will be completed in the third quarter of 2021.

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.

We anticipate the testing will be completed in the fourth quarter of 2021.

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.

We continue to work with the Virginia State University Agricultural Research Station and its partner, Arkema on a food safety pilot study based on novel, nonthermal, and environmentally friendly technology to control foodborne pathogens on industrial hemp seed and strawberry as representative model foods.

The study will investigate the efficacy of aerosolized hydrogen peroxide in inactivating foodborne pathogens – determining the optimum treatment conditions on microbial and physical quality of the two model products.

We anticipate the pilot to be completed by the third quarter of 2021.

We are currently working with University of Virginia on two separate studies.

First, we are working on a study on SteraMist’s efficacy against SARS-CoV-2, and we have observed preliminary successful results and are waiting for the final published paper.

Second, we are working on a study against Adenovirus using the handheld SteraMist Surface Unit and testing spray and contact time variables, and we are waiting for the results.

We anticipate the testing will be completed by the third quarter of 2021.

TOMI has partnered with the Department of Chemistry and Biochemistry of Texas Tech University to conduct a wide range of studies on spray pattern, deposition, and hydrogen peroxide content in order to compare our 1% label to other similar products on the market.

TOMI's long term relationship with USDA Agricultural Research Service continues to achieve results.

TOMI has also begun discussions with another ARS facility to evaluate the benefits of iHP on blueberries to prevent rot and reduce post-harvest losses.

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.

October 2021, Applied Biosafety published a paper titled “Mechanisms of Sporicidal Activity Induced by Ionized Hydrogen Peroxide in the Spores of Bacillus astrophaeus.”

As previously reported for a couple years, 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.

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We consider our brand names and trademarks to be valuable in the marketing of our products.

As of July 23, 2021, we held a total of over two hundred trademarks (word and logo) registered or pending across the globe.

TOMI registers marks in seven (7) 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, and Class 40 for Chemical Decontamination and Manufacturing Services.

As of November 8, 2021, we held a total of over two hundred trademarks (word and 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..

Financial Operations Overview

Our financial position as of June 30, 2021 and December 31, 2020, respectively, was as follows:

June 30, 2021

Our financial position as of September 30, 2021 and December 31, 2020, respectively, was as follows:

September 30, 2021

December 31, 2020

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Working Capital

During the six months ended June 30, 2021, our debt and liquidity positions were affected by the following:

During the nine months ended September 30, 2021, our debt and liquidity positions were affected by the following:

Net cash used in operations of approximately $3,823,000.

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Gain upon debt extinguishment of $415,000.

Results of Operations for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020

For the three months ended

For the six months ended

Net proceeds from the sale of stock and warrants of $4,582,000.

Results of Operations for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020

For the three months ended September 30,

For the nine months ended September 30,

$ (2,087,000 )

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Income (Loss) from Operations

(10,603,000 )

Total Other Income (Expense)

Provision for Income Taxes

Net Income (Loss)

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(10,071,000 )

$ (8,566,000 )

Basic Net Income (Loss) per share

Diluted Net Income (Loss) per share

Includes $0 and $114,000 in non-cash equity compensation expense for the three months ended June 30, 2021 and 2020, respectively.

Includes $0 and $297,000 in non-cash equity compensation expense for the six months ended June 30, 2021 and 2020, respectively.

Includes $0 and $11,000 in non-cash option and warrant based equity compensation expense for the three months ended September 30, 2021 and 2020, respectively.

Includes $0 and $308,000 in non-cash equity compensation expense for the nine months ended September 30, 2021 and 2020, respectively.

NM – Not Meaningful

Sales and Revenue

Total revenue for the three months ended June 30, 2021 and 2020, was $1,466,000 and $10,028,000, respectively, representing a decrease of $8,562,000, or 85% compared to the same prior year period.

For the six months ended June 30, 2021 and 2020, our total revenue was $3,539,000 and $17,082,000, respectively, representing a decrease of $13,543,000, or 79% compared to the same prior year period.

We experienced a decline in our revenue for the three and six months ended June 30, 2021 as compared to the same prior year periods primarily due to the significant increase of demand caused by the onset of COVID-19 pandemic in the first half of 2020.

Total revenue for the three months ended September 30, 2021 and 2020, was $2,205,000 and $4,292,000, respectively, representing a decrease of $2,087,000, or 49% compared to the same prior year period.

For the nine months ended September 30, 2021 and 2020, our total revenue was $5,744,000 and $21,374,000, respectively, representing a decrease of $15,630,000, or 73% compared to the same prior year period.

We experienced a decline in our revenue for the three and nine months ended September 30, 2021 as compared to the same prior year periods primarily due to the significant increase of demand caused by the onset of COVID-19 pandemic in the first half of 2020.

We were positioned well to respond to the pandemic related spike in demand due to our inventory levels and increased production capacity, which led to substantial revenue growth in the first and second quarter of 2020.

6 unchanged sentences

Product and Service Revenue

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

SteraMist Product

4 unchanged sentences

$ (15,630,000 )

SteraMist product-based revenues for the three months ended June 30, 2021 and 2020, were $1,026,000 and $9,235,000, representing a decrease of ($8,209,000) or (89%) when compared to the same prior year period.

Product based revenues for the six months ended June 30, 2021 and 2020, were $2,673,000 and $15,880,000, representing a decrease of ($13,207,000) or (83%) when compared to the same prior year period.

Our service-based revenue for the three months ended June 30, 2021 and 2020, was $440,000 and $793,000, respectively, representing a year over year decrease of (45%).

For the six months ended June 30, 2021 and 2020, our service-based revenue was $866,000 and $1,202,000, representing a decrease of ($336,000) or (28%) when compared to the same prior period in 2020.

SteraMist product-based revenues for the three months ended September 30, 2021 and 2020, were $1,657,000 and $3,677,000, representing a decrease of ($2,020,000) or (55%) when compared to the same prior year period.

Product based revenues for the nine months ended September 30, 2021 and 2020, were $4,328,000 and $19,557,000, representing a decrease of ($15,229,000) or (78%) when compared to the same prior year period.

Our service-based revenue for the three months ended September 30, 2021 and 2020, was $548,000 and $615,000, respectively, representing a year over year decrease of (11%).

For the nine months ended September 30, 2021 and 2020, our service-based revenue was $1,415,000 and $1,817,000, representing a decrease of ($402,000) or (22%) when compared to the same prior period in 2020.

Revenue by Geographic Region

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

United States

4 unchanged sentences

$ (15,631,000 )

Our domestic revenue for the three months ended June 30, 2021 and 2020 was $1,184,000 and $8,392,000, respectively, a decrease of ($7,208,000), or (86%) when compared to the same prior year period.

For the six months ended June 30, 2021 and 2020, our domestic revenues were $2,989,000 and $11,961,000, representing a decrease of ($8,972,000) or (75%.)

Internationally, our revenue for the three months ended June 30, 2021 and 2020, was approximately $282,000 and $1,636,000, respectively, representing a decrease of ($1,354,000) or (83%) when compared to the second quarter of 2020.

For the six months ended June 30, 2021 and 2020, our international revenues were $550,000 and $5,121,000, representing a decrease of ($4,571,000) or (89%.)

Our domestic revenue for the three months ended September 30, 2021 and 2020 was $2,028,000 and $3,446,000, respectively, a decrease of ($1,418,000), or (41%) when compared to the same prior year period.

For the nine months ended September 30, 2021 and 2020, our domestic revenues were $5,017,000 and $15,437,000, representing a decrease of ($10,420,000) or (68%).

Internationally, our revenue for the three months ended September 30, 2021 and 2020, was approximately $177,000 and $846,000, respectively, representing a decrease of ($669,000) or (79%) when compared to the third quarter of 2020.

For the nine months ended September 30, 2021 and 2020, our international revenues were $727,000 and $5,937,000, representing a decrease of ($5,210,000) or (88%).

Cost of Sales

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

Cost of Sales

Cost of sales was $524,000 and $4,464,000 for the three months ended June 30, 2021 and 2020, respectively, a decrease of $3,940,000, or 88%, compared to the prior year.

Cost of sales was $890,000 and $1,456,000 for the three months ended September 30, 2021 and 2020, respectively, a decrease of $566,000, or 39%, compared to the prior year.

The primary reason for the decline in cost of sales is attributable to lower revenue in the current quarter.

Our gross profit as a percentage of sales for the three months ended June 30, 2021 was 64.3% compared to 55.5% in the same prior period, respectively.

The higher gross profit is attributable to the product mix in sales.

Cost of sales was $1,362,000 and $7,029,000 for the six months ended June 30, 2021 and 2020, respectively, a decrease of $5,667,000, or 81%, compared to the prior year.

Our gross profit as a percentage of sales for the three months ended September 30, 2021 was 59.6% compared to 66.0% in the same prior period, respectively.

The lower gross profit is attributable to the product mix in sales.

In the prior year period and due to the pandemic, there was a higher concentration of solution-based revenue due to panic buying and hoarding of solution by our clients as our solution sales carries a higher gross profit.

Cost of sales was $2,252,000 and $8,485,000 for the nine months ended September 30, 2021 and 2020, respectively, a decrease of $6,233,000, or 73%, compared to the prior year.

The primary reason for the decline in cost of sales is attributable to lower revenue in the current quarter.

Our gross profit as a percentage of sales for the six months ended June 30, 2021 was 61.5% compared to 58.9% in the same prior period, respectively.

Our gross profit as a percentage of sales for the nine months ended September 30, 2021 was 60.8% compared to 60.3% in the same prior period, respectively.

The higher gross profit is attributable to the product mix in sales.

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Professional Fees

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

Professional Fees

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

Professional fees were $107,000 and $55,000 for the three months ended June 30, 2021 and 2020, respectively, an increase of approximately $52,000, or 95%, in the current year period.

The increase is attributable to additional professional fees in connection with the maintenance of our intellectual property.

Professional fees were $280,000 and $191,000 for the six months ended June 30, 2021 and 2020, respectively, an increase of approximately $89,000, or 47%, in the current year period.

The increase is attributable to additional professional fees in connection with the maintenance of our intellectual property.

Professional fees were $118,000 and $228,000 for the three months ended September 30, 2021 and 2020, respectively, a decrease of approximately $110,000, or 48%, in the current year period.

The decrease is attributable to additional professional fees in connection with the maintenance of our intellectual property that occurred in the same prior year period and legal costs incurred in connection with our up list to Nasdaq.

Professional fees were $398,000 and $419,000 for the nine months ended September 30, 2021 and 2020, respectively, a decrease of approximately $21,000, or 5%, in the current year period.

Depreciation and Amortization

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

Depreciation and Amortization

Depreciation and amortization were approximately $72,000 and $172,000 for the three months ended June 30, 2021 and 2020, respectively, representing a decrease of $100,000, or 58%.

Depreciation and amortization were approximately $70,000 and $177,000 for the three months ended September 30, 2021 and 2020, respectively, representing a decrease of $107,000, or 60%.

The decline is due to intangible assets that became fully amortized in 2020 which has led to a lower amortization expense in the current year period.

Depreciation and amortization were approximately $156,000 and $344,000 for the six months ended June 30, 2021 and 2020, respectively, representing a decrease of $188,000, or 55%.

Depreciation and amortization were approximately $226,000 and $521,000 for the nine months ended September 30, 2021 and 2020, respectively, representing a decrease of $295,000, or 57%.

The decline is due to intangible assets that became fully amortized in 2020 which has led to a lower amortization expense in the current year period.

Selling Expenses

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

Selling Expenses

Selling expenses for the three months ended June 30, 2021 were approximately $335,000, as compared to $389,000 for the quarter ended June 30, 2020, representing a decrease of approximately $54,000 or 14%.

The decline is selling expense is due to the reduced revenue and lower sales commissions.

Selling expenses for the six months ended June 30, 2021 were approximately $810,000, as compared to $767,000 for the six months ended June 30, 2020, representing an increase of approximately $43,000 or 6%.

The increase in selling expense is attributable to a higher employee headcount and the related increase in payroll.

Selling expenses for the three months ended September 30, 2021 were approximately $465,000, as compared to $213,000 for the quarter ended September 30, 2020, representing an increase of approximately $252,000 or 118%.

The increase in selling expense is attributable to higher commissions, increased employee headcount as well as increased advertising and marketing costs incurred in the current year period.

Selling expenses for the nine months ended September 30, 2021 were approximately $1,275,000, as compared to $980,000 for the nine months ended September 30, 2020, representing an increase of approximately $295,000 or 30%.

The increase in selling expense is attributable to a higher employee headcount and the related increase in payroll as well as increased advertising and marketing costs incurred in the current year period.

We continue to invest and allocate resources into our sales, marketing and advertising initiatives and have increased efforts in the current year in order to further develop our brand recognition and grow our base of customers.

Research and Development

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

Research and Development

Research and development expenses for the three months ended June 30, 2021 were approximately $206,000, as compared to $141,000 for the quarter ended June 30, 2020, representing an increase of approximately $65,000, or 46%.

Research and development expenses for the six months ended June 30, 2021 were approximately $401,000, as compared to $201,000 for the six months ended June 30, 2020, representing an increase of approximately $200,000, or 100%.

Research and development expenses for the three months ended September 30, 2021 were approximately $93,000, as compared to $45,000 for the quarter ended September 30, 2020, representing an increase of approximately $48, 000, or 107%.

Research and development expenses for the nine months ended September 30, 2021 were approximately $495,000, as compared to $250,000 for the nine months ended September 30, 2020, representing an increase of approximately $250,000, or 102%.

The increase in research and development expenses is attributable to new product development and increased testing.

Equity Compensation Expen se

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

Equity Compensation Expense

Equity compensation expense was $0 and $114,000 for the three months ended June 30, 2021 and 2020, respectively, representing a decrease of $114,000.

Equity compensation expense was $0 and $297,000 for the six months ended June 30, 2021 and 2020, respectively, representing a decrease of $297,000.

Equity compensation expense was $0 and $11,000 for the three months ended September 30, 2021 and 2020, respectively, representing a decrease of $11,000.

Equity compensation expense was $0 and $308,000 for the nine months ended September 30, 2021 and 2020, respectively, representing a decrease of $308,000.

The decrease in equity compensation expense relates to the timing of warrants and options issued to executives and consultants in 2020.

Consulting Fees

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

Consulting Fees

Consulting fees were $96,000 and $70,000 for the three months ended June 30, 2021 and 2020, respectively, representing an increase of $26,000, or 37%, in the current quarter period.

Consulting fees were $202,000 and $151,000 for the six months ended June 30, 2021 and 2020, respectively, representing an increase of $51,000, or 34%, in the current period.

The increase is due to the timing of certain projects that occurred in the current year that did not occur in the same prior year period.

Consulting fees were $64,000 and $75,000 for the three months ended September 30, 2021 and 2020, respectively, representing a decrease of $11,000, or 15%, 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.

Consulting fees were $266,000 and $226,000 for the nine months ended September 30, 2021 and 2020, respectively, representing an increase of $40,000, or 18%, in the current period.

The increase is due consulting expenses incurred with new product registrations with the EPA and FDA.

General and Administrative Expense

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

General and Administrative

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

General and administrative expense was $1,319,000 and $967,000 for the three months ended June 30, 2021 and 2020, respectively, an increase of $352,000, or 36%, in the current period.

General and administrative expense was $3,032,000 and $1,785,000 for the six months ended June 30, 2021 and 2020, respectively, an increase of $1,247,000, or 70%, in the current period.

The increase in general and administrative expense is primarily attributable to a higher employee headcount and higher wages.

General and administrative expense was $991,000 and $992,000 for the three months ended September 30, 2021 and 2020, respectively, a decrease of $1,000, in the current period.

General and administrative expense was $4,023,000 and $2,777,000 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $1,246,000, or 45%, in the current period.

The increase in general and administrative expense is primarily attributable to higher insurance and listing fees associated with the up list to the Nasdaq Capital Market as well as a higher employee headcount and wages that incurred in the first quarter of 2021.

Other Income and Expense

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

Gain Upon Debt Extinguishment

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Gain upon debt extinguishment of $415,000 in connection with the forgiveness of a loan payable.

Interest income was approximately $0 and $1,000 for the three months ended June 30, 2021 and 2020, respectively.

Interest income was approximately $1,000 and $2,000 for the six months ended June 30, 2021 and 2020, respectively.

Interest expense was $0 and $1,000 for the three months ended June 30, 2021 and 2020, respectively.

Interest expense was $1,000 and $41,000 for the six months ended June 30, 2021 and 2020, respectively.

Interest income was approximately $0 and $1,000 for the three months ended September 30, 2021 and 2020, respectively.

Interest income was approximately $1,000 and $2,000 for the nine months ended September 30, 2021 and 2020, respectively.

Interest expense was $0 for the three months ended September 30, 2021 and 2020, respectively.

Interest expense was $1,000 and $42,000 for the nine months ended September 30, 2021 and 2020, respectively.

Provision for Income Taxes

For the three months ended September 30,

For the nine months ended September 30,

Provision for Income Taxes

Provision for income taxes for the three and nine months ended September 30, 2021 and 2020 was $0 and $77,000, respectively.

Liquidity and Capital Resources

As of June 30, 2021, we had cash and cash equivalents of $2,488,000 and working capital of $8,826,000.

As of September 30, 2021, we had cash and cash equivalents of $5,663,000 and working capital of $12,890,000.

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.

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We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all.

For the six months ended June 30, 2021, we incurred a loss from operations of ($2,704,000) and for the six months ended June 30, 2020, we generated income from operations of $6,316,000.

Cash used in operations for the six months ended June 30, 2021, was ($2,512,000).

Cash provided from operations was $5,385,000 for the six months ended June 30, 2020.

A breakdown of our statement of cash flows for the six months ended June 30, 2021 and 2020 is provided below:

For the six months ended June 30,

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 are exercisable at 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 nine months ended September 30, 2021, we incurred a loss from operations of ($3,190,000) and for the nine months ended September 30, 2021, we generated income from operations of $7,412,000.

Cash used in operations for the nine months ended September 30, 2021, was ($3,823,000).

Cash provided from operations was $4,945,000 for the nine months ended September 30, 2020.

A breakdown of our statement of cash flows for the nine months ended September 30, 2021 and 2020 is provided below:

For the nine months ended September 30,

Net Cash Provided By (Used) in Operating Activities

3 unchanged sentences

Operating Activities

Cash used in operating activities for the six months ended June 30, 2021 was ($2,512,000), compared to cash provided by operations for the three months ended June 30, 2020 of $5,385,000.

Cash used in operating activities for the nine months ended September 30, 2021 was ($3,823,000), compared to cash provided by operations for the nine months ended September 30, 2020 of $4,945,000.

Our cash provided by operations declined in the current year period as a result of lower revenue and an increase in net loss.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2021 and 2020 was $198,000 and $46,000, respectively.

Cash used in investing activities for the nine months ended September 30, 2021 and 2020 was $295,000 and $51,000, respectively.

The increase is attributable to fixed assets purchased in the year and capitalized patent and trademark costs.

Financing Activities

Cash provided by financing activities for the six months ended June 30, 2021 and 2020 was $0 and $32,000 respectively.

The cash provided by financing activities in the prior year period was due to proceeds from the exercise of warrants and options in the amount of $121,000 and proceeds from a loan payable of $411,000 offset by the repayment of the principal balance of the convertible note of $500,000.

Cash provided by financing activities for the nine months ended September 30, 2021 and 2020 was $4,582,000 and $94,000 respectively.

The cash provided by financing activities increased as a result of the proceeds we received in connection with the sale of our common stock and warrants.

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

22 unchanged sentences

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 in accordance with Financial Accounting Standards Board (FASB) ASC 606, Revenue from Contracts with Customers.

We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

25 unchanged sentences

Contract Balances

As of June 30, 2021, and December 31, 2020 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.

As of September 30, 2021, and December 31, 2020 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

18 unchanged sentences

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.

8 unchanged sentences

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 are valued at the lower of cost or market using the first-in, first-out (FIFO) method.

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.

18 unchanged sentences

Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new standard to all comparative periods presented.

Operating lease assets are included within operating lease right-of-use assets, and the corresponding operating lease liabilities are recorded as current portion of long-term operating lease, and within long-term liabilities as long-term operating lease, net of current portion on our condensed consolidated balance sheet as of June 30, 2021 and December 31, 2020.

We have elected not to present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise.

38 unchanged sentences

We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations.

We had no long-lived asset impairment charges for the three and six months ended June 30, 2021 and 2020.

We had no long-lived asset impairment charges for the three and nine months ended September 30, 2021 and 2020.

Recent Accounting Pronouncements

17 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis