What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-15 · 160 added, 323 removed, 501 unchanged (49% of the section changed)

3 unchanged sentences

Current Assets:

September 30, 2021 (Unaudited)

March 31, 2022 (Unaudited)

December 31, 2021

17 unchanged sentences

Customer Deposits

Current Portion of Long-Term Operating Lease

Current Portion of Long-Term Operating Lease (Note 7)

Total Current Liabilities

Long-Term Liabilities:

Loan Payable (Note 15)

Long-Term Operating Lease, Net of Current Portion (Note 7)

1 unchanged sentence

Total Liabilities

Commitments and Contingencies (Note 11)

Shareholders’ Equity:

1 unchanged sentence

par value $ 0.01 per share, 1,000,000 shares authorized;

63,750 shares issued

and outstanding at September 30, 2021 and December 31, 2020

63,750 shares issued and outstanding at March 31, 2022 and December 31, 2021

Cumulative Convertible Series B Preferred Stock;

2 unchanged sentences

4,000 shares authorized;

none issued and outstanding at September 30, 2021 and December 31, 2020

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;

19,680,955 and 16,761,513 shares issued and outstanding

at September 30, 2021 and December 31, 2020, respectively.

19,732,705 and 16,761,513 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.

Additional Paid-In Capital

8 unchanged sentences

For The Three Months Ended

For The Nine Months Ended

September 30,

Cost of Sales

4 unchanged sentences

Research and Development

Equity Compensation Expense (Note 10)

Consulting Fees

1 unchanged sentence

Total Operating Expenses

Income (loss) from Operations

Loss from Operations

( 1,510,333 )

Other Income (Expense):

Gain Upon Debt Extinguishment

Interest Income

1 unchanged sentence

Total Other Income (Expense)

Income (loss) before income taxes

Loss before income taxes

( 1,510,941 )

Provision for Income Taxes (Note 16)

Net Income (loss)

$ ( 659,484 )

3 unchanged sentences

Diluted Weighted Average Common Shares Outstanding

(1) Share amounts with respect to the common stock and Convertible Series A Preferred Stock have been retroactively restated to reflect the reverse split thereof, which was effected as of the close of business on September 10, 2020.

Refer to Note 10—Equity for further information.

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the nine months ended September 30, 2021

For the three months ended March 31, 2022

Series A Preferred

Additional Paid

Total Shareholders’

1 unchanged sentence

$ ( 43,543,576 )

Equity Compensation

Common Stock Issued for Services Provided

Common Stock Issued in Private Placement

Net (Loss) for the nine months ended September 30, 2021

( 2,775,952 )

Balance at September 30, 2021

Net (Loss) for the three months ended March 31, 2022

Balance at March 31, 2022

$ ( 44,203,060 )

For the nine months ended September 30, 2020

For the three months ended March 31, 2021

Series A Preferred

Additional Paid

Total Shareholders’

1 unchanged sentence

$ ( 39,108,078 )

Equity Compensation

Common Stock Issued for Services Provided

Conversion of Notes Payable into Common Stock

Warrants and Options Exercised

Reverse stock split adjustment

Net Income for the nine months ended September 30, 2020

Balance at September 30, 2020

$ (36,203,766 )

Refer to Note 10—Equity for further information.

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

TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the three months ended September 30, 2021

Series A Preferred

Total Shareholders’

Balance at June 30, 2021

$ ( 41,397,472 )

Common Stock Issued in Private Placement

Net (Loss) for the three months ended September 30, 2021

Balance at September 30, 2021

Net (Loss) for the three months ended March 31, 2021

( 1,510,941 )

For the three months ended September 30, 2020

Series A Preferred

Total Shareholders’

Balance at June 30, 2020

( 1,510,941 )

Equity Compensation

Warrants and Options Exercised

Reverse stock split adjustment

Net Income for the three months ended September 30, 2020

Balance at September 30, 2020

Balance at March 31, 2021

$ ( 40,619,018 )

(1) Share amounts have been retroactively restated to reflect the Company’s reverse stock split, which was effected September 10, 2020.

Refer to Note 10—Equity for further information.

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash Flow From Operating Activities:

Net Income (Loss)

$ ( 659,484 )

$ ( 1,510,941 )

Adjustments to Reconcile Net Income (Loss) to

4 unchanged sentences

Equity Compensation Expense

Value of Equity Issued for Services

Reserve for Bad Debt

Inventory Reserve

Gain Upon Debt Extinguishment

Changes in Operating Assets and Liabilities:

1 unchanged sentence

Accounts Receivable

( 2,214,625 )

( 1,006,689 )

( 1,923,030 )

Prepaid Expenses

4 unchanged sentences

Accrued Expenses

Accrued Interest

Customer Deposits

Lease Liability

Net Cash Provided by (Used in) Operating Activities

Net Cash Provided (Used) in Operating Activities

( 1,224,979 )

Cash Flow From Investing Activities:

Capitalized Patent and Trademark Costs

Purchase of Property and Equipment

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash Flow From Financing Activities:

Proceeds from Issuance of Stock and Warrants

Proceeds from Exercise of Warrants and Options

Proceeds from Loan Payable

Repayment of Principal Balance on Convertible Note

Net Cash Provided by Financing Activities:

Increase In Cash and Cash Equivalents

Net Cash From Financing Activities:

Increase (Decrease) In Cash and Cash Equivalents

( 1,253,184 )

Cash and Cash Equivalents - Beginning

1 unchanged sentence

Supplemental Cash Flow Information:

Cash Paid For Interest

Cash Paid for Income Taxes

Non-Cash Investing and Financing Activities:

Accrued Equity Compensation

Conversion of Note Payable into Common Stock

Equipment, net Transferred to Inventory

Patent and trademark costs reclassified from Other Assets

Cash Received From Income Tax Refund

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

30 unchanged sentences

Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation.

These reclassifications had no effect on previously reported results of operations or financial position.

These reclassifications had no material effect on previously reported results of operations or financial position.

Use of Estimates

17 unchanged sentences

At times, these deposits may be in excess of insured limits.

At September 30, 2021 and December 31, 2020 there were no cash equivalents (or cash equivalents consisted of money market, etc)

At March 31, 2022 and December 31, 2021, there were no cash equivalents.

Accounts Receivable

4 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.

Bad debt expense for the three and nine months ended September 30, 2021 was approximately $ 93,000 and $ 511,000 , respectively.

Bad debt expense for the three and nine months ended September 30, 2020 was approximately $ 153,000 and $ 226,000 , respectively.

At September 30, 2021 and December 31, 2020, the allowance for doubtful accounts was $ 750,000 and $ 390,000 , respectively.

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 .

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method.

3 unchanged sentences

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 September 30, 2021 and December 31, 2020, respectively.

Our reserve for obsolete inventory was $ 0 as of March 31, 2022 and December 31, 2021.

Property and Equipment

3 unchanged sentences

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.

In February 2016, the FASB issued ASU No.

2016-02 (ASC 842), Leases , to require lessees to recognize all leases, with certain exceptions, on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting.

Subsequently, the FASB issued ASU No.

2018-10, Codification Improvements to Topic 842, Leases , ASU No.

2018-11, Targeted Improvements , ASU No.

2018-20, Narrow-Scope Improvements for Lessors , and ASU 2019-01, Codification Improvements , to clarify and amend the guidance in ASU No.

ASC 842 eliminates real estate-specific provisions and modifies certain aspects of lessor accounting.

This standard is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted.

We adopted ASC 842 as of January 1, 2019 using the modified retrospective basis with a cumulative effect adjustment as of that date.

In addition, we elected the package of practical expedients permitted under the transition guidance within the standard, which allowed us to carry forward the historical determination of contracts as leases, lease classification and not reassess initial direct costs for historical lease arrangements.

Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the 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 September 30, 2021 and December 31, 2020.

We have elected not to present short-term leases on the condensed 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.

All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date.

Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

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

1 unchanged sentence

The periodic expense for the amortization of capitalized software development costs will be included in cost of sales.

Amortization expense for the three and nine months ended September 30, 2021 and 2020, was $ 10,475 and $ 31,425 , respectively.

Amortization expense for both the periods ended March 31, 2022 and 2021, was $ 10,475 .

Accounts Payable

As of September 30, 2021, one vendor accounted for approximately 25 % of 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 and nine months ended September 30, 2021, two vendors accounted for 55 % and 60 % of cost of sales, respectively.

For the three and nine months ended September 30, 2020, two vendors accounted for 66 % and 77 % of cost of sales, respectively.

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

3 unchanged sentences

We assume responsibility for product reliability and results.

As of September 30, 2021, and December 31, 2020, our warranty reserve was $ 68,000 .

As of March 31, 2022, and December 31, 2021, our warranty reserve was $ 68,000 .

(See Note 14).

1 unchanged sentence

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 September 30, 2021 and December 31, 2020.

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.

2 unchanged sentences

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 September 30, 2021 consisted of 3,424,771 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”).

Potentially dilutive securities as of September 30, 2020 consisted of 1,686,633 shares of common stock issuable upon exercise of outstanding warrants, 101,250 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, 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 3.6 million and 2.2 million shares of common stock were outstanding at September 30, 2021 and December 31, 2020, respectively, but were excluded from the computation of diluted net loss per share at September 30, 2021 due to the anti-dilutive effect on net loss per share.

For the Three Months Ended September 30,

Net Income (Loss)

$ ( 486,558 )

Net income (loss) attributable to common shareholders

$ ( 486,558 )

Weighted average number of shares of common stock outstanding:

Net income (loss) attributable to common shareholders per share:

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

For the Three Months Ended September 30,

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.

For the Three Months Ended March 31,

Net Income (Loss)

$ ( 659,484 )

Basic weighted-average shares

Effect of dilutive securities

Preferred Stock

Diluted Weighted Average Shares

Net Income (Loss) Per Common Share:

Warrants, options and preferred stock for the three months ended September 30, 2021 are not included in the computation of diluted weighted average shares as such inclusion would be anti-dilutive.

For the Nine Months Ended September 30,

Net Income (Loss)

$ ( 1,510,941 )

Adjustments for convertible debt - as converted

Interest on convertible debt

Net income (loss) attributable to common shareholders

$ ( 659,484 )

$ ( 1,510,941 )

Weighted average number of shares of common stock outstanding:

1 unchanged sentence

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

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Net Income (Loss)

$ ( 659,484 )

$ ( 1,510,941 )

Basic weighted-average shares

3 unchanged sentences

Net Income (Loss) Per Common Share:

Warrants, options and preferred stock for the nine months ended September 30, 2021 are not included in the computation of diluted weighted average shares as such inclusion would be anti-dilutive.

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) ASC 606, Revenue from Contracts with Customers.

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.

19 unchanged sentences

Product and Service Revenue

For the three months ended September 30,

SteraMist Product

Service and Training

Revenue by Geographic Region

For the three months ended September 30,

United States

International

Product and Service Revenue

For the nine months ended September 30,

For the three months ended March 31,

SteraMist Product

1 unchanged sentence

Revenue by Geographic Region

For the nine months ended September 30,

For the three months ended March 31,

United States

9 unchanged sentences

Contract Balances

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.

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

17 unchanged sentences

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 nine months ended September 30, 2021 and 2020, we issued 50,000 shares of fully vested common stock, respectively, pursuant to the 2016 Plan to our directors.

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

11 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 nine months ended September 30, 2021 and 2020.

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 included in selling expenses for the three and nine months ended September 30, 2021 were approximately $ 145,000 and $ 552,000 , respectively.

Advertising and promotional expenses included in selling expenses for the three and nine months ended September 30, 2020 were approximately $ 56,000 and $ 156,000 , respectively.

Advertising and promotional expenses for the three months ended March 31, 2022 and 2021 were approximately $ 194,000 and $ 266,000 , respectively.

Research and Development Expenses

We expense research and development expenses in the period in which they are incurred.

For the three and nine months ended September 30, 2021, research and development expenses were approximately $ 93,000 and $ 495,000 , respectively.

For the three and nine months ended September 30, 2020, research and development expenses were approximately $ 45,000 and $ 245,000 , respectively.

For the three months ended March 31, 2022 and 2021, research and development expenses were approximately $ 37,000 and $ 196,000 , respectively.

Business Segments

2 unchanged sentences

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU No.

2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Topic 350):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

This guidance is effective on a prospective or retrospective basis beginning on January 1, 2020, with early adoption permitted.

We elected to adopt this guidance early, in 2020 on a prospective basis.

The guidance did not have a material impact on our condensed Consolidated Financial Statements.

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.

Inventories consist of the following at:

September 30, 2021

March 31, 2022

December 31, 2021

2 unchanged sentences

VENDOR DEPOSITS

At September 30, 2021 and December 31, 2020, we maintained vendor deposits of $ 426,818 and $ 388,712 , respectively, for open purchase orders for inventory.

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.

PROPERTY AND EQUIPMENT

Property and equipment consist of the following at:

September 30, 2021

March 31, 2022

December 31, 2021

5 unchanged sentences

Accumulated depreciation

For the three and nine months ended September 30, 2021, depreciation was $ 67,383 and $ 218,398 , respectively.

For the three and nine months ended September 30, 2020, depreciation was $ 83,932 and $ 241,445 , respectively.

For the three and nine months ended September 30, 2021 and 2020, amortization of tenant improvement allowance was $ 9,798 and $ 19,597 , respectively and was recorded as lease expense and included within general and administrative expense on the consolidated statement of operations.

As of September 30, 2021, we had capitalized costs in progress not yet placed into service in connection with tooling and molds pursuant to ASC 340-10.

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.

INTANGIBLE ASSETS

2 unchanged sentences

The trademarks have an indefinite life.

Amortization expense was $ 2,422 and $ 7,268 for the three and nine months ended September 30, 2021, respectively.

Amortization expense was $ 93,347 and $ 280,041 for the three and nine months ended September 30, 2020.

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:

September 30, 2021

March 31, 2022

December 31, 2021

4 unchanged sentences

Approximate future amortization is as follows:

October 1 – December 31, 2021

April 1 – December 31, 2022

December 31, 2023

3 unchanged sentences

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 was scheduled to commence on December 1, 2018 or when the property was ready for occupancy.

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.

1 unchanged sentence

Operating leases:

September 30, 2021 (Unaudited)

March 31, 2022

December 31, 2021

3 unchanged sentences

The components of lease expense are as follows and are included within general and administrative expense on our condensed consolidated statement of operations:

For the Three Months Ended September 30, 2021

For the Three Months Ended September 30, 2020

Operating lease expense

For the Nine Months Ended September 30, 2021

For the Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2022

For the Three Months Ended March 31, 2021

Operating lease expense

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

September 30, 2021 (Unaudited)

March 31, 2022

December 31, 2021

4 unchanged sentences

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

For the Three Months Ended September 30, 2021

For the Three Months Ended September 30, 2020

Cash paid for amounts included in the measurement of lease liabilities:

For the Nine Months Ended September 30, 2021

For the Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2022

For the Three Months Ended March 31, 2021

Cash paid for amounts included in the measurement of lease liabilities:

As of September 30, 2021, the maturities of our operating lease liability are as follows:

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

Operating Lease

October 1 – December 31, 2021

April 1 – December 31, 2022

December 31, 2023

9 unchanged sentences

Capitalized software development costs consist of the following at:

September 30, 2021

March 31, 2022

December 31, 2021

2 unchanged sentences

Capitalized Software Development Costs - net

Amortization expense for the three and nine months ended September 30, 2021 was $ 10,475 and $ 31,425 , respectively.

Amortization expense for the three and nine months ended September 30, 2020 was $ 10,475 and $ 31,425 , respectively.

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

CLOUD COMPUTING SERVICE CONTRACT

2 unchanged sentences

The annual contract payments are capitalized as a prepaid expense and amortized over a twelve-month period.

We have incurred implementation costs of $ 62,677 in connection with the cloud computing service contract which have been capitalized in prepaid expenses and other assets as of September 30, 2021.

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 and nine months ended September 30, 2021 was $ 3,482 and $ 10,446 , respectively.

Amortization expense for the three and nine months ended September 30, 2020 was $ 0 .

Amortization expense for the three months ended March 31, 2022 and 2021 were $ 4,526 and $ 3,482 , respectively.

SHAREHOLDERS’ EQUITY

2 unchanged sentences

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.

Reverse Stock Split

On September 9, 2020, the Board approved a reverse stock split of our common stock and our Convertible Series A Preferred Stock, in each case, at a ratio of 1-for-8 and without any change to the respective par value thereof (the “Reverse Stock Split”), and, on September 10, 2020 , we filed an Articles of Amendment to our Articles of Incorporation with the Department of State of the State of Florida to effect the Reverse Stock Split.

The Reverse Stock Split became effective as of September 10, 2020.

All per-share and share amounts have been retroactively restated in this Quarterly Report on Form 10-Q for all periods presented to reflect the reverse stock split.

Convertible Series A Preferred Stock

Our authorized Convertible Series A Preferred Stock, $ 0.01 par value, consists of 1,000,000 shares.

At September 30, 2021 and December 31, 2020, there were 63,750 shares issued and outstanding.

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.

1 unchanged sentence

Our authorized Convertible Series B Preferred Stock, $ 1,000 stated value, 7.5% cumulative dividend, consists of 4,000 shares.

At September 30, 2021 and December 31, 2020, there were no shares issued and outstanding, respectively.

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.

In January 2020, we issued 50,000 shares of fully vested common stock valued at $ 48,000 to members of our Board (see Note 12).

In March 2020, 1,041,667 shares of common stock were issued in connection with the conversion of convertible notes payable aggregating $ 4,500,000 .

In March 2020, 10,417 shares of common stock were issued in connection with the exercise of warrants for which we received proceeds of $ 57,500 .

In May 2020, 2,500 shares of common stock were issued in connection with the exercise of options for which we received proceeds of $ 1,000 .

In June 2020, 26,940 shares of common stock were issued in connection with the exercise of warrants for which we received proceeds of $ 62,500 .

In July 2020, 26,940 shares of common stock were issued in connection with the exercise of warrants for which we received proceeds of $62,500

In January 2021, we issued 50,000 shares of common stock valued at $ 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 in a concurrent private placement.

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 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.

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.

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

There were no options granted for the nine months ended September 30, 2021.

In January 2020 we issued two options to purchase an aggregate of 31,250 shares of common stock to our Chief Operating Officer at an exercise price of $0.80 and $ 0.96 per share in satisfaction of accrued compensation.

The options were valued at a total of $ 23,595 and have a term of 5 years.

We utilized the Black-Scholes method to fair value the options received by the COO with the following assumptions:

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 %;

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risk free interest rate, 1.65 %;

and a life of 5 years.

The grant date fair value of each share of common stock underlying the options was $0.72 and $ 0.80 .

The value of the stock option was included in accrued expenses at December 31, 2019.

The following table summarizes stock options outstanding as of September 30, 2021 and December 31, 2020:

September 30, 2021

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 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

December 31, 2021

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Outstanding, end of period

Options outstanding and exercisable by price range as of September 30, 2021 were as follows:

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

Outstanding Options

Average Weighted Remaining Contractual

Exercisable Options

Life in Years

Weighted Average Exercise Price

Exercise Price

Stock Warrants

In January 2020 we issued a warrant to purchase 156,250 shares of common stock to our Chief Executive Officer at an exercise price of $ 1.20 per share pursuant to an employment agreement.

The warrant was valued at $ 164,201 and has a term of 5 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 136 %;

expected dividend yield, 0 %;

risk free interest rate, 1.64 %;

and a life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $ 1.04 .

In January 2020 we issued a warrant to purchase 5,208 shares of common stock to an employee at an exercise price of $ 0.96 per share in satisfaction of accrued compensation.

The warrant was valued at $ 3,594 and has a term of 5 years.

We utilized the Black-Scholes model to fair value the warrant received by the employee with the following assumptions:

volatility, 135 %;

expected dividend yield, 0 %;

risk free interest rate, 1.58 %;

and a life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $ 0.72 .

The value of the warrants was expensed in the fourth quarter of 2019 and included in accrued expenses at December 31, 2019.

In February 2020 we issued a warrant to purchase 18,750 shares of common stock to an employee at an exercise price of $ 1.20 per share.

The warrant was valued at $18,571 and has a term of 3 years.

We utilized the Black-Scholes model to fair value the warrant received by the employee with the following assumptions:

volatility, 155 %;

expected dividend yield, 0 %;

risk free interest rate, 1.64 %;

and a life of 3 years.

The grant date fair value of each share of common stock underlying the warrant was $ 0.96 .

In April 2020 we issued a warrant to purchase 12,500 shares of common stock to the CEO at an exercise price of $ 4.00 per share pursuant to an employment agreement.

The warrant was valued at $ 49,693 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by the CEO with the following assumptions:

volatility, 173 %;

expected dividend yield, 0 %;

risk free interest rate, 0.68 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 4.00 .

In April 2020 we issued a warrant to purchase 6,250 shares of common stock to the COO at an exercise price of $ 4.00 per share pursuant to an employment agreement.

The warrant was valued at $ 24,846 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by the COO with the following assumptions:

volatility, 173 %;

expected dividend yield, 0 %;

risk free interest rate, 0.68 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 4.00 .

In April 2020 we issued a warrant to purchase 6,250 shares of common stock to the CFO at an exercise price of $ 4.00 per share pursuant to an employment agreement.

The warrant was valued at $ 24,846 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by the CFO with the following assumptions:

volatility, 173 %;

expected dividend yield, 0 %;

risk free interest rate, 0.68 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 4.00 .

In April 2020 we issued a warrant to purchase 3,750 shares of common stock to a consultant at an exercise price of $ 4.00 per share.

The warrant was valued at $ 14,908 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by the consultant with the following assumptions:

volatility, 173 %;

expected dividend yield, 0 %;

risk free interest rate, 0.68 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 4.00 .

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.

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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 nine months ended September 30, 2021.

In September 2021, we issued 1,434,721 warrants in a private placement in connection with the sale common stock through a registered direct offering.

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.

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 .

The following table summarizes the outstanding common stock warrants as of September 30, 2021 and December 31, 2020:

September 30, 2021

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.

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

March 31, 2022

December 31, 2021

Number of Warrants

Weighted Average Exercise Price

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Outstanding, end of period

Warrants outstanding and exercisable by price range as of September 30, 2021 were as follows:

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

Outstanding Warrants

Exercisable Warrants

Exercise Price

Average Weighted

Remaining Contractual

Exercisable Warrants

Life in Years

Weighted Average

Exercise Price

Number Life in Years

Number Weighted Average Exercise Price

31,250 2.15 31,250 $ 0.64

There were no unvested warrants outstanding as of September 30, 2021.

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

COMMITMENTS AND CONTINGENCIES

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Product Liability

As of September 30, 2021 and December 31, 2020, there were no claims against us for product liability.

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

COVID-19 Pandemic

The COVID-19 pandemic has increased the global demand for disinfection products and services that help prevent the spread and transmission of COVID-19 virus.

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.

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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.

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Shane will be entitled to a lump sum payment of one and a half years’ salary at the time of such termination.

Agreements with Directors

In December 2017, we increased the annual fee to the members of our Board to $ 40,000 , to be paid in cash on a quarterly basis, with the exception of the audit committee chairperson, whose annual fee we increased to $ 45,000 , also to be paid in cash on a quarterly basis.

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 nine months ended September 30, 2020, we issued an aggregate of 50,000 shares of common stock that were valued at $ 48,000 to members of our Board.

For the nine months ended September 30, 2021, we issued an aggregate of 50,000 shares of common stock that were valued at $ 228,000 to members of our Board.

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

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Cloud Computing Service Contract

In May 2020 we entered into an agreement for a 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:

October 1 - December 31, 2021

December 31, 2022

April 1 - December 31, 2022

December 31, 2023

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December 31, 2025

Other Agreements

TOMI Service Network (“TSN”) is a national service network composed of existing full-service restoration industry specialists that have entered initially into licensing agreements with us to become Primary Service Providers (“PSPs”).

The licensing agreements originally granted protected territories to PSPs to perform services using our SteraMist ® platform of products and also provide for potential job referrals to PSPs whereby we are entitled to referral fees.

Additionally, the agreement provides for commissions due to PSPs for equipment and solution sales they facilitate to other service providers in their respective territories.

As part of these agreements, we are obligated to provide to the PSPs various training, ongoing support and facilitate a referral network call center.

As of September 30, 2021, we have 203 network companies in TSN.

The nature and terms of our TSN agreements may represent multiple deliverable arrangements.

Each of the deliverables in these arrangements typically represent a separate unit of accounting.

There is no exclusivity in our TSN network.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

September 30, 2021

March 31, 2022

December 31, 2021

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Sales Tax Payable

Income Taxes Payable (Note 16)

Accrued warranty (Note 14)

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The following table presents warranty reserve activities at:

September 30, 2021

March 31, 2022

December 31, 2021

3 unchanged sentences

Ending accrued warranty costs

On April 21, 2020, we received $ 410,700 in loan funding from the Paycheck Protection Program (the "PPP") established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act") and administered by the U.S.

Small Business Administration ("SBA").

The unsecured loan (the "PPP Loan") is evidenced by a promissory note of the Company, dated April 21, 2020 (the "Note") in the principal amount of $410,700 with City National Bank (the "Bank"), the lender.

Under the terms of the Note and the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0 % per annum.

The term of the Note is two years, though it may be payable sooner in connection with an event of default under the Note.

In May of 2021, the loan principal and related interest was forgiven and we recognized a gain upon debt extinguishment in our statement of operations in the amount of $ 414,583 for the nine months ended September 30, 2021.

For the three and nine months ended September 30, 2021 and 2020, our provision for income tax was $ 0 .

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 September 30, 2021 and December 31, 2020, we recorded a valuation allowance of $ 4,307,000 and $ 3,530,000 , respectively for the portion of the deferred tax assets that we do not expect to be realized.

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.

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CUSTOMER CONCENTRATION

Two customers accounted for 29 % of net revenue for the three months ended September 30, 2021.

We had no customers/distributor whose revenue individually represented 10% or more of our total revenue for the nine months ended September 30, 2021.

For the nine months ended September 20, 2020, one customer accounted for 11 % of net revenue

We had two customers/distributors that accounted for 25 % of accounts receivable as of September 30, 2021.

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.

SUBSEQUENT EVENTS

On October 26, 2021, we filed a Form S-3 Registration Statement which registered 1,606,888 shares of common stock issuable upon the exercise of outstanding common stock purchase warrants acquired in connection with registered direct offering on September 26, 2021 and due the placement agents.

The registration statement was declared effective by the SEC on November 8, 2021.

See note 10 (common stock) for additional details.

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 1. Financial Statements