What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-15 · 193 added, 265 removed, 319 unchanged (59% of the section changed)

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Business Update

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.

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.

The first four months of the 2022 fiscal year has been active with respect to our sales and business development.

We remain focused on growing our top line revenue, expanding our customer base, adding key employees, and making further innovations to our product line.

The first quarter of 2022 delivered improved revenue and operating results as we achieved a 11% growth in our first quarter sales and 24% reduction in our operating expenses when compared to the same period last year .

Our first quarter revenue also grew by 15% sequentially over what was reported in the fourth quarter of 2021.

The increase in sales was primarily due to higher demand for our mobile equipment and iHP corporate services.

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

During the first quarter of 2022 we received approximately $3.5 million in orders from key fortune 500 customers, of which we anticipate about $3.2 million of which to be recognized as revenue in our current calendar year.

A key driver to our longer-term growth is strengthening demand for our Custom Engineered Systems (CES).

We have secured several new orders for our iHP CES and more set to close eminently, revenue recognition will be upon delivery throughout 2022 and early 2023.

As the markets need for our automated disinfection CES continues to increase, TOMI has re-engaged with our manufacturing sales representatives and partners both domestically and internationally.

The renewed interest can be attributed to TOMI corporate’s support and the launch of the SteraMist Support Portal that is available on desktop.

We have also developed a mobile app which provides ease of use for sales support, branding, and assistance to our TOMI Service Network providers, sales representatives, and international distributors and end users.

Studies remain a focus as TOMI continues to pursue a wide array of industries.

Studies focused on Botrytis cinerea and Mycotoxin, as well as furthering testing on chemical and biological warfare agents will further enhance TOMI’s ability to further penetrate the market.

Finally, our manufacturing capacity and capabilities were improved in the first quarter of 2022 with the addition of ARM Enertech Associates who can manufacture our CES in their Pennsylvania facility.

Furthermore, our existing manufacturer Planet Innovation has expanded into California providing easier access to our internal technology team and a lower cost in domestic shipment charges.

We anticipate these developments will reduce our overall costs and manufacturing lead times.

Product Development

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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 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.

The second half of 2020 showed us that our customers prefer a disinfection device with lower cost and more versatility.

To respond, we developed the Backpack (SteraPak) that includes our award winning 6-log and above kill technology and speed.

In addition, our solution and process are environmentally friendly as the only biproduct from our decontamination process is oxygen and humidity.

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The unit will allow for enhanced flexibility by using a single applicator to decontaminate full-room to small-space volume while maintaining the size of the current Surface Select unit with more robust process controls.

The Transport CES has been designed for the transportation market, specifically ambulances.

The Transport CES is a simple timer based fogging system that can be installed semi-permanently or permanently and used for any transport and/or cargo vehicle.

The iHP SteraMist Transport System has been designed for the transportation market, specifically ambulances.

The iHP SteraMist Transport System is a simple timer based fogging system that can be installed semi-permanently or permanently and used for any transport and/or cargo vehicle.

It will be an easy-to-use turn-key integration system.

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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 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.

In third quarter of 2021, we expanded our SteraMist ® BIT ™ solution product line with a 32-ounce bottle for the SteraPak, and the introduction of a ten (10) liter and five (5) gallon bottle.

These three new additions bring the BIT Solution product line to a total of five (5) options provided to our customers, which should also benefit our razor razor-blade business model.

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

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We continue to offer our customers a wide range of innovative mobile products designed to be easily incorporated into their existing disinfection and decontamination procedures and protocols.

Our newly soon to be released SteraPak, among other product lines will allow us to progress further into market share, specifically for our Hospital-HealthCare, Life Sciences, TSN, and Commercial divisions.

Our newly released SteraPak, among other product lines will allow us to progress further into market share, specifically for our Life Science, Hospital-HealthCare, TSN, and Commercial divisions.

Additionally, we offer integrated facility equipment installations known as Custom Engineered Systems (CES), routine & emergency iHP Corporate Service, essential training packages, validations and qualifications, and onsite performance maintenance requests.

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

A brief overview of the target industries is presented below:

Life Sciences

The SteraMist ® Environment System, Custom Engineered Systems (CES), the SteraMist ® Select Surface Unit (Plus), SteraBox, 90 Degree Applicator and our iHP ™ Corporate Service Division, are designed to be tailored to provide a complete solution to address the regulatory inspections of disinfecting/decontaminating and Installation Qualification (IQ)-Operational Qualification (OQ)–Performance Qualification (PQ) validation processes within the life sciences industry.

Long term, ongoing projects and validations continue to be a focus and lead to proposals and interest for our CES permanent decontamination room.

As these are longer lead-time sales that can take months to design, build and implement, we expect installations to have impact to our results in 2022.

Further, we believe that post COVID pandemic has brought some attention to the SteraMist product line, as our CES in Pfizer Missouri was recently showcased in a New York Times article as they featured their COVID vaccine processes.

In addition, our iHP Corporate Service team treated one of four fill lines in a North Carolina pharmaceutical company that manufactures one of the COVID vaccines, with the remaining three lines set to be decontaminated in the future with SteraMist.

For 2022 and beyond TOMI expects growth in SteraMist Custom Engineered Systems (CES) bids and the manufacturing and implementation of these fully automated decontamination systems.

The first CES system was completed in 2016 for Dana Farber Cancer Institute, as Dana Farber was designing a new vivariumand had the opportunity to integrate several new technologies to advance overall efficiency, quality, and design.

One such technology was the use of our ionized Hydrogen Peroxide (iHP) decontamination.

TOMI’s CES is an automated system that can be fully integrated into any company’s infrastructure, enabling decontamination, without burdening manual use and with the collaboration of current premier customers and partners, TOMI has further perfected the system.

The CES eliminates issues such as human error, guarantees accuracy that is unmatched by competitors, and decreases a client’s labor cost and downtime, and in a short time the CES may make up a majority of TOMI’s revenue.

Since its launch, SteraMist’s CES has become a leading solution to growing customer demands.

Hospital-Healthcare

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TOMI looks forward to announcing the full results as soon as they are available to make public.

Life Sciences

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.

Further, post COVID pandemic has brought some attention to the SteraMist product line, as our CES in Pfizer Missouri was recently showcased in a New York Times article as they featured their COVID vaccine processes.

TOMI anticipates this study will assist in the expansion of current HealthCare customers to follow the model of Gila River Health Care.

Gila River is one of TOMI’s largest Healthcare customers owning a total of fourteen (14) Surface Units and Two (2) SteraPaks.

The Gila River Indian Community (GRIC) is an Indian reservation in Arizona that is made up of seven (7) districts and is home to the Akimel O’oodham (Pima) and the Pee-Posh (Maricopa) tribes.

Gila River Health Care, a premier Native American healthcare system, provides high quality patient care, delivering a wide variety of medical services such as general surgery, dental, and emergency medicine, as well as associated health services such as pharmacy and laboratory operations, skilled nursing and rehabilitation.

TOMI Service Network

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TOMI continues to work with premium companies in testing and validating SteraMist ® technology in the Food Safety and seed industries.

In 2021, we have made progress in enhancing brand awareness by promoting and marketing this division.

In 2022, we look to make further progress in enhancing brand awareness by promoting and marketing this division.

We are receiving an increase in inquiries within the Food Safety division directly from these efforts.

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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

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.

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, both domestic and globally.

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.

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.

Total revenue for the three months ended March 31, 2022 and 2021, was $2,309,000 and $2,073,000, respectively, representing an increase of $236,000, or 11% compared to the same prior year period.

The first quarter sales grew by 15% over what was reported in the fourth quarter of 2021.

The increase in revenue was attributable to higher demand for our mobile equipment and iHP Corporate service revenue.

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

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

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

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

We continue to see positive signs in the marketplace with our customers and prospective customers which has contributed to our growth in our reportable revenue for the first quarter and bolstered our current sales pipeline.

During the first quarter we received approximately $3,500,000 in orders, of which we anticipate $3,200,000 will be recognized as revenue in our current calendar year.

As of March 31, 2022, we maintain deposits from customers of approximately $607,000 which down payments on future orders that are expected to be recognized into revenue in 2022.

The growth in our orders was due to increased demand for our mobile equipment and Custom Engineered Systems (CES) from both the life science and hospital sectors.

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

This pandemic has provided us with the confidence to develop a clear strategy to manufacture what may be our best product portfolio to date.

In addition, we continue to move our BIT technology closer to becoming the standard in disinfection and decontamination globally.

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.

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 COVID-19 pandemic has provided us with the opportunity and motivation to implement a clear strategy to develop and manufacture additional products to add to our portfolio.

In addition, we continue to move our BIT technology as a standard in disinfection and decontamination globally, which we believe will lead to increased market share, profitability, and capability strength.

Our products are an environmentally friendly solution and process which address the concerns of sustainability.

Customers are requesting and discussing the positive results of our product and the environmentally friendly results compared to the caustic results of other disinfectants.

Dangerous pathogens still exist and will exist long after we recover from this pandemic.

While the United States and most of the world is currently recovering from the COVID-19 pandemic, there are many pathogens which are respiratory in nature that are still a looming threat;

these cases are occurring globally to this day.

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

As the world faces uncertainty with an ongoing war, SteraMist is prepared for a chemical and biological warfare with proven efficacy against many agents, as well as inventory and support readily to deploy at a moment’s notice.

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

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 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.

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

On February 10, 2022, we announced that we received approximately $1.3 million of orders for its Custom Engineered Systems (CES) and have set installation dates for these systems.

Two of the orders are from a Fortune 500 pharmaceuticals company and the other is from a leading research facility focused on immunology and infectious disease.

These additional CES orders are timed nicely after the final commissioning of the CES reported in October 2021 and installed months later after announcement for Fresenius Kabi’s Portuguese affiliate Labesfal S.A.

located in the heart of Portugal.

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

On March 10, 2022 we announced that we fulfilled an urgent shipment of multiple SteraPak units to its local distributor in Hong Kong, TOMIMIST Hong Kong.

The units were deployed by a well-known real-estate conglomerate in Hong Kong for use in shopping malls, commercial and residential buildings, and numerous other business premises to effectively combat the massive outbreak of COVID-19 Omicron variant infections in the city.

As conferences and tradeshows are reopening in 2022 companies to exhibit live, TOMI will be attending multiple shows across the country.

It is critical for TOMI to perform live demonstrations to showcase the difference between our SteraMist iHP technology and our competitors.

TOMI looks forward to making a large impact with live demonstrations of SteraMist disinfection technology throughout our multiple divisions.

Research Studies:

On April 12, 2022, we announced the attendance of the RIA 2022 International Restoration Convention & Industry Expo.

This show provided insight on the future of restoration businesses regarding mergers and acquisitions and meetings with core entities to discuss SteraMist disinfection potential with large franchises.

On April 25, 2022, we released that TOMI was exhibiting at FDIC International, which is the largest fire and rescue conference.

As first-time exhibitors, we gained knowledge on the EMS market and their need for disinfection.

With concerns of corrosion, vehicle turnover time, and residues left behind by older technologies, SteraMist technology saw great interest as it does not corrode or damage equipment, leave residue, and quickly disinfects.

This market eagerly awaits the release of the iHP SteraMist Transport System.

Research Studies and Publications:

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

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

TOMI is conducting internal studies with the 0.35% on common pathogens in the food safety market to enhance protocols.

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

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

regulatory agencies in approving new submissions, including TOMI's new 1% registration focusing on direct food and agricultural applications.

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 fourth quarter of 2021.

regulatory agencies in approving new submissions, including TOMI's new 1% registration.

Partner Indoor Environmental Solutions and Consultants, or IESC, LLC completed their Forensic Architectural & Engineering Investigation and Decontamination Report with Kalera Indoor Farms.

IESC is a state-of-the art indoor air and surface decontamination company dedicated to food and health safety.

In addition to being a TSN service provider, IESC are distributor partners to iHP SteraMist technology.

Kalera, a global leader in vertical community farms for greens and culinary herbs harvested on demand all year is highly motivated to have iHP SteraMist be their cleaning decontamination solution.

The recently received report outlines decontamination protocols and calculated savings and estimated service and purchasing options for Kalera.

TOMI has once again partnered with USDA Agricultural Research Service for continued research on BIT solution and the modeling of cold plasma-activated hydrogen peroxide process, evaluating concentration, treatment time, and dwell time on the efficacy of the technology against bacteria on stem scar and smooth surfaces of tomatoes.

Although the final paper is with the reviewers to the journal, the final draft of this latest publication was approved late March of this year.

Received great preliminary biotoxin iHP inactivation data against Ricin A Chain by a U.S.

government agency who will be expanding testing to Botulinum and SEB toxoids.

TOMI is working directly with the agency to find funding and supporting efforts to validate their toxoid protocols against fully functional toxins.

This same agency is constructing a scalable, reusable, portable iHP decontamination chamber for field remediation of biologically contaminated equipment.

Bio-Risk Decontamination and Restoration owner David Mark Quigley published the book Mycotoxin Deactivation:

A Successful Mycotoxin Treatment and Reduction Case Study on the assessment, identification, treatment, and deactivation and validation procedures of Mycotoxins highlighting SteraMist iHP as the treatment for deactivating and render them inert.

The book is available online at Amazon, Apple Books, and Rakuten kobo.

As previously discussed, TOMI has engaged HYGCEN Germany GmbH to perform a quantitative test of germ carriers for airborne room disinfection and testing of the effectiveness of a method for disinfecting room air to meet the new EU norm (standard) EN 17272.

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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.

We have participated in a large multi-year federal funded study, known as the “SHIELD study” that compares hospital manual cleaning to a SteraMist ® mechanical cleaning.

Preliminary results collected by the current hospitals in the study is showing a decrease in the transference of pathogens resulting in HAIs and Clostridium difficile infections in the rooms that used SteraMist ® for their terminal clean, as compared to the rooms that have been manually cleaned.

We are eager to report that enough data has been collected to complete the study in 2021, and we expect that data to be provided to the examiners with a published paper to soon follow.

Sufficient data has been collected to complete the study in 2021, and we expect that data to be provided to the examiners with a published paper to soon follow.

Registrations & Intellectual Property (IP):

Our portfolio includes more than twenty (20) Utility Patent applications worldwide for both method and system claims on SteraMist ® BIT ™ , either published or undergoing prosecution.

Most recently, in July 2021, we were granted allowance for our utility patent in South Korea covering our SteraMist® BIT™ technology;

and we also received our second allowance of a utility patent application in Israel for a system applying our technology.

Furthermore, in Taiwan, we received allowance for our utility application covering a method of controlling the aerosol particle size used in our SteraMist® BIT™ technology;

this is a new dimension of patent protection, which we are pursuing in Europe, China, Brazil, Australia, and many other countries.

In addition, in June 2021, our Canadian patent was issued covering our decontamination technology.

In the recent past, we have obtained two related US utility patents giving us protection of our technology until the year 2038, and we are pursuing further claims to additional capabilities in on-going US and worldwide patent applications.

We continue to prosecute utility patent applications in multiple countries which are all in the national stage for review under the patent prosecution highway for claims found novel and inventive by the international search authority.

Once these are allowed, we will hold international patent rights for the inherited patents and our newly issued patents.

We also have design patent protection for our surface-mounted applicator device in the United States, China, Japan, Taiwan, and Korea.

In 2021, we were granted utility patents in Korea, Canada, Mexico, Taiwan, Israel, and Australia for our SteraMist BIT.

In the recent past, we have obtained two related United States utility patents giving us protection of our technology until the year 2038, and we are pursuing further claims to additional capabilities in on-going United States and worldwide patent applications.

We have submitted utility patent applications in multiple countries, including Europe, China, Brazil, and Australia for further additional applications of SteraMist BIT, and a related application has already been determined novel and inventive in Taiwan.

We have been awarded a design patent on our surface-mounted applicator device in the United States, China, Japan, Taiwan, and Korea.

We have filed and have been granted or have pending acceptance on thirty-two (32) separate design patents for our:

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These patents are published around the world, including but not limited to United States, China, Hong Kong, Europe, United Kingdom, Singapore, Taiwan, Vietnam, Canada, South Korea, and Japan.

We are engaged in the process of filing further design and utility patent applications both in the United States and internationally.

In July 2021, our design patent for our decontamination cart was issued in the United States.

We are also pursuing IP protection for further applications of our SteraMist BIT in diverse fields at multiple jurisdictions, such as food decontamination.

Our products are sold around the world under various brand names and trademarks.

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

As of November 8, 2021, we held a total of over two hundred trademarks (word and logo) registered or pending across the globe.

As of today, we have over two hundred trademarks, (word and/or logo) registered or pending across the globe.

TOMI registers marks in eight (8) classes of specification of goods and services:

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Financial Operations Overview

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

September 30, 2021

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

March 31, 2022

December 31, 2021

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Working Capital

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.

Net cash used in investing activities $295,000.

Gain upon debt extinguishment of $415,000.

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 )

$ (15,630,000 )

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

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

Customer deposits received of approximately $607,000.

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

For The Three Months Ended

Total Operating Expenses (1)

Income (Loss) from Operations

(10,603,000 )

Total Other Income (Expense)

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$ (1,511,000 )

(10,071,000 )

Basic Net Income (Loss) per share

Diluted Net Income (Loss) per share

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.

Includes $352,000 and $228,000 in non-cash equity compensation expense for the three months ended March 31, 2022 and 2021, respectively.

NM – Not Meaningful

Sales and Revenue

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.

However, during the second half of 2020 and early 2021, many of our established vertical clients were closed or required to reduce operation due to the impact of COVID-19 pandemic on their businesses.

The markets that were negatively affected included 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 substantially reduced 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.

Total revenue for the three months ended March 31, 2022 and 2021, was $2,309,000 and $2,073,000, respectively, representing an increase of $236,000, or 11% compared to the same prior year period.

The increase in revenue was attributable to higher mobile equipment sales and iHP service revenue.

As customers mature through the product and adoption cycle and our sales pipeline converts to revenue, we expect to generate more predictable sales quarter over quarter.

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Product and Service Revenue

For the three months ended September 30,

For the nine months ended September 30,

For The Three Months Ended

SteraMist Product

$ (2,020,000 )

$ (15,228,000 )

Service and Training

$ (2,087,000 )

$ (15,630,000 )

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.

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

Revenue by Geographic Region

For the three months ended September 30,

For the nine months ended September 30,

For The Three Months Ended

United States

$ (1,418,000 )

$ (10,420,000 )

International

$ (2,088,000 )

$ (15,631,000 )

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%).

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

Cost of Sales

For the three months ended September 30,

For the nine months ended September 30,

For The Three Months Ended

Cost of Sales

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 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 nine months ended September 30, 2021 was 60.8% compared to 60.3% in the same prior period, respectively.

Cost of sales was $888,000 and $838,000 for the three months ended March 31, 2022 and 2021, respectively, an increase of $50,000, or 6%, compared to the prior year.

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

Our gross profit as a percentage of sales for the three months ended March 31, 2022 was 61.5% compared to 59.6% in the same prior period, respectively.

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

As revenues continue to grow and we are able to negotiate more favorable pricing from our vendors, we anticipate that our cost per unit could decrease.

Professional Fees

For the three months ended September 30,

For the nine months ended September 30,

For The Three Months Ended

Professional Fees

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

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.

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

Depreciation and Amortization

For the three months ended September 30,

For the nine months ended September 30,

For The Three Months Ended

Depreciation and Amortization

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 $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.

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

Selling Expenses

For the three months ended September 30,

For the nine months ended September 30,

For The Three Months Ended

Selling Expenses

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.

Selling expenses for the three months ended March 31, 2022 were approximately $341,000, as compared to $474,000 for the quarter ended March 31, 2021, representing a decrease of approximately $133,000 or 28%.

The decrease in selling expense is attributable to a lower employee headcount and sales commissions in the current year period.

Research and Development

For the three months ended September 30,

For the nine months ended September 30,

For The Three Months Ended

Research and Development

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 September 30,

For the nine months ended September 30,

Equity Compensation Expense

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.

Research and development expenses for the three months ended March 31, 2022 were approximately $37,000, as compared to $196,000 for the quarter ended March 31, 2021, representing a decrease of approximately $159,000, or 81%.

The decline in research and development expenses is attributable to product development charges we incurred on the prior year period which did not reoccur in the current year period.

Consulting Fees

For the three months ended September 30,

For the nine months ended September 30,

For The Three Months Ended

Consulting Fees

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.

Consulting fees were $63,000 and $106,000 for the three months ended March 31, 2022 and 2021, respectively, representing a decrease of $43,000, or 41%, in the current quarter period.

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

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 September 30,

For the nine months ended September 30,

For The Three Months Ended

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 $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.

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

General and administrative expense was $1,367,000 and $1,712,000 for the three months ended March 31, 2022 and 2021, respectively, a decrease of $345,000 in the current period.

The decline in general and administrative expense is primarily attributable to lower payroll costs in the current year period.

Other Income and Expense

For the three months ended September 30,

For the nine months ended September 30,

Gain Upon Debt Extinguishment

Interest Income

For The Three Months Ended

Interest Expense

Other Income (Expense)

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 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.

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

Liquidity and Capital Resources

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

As of March 31, 2022, we had cash and cash equivalents of $5,330,000 and working capital of $10,797,000.

Our principal capital requirements are to fund operations, invest in research and development and capital equipment, and the continued costs of public company reporting requirements.

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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,

The Warrants have an exercise price of $1.68 per share, are exercisable immediately upon issuance and have a term of exercise equal to five years from the date of issuance.

For the three months ended March 31, 2022 and 2021, we incurred a loss from operations of ($660,000) and ($1,510,000), respectively.

Cash provided from operations for the three months ended March 31, 2022, was $27,000.

Cash used in operations was $1,225,000 for the three months ended March 31, 2021.

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

For the three months ended March 31,

Net Cash Provided By (Used) in Operating Activities

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Operating Activities

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.

Cash provided by operating activities for the three months ended March 31, 2022 was 27,000, compared to cash used in operations for the three months ended March 31, 2022 of $1,225,000.

Our cash provided by operations improved in the current year period as a result of increase sales, gross profit, customer deposits and lower operating expenses.

Investing Activities

Cash used in investing activities for the 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.

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

Financing Activities

Cash provided by financing activities for 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.

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

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

global response to the COVID-19 pandemic and market demand for our products;

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

length of our sales cycle;

global response to the outbreak of COVID-19 Pandemic;

expansion into new territories and markets;

timing of orders from distributors.

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

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

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

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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.

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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

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We enter into contracts that can include various combinations of products and services, which are primarily distinct and accounted for as separate performance obligations.

S ignificant Judgments

Significant Judgments

Our contracts with customers for products and services often dictate the terms and conditions of when the control of the promised products or services is transferred to the customer and the amount of consideration to be received in exchange for the products and services.

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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.

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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 new 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 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 September 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.

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

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Accrued warranties represent the estimated costs, if any, that will be incurred during the warranty period of our products.

We estimate the expected costs to be incurred during the warranty period and record the expense to the consolidated statement of operations at the date of sale.

We estimate the expected costs to be incurred during the warranty period and record the expense to the condensed consolidated statement of operations at the date of sale.

Our manufacturers assume the warranty against product defects which we extend to our customers upon sale of the product.

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awards under the 2016 Plan are expressly conditioned upon such agreements.

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

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

Concentrations of Credit Risk

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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 2021.

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 Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

See Note 2 to the Condensed Consolidated Financial Statements contained in Item 1 above.

Off-Balance Sheet Arrangements

We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

Available Information

The Company periodically provides certain information for investors on its corporate website, www.tomimist.com, and its investor relations page of its website, www.investor.tomimist.com.

This includes press releases and other information about financial performance, information on corporate governance and details related to the Company’s annual meeting of shareholders.

The information contained on the websites and referenced in this Form 10-Q is not incorporated by reference into this filing.

Further, the Company’s references to website URLs are intended to be inactive textual references only.

Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable

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.

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